File Nos. 33-76190
811-05618
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 3 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 23 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
_______________________________
(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
_______________________________________________
(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403
_____________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 347-6596
Name and Address of Agent for Service
_____________________________________
Michael T. Westermeyer
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1996 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount
of securities in accordance with Rule 24f-2 under the Investment Company Act
of 1940. Registrant filed its Rule 24f-2 Notice for the most recent fiscal
year on or about February 28, 1996.
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights. . . . . . . . . . . . . Highlights
Item 4. Condensed Financial Information . . . . . . . . Condensed Financial
Information
Item 6. Deductions. . . . . . . . . . . . . . . . . . . Charges and
Deductions
Item 7. General Description of Variable Annuity
Contracts . . . . . . . . . . . . . . . . . . . The Contracts
Item 8. Annuity Period. . . . . . . . . . . . . . . . . Annuity Provisions
Item 9. Death Benefit. . . . . . . . . . . . . . . . . The Contracts;
Annuity Provisions
Item 10. Purchases and Contract Value. . . . . . . . . . Purchase Payments
and Contract Value
Item 11. Redemptions . . . . . . . . . . . . . . . . . . Surrenders
Item 12. Taxes . . . . . . . . . . . . . . . . . . . . . Tax Status
Item 13. Legal Proceedings . . . . . . . . . . . . . . . Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . . . Table of Contents of
the Statement of Ad-
ditional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . . The Company
Item 18. Services. . . . . . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data . . . . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . . . Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration Statement.
PART A
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Home Office: VIP Service Center:
1750 Hennepin Avenue P.O. Box 30343
Minneapolis, MN 55403-2195 Tampa, FL 33630-3343
(800) 542-5427 (800) 774-5001
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
MAY 1, 1996
The Individual Immediate Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide lifetime income to the Annuitant and
Joint Annuitant, if any, under the Annuity Option selected. The Annuitant is
the Contract Owner. The Contract Owner selects the Annuity Option and the
frequency of payment (e.g., monthly, quarterly, semi-annual, annual).
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Contracts"). They can also be purchased as a "Qualified
Contract" that is an Individual Retirement Annuity with contributions
rolled-over from tax-qualified plans such as 403(b) plans, 401 plans, or IRAs.
The Contracts are acquired by the payment of a single purchase payment.
Some states assess premium taxes (see "Charges and Deductions - Premium
Taxes"). The Single Purchase Payment less the premium tax is referred to as
the Net Purchase Payment. The Single Purchase Payment for the Contracts will
be allocated to a segregated investment account of Allianz Life Insurance
Company of North America (the "Company") which account has been designated
Allianz Life Variable Account B (the "Variable Account"). IN CALIFORNIA,
THE TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND
ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT.
(CHECK WITH YOUR AGENT REGARDING AVAILABILITY). Prior to May 1, 1993, the
Variable Account was known as NALAC Variable Account B.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-three Funds: 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, 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 and the Investment Grade Intermediate Bond Funds will no
longer be available as Eligible Investments for Contract Owners.
See "Franklin Valuemark Funds - Substitution of Securities - 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.
Under certain circumstances, Contract Owners may make withdrawals after
the Income Date other than the Annuity Payments they will receive
under the Contract. See "Annuity Provisions - Contract Withdrawals
(Liquidations)" for more information regarding the ability to make withdrawals
under the Contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACT IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE RETURNED
WITHIN THE FREE LOOK PERIOD, THE REFUND MAY BE HIGHER OR LOWER THAN THE
PURCHASE PAYMENT.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," which is available at
no charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents of the Statement of Additional Information can be found
on the last page of this Prospectus. For the Statement of Additional
Information, call or write the Annuity Service Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Annuity Service Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
In the State of Oregon, all references to "Franklin Templeton Valuemark Income
Plus" refer to "Valuemark Income Plus."
This Prospectus and the Statement of Additional Information are dated May 1,
1996, and may be amended from time to time.
This Prospectus should be kept for future reference.
TABLE OF CONTENTS
Page
DEFINITIONS
HIGHLIGHTS
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
Description of The Funds
General
Substitution of Securities
Proposed Substitution Transaction
Voting Rights
CHARGES AND DEDUCTIONS
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust Expenses
ANNUITY PROVISIONS
Income Date
Annuity Options
Contract Withdrawals (Liquidations)
Determination of Annuity Payments
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Death of Beneficiary
Annuitant
PROCEEDS PAYABLE AT DEATH
PURCHASE PAYMENTS AND CONTRACT VALUE
Single Purchase Payment
Net Purchase Payment
Allocation of Net Purchase Payment
Contract Value
VIP Unit
Transfers
DISTRIBUTOR
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub-accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Tax Treatment of Distributions - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Distributions - IRA Contracts
Tax Treatment of Assignments
Income Tax Withholding
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
APPENDIX - ILLUSTRATION OF VALUES
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
Age - Age to the nearest month unless otherwise specified.
Annuitant - The primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. See also, Joint Annuitant.
Annuity Calculation Date - The date on which the first annuity payment is
calculated which will be no more than 10 business days prior to the Income
Date.
Annuity Option - An arrangement under which annuity payments are made under
the Contract.
Annuity Unit - An accounting unit of measure used to calculate annuity
payments after the Annuity Calculation Date.
Assumed Investment Return - The investment return upon which the annuity
payments in the Contract are based.
Company - Allianz Life Insurance Company of North America at its VIP Service
Center shown on the cover page of this Prospectus.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The person who owns the Contract as named in the Company's
records. The Annuitant is the Contract Owner.
Contract Value - The dollar value as of any Valuation Date prior to the
Annuity Calculation Date of all amounts accumulated under the Contract.
Effective Date - The date on which the Net Purchase Payment is allocated to
the Variable Account.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fund - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
Income Date - The date on which annuity payments are to begin.
Joint Annuitant - A person other than the Annuitant on whose life annuity
payments may also be based.
Joint Owner - If there is more than one Contract Owner, each Contract Owner
shall be a Joint Owner of the Contract. Joint Owners have equal ownership
rights and must both authorize any exercising of those ownership rights unless
otherwise allowed by the Company. Each Joint Owner must be either an
Annuitant or Joint Annuitant.
Net Asset Value - The total value of the shares of the Eligible Investment or
Fund less the liabilities of the Eligible Investment or Fund held by the
Sub-Account, as of the close of trading on a Valuation Date.
Non-Qualified Contracts - As used herein, Contracts issued under Non-Qualified
Plans which do not receive favorable tax treatment under Section 408 of the
Internal Revenue Code.
Qualified Contracts - As used herein, Contracts issued under Qualified Plans
which receive favorable tax treatment under Section 408 of the Internal Revenue
Code.
Sub-Account - A segment of the Variable Account. Each Sub-Account is invested
in shares of a Fund of an Eligible Investment.
Valuation Date - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading, which is Monday through Friday,
except for normal business holidays.
Valuation Period - The period beginning at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Allianz Life Variable Account B, in which a portion of the Company's assets
has been allocated for the Contracts and certain other contracts.
VIP Unit - An accounting unit of measure used to calculate the Contract Value
prior to the Annuity Calculation Date.
HIGHLIGHTS
Net Purchase Payments for the Contracts will be allocated to a segregated
investment account of Allianz Life Insurance Company of North America (the
"Company") which has been designated Allianz Life Variable Account B (the
"Variable Account"). 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 and the Investment Grade
Intermediate Bond Funds will no longer be available as Eligible Investments
for Contract Owners. See "Franklin Valuemark Funds - Substitution of
Securities - Proposed Substitution Transaction." IN CALIFORNIA, THE
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH
FUND ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE
DEPARTMENT. (CHECK WITH YOUR AGENT REGARDING AVAILABILITY).
On April 1, 1993, the Company changed its name from North American Life and
Casualty Company to its present name. Prior to May 1, 1993, the Variable
Account was known as NALAC Variable Account B. The Variable Account invests
in shares of Franklin Valuemark Funds (the "Trust"). (See "Franklin Valuemark
Funds.") Contract Owners bear the investment risk for all amounts allocated
to the Variable Account.
The Contract may be returned within 10 days (or longer in states where
required) after it is received (the "Free-Look Period"). It can be mailed or
delivered to either the Company or the agent who sold it. Return of the
Contract by mail is effective on being postmarked, properly addressed and
postage prepaid. The returned Contract will be treated as if the Company had
never issued it. The Company will promptly refund the net amount allocated to
the Variable Account modified for investment experience plus any taxes
deducted less any benefits paid in states where permitted. This may be more
or less than the Single Purchase Payment. Once the Free-Look Period expires,
under certain circumstances, Contract Owners may make withdrawals after the
Income Date other than the Annuity Payments they will receive under the
Contract. See "Annuity Provisions - Contract Withdrawals (Liquidations)" for
more information regarding the ability to make withdrawals under the
Contract. The Company has the right to allocate the Single Purchase
Payment to the Money Market Sub-Account until the expiration of the Free-Look
Period. If the Company does so allocate the purchase payment, it will refund
the Single Purchase Payment, less any benefits paid. It is the Company's
current practice to directly allocate the purchase payment to the Sub-
Account(s) (see "Purchase Payments and Contract Value - Allocation of Net
Purchase Payment") designated by the Contract Owner.
There is a Mortality and Expense Risk Charge which is equal, on an annual
basis, to 1.25% of the average daily net assets of the Variable Account. This
Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality
and Expense Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis,
to 0.15% of the average daily net assets of the Variable Account. This Charge
compensates the Company for costs associated with the administration of the
Contracts and the Variable Account. (See "Charges and Deductions -
Deduction for Administrative Expense Charge.")
Under certain circumstances, there is a ten percent (10%) federal income
tax penalty that may be applied to the income portion of any distribution from
the Contracts. Under certain circumstances, the tax penalty will not apply.
See "Tax Status - Tax Treatment of Distributions - Non-Qualified Contracts"
and "Tax Status - Tax Treatment of Distributions - IRA Contracts." For a
further discussion of the taxation of the Contracts, see "Tax Status."
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract
for tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investments. It is not known whether any such guidelines would
have a retroactive effect (See "Tax Status- Diversification").
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Single Purchase Payment. (See "Charges and
Deductions - Deduction for Premium Taxes.")
The Company also offers deferred variable annuity contracts and reserves the
right to permit exchange of those contracts for the Contracts offered by this
Prospectus.
ALLIANZ LIFE VARIABLE ACCOUNT B FEE TABLE*
______________________________________________________________
Contract Owner Transaction Fees
NONE
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
_____
Total Variable Account Annual Expenses 1.40%
* Applies to all twenty-three Sub-accounts of the Variable Account.
The effects of the charges shown above are reflected in the illustrations of
annuity income contained in the Appendix on Page __. The illustrations are
intended to assist the purchaser in assessing the effects of these
charges and the effect of investment performance on the amount of variable
annuity income.
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management Fees for each Fund are based on a percentage of that Fund's
assets under management. See "Franklin Valuemark Funds" in this Prospectus
and "Management" in the Trust prospectus.
The "Management and Business Management Fees" below include investment
advisory, other management, and administrative fees not included as "Other
Expenses" that were paid to the Managers and Business Managers 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 ; 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 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 Capital Growth
Fund have not yet commenced operations. The expenses shown are estimated
expenses for the Funds for 1996.
</TABLE>
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Allianz Life Insurance Company of
North America and the financial statements of Allianz Life Variable Account B
may be found in the Statement of Additional Information.
The table below gives per unit information about the financial history of each
Fund from the inception of each to December 31, 1995.#
This information should be read in conjunction with the financial statements
and related notes to the Variable Account included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C>
(Number of units in thousands)
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
Franklin Valuemark Funds: 1995 1994 1993 1992 1991
_____________ _____________ ____________ ____________ ___________
Money Market Fund
Unit value at beginning of period $ 12.354 $12.066 $11.932 $11.742 $11.288
Unit value at end of period $ 12.883 $12.354 $12.066 $11.932 $11.742
Number of units outstanding at end of period 31,040 39,437 10,247 6,951 5,682
Growth and Income Fund
Unit value at beginning of period $ 13.215 $13.677 $12.574 $11.949 $9.803
Unit value at end of period $ 17.310 $13.215 $13.677 $12.574 $11.949
Number of units outstanding at end of period 46,893 35,695 24,719 17,144 9,671
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
four Zero Coupon Funds; 12/3/90 for the Adjustable U.S. Government Fund,
1/24/92 for the Rising Dividends Fund, the Templeton International Equity
Fund and the Templeton Pacific Growth Fund; 3/15/94 for the Templeton Global
Growth Fund; the Templeton Developing Markets Equity Fund; and 5/1/95 for the
Templeton Global Asset Allocation Fund; and 11/1/95 for the Small Cap Fund.
The Templeton International Smaller Companies Fund and the Capital Growth Fund
are new in 1996.
THE COMPANY
Allianz Life Insurance Company of North America (the "Company") is a stock
life insurance company organized under the laws of the state of Minnesota in
1896. On April 1, 1993, the Company changed its name from North American Life
and Casualty Company ("NALAC") to its present name. The Company is a
wholly-owned subsidiary of Allianz Versicherungs-AG Holding ("Allianz").
Allianz is headquartered in Munich, Germany, and has sales outlets throughout
the world. Both NALAC and Fidelity Union Life Insurance Company of Dallas,
Texas have been owned by Allianz since 1979. Over the last decade there has
been a gradual consolidation of operations. On May 31, 1993, Fidelity Union
was consolidated into the Company. The Company offers fixed and variable life
insurance and annuities, and group life, accident and health insurance.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of the Company. It
provides marketing services for the Company and is the principal underwriter
of the Contracts. NALAC Financial Plans, Inc. is reimbursed for expenses
incurred in the distribution of the Contracts.
Administration for the Contract is provided at the Company's VIP Service
Center: P.O. Box 30343, Tampa, FL 33630-3343, (800) 774-5001.
THE VARIABLE ACCOUNT
The Variable Account was established pursuant to a resolution of the Board of
Directors on May 31, 1985. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However,
the assets of the Variable Account equal to the reserves, and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds.
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, advisers or subadvisers are referred to
collectively as "Managers." The Managers are direct or indirect wholly-owned
subsidiaries of Franklin Resources, Inc., a publicly-owned holding company.
The Managers, subject to the overall policies, control and direction and
review of the Board of Trustees of the Trust, are responsible for recommending
and providing advice with respect to each Fund's investments, and for
determining which securities will be purchased, retained or sold as well as
for execution of portfolio transactions. Certain Managers have retained one or
more subadvisers. Advisers act as investment manager or administrator to 34
U.S. registered investment companies (116 separate series) with aggregate
assets of over $75 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. Thus, following the Substitution, the Fund would no longer be
available as an Eligible Investment for Contract Owners. See "Franklin
Valuemark Funds - Substitution of Securities - Proposed Substitution
Transaction."
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. Thus, following the Substitution, the Fund would no
longer be available as an Eligible Investment for Contract Owners. See
"Franklin Valuemark Funds - Substitution of Securities - Proposed
Substitution Transaction."
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, 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 U.S., or (ii) issued by
companies that derive at least 50% of either their revenues or pre-tax
income from activities outside of the U.S. Foreign investing involves special
risks.
Templeton International Smaller Companies Fund
The Templeton International Smaller Companies Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of smaller companies outside the U.S.,
including developing markets. Foreign investing involves special risks
and smaller company investments 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.
Additional Funds and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Net Purchase Payment.")
Substitution of Securities
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or if, in the judgment of the Company,
further investment in such shares should become inappropriate in view of the
purpose of the Contract, the Company may substitute shares of another Eligible
Investment (or Fund within the Trust). No substitution of securities in any
Sub-Account may take place without prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
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, 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 in
the prospectus 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 VALUEMARK SERVICE CENTER,
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 the single Purchase Payment and
the Variable Account. These charges and deductions are:
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account (consisting of approximately .90% for mortality risks
and approximately .35% for expense risks). The mortality risks assumed by the
Company arise from its contractual obligation to make annuity payments for the
life of the Annuitant in accordance with annuity rates guaranteed in the
Contracts. The expense risk assumed by the Company is that all actual
expenses involved in administering the Contracts, including Contract
maintenance costs, administrative costs, mailing costs, data processing costs,
legal fees, accounting fees, filing fees, and the costs of other services may
exceed the amount recovered from the Administrative Expense Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot
be increased.
The Mortality and Expense Risk Charge is assessed both before and after the
Income Date. The Company will continue to assess the Mortality and Expense
Risk Charge during payment of an Annuity Option that does not involve a life
contingency even though it no longer bears any mortality risk on such payment
obligation.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets
of the Variable Account. This charge is to reimburse the Company for the
expenses it incurs in the establishment and maintenance of the Contracts and
the Variable Account. These expenses include, but are not limited to:
preparation of the Contracts, confirmations, annual reports and statements,
maintenance of Contract records, maintenance of Variable Account records,
administrative personnel costs, mailing costs, data processing costs, legal
fees, accounting fees, filing fees, the costs of other services necessary for
Contract servicing, and all accounting, valuation, regulatory and reporting
requirements. The Company does not intend to profit from this charge. This
charge will be reduced to the extent that the amount of this charge is in
excess of that necessary to reimburse the Company for its administrative
expenses. Should this charge prove to be insufficient, the Company will not
increase this charge and will incur the loss.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Single Purchase Payment.
Premium taxes currently imposed by certain states on the Contracts offered
hereby range from 0% to 3.5% of premiums paid. For information regarding a
particular state's premium tax a purchaser should contact his or her agent or
the Company's VIP Service Center.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for
any income taxes incurred by it as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it
was sufficient.
Deduction for Trust Expenses
There are other deductions from, and expenses paid out of, the assets of
Franklin Valuemark Funds which are described in the accompanying
Trust prospectus.
ANNUITY PROVISIONS
Income Date
The Income Date is the date on which annuity payments begin. The
Contract Owner selects an Income Date at the time of issue. The Income Date
must be the first or fifteenth day of a calendar month and not later than 60
days from the Effective Date.
Annuity Options
The Contract provides for an Annuity under any of the Annuity Options
described below, provided the Annuitant or any Joint Annuitant is alive on the
Income Date. Except for Annuity Option 6, once selected the Option is
irrevocable. The amount of each payment depends upon the Annuity Option chosen
and for Annuity Options 1-5, the Annuitant's and any Joint Annuitant's Age on
the Annuity Calculation Date. Additionally, annuity payments under all Options
will vary with the investment experience of the Sub-Accounts of the Variable
Account and may be either higher or lower than the first payment.
The Annuity Options currently available are:
Option 1 - Life Annuity. Monthly annuity payments are paid during the life of
the Annuitant ceasing with the last annuity payment due prior to the
Annuitant's death.
Option 2 - Life Annuity with 60, 120, 180, or 240 Monthly Payments Guaranteed.
Monthly annuity payments are paid during the life of an Annuitant with a
guarantee that if, at the Annuitant's death, annuity payments have been made
for less than a 60, 120, 180 or 240 month period as elected, then annuity
payments will be continued thereafter to the Beneficiary for the remainder of
the guaranteed period. The Beneficiary may elect to have the present value
(determined as set forth in the Contract) of the guaranteed annuity payments
remaining commuted at the Assumed Investment Return and paid in a lump sum,
less the applicable commutation fee of 5% of the proceeds in Contract Years
1 and 2 reducing by 1% per year until it is 1% for Contract Year 6 and
thereafter (subject to applicable state law and regulation). The Company
will require the return of the Contract and proof of death prior to the payment
of any commuted values.
Option 3 - Joint and Last Survivor Annuity. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and the Joint Annuitant. Upon the
death of the Annuitant, if the Joint Annuitant is then living, payments will
be paid thereafter during the remaining lifetime of the Joint Annuitant at a
level of 100%, 75% or 50% of the original level as elected. Monthly payments
cease with the final annuity payment due prior to the survivor's death.
Option 4 - Joint and Last Survivor Annuity with 60, 120, 180 or 240 Monthly
Payments Guaranteed. Monthly annuity payments are paid during the joint
lifetime of the Annuitant and the Joint Annuitant. Monthly payments are paid
thereafter during the remaining lifetime of the Joint Annuitant at 100% of the
original level. If, after the death of both the Annuitant and the Joint
Annuitant, annuity payments have been made for less than a 60, 120, 180 or 240
month period as elected then annuity payments will be continued thereafter to
the Beneficiary for the remainder of the guaranteed period. The Beneficiary
may elect to have the present value (determined as set forth in the Contract)
of the guaranteed annuity payments remaining commuted at the Assumed
Investment Rate and paid in a lump sum, less the applicable commutation fee
of 5% of the proceeds in Contract Years 1 and 2 reducing by 1% per year until
it is 1% for Contract Year 6 and thereafter (subject to applicable state law
and regulation). The Company will require the return of the Contract and
proof of death prior to the payment of any commuted values.
Option 5 - Unit Refund Life Annuity. Monthly annuity payments are paid
during the life of the Annuitant ceasing with the last annuity payment due
prior to the Annuitant's death with a guarantee that at the Annuitant's death,
the Beneficiary will receive a single cash payment (refund) equal to the then
dollar value of the number of Annuity Units equal to (1) the total net amount
applied to purchase the Annuity divided by the Annuity Unit value used to
determine the first annuity payment, minus (2) the product of the number of
the Annuity Units represented by each payment and the number of payments made.
This calculation will be made based upon the assumption that the allocation
of Annuity Units actually in-force at the time of the Annuitant's death had
been the allocation of Annuity Units at issue and at all times thereafter. If
this value is negative, a zero result occurs.
Option 6 - Specified Period Certain Annuity - Monthly annuity payments are
paid for a specified period of time. The Specified Period Certain is elected
by the Contract Owner and must be specified as a whole number of years from
5 to 30. If at the time of the death of the last Annuitant and any Joint
Annuitant, the annuity payments actually made have been for less than the
Specified Period Certain, then annuity payments will be continued thereafter
to the Beneficiary for the remainder of the Specified Period Certain. Option
6 may not be available in all states.
After the first Contract Anniversary, an Option 6 payout can be exchanged
for a life contingent payout (Options 1-5) if the Total Withdrawal Value
is at least $25,000 and in the case of a Non-Qualified Contract the Contract
Owner has attained age 59 1/2 and in the case of a Qualified Contract the
exchange is made after the later of the Contract Owner attaining age 59 1/2
or 5 years from the date of the first annuity payment, and prior to the year
in which the Contract Owner reaches age 70 1/2. The annuity purchase
rates used will be those that were in effect as of the original Effective
Date of the Option 6 Contract. A new Contract will be exchanged for the
existing Contract which must be returned to the Company. The Contract
Owner/Annuitant and Joint Annuitant, if any, must be the same under both
Contracts.
Contract Withdrawals (Liquidations)
Annuity Options 2 and 4
If the Contract Owner has selected Annuity Option 2 or 4, partial withdrawals
from the Contract may be made after the first Contract Year as follows.
During the lifetime of the Annuitant(s) and while the number of annuity
payments made is less than the guaranteed number of payments elected, the
Contract Owner may once each Contract Year request a withdrawal representing
a partial liquidation of the Total Withdrawal Value. The Total Withdrawal
Value is equal to the present value of the remaining guaranteed annuity
payments, to the end of the period certain, commuted at the Assumed
Investment Return less a commutation fee of 5% of the amount withdrawn in
Contract Year 2 and reducing by 1% per year until it is 1% for Contract
Year 6 and thereafter. The commutation fee is a charge collected by
the Company equal to a percentage of the Total Withdrawal Value liquidated.
Partial liquidations will be processed on the next Annuity Calculation Date
following the Contract Owner's written request. After a partial liquidation,
the subsequent monthly annuity payment during the guaranteed period certain
will be reduced by the percentage of the Total Withdrawal Value liquidated,
including the commutation fee. After the guaranteed number of payments has
been paid, the number of Annuity Units used in calculating the monthly
payments will be restored to their original value as if no liquidations had
taken place. The total amount allowed to be liquidated as a cumulative
percentage of the Total Withdrawal Value cannot exceed 25% of the Total
Withdrawal Value. The minimum allowable partial liquidation is the
lesser of $2,500 or the remaining portion of the Total Withdrawal Value
available to be liquidated. Partial withdrawals may not be available in
all states.
Annuity Option 6
If the Contract Owner has selected Annuity Option 6, withdrawals from
the Contract may be made as follows. A withdrawal may be made at least once
per Contract year up to the Total Withdrawal Value in the Contract. The
Total Withdrawal Value is equal to the present value of the remaining
annuity payments, to the end of the Specified Period Certain, commuted at
the Assumed Investment Return, less a commutation fee of 1% of the amount
withdrawn in the first Contract Year. The Company reserves the right to
restrict the amount of a partial withdrawal to a minimum of $2,500. The
Company may require a complete withdrawal if the remaining Total Withdrawal
Value after a requested partial withdrawal would be less than
$35,000. Partial withdrawals will be processed on the next Annuity
Calculation Date following the Contract Owner's written request. The
Company will require the return of the Contract prior to the payment of the
entire commuted value.
See "Tax Status - Tax Treatment of Distributions - Non-Qualified
Contracts" and "Tax Status - Tax Treatment of Distributions - IRA
Contracts." for a discussion of the tax treatment of withdrawals from
the Contracts.
Determination of Annuity Payments
On the Annuity Calculation Date, a fixed number of Annuity Units will be
purchased, determined as follows:
The first annuity payment is equal to the Contract Value allocated to the
Variable Account divided first by $1,000 and then multiplied by the
appropriate annuity payment amount for each $1,000 of value for the Annuity
Option selected. In each Sub-Account the fixed number of Annuity Units is
determined by dividing the amount of the initial annuity payment determined
for each Sub-Account by the Annuity Unit value on the Annuity Calculation
Date. Thereafter, the number of Annuity Units in each Sub-Account remains
unchanged unless the Contract Owner elects to transfer between Sub-Accounts.
All calculations will appropriately reflect the annuity payment frequency
selected.
On each subsequent annuity payment date, the total annuity payment is the sum
of the annuity payments determined for each Sub-Account. The annuity payment
in each Sub-Account is determined by multiplying the number of Annuity Units
then allocated to such Sub-account by the Annuity Unit value for that
Sub-Account.
For each Sub-Account, the value of an Annuity Unit was initially established
at $1.00. On each subsequent Valuation Date the value of an Annuity Unit is
determined in the following way:
First: The Net Investment Factor is determined by dividing (a) by (b) and
adding (c) to the result, where:
a. is the net increase or decrease in the Net Asset Value per share of
the Fund (or other Eligible Investment) plus the per share amount of any
dividend or capital gain distribution paid by the Fund (or Eligible
Investment) during the Valuation Period, plus or minus a per share charge or
credit for any Taxes incurred by or reserved for in the Sub-Account as of the
end of the current Valuation Period which the Company determines to have
resulted from maintenance of the Sub-Account; and
b. is the Net Asset Value per share of the Fund (or other Eligible
Investment) at the beginning of the Valuation Period, plus or minus a per
share charge or credit for any Taxes incurred by or reserved for in the
Sub-Account as of the end of the immediately preceding Valuation Period which
the Company determines to have resulted from maintenance of the Sub-Account;
and
c. is the net result of 1.000 less the Valuation Period deduction for
the charges to the Sub-Account.
The Net Investment Factor may be more or less than one.
Second: The value of an Annuity Unit for a Valuation Date is equal to:
a. the value of the Annuity Unit on the immediately preceding Valuation
Date;
b. multiplied by the Net Investment Factor for the Valuation Period
ending on the current Valuation Date;
c. divided by the Assumed Net Investment Factor (see below) for the
Valuation Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. For example, with a 5%
Assumed Investment Return, the Assumed Net Investment Factor for a one-year
Valuation Period would be 1.05. For a one-day Valuation Period, the Assumed
Net Investment Factor would be 1.00013368062.
The Assumed Investment Return is the investment return upon which annuity
payments are based. Income will increase from one annuity Income Date to the
next if the annualized Net Rate of Return during that time is greater than the
Assumed Investment Return and will decrease if the annualized Net Rate of
Return is less than the Assumed Investment Return.
A Contract Owner may choose either a 5% or a 3% Assumed Investment Return. If
the Contract Owner does not choose one, the 5% Assumed Investment Return
automatically applies. Choosing the 5% Assumed Investment Return instead of
the 3% Assumed Investment Return will result in a higher initial amount of
income, but income will increase more slowly during periods of good investment
performance of the Trust and decrease more rapidly during periods of poor
investment performance.
The variable annuity benefits provided for under the Contract are based upon:
(a) the 1983(a) Blended Unisex Mortality Table with 50% female content,
projected to the year 2000 with Projection Scale G; (b) the Assumed Investment
Return, and (c) any applicable taxes.
THE CONTRACTS
Ownership
The Annuitant is the Contract Owner. The Contract Owner exercises all the
rights of the Contract, subject to the rights of (1) any assignee under an
assignment filed with the Company's VIP Service Center, and (2) any
irrevocably named Beneficiary.
Upon the death of the Contract Owner, the Joint Annuitant, if not already a
Joint Owner, will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or upon the death of the Joint Annuitant, the
Beneficiary(ies) become the Owner(s) of their respective shares.
If the Contract Owner dies before the Income Date and there is no Joint
Annuitant, the Contract will be treated as if it had never been issued and the
Company will return the Single Purchase Payment to the Contract Owner's
Estate.
Assignment
The Contract Owner may assign the Contract. A copy of any assignment must be
filed with the Company's VIP Service Center. The Company is not responsible
for the validity of any assignment. If the Contract is assigned, the Contract
Owner's rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments the Company may make
or actions it may take before such assignment has been recorded at its VIP
Service Center.
If the Contract is issued pursuant to a qualified plan, it may not be
assigned, pledged or otherwise transferred except as may be allowed under
applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named by the
Contract Owner and are entitled to receive any death benefits to be paid.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its VIP Service Center unless an
irrevocable Beneficiary designation was previously filed. After the change is
recorded, it will take effect as of the date the request was signed. If the
request reaches the VIP Service Center after the Contract Owner dies but
before any payment to a Beneficiary is made, the change will be valid. The
Company will not be liable for any payment made or action taken before it
records the change.
Death of Beneficiary
Unless the Contract Owner provided otherwise, any amount payable after his/her
death and that of any Joint Annuitant will be payable:
(1) in equal shares to such Beneficiaries as are then living;
(2) if no Beneficiary is then living, payment will be made in equal
shares to such Contingent Beneficiaries as are then living;
(3) if no Beneficiary or Contingent Beneficiary is then living, payment
will be made to the Contract Owner's estate.
Annuitant
The Annuitant is the primary person upon whose continuation of life any
annuity payment involving life contingencies depends. The Contract Owner is
the Annuitant. A Joint Annuitant is a person other than the Annuitant on
whose life annuity payments may also be based. The Annuitant, and any Joint
Annuitant, must be a natural person.
PROCEEDS PAYABLE AT DEATH
If the Contract Owner dies before the Income Date and there is no Joint
Annuitant, the Contract will be treated as if it had never been issued and the
Company will return the Single Purchase Payment to the Contract Owner's
estate.
If the Contract Owner has chosen either Option 3, Option 4 or Option 6 with
a Joint Annuitant and either the Contract Owner or the Joint Annuitant dies
before the Income Date, the Annuity Option will be changed to Option 2
with 120 monthly payments guaranteed. If the life expectancy of the
survivor is less than 120 months, the period of guaranteed payments will be
60 months.
If the Contract Owner or Joint Annuitant die on or after the Income Date, the
death benefit, if any, will be payable under the selected Annuity Option. The
Company will require proof of death.
PURCHASE PAYMENTS AND CONTRACT VALUE
Single Purchase Payment
The Single Purchase Payment is paid to the Company at its VIP Service Center.
The minimum purchase payment the Company will accept is $35,000. Contract
Owners can acquire more than one Contract and the Single Purchase Payment for
each need not be $35,000 if the average purchase payment for each Contract is
$35,000 or more.
Net Purchase Payment
The Net Purchase Payment is equal to the Single Purchase Payment less any
Taxes levied on the purchase payment.
Allocation of Net Purchase Payment
The Net Purchase Payment is allocated to one or more of the Sub-Accounts of
the Variable Account on the Effective Date. 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
and the Investment Grade Intermediate Bond Funds will no longer be available
as Eligible Investments for Contract Owners. See "Franklin Valuemark Funds
- Substitution of Securities - Proposed Substitution Transaction."
IN CALIFORNIA, THE TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE
CAPITAL GROWTH FUND ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA
INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT REGARDING AVAILABILITY).
The requested allocation to each Sub-Account is made in percentages of
the Net Purchase Payment. Whole percentages must be used and each must
be at least 10%. The Company has the right to allocate the Net Purchase
Payment to the Money Market Sub-Account until the expiration of the
Free-Look Period. Thereafter, the allocations will be made to one or
more of the Sub-Accounts as selected by the Contract Owner. The Company
reserves the right to limit the number of allocations that a Contract Owner
can have at any one time (except in Texas).
When all forms required to issue the Contract are received and in good order,
the Company will apply the Net Purchase Payment to the Variable Account and
credit the Contract with VIP Units within two business days of receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). The Company requires proof,
satisfactory to it, of the Age of the Annuitant and any Joint Annuitant. The
Company will not issue a Contract if either the Annuitant or the Joint
Annuitant are over Age 90. If the required forms for the Contract are not in
good order, the Company will attempt to get them in good order or the Company
will return the form(s) and the purchase payment within five business days.
The Company will not retain the Net Purchase Payment for more than five
business days while processing incomplete forms unless it has been so
authorized by the purchaser.
Contract Value
The Net Purchase Payment is allocated among the various Sub-Accounts within
the Variable Account. For each Sub-Account, the Net Purchase Payment is
converted into VIP Units. The Contract Value on or before the Annuity
Calculation Date is the sum of the values for the Contract within each
Sub-Account. The value within each Sub-Account is determined by multiplying
the number of VIP Units attributable to the Contract in the Sub-Account by the
VIP Unit value for the Sub-Account. On the Annuity Calculation Date, the
Contract Value is converted to annuity payments.
VIP Unit
When the Net Purchase Payment is allocated to the Variable Account, the amount
allocated to each Sub-Account is converted to VIP Units. The number of VIP
Units credited to each Sub-Account is determined by dividing the portion of
the Net Purchase Payment that is allocated to the Sub-Account by the value of
the VIP Unit for the Sub-Account as of the Effective Date. The VIP Unit value
for each Sub-Account was arbitrarily set initially at $10. The VIP Unit value
for any later Valuation Period on or before the Annuity Calculation Date is
determined by subtracting (b) from (a) and dividing the result by (c) where:
<TABLE>
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a. is the net result of
1) the assets of the Sub-Account attributable to VIP Units (i.e.,
the aggregate value of the underlying Eligible Investments held
at the end of such Valuation Period); plus or minus
2) the cumulative charge or credit for Taxes reserved which is
determined by the Company to have resulted from the operation of
the Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge (See "Charges and
Deductions"); and
c. is the number of VIP Units outstanding at the end of such Valuation
Period.
</TABLE>
The VIP Unit value may increase or decrease from Valuation Period to Valuation
Period.
Transfers
The Contract Owner may transfer all or part of the Contract Owner's interest
in a Sub-Account to another Sub-Account without the imposition of any fee or
charge. 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 - Substitution of Securities -
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 a Fund and may be refused.
Accounts under common ownership or control may be aggregated for purposes of
transfer limits. In coordination with the Trust, the Company reserves the
right to restrict the transfer privilege or reject any specific purchase
payment allocation request for any person whose transactions seem to follow
a timing pattern.
All transfers are subject to the following:
a. no partial transfer will be made if it would result in any selected
Sub-Account providing less than 10% of the benefits under the Contract.
b. transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. No transfers may occur until
the end of the Free-Look Period. (See "Highlights.")
c. any transfer direction must clearly specify the new allocation
percentage(s) and the Sub-Accounts which are to be re-allocated.
d. the Company reserves the right to limit the number of transfers among
Sub-Accounts to not fewer than 6 transfers per calendar year. The Company
also reserves the right at any time and without prior notice to any party to
modify the transfer provisions described above, subject to applicable state
law and regulation.
A Contract Owner may elect to make transfers by telephone. To elect this
option the Contract Owner must do so in writing to the Company. If there are
Joint Owners, unless the Company is informed to the contrary, instructions
will be accepted from either one of the Joint Owners. The Company will use
reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. The Company tape records all
telephone instructions.
DISTRIBUTOR
NALAC Financial Plans, Inc. ("NFP"), 1750 Hennepin Avenue,
Minneapolis, Minnesota, acts as the distributor of the Contracts. NFP
is a wholly-owned subsidiary of the Company. The Contracts are offered
on a continuous basis. NFP has subcontracted with Franklin Advisers, Inc.
("Advisers") for it and/or certain of its affiliates to provide certain
marketing support services and NFP compensates these entities for their
services. Commissions will be paid to broker-dealers who sell the
Contracts. Broker-dealers will be paid commissions at the time of purchase
up to 4% of the Single Purchase Payment. Broker-dealers are also paid
a trail commission of up to 40 basis points on the net single premium
reserve for the Contract. The Company may, by agreement with the
broker/dealer, pay commissions as a combination of a certain percentage
amount at the time of sale and a trail commission (which when combined
could exceed 4% of the Single Purchase Payment). Amounts paid to
broker-dealers by the Company will be paid out of general assets of the
Company which may include proceeds derived from the Mortality and Expense Risk
Charge the Company deducts from the Variable Account. In addition under
certain circumstances, the Company and/or Advisers or certain of its
affiliates, under a marketing support agreement with NFP may pay certain
sellers for other services not directly related to the sale of the Contracts
such as special marketing support allowances.
Delay of Payments
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held
in the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2 and 3 exist.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Templeton Funds Annuity Company
("TFAC" or "VIP Service Center") (in California d.b.a. Templeton Funds Life &
Annuity Insurance Company) pursuant to an Administration Agreement. Such
administrative services include issuance of the Contracts and maintenance of
Contract Owners' records. The Company pays all fees and charges of TFAC.
TFAC is an indirect wholly-owned subsidiary of Franklin Resources, Inc. which
is also the ultimate parent of all Managers to the Trust. TFAC has also
entered into a reinsurance agreement with the Company with respect to certain
risks under the Contracts.
PERFORMANCE DATA
Money Market Sub-Account
From time to time, the Company or NFP may advertise the "yield" and "effective
yield" of the Money Market Sub-Account. Both yield figures will be based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period
and is shown as a percentage of the Contract Values in the Money Market
Sub-Account. The "effective yield" is calculated similarly but, when
annualized, the income earned by Contract Values in the Money Market
Sub-Account is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The computation of the yield calculation includes a
deduction for the Mortality and Expense Risk Charge and Administrative Expense
Charge.
Other Sub-Accounts
From time to time, the other Sub-Accounts or NFP may publish their current
yields and total returns in advertisements and communications to Contract
Owners. The current yield for each Sub-Account will be calculated by dividing
the annualization of the interest income earned by the underlying Fund during
a recent 30-day period by the maximum VIP Unit value at the end of such
period. Total return information will include the underlying Fund's average
annual compounded rate of return over the most recent four calendar quarters
and the period from the underlying Fund's inception of operations, based upon
the value of the VIP Units acquired through a hypothetical $1,000 investment
at the VIP Unit value at the beginning of the specified period and the value
of the VIP Unit at the end of such period, assuming reinvestment of all
distributions and the deduction of the Mortality and Expense Risk Charge and
the Administrative Expense Charge. Each Sub-Account may also advertise
aggregate and average total return information over different periods
of time.
In each case, the yield and total return figures will reflect all recurring
charges against the Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge and Administrative Expense Charge for the
applicable time period. The Company or NFP may, in addition, advertise or
present yield or total return performance information computed on different
basis, or for the Funds. Contract Owners should note that the investment
results of each Sub-Account will fluctuate over time, and any presentation of
a Sub-Account's current yield or total return for any prior period should not
be considered as a representation of what an investment may earn or what a
Contract Owner's yield or total return may be in any future period.
Hypothetical performance illustrations for a hypothetical contract may be
prepared for sales literature or advertisements. See "Calculation of
Performance Data" in the Statement of Additional Information.
Performance Ranking
The performance of each or all of the Sub-Accounts of the Variable Account may
be compared in its advertising and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual
funds with investment objectives similar to each of the Sub-Accounts of the
Variable Account or indices. Lipper Analytical Services, Inc. ("Lipper") and
the Variable Annuity Research and Data Service ("VARDS") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide
basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS rank such issuers on the
basis of total return, assuming reinvestment of distributions, but do not take
sales charges, redemption fees or certain expense deductions at the separate
account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger and Morningstar.
TAX STATUS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The
Company cannot predict the probability that any changes in such laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of such changes. The Company does not guarantee the tax status of
the Contracts. Purchasers bear the complete risk that the Contracts may not
be treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable
state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A Contract Owner is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the Annuity Option
elected.
For annuity payments, the portion of a payment includable in income equals the
excess of the payment over the exclusion amount. The exclusion amount for
payments based on a variable annuity option is determined by dividing the
investment in the Contract (adjusted for any period certain or refund
guarantee) by the number of years over which the annuity is expected to be
paid (determined by Treasury Regulations). Payments received after the
investment in the Contract has been recovered (i.e. the total of the
excludable amounts equal the investment in the Contract) are fully taxable.
The taxable portion of an annuity payment is taxed at ordinary income rates.
For certain types of Qualified Plans there may be no cost basis in the
Contract within the meaning of Section 72 of the Code. Contract Owners,
Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified in accordance with regulations prescribed by the United
States Treasury Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in the imposition of federal
income tax to the Contract Owner with respect to earnings allocable to the
Contract prior to the receipt of payments under the Contract. The Code
contains a safe harbor provision which provides that annuity contracts such as
the Contracts meet the diversification requirements if, as of the end of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consist of cash, cash items, U.S. government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The
regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the regulations, an investment portfolio will be
deemed adequately diversified if: (1) no more than 55% of the value of the
total assets of the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the portfolio is represented
by any two investments; (3) no more than 80% of the value of the total assets
of the portfolio is represented by any three investments; and (4) no more than
90% of the value of the total assets of the portfolio is represented by any
four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by the Managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Variable Account will cause the Contract
Owner to be treated as the owner of the assets of the Variable Account,
thereby resulting in the loss of favorable tax treatment for the Contract. At
this time it cannot be determined whether additional guidance will be provided
and what standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published
rulings issued by the Internal Revenue Service in which it was held that the
policy owner was not the owner of the assets of the separate account. It is
unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Variable Account resulting in the imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets of
the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
Section 72(e)(11) of the Code provides that multiple non-qualified annuity
contracts which are issued within a calendar year period to the same contract
owner by one company or its affiliates are treated as one annuity contract for
purposes of determining the tax consequences of any distribution. Such
treatment may result in adverse tax consequences, including more rapid
taxation of the distributed amounts from such combination of contracts. The
legislative history of Section 72(e)(11) indicates that it was not intended to
apply to immediate annuities. However, the legislative history also states
that no inference is intended as to whether the Treasury Department, under its
authority to prescribe rules to enforce the tax laws, may treat the
combination purchase of a deferred annuity contract with an immediate annuity
contract as a single contract for purposes of determining the tax consequences
of any distribution.
Tax Treatment of Distributions - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includable in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Contract Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined is Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer and his Beneficiary; (e)
as an annuity payment under an immediate annuity; or (f) which are allocable to
purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Distributions - IRA-Contracts")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address
the issue of whether the making of a withdrawal would adversely affect
the favorable tax treatment of annuity payments made before or after such
partial withdrawal because of the requirement that all immediate annuity
payments must be "substantially equal". The loss of favorable tax treatment
would mean that the income portion of each annuity payment received prior to
the taxpayer's attaining age 59 1/2 would be subject to a 10% penalty tax
unless another exception to the penalty tax applies. While the Company
currently believes that such withdrawals will not adversely affect the
favorable tax treatment of annuity payments received before or after a
withdrawal and the Company intends to perform its tax reporting functions
accordingly, there can be no assurance that the Internal Revenue Service
will not take a contrary position. Contract Owners should obtain competent
tax advice prior to making a partial or total withdrawal.
Qualified Plans
The Contracts offered by this Prospectus may also be used with a plan
qualified under Section 408(b) of the Code ("IRA Contracts"). Owners,
Annuitants and Beneficiaries are cautioned that benefits under an IRA Contract
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and
will have differing applications depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing IRA Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts.
(See "Tax Treatment of Distributions - IRA Contracts".)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. IRA Contracts will utilize annuity tables which
do not differentiate on the basis of sex because of the use of the IRA
Contracts in a Simplified Employee Pension. Such annuity tables will also be
available for use in connection with certain non-qualified deferred
compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions, transferability
and distributions. (See " Tax Treatment of Distributions - IRA Contracts".)
Under certain conditions, distributions from other IRAs and other qualified
plans may be rolled over or transferred on a tax-deferred basis into an IRA
Contract. Sales of Contracts for use as IRA Contracts are subject to special
requirements imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an IRA.
Purchasers of Contracts to be qualified as Individual Retirement Annuities
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
Tax Treatment of Distributions - IRA Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion
of the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract.
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including IRA Contracts. To
the extent amounts are not includible in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty
will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Annuitant reaches age 59 1/2; (b) distributions following the death or
disability of the Annuitant (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) distributions that are part of a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the Annuitant or the joint lives (or
joint life expectancies) of the Annuitant and his or her designated
Beneficiary. If the series of substantially equal periodic payments is
modified before the later of the annuitant attaining age 59 1/2 or 5 years from
the date of the first annuity payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used. A partial withdrawal may result in the
modification of the series of annuity payments made after such withdrawal and
therefore could result in the imposition of the 10% penalty tax and interest
for the period as described above. Competent tax advice should be obtained
prior to making any withdrawals from an IRA Contract. Any amounts
distributed will only be paid to the Annuitant, Joint Annuitant or Beneficiary.
The Company will not transfer or pay such amounts to another IRA or tax
qualified plan.
Generally, distributions from an IRA Contract must commence no later than
April 1 of the calendar year, following the year in which the employee attains
age 70 1/2. Generally, required distributions must be over a period not
exceeding the life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as
to the amount not distributed. In addition, certain distributions in excess
of $150,000 per year may be subject to an additional 15% excise tax unless an
exemption applies.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non-periodic payments. However, the
Contract Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
FINANCIAL STATEMENTS
Audited consolidated financial statements of the Company and audited financial
statements of the Variable Account as of and for the year ended December 31,
1995 are included in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Distributor is a party or to which the assets of the Variable Account are
subject. The Company is not involved in any litigation that is of material
importance in relation to its total assets or that relates to the Variable
Account.
APPENDIX - ILLUSTRATION OF VALUES
The following tables have been prepared to show how investment performance
affects variable annuity income over time. The variable annuity income
amounts reflect three different assumptions for a constant investment return
before all expenses: 0%, 6% and 12%. These are hypothetical rates of return
and, of course, the Company does not guarantee that the Contract will earn
these returns for any one year or any sustained period of time. The tables
are for illustrative purposes only and do not represent past or future
investment returns.
The variable annuity income may be more or less than the income shown if the
actual returns of the Eligible Investments are different than those
illustrated. Since it is very likely that investment returns will fluctuate
over time, the amount of variable annuity income will also fluctuate. The
total amount of annuity income ultimately received will depend on cumulative
investment returns and how long the Annuitant lives and the option chosen.
Another factor which determines the amount of variable annuity income is the
Assumed Investment Return. Income will increase from one annuity Income Date
to the next if the annualized Net Rate of Return during that time is greater
than the Assumed Investment Return, and will decrease if the annualized Net
Rate of Return is less than the Assumed Investment Return.
Two illustrations follow. The first is based on a 3% Assumed Investment
Return, and the second is based on a 5% Assumed Investment Return.
The income amounts shown reflect the deduction of all fees and expenses.
Actual Trust fees and expenses will vary from year to year and from Fund to
Fund and may thus be higher or lower than the assumed rate. The illustrations
assume that each Fund of the Trust will incur expenses at an annual rate of
0.76% of the average daily net assets of the Fund. This is the average in
1995, weighted by Fund net assets as of 12/31/95. The Mortality and Expense
Risk Charge and Administrative Expense Charge are calculated, in the
aggregate, at an annual rate of 1.40% of the average daily net assets of the
Variable Account. After taking these expenses and charges into consideration,
the illustrated gross investment returns of 0%, 6% and 12% are approximately
equal to net rates of -2.14%, 3.73% and 9.60%, respectively.
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/27 EFFECTIVE DATE: 12/1/96
ANNUITY INCOME FIRST ANNUITY INCOME DATE: 1/1/97
OPTION: Single Life Annuity FREQUENCY OF ANNUITY INCOME: Monthly
PREMIUM TAX: 0% ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
variable annuity income that is actually received will depend on the
investment performance of the underlying Fund(s) selected. The variable
annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 3% Assumed
Investment Return. Income will remain constant at $625 per month when the
annualized net rate of return after expenses is 3%.
<TABLE>
<CAPTION>
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.14% 3.73% 9.60%
- ------------------- --- -------------------------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
January 1, 1997 70 $ 622 $ 625 $ 628
January 1, 1998 71 591 629 668
January 1, 1999 72 561 634 711
January 1, 2000 73 533 638 757
January 1, 2001 74 507 643 805
January 1, 2006 79 392 666 1,099
January 1, 2011 84 304 690 1,499
January 1, 2016 89 235 715 2,045
January 1, 2021 94 182 741 2,790
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE.
ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment
Return of 3%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
---------------- ---------------- ----------------
-2.14% 3.73% 9.60%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---- ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 622 $ 625 $ 628
2 591 629 668
3 561 634 711
4 533 638 757
5 507 643 805
6 481 647 857
7 457 652 912
8 435 657 970
9 413 661 1,032
10 392 666 1,099
11 373 671 1,169
12 354 675 1,244
13 336 680 1,324
14 320 685 1,409
15 304 690 1,499
16 288 695 1,595
17 274 700 1,697
18 260 705 1,806
19 247 710 1,922
20 235 715 2,045
21 223 720 2,176
22 212 725 2,316
23 202 730 2,464
24 192 735 2,622
25 182 741 2,790
</TABLE>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/27 EFFECTIVE DATE: 12/1/96
ANNUITY INCOME FIRST ANNUITY INCOME DATE: 1/1/97
OPTION: Single Life Annuity FREQUENCY OF ANNUITY INCOME: Monthly
PREMIUM TAX: 0% ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the
graph that follows assumes a constant annual investment return. The amount of
variable annuity income that is actually received will depend on the
investment performance of the underlying Fund(s) selected. The variable
annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 5% Assumed
Investment Return. Income will remain constant at $742 per month when the
annual rate of return after expenses is 5%.
<TABLE>
<CAPTION>
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.14% 3.73% 9.60%
- ------------------- --- -------------------------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
January 1, 1997 70 $ 738 $ 741 $ 745
January 1, 1998 71 687 732 778
January 1, 1999 72 641 724 812
January 1, 2000 73 597 715 847
January 1, 2001 74 557 706 884
January 1, 2006 79 391 664 1,096
January 1, 2011 84 275 625 1,358
January 1, 2016 89 193 588 1,683
January 1, 2021 94 136 554 2,086
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE.
ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment
Return of 5%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
---------------- ---------------- ----------------
-2.14% 3.73% 9.60%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---- ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 738 $ 741 $ 745
2 687 732 778
3 641 724 812
4 597 715 847
5 557 706 884
6 519 698 923
7 483 689 964
8 451 681 1,006
9 420 673 1,050
10 391 664 1,096
11 365 656 1,144
12 340 648 1,194
13 317 641 1,247
14 295 633 1,301
15 275 625 1,358
16 256 618 1,418
17 239 610 1,480
18 223 603 1,545
19 208 596 1,613
20 193 588 1,683
21 180 581 1,757
22 168 574 1,834
23 157 567 1,914
24 146 560 1,998
25 136 554 2,086
</TABLE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Item Page
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Data . . . . . . . . . . . . . . . . . . .
Annuity Provisions. . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payout . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
(Formerly NALAC Variable Account B)
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
(Formerly North American Life and Casualty Company)
May 1, 1996
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL IMMEDIATE VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE
THE COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800)
542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY
1, 1996, AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTOR
CALCULATION OF PERFORMANCE DATA
ANNUITY PROVISIONS
Variable Annuity Payout
FINANCIAL STATEMENTS
COMPANY
Information regarding the Company and its ownership is contained in the
Prospectus. On April 1, 1993, the Company changed its name from North
American Life and Casualty Company to its present name. Allianz Life
Insurance Company of North America is rated A+ (Superior) by A.M. BEST, an
independent analyst of the insurance industry.
EXPERTS
The financial statements of Allianz Life Variable Account B and the
consolidated financial statements of Allianz Life Insurance Company of North
America as of and for the year ended December 31, 1995, included in this
Statement of Additional Information have been audited by KPMG Peat Marwick
LLP, independent auditors, as indicated in their reports included in this
Statement of Additional Information and are included herein in reliance upon
such reports and upon the authority of said firm as experts in accounting
and auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
DISTRIBUTOR
NALAC Financial Plans, Inc., a wholly-owned subsidiary of the Company, acts as
the distributor. The offering is on a continuous basis.
CALCULATION OF PERFORMANCE DATA
Performance
Performance information for the Sub-Accounts may be compared, in reports and
advertising to: (1) the Standard & Poor's 500 Composite Stock Price Index ("S
& P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue's Money Market
Institutional Averages; (2) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, Morningstar, or the
Variable Annuity Research and Data Service ("VARDS"), widely used independent
research firms which rank mutual funds and other investment companies by
overall performance, investment objectives, and assets; and (3) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for annuity charges and investment
managements costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including the ranking of any
Sub-Account derived from rankings of variable annuity separate accounts or
other investments products tracked by Lipper Analytical Services, rating
services, companies, publications or other persons who rank separate accounts
or other investment products.
The Money Market Sub-Account. The Money Market Sub-Account's current yield
may vary each day, depending upon, among other things, the average maturity of
the underlying Fund's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge,
the Administrative Expense Charge and, in certain instances, the value of the
underlying Fund's investment securities. The fact that the Sub-Account's
current yield will fluctuate and that the principal is not guaranteed should
be taken into consideration when using the Sub-Account's current yield as a
basis for comparison with savings accounts or other fixed-yield investments.
The Sub-Account's yield at any particular time is not indicative of what the
yield may be at any other time.
The Money Market Sub-Account's current yield is computed on a base period
return of a hypothetical Contract having a beginning balance of one VIP Unit
for a particular period of time (generally seven days). The return is
determined by dividing the net change (exclusive of any capital changes) in
such VIP Unit by its beginning value, and then multiplying it by 365/7 to get
the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Fund, and
the deduction of the Mortality and Expense Risk Charge and the Administrative
Expense Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
Other Sub-Accounts. From time to time, the other Sub-Accounts may state their
total return in advertisements and Contract Owner communications. Any
statements of total return or other performance data of a Sub-Account will be
accompanied by information on that Sub-Account's average annual compounded
rate of return over the most recent four calendar quarters and the period from
the Sub-Account's inception of operations. Each Sub-Account may also
advertise aggregate and average total return information over different
periods of time.
Each Sub-Account's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 Contract Value, according to the following
formula:
n
P ( 1 + T) = ERV
<TABLE>
<CAPTION>
<S> <C> <C>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 Contract
at the end of the period
</TABLE>
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no premium tax is
deducted from the initial $1,000 of payment at the time it is allocated to the
Sub-Account and assumes that the income earned by the investment in the
Sub-Account is reinvested.
Each Sub-Account may also quote its current yield in advertisements and
Contract Owner communications. Each Sub-Account (other than the Money Market
Sub-Account) will publish standardized total return information with any
quotation of current yield.
The yield computation is determined by dividing the net investment income per
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value
on the last day of the period and annualizing the resulting figure, according
to the following formula:
6
Yield = 2[ [a-b + 1] - 1]
____
cd
Where:
<TABLE>
<CAPTION>
<S> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Sub-Account
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of VIP Units outstanding during the period
d = the maximum offering price per VIP Unit on the last day of the period
</TABLE>
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods identified in the advertisement or communication.
Yield calculations assume no sales load.
Each Sub-Account's current yield and total return may be compared to relevant
indices, including U. S. domestic and international taxable bond indices and
data from Lipper Analytical Services, Inc., Standard & Poor's Indices, or
VARDS.
From time to time, evaluations of each Sub-Account's performance by
independent sources may also be used in advertisements and in information
furnished to present or prospective Contract Owners.
Contract Owners should note that the investment results of the Sub-Account
will fluctuate over time, and any presentation of the Sub-Account's current
yield or total return for any period should not be considered as a
representation of what an investment may earn or what a Contract Owner's total
return or yield may be in any future period.
The tables below provide performance results for each Sub-Account through
December 31, 1995 . The performance information is based on the
historical investment experience of the Sub-Accounts and of the Funds. It does
not indicate or represent future performance.
Total Return
Total returns quoted in advertising reflect all aspects of a Sub-Account's
return, including the automatic reinvestment by the separate account of all
distributions and any change in a Sub-Account's value over the period.
Average annual returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Sub-Account over a stated
period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative return of 100%
over ten years would produce an average annual return of 7.1%, which is the
steady rate that would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing investment
alternatives, investors should realize that a Sub-Account's performance is not
constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of a Sub-Account.
Table 1 shows the average annual total return on a hypothetical investment
in the Sub-Accounts for the last year, from the date that the Funds began
operations, and, for Funds in existence for five years or more, for five
years, through December 31 , 1995. The returns reflect the Mortality and
Expense Risk Charge and Administrative Expense Charge (1.40% on an annual
basis).
Table 1: Average Annual Total Return for Period Ending on 12/31/95.
<TABLE>
<CAPTION>
TABLE 1: Average Annual Return for Period Ending on 12/31/95.
SUB-ACCOUNT START DATE ONE YEAR THREE YEAR LIFE OF FUND
- --------------------------------------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market Fund 1/24/89 4.29% 2.59% 3.72%
Growth and Income Fund 1/24/89 30.99% 11.24% 8.24%
Precious Metals Fund 1/24/89 0.93% 14.40% 5.09%
Real Estate Securities Fund 1/24/89 15.90% 11.34% 8.91%
Utility Equity Fund 1/24/89 29.53% 7.18% 10.17%
High Income Fund 1/24/89 18.10% 9.12% 8.19%
Templeton Global Income Securities Fund* 1/24/89 13.09% 6.83% 6.55%
Investment Grade Intermediate Bond Fund 1/24/89 8.46% 4.78% 6.49%
Income Securities Fund 1/24/89 20.70% 9.28% 10.35%
U.S. Government Securites Fund 3/14/89 17.80% 6.25% 7.45%
Zero Coupon Fund-2000 3/14/89 19.00% 7.82% 9.29%
Zero Coupon Fund-2005 3/14/89 29.93% 11.78% 11.47%
Zero Coupon Fund-2010 3/14/89 40.81% 15.21% 12.62%
Adjustable U.S. Government Fund 12/3/90 7.90% 2.74% 3.58%
Rising Dividends Fund 1/27/92 27.94% 4.83% 5.85%
Templeton International Equity Fund 1/27/92 9.05% 11.21% 7.46%
Templeton Pacific Growth Fund 1/27/92 6.47% 11.77% 8.21%
Templeton Developing Markets Equity Fund 3/15/94 1.35% NA -2.36%
Templeton Global Growth Fund 3/15/94 11.16% NA 7.26%
Templeton Global Asset Allocation Fund 5/1/95 NA NA 5.91%
Small Cap Fund 11/1/95 NA NA 1.46%
</TABLE>
In addition to average annual returns, the Sub-Accounts may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Table 2 shows the cumulative total return
on a hypothetical investment in the Sub-Accounts from the date the Funds began
operations through December 31, 1995. The returns reflect the Mortality
and Expense Risk and Administrative Expense Charges (1.40% on an annual
basis).
<TABLE>
<CAPTION>
TABLE 2: Cumulative Total Return for Periods Beginning at the Commencement of the Funds
and Ending on 12/31/95.
SUB-ACCOUNT START DATE ONE YEAR THREE YEAR LIFE OF FUND
- --------------------------------------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market Fund 1/24/89 4.29% 7.97% 28.83%
Growth and Income Fund 1/24/89 30.99% 37.67% 73.10%
Precious Metals Fund 1/24/89 0.93% 49.70% 41.09%
Real Estate Securities Fund 1/24/89 15.90% 38.01% 80.73%
Utility Equity Fund 1/24/89 29.53% 23.14% 95.65%
High Income Fund 1/24/89 18.10% 29.93% 72.52%
Templeton Global Income Securities Fund* 1/24/89 13.09% 21.91% 55.22%
Investment Grade Intermediate Bond Fund 1/24/89 8.46% 15.04% 54.63%
Income Securities Fund 1/24/89 20.70% 30.49% 97.85%
U.S. Government Securites Fund 3/14/89 17.80% 19.96% 62.98%
Zero Coupon Fund-2000 3/14/89 19.00% 25.34% 82.94%
Zero Coupon Fund-2005 3/14/89 29.93% 39.66% 109.14%
Zero Coupon Fund-2010 3/14/89 40.81% 52.91% 124.31%
Adjustable U.S. Government Fund 12/3/90 7.90% 8.45% 19.51%
Rising Dividends Fund 1/27/92 27.94% 15.22% 24.98%
Templeton International Equity Fund 1/27/92 9.05% 37.55% 32.63%
Templeton Pacific Growth Fund 1/27/92 6.47% 39.64% 36.30%
Templeton Developing Markets Equity Fund 3/15/94 1.35% NA -4.18%
Templeton Global Growth Fund 3/15/94 11.16% NA 13.39%
Templeton Global Asset Allocation Fund 5/1/95 NA NA 5.91%
Small Cap Fund 11/1/95 NA NA 1.46%
</TABLE>
Yields
Some Sub-Accounts may also advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the Sub-Account
over a stated period of time, not taking into account capital gains or losses.
Yields are annualized and stated as a percentage. Yields quoted in
advertising may be based on historical seven day periods.
Current yield for the Money Market Sub-Account reflects the income generated
by the Sub-Account over a 7 day period. Current yield is calculated by
determining the change (net of management fees and the 1.40% Mortality and
Expense Risk Charge and Administrative Expense Charge) of a hypothetical
account containing one share of the underlying Fund exclusive of capital
changes. This change is divided by the value of the account at the beginning
of the base period to obtain the base period return. This base period return
is annualized by multiplying by (365/7). The resulting yield figure is
carried to the nearest hundredth of a percent. Effective yield is obtained by
compounding the base period return over a one year period. Since the
reinvestment of income is assumed in the calculation of the effective yield,
it will generally be higher than the current yield. The Company does not
currently advertise the yield of the Money Market Sub-Account.
A 30 day yield for bond Sub-Accounts reflects the income generated by a
Sub-Account over a 30 day period. Current yield is calculated by determining
the interest income (net of management fees and the 1.40% Mortality and
Expense Risk Charge and Administrative Expense Charge) of a hypothetical
account containing one share exclusive of capital charges. Yield will be
computing by dividing the net interest income during the period by the
value of the hypothetical account at the end of the period. Income is
calculated for purposes of yield quotations in accordance with
standardized methods applicable to all bond funds. In general,
interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of premium from income
on a daily basis and is increased with respect to bonds trading at a
discount by adding a portion of the discount to daily income. Capital
gains and losses are generally excluded from the calculation. The
Company does not currently advertise the yield of any of the bond
Sub-Accounts.
Annuity Income
Periodic annuity income amounts may be illustrated using the historical
performance of the Sub-Accounts, the S&P 500 or other recognized
investment benchmark portfolios. All illustrations will reflect the
1.40% annual Mortality and Expense Risk Charge and Administrative Expense
Charge and actual or assumed Fund expenses.
ANNUITY PROVISIONS
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-Account(s) of the Variable Account.
Annuity payments also depend upon the Age of the Annuitant and any Joint
Annuitant and the Assumed Net Investment Factor utilized. On the Annuity
Calculation Date, the Contract Value in each Sub-account will be applied to
the applicable Annuity Tables. The Annuity Table used will depend upon the
Annuity Option chosen. Unisex Annuity Tables are utilized by the Company.
The dollar amount of annuity payments after the first is determined as
follows:
<TABLE>
<CAPTION>
<C> <S>
1. The dollar amount of the first annuity payment is divided by the value
of an Annuity Unit as of the Annuity Calculation Date. This establishes
the number of Annuity Units for each monthly payment. The number of
Annuity Units remains fixed during the annuity payment period.
2. For each Sub-Account, the fixed number of Annuity Units is multiplied by
the Annuity Unit value on each subsequent annuity payment date. This
result is the dollar amount of the payment for each Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is the
sum of all Sub-Account Variable Annuity payments, reduced by the
Contract Maintenance Charge.
</TABLE>
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of and for
the year ended December 31, 1995 included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts. The audited financial statements of the Variable Account as of
and for the year ended December 31, 1995 are also included herein.
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
December 31, 1995
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account B as of December 31, 1995, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended.
These financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Investment securities held in custody for the benefit of the Variable Account
were confirmed to us by the Franklin Valuemark Funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Allianz Life Variable Account B at December 31, 1995, the results of their
operations for the year then ended and the changes in their net assets for
each of the years in the two-years then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 22, 1996
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities
December 31, 1995
(In thousands)
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
-------- ------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 400,242
shares, cost $400,242 $400,242 - - - - -
Growth and Income Fund, 47,441
shares, cost $642,464 - 813,146 - - - -
Precious Metals Fund,
6,938 shares, cost $95,110 - - 97,687 - - -
High Income Fund, 23,702
shares, cost $297,487 - - - 323,767 - -
Real Estate Securities Fund,
11,432 shares, cost $172,084 - - - - 198,914 -
U.S. Government Securities Fund,
39,967 shares, cost $517,705 - - - - - 559,540
-------- ------- -------- ------- ---------- ----------
Total assets 400,242 813,146 97,687 323,767 198,914 559,540
-------- ------- -------- ------- ---------- ----------
Liabilities:
Accrued mortality and expense risk charges 274 370 51 167 126 273
Accrued administrative charges 33 44 6 20 15 33
-------- ------- -------- ------- ---------- ----------
Total liabilities 307 414 57 187 141 306
-------- ------- -------- ------- ---------- ----------
Net assets $399,935 812,732 97,630 323,580 198,773 559,234
======== ======= ======== ======= ========== ==========
Contract owners' equity:
Contracts in accumulation period (note 6) $399,901 811,706 97,630 323,580 198,773 559,234
Contracts in annuity payment
period (note 2) 34 1,026 - - - -
-------- ------- -------- ------- ---------- ----------
Total contract owners' equity $399,935 812,732 97,630 323,580 198,773 559,234
======== ======= ======== ======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
(In thousands)
Zero Zero Zero
Utility Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Income
Fund 2000 2005 2010 Fund
---------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Utility Equity Fund, 72,973
shares, cost $1,140,098 $1,306,215 - - - -
Zero Coupon Fund - 2000,
7,059 shares, cost $97,854 - 111,030 - - -
Zero Coupon Fund - 2005,
4,220 shares, cost $61,163 - - 73,337 - -
Zero Coupon Fund - 2010,
4,278 shares, cost $63,295 - - - 77,181 -
Global Income Fund, 16,365
shares, cost $208,411 - - - - 220,267
---------- ------- ------ ------ -------
Total assets 1,306,215 111,030 73,337 77,181 220,267
---------- ------- ------ ------ -------
Liabilities:
Accrued mortality and expense risk charges 643 58 40 40 111
Accrued administrative charges 77 7 5 5 13
---------- ------- ------ ------ -------
Total liabilities 720 65 45 45 124
---------- ------- ------ ------ -------
Net assets $1,305,495 110,965 73,292 77,136 220,143
========== ======= ====== ====== =======
Contract owners' equity:
Contracts in accumulation period (note 6) $1,304,348 110,965 73,292 77,136 220,143
Contracts in annuity payment
period (note 2) 1,147 - - - -
---------- ------- ------ ------ -------
Total contract owners' equity $1,305,495 110,965 73,292 77,136 220,143
========== ======= ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
(In thousands)
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
------------- ---------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Investment Grade Intermediate Bond
Fund, 10,675 shares, cost $141,092 $ 149,978 - - - - -
Income Securities Fund, 71,388
shares, cost $1,051,796 - 1,175,760 - - - -
Adjustable U.S. Government Fund,
16,228 shares, cost $175,816 - - 174,610 - - -
Templeton Pacific Growth Fund,
22,071 shares, cost $293,424 - - - 307,008 - -
Rising Dividends Fund, 33,432
shares, cost $356,060 - - - - 423,255 -
Templeton International Equity Fund,
59,699 shares, cost $741,003 - - - - - 795,190
------------- ---------- ---------- --------- --------- -------------
Total assets 149,978 1,175,760 174,610 307,008 423,255 795,190
------------- ---------- ---------- --------- --------- -------------
Liabilities:
Accrued mortality and expense risk charges 86 551 92 147 235 464
Accrued administrative charges 10 66 11 18 28 56
------------- ---------- ---------- --------- --------- -------------
Total liabilities 96 617 103 165 263 520
------------- ---------- ---------- --------- --------- -------------
Net assets $ 149,882 1,175,143 174,507 306,843 422,992 794,670
============= ========== ========== ========= ========= =============
Contract owners' equity:
Contracts in accumulation period (note 6) $ 149,882 1,173,447 174,507 306,448 422,318 794,226
Contracts in annuity payment
period (note 2) - 1,696 - 395 674 444
------------- ---------- ---------- --------- --------- -------------
Total contract owners' equity $ 149,882 1,175,143 174,507 306,843 422,992 794,670
============= ========== ========== ========= ========= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
(In thousands)
Templeton Templeton
Developing Templeton Global
Markets Global Asset Small Total
Equity Growth Allocation Cap All
Fund Fund Fund Fund Funds
----------- --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Developing Markets Equity
Fund, 15,394 shares, cost $153,792 $ 150,553 - - -
Templeton Global Growth Fund,
27,442 shares, cost $295,657 - 322,442 - -
Templeton Global Asset Allocation
Fund, 1,364 shares, cost $14,024 - - 14,347 -
Small Cap Fund, 1,299 shares,
cost $13,104 - - - 13,287
----------- --------- ---------- ------
Total assets 150,553 322,442 14,347 13,287 7,707,756
----------- --------- ---------- ------ ---------
Liabilities:
Accrued mortality and expense risk charges 64 141 101 24 4,058
Accrued administrative charges 8 17 12 3 487
----------- --------- ---------- ------ ---------
Total liabilities 72 158 113 27 4,545
----------- --------- ---------- ------ ---------
Net assets $ 150,481 322,284 14,234 13,260 7,703,211
=========== ========= ========== ====== =========
Contract owners' equity:
Contracts in accumulation period (note 6) $ 149,649 320,997 14,167 13,211 7,695,560
Contracts in annuity payment
period (note 2) 832 1,287 67 49 7,651
----------- --------- ---------- ------ ---------
Total contract owners' equity $ 150,481 322,284 14,234 13,260 7,703,211
=========== ========= ========== ====== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations
For the year ended December 31, 1995
(In thousands)
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
---------- -------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 23,692 7,314 1,546 19,247 5,958 37,956
---------- -------- --------- -------- ----------- -----------
Expenses:
Mortality and expense risk charges 5,334 7,672 1,334 3,643 2,319 6,765
Administrative charges 640 921 160 437 278 812
---------- -------- --------- -------- ----------- -----------
Total expenses 5,974 8,593 1,494 4,080 2,597 7,577
---------- -------- --------- -------- ----------- -----------
Investment income (loss), net 17,718 (1,279) 52 15,167 3,361 30,379
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 15,921 1,145 - - -
---------- -------- --------- -------- ----------- -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 421,429 39,408 64,829 49,344 34,264 84,760
Cost of investments sold (421,429) (34,253) (63,824) (46,046) (32,787) (82,065)
---------- -------- --------- -------- ----------- -----------
Total realized gains (losses) on
sales of investments, net - 5,155 1,005 3,298 1,477 2,695
---------- -------- --------- -------- ----------- -----------
Realized gains (losses)
on investments, net - 21,076 2,150 3,298 1,477 2,695
Net change in unrealized appreciation
(depreciation) on investments - 147,406 (2,147) 27,669 22,517 54,968
---------- -------- --------- -------- ----------- -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net - 168,482 3 30,967 23,994 57,663
---------- -------- --------- -------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 17,718 167,203 55 46,134 27,355 88,042
========== ======== ========= ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the year ended December 31, 1995
(In thousands)
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
---------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 65,100 2,930 4,248 2,593 1,881 8,424
---------- -------- -------- ------- -------- --------
Expenses:
Mortality and expense risk charges 14,486 478 1,208 751 726 2,797
Administrative charges 1,738 57 145 90 87 336
---------- -------- -------- ------- -------- --------
Total expenses 16,224 535 1,353 841 813 3,133
---------- -------- -------- ------- -------- --------
Investment income (loss), net 48,876 2,395 2,895 1,752 1,068 5,291
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 14 - - - -
---------- -------- -------- ------- -------- --------
Realized gains (losses)
on sales of investments:
Proceeds from sales 134,789 53,632 11,775 8,345 34,323 54,834
Cost of investments sold (133,200) (53,046) (10,694) (7,592) (31,336) (55,040)
---------- -------- -------- ------- -------- --------
Total realized gains (losses) on
sales of investments, net 1,589 586 1,081 753 2,987 (206)
---------- -------- -------- ------- -------- --------
Realized gains (losses)
on investments, net 1,589 600 1,081 753 2,987 (206)
Net change in unrealized appreciation
(depreciation) on investments 255,500 (597) 12,514 13,063 15,696 22,286
---------- -------- -------- ------- -------- --------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 257,089 3 13,595 13,816 18,683 22,080
---------- -------- -------- ------- -------- --------
Net increase (decrease) in
net assets from operations $ 305,965 2,398 16,490 15,568 19,751 27,371
========== ======== ======== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the year ended December 31, 1995
(In thousands)
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
-------------- ----------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 5,974 58,967 12,390 6,144 7,357 12,759
-------------- ----------- ----------- ---------- ---------- --------------
Expenses:
Mortality and expense risk charges 1,832 13,095 2,381 4,028 4,379 9,608
Administrative charges 220 1,571 286 483 526 1,153
-------------- ----------- ----------- ---------- ---------- --------------
Total expenses 2,052 14,666 2,667 4,511 4,905 10,761
-------------- ----------- ----------- ---------- ---------- --------------
Investment income (loss), net 3,922 44,301 9,723 1,633 2,452 1,998
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 4,746 - 2,555 - 15,808
-------------- ----------- ----------- ---------- ---------- --------------
Realized gains (losses)
on sales of investments:
Proceeds from sales 16,878 62,553 87,316 142,977 21,235 99,450
Cost of investments sold (16,254) (60,199) (88,643) (142,382) (19,912) (95,103)
-------------- ----------- ----------- ---------- ---------- --------------
Total realized gains (losses) on
sales of investments, net 624 2,354 (1,327) 595 1,323 4,347
-------------- ----------- ----------- ---------- ---------- --------------
Realized gains (losses)
on investments, net 624 7,100 (1,327) 3,150 1,323 20,155
Net change in unrealized appreciation
(depreciation) on investments 7,237 145,457 6,258 14,929 81,539 42,587
-------------- ----------- ----------- ---------- ---------- --------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 7,861 152,557 4,931 18,079 82,862 62,742
-------------- ----------- ----------- ---------- ---------- --------------
Net increase (decrease) in
net assets from operations $ 11,783 196,858 14,654 19,712 85,314 64,740
============== =========== =========== ========== ========== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the year ended December 31, 1995
(In thousands)
Templeton Templeton Templeton
Developing Global Global Asset Small Total
Markets Growth Allocation Cap All
Equity Fund Fund Fund Fund Funds
------------- ---------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 465 1,261 240 - 286,446
------------- ---------- ------------- ------ -----------
Expenses:
Mortality and expense risk charges 1,523 2,919 101 22 87,401
Administrative charges 183 350 12 3 10,488
------------- ---------- ------------- ------ -----------
Total expenses 1,706 3,269 113 25 97,889
------------- ---------- ------------- ------ -----------
Investment income (loss), net (1,241) (2,008) 127 (25) 188,557
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds 109 - - - 40,298
------------- ---------- ------------- ------ -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 19,245 6,235 4,619 1 1,452,241
Cost of investments sold (19,631) (5,932) (4,548) (1) (1,423,917)
------------- ---------- ------------- ------ -----------
Total realized gains (losses) on
sales of investments, net (386) 303 71 - 28,324
------------- ---------- ------------- ------ -----------
Realized gains (losses)
on investments, net (277) 303 71 - 68,622
Net change in unrealized appreciation
(depreciation) on investments 3,149 26,429 323 183 896,966
------------- ---------- ------------- ------ -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2,872 26,732 394 183 965,588
------------- ---------- ------------- ------ -----------
Net increase (decrease) in
net assets from operations $ 1,631 24,724 521 158 1,154,145
============= ========== ============= ====== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets
For the years ended December 31, 1995 and 1994
(In thousands)
Growth Growth
Money Money and and Precious Precious
Market Market Income Income Metals Metals
Fund Fund Fund Fund Fund Fund
---------- -------- -------- -------- --------- ---------
1995 1994 1995 1994 1995 1994
---------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 17,718 9,560 (1,279) (2,959) 52 (793)
Realized gains (losses) on investments, net - - 21,076 8,145 2,150 3,017
Net change in unrealized appreciation
(depreciation) on investments - - 147,406 (21,586) (2,147) (5,762)
---------- -------- -------- -------- --------- ---------
Net increase (decrease) in net assets
from operations 17,718 9,560 167,203 (16,400) 55 (3,538)
---------- -------- -------- -------- --------- ---------
Contract transactions (note 6):
Purchase payments 190,018 402,816 98,725 124,695 11,049 38,433
Transfers between funds (169,358) 34,121 150,088 59,547 (17,212) 19,303
Surrenders and terminations (120,722) (73,487) (73,514) (32,245) (11,728) (5,784)
Rescissions (5,198) (9,660) (1,783) (1,852) (326) (354)
Other transactions (note 2) 238 250 240 (54) (36) (2)
---------- -------- -------- -------- --------- ---------
Net increase (decrease) in net assets
resulting from contract transactions (105,022) 354,040 173,756 150,091 (18,253) 51,596
---------- -------- -------- -------- --------- ---------
Increase (decrease) in net assets (87,304) 363,600 340,959 133,691 (18,198) 48,058
---------- -------- -------- -------- --------- ---------
Net assets at beginning of year 487,239 123,639 471,773 338,082 115,828 67,770
---------- -------- -------- -------- --------- ---------
Net assets at end of year $ 399,935 487,239 812,732 471,773 97,630 115,828
========== ======== ======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Real Real U.S. U.S.
High High Estate Estate Government Government
Income Income Securities Securities Securities Securities
Fund Fund Fund Fund Fund Fund
--------- -------- ----------- ----------- ----------- -----------
1995 1994 1995 1994 1995 1994
--------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 15,167 6,592 3,361 (357) 30,379 20,347
Realized gains (losses) on investments, net 3,298 2,133 1,477 79 2,695 1,513
Net change in unrealized appreciation
(depreciation) on investments 27,669 (15,346) 22,517 (466) 54,968 (57,407)
--------- -------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 46,134 (6,621) 27,355 (744) 88,042 (35,547)
--------- -------- ----------- ----------- ----------- -----------
Contract transactions (note 6):
Purchase payments 47,086 73,592 19,829 69,260 47,766 105,968
Transfers between funds 46,491 5,342 (12,435) 35,863 (5,307) (93,935)
Surrenders and terminations (43,591) (20,894) (17,397) (8,032) (74,423) (62,167)
Rescissions (1,643) (1,104) (277) (635) (1,813) (3,388)
Other transactions (note 2) 77 84 99 (9) 132 64
--------- -------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions 48,420 57,020 (10,181) 96,447 (33,645) (53,458)
--------- -------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 94,554 50,399 17,174 95,703 54,397 (89,005)
--------- -------- ----------- ----------- ----------- -----------
Net assets at beginning of year 229,026 178,627 181,599 85,896 504,837 593,842
--------- -------- ----------- ----------- ----------- -----------
Net assets at end of year $323,580 229,026 198,773 181,599 559,234 504,837
========= ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Zero Zero Zero Zero
Utility Utility Coupon Coupon Coupon Coupon
Equity Equity Fund - Fund - Fund - Fund -
Fund Fund 1995 1995 2000 2000
----------- ---------- -------- ------- -------- -------
1995 1994 1995 1994 1995 1994
----------- ---------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 48,876 31,566 2,395 2,048 2,895 2,226
Realized gains (losses) on investments, net 1,589 (4,505) 600 613 1,081 795
Net change in unrealized appreciation
(depreciation) on investments 255,500 (209,171) (597) (2,957) 12,514 (8,436)
----------- ---------- -------- ------- -------- -------
Net increase (decrease) in net assets
from operations 305,965 (182,110) 2,398 (296) 16,490 (5,415)
----------- ---------- -------- ------- -------- -------
Contract transactions (note 6):
Purchase payments 73,558 196,908 1,557 4,941 16,203 22,614
Transfers between funds 10,721 (313,095) (36,522) 3,202 13,339 1,608
Surrenders and terminations (141,926) (97,394) (13,413) (6,634) (10,927) (5,586)
Rescissions (1,891) (4,132) (49) (35) (263) (371)
Other transactions (note 2) 537 (179) 88 (8) (17) (11)
----------- ---------- -------- ------- -------- -------
Net increase (decrease) in net assets
resulting from contract transactions (59,001) (217,892) (48,339) 1,466 18,335 18,254
----------- ---------- -------- ------- -------- -------
Increase (decrease) in net assets 246,964 (400,002) (45,941) 1,170 34,825 12,839
----------- ---------- -------- ------- -------- -------
Net assets at beginning of year 1,058,531 1,458,533 45,941 44,771 76,140 63,301
----------- ---------- -------- ------- -------- -------
Net assets at end of year $1,305,495 1,058,531 - 45,941 110,965 76,140
=========== ========== ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Zero Zero Zero Zero
Coupon Coupon Coupon Coupon Global Global
Fund - Fund - Fund - Fund - Income Income
2005 2005 2010 2010 Fund Fund
-------- ------- ------- ------- -------- --------
1995 1994 1995 1994 1995 1994
-------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,752 1,027 1,068 736 5,291 3,045
Realized gains (losses) on investments, net 753 626 2,987 135 (206) 1,653
Net change in unrealized appreciation
(depreciation) on investments 13,063 (5,757) 15,696 (3,733) 22,286 (20,889)
-------- ------- ------- ------- -------- --------
Net increase (decrease) in net assets
from operations 15,568 (4,104) 19,751 (2,862) 27,371 (16,191)
-------- ------- ------- ------- -------- --------
Contract transactions (note 6):
Purchase payments 13,119 15,613 12,239 8,813 13,098 78,997
Transfers between funds 4,711 (294) 9,807 13,300 (21,421) (5,062)
Surrenders and terminations (4,654) (2,526) (5,624) (3,226) (29,898) (16,449)
Rescissions (185) (306) (469) (265) (400) (1,310)
Other transactions (note 2) (23) (96) 177 6 25 137
-------- ------- ------- ------- -------- --------
Net increase (decrease) in net assets
resulting from contract transactions 12,968 12,391 16,130 18,628 (38,596) 56,313
-------- ------- ------- ------- -------- --------
Increase (decrease) in net assets 28,536 8,287 35,881 15,766 (11,225) 40,122
-------- ------- ------- ------- -------- --------
Net assets at beginning of year 44,756 36,469 41,255 25,489 231,368 191,246
-------- ------- ------- ------- -------- --------
Net assets at end of year $73,292 44,756 77,136 41,255 220,143 231,368
======== ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Investment Investment Adjustable Adjustable
Grade Grade Income Income U.S. U.S.
Intermediate Intermediate Securities Securities Government Government
Bond Fund Bond Fund Fund Fund Fund Fund
-------------- ------------- ----------- ----------- ----------- -----------
1995 1994 1995 1994 1995 1994
-------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,922 1,833 44,301 14,009 9,723 8,204
Realized gains (losses) on investments, net 624 677 7,100 4,517 (1,327) (2,310)
Net change in unrealized appreciation
(depreciation) on investments 7,237 (3,562) 145,457 (86,577) 6,258 (10,031)
-------------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 11,783 (1,052) 196,858 (68,051) 14,654 (4,137)
-------------- ------------- ----------- ----------- ----------- -----------
Contract transactions (note 6):
Purchase payments 15,136 39,681 145,910 334,009 43,555 119,427
Transfers between funds 364 (430) 33,034 44,929 (75,287) (144,039)
Surrenders and terminations (16,323) (8,811) (125,202) (68,497) (27,666) (30,329)
Rescissions (379) (527) (3,470) (6,184) (1,087) (2,051)
Other transactions (note 2) (24) (2) 670 81 296 110
-------------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions (1,226) 29,911 50,942 304,338 (60,189) (56,882)
-------------- ------------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 10,557 28,859 247,800 236,287 (45,535) (61,019)
-------------- ------------- ----------- ----------- ----------- -----------
Net assets at beginning of year 139,325 110,466 927,343 691,056 220,042 281,061
-------------- ------------- ----------- ----------- ----------- -----------
Net assets at end of year $ 149,882 139,325 1,175,143 927,343 174,507 220,042
============== ============= =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Templeton Templeton Templeton Templeton
Pacific Pacific Rising Rising International International
Growth Growth Dividends Dividends Equity Equity
Fund Fund Fund Fund Fund Fund
----------- ---------- ---------- ---------- -------------- --------------
1995 1994 1995 1994 1995 1994
----------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,633 (3,669) 2,452 746 1,998 (6,764)
Realized gains (losses) on investments, net 3,150 2,541 1,323 (1,037) 20,155 6,161
Net change in unrealized appreciation
(depreciation) on investments 14,929 (32,730) 81,539 (14,714) 42,587 (22,558)
----------- ---------- ---------- ---------- -------------- --------------
Net increase (decrease) in net assets
from operations 19,712 (33,858) 85,314 (15,005) 64,740 (23,161)
----------- ---------- ---------- ---------- -------------- --------------
Contract transactions (note 6):
Purchase payments 27,022 145,620 42,756 62,677 99,403 301,166
Transfers between funds (52,319) 54,656 50,303 (19,751) (30,418) 196,400
Surrenders and terminations (35,125) (18,242) (35,907) (17,224) (72,338) (29,507)
Rescissions (1,057) (2,213) (750) (821) (2,115) (3,386)
Other transactions (note 2) (45) 16 131 122 59 87
----------- ---------- ---------- ---------- -------------- --------------
Net increase (decrease) in net assets
resulting from contract transactions (61,524) 179,837 56,533 25,003 (5,409) 464,760
----------- ---------- ---------- ---------- -------------- --------------
Increase (decrease) in net assets (41,812) 145,979 141,847 9,998 59,331 441,599
----------- ---------- ---------- ---------- -------------- --------------
Net assets at beginning of year 348,655 202,676 281,145 271,147 735,339 293,740
----------- ---------- ---------- ---------- -------------- --------------
Net assets at end of year $ 306,843 348,655 422,992 281,145 794,670 735,339
=========== ========== ========== ========== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Templeton Templeton Templeton Templeton
Developing Developing Templeton Templeton Global Global
Markets Markets Global Global Asset Asset
Equity Equity Growth Growth Allocation Allocation
Fund Fund Fund Fund Fund Fund
------------ ----------- ---------- ---------- ----------- ----------
1995 1994 1995 1994 1995 1994
------------ ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (1,241) (542) (2,008) (812) 127 -
Realized gains (losses) on investments, net (277) (77) 303 15 71 -
Net change in unrealized appreciation
(depreciation) on investments 3,149 (6,388) 26,429 356 323 -
------------ ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
from operations 1,631 (7,007) 24,724 (441) 521 -
------------ ----------- ---------- ---------- ----------- ----------
Contract transactions (note 6):
Purchase payments 42,027 57,484 119,490 89,328 5,580 -
Transfers between funds 22,865 43,967 46,237 64,368 9,316 -
Surrenders and terminations (7,387) (1,472) (15,658) (2,702) (1,163) -
Rescissions (1,069) (501) (1,966) (1,166) (27) -
Other transactions (note 2) (55) (2) 64 6 7 -
------------ ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from contract transactions 56,381 99,476 148,167 149,834 13,713 -
------------ ----------- ---------- ---------- ----------- ----------
Increase (decrease) in net assets 58,012 92,469 172,891 149,393 14,234 -
------------ ----------- ---------- ---------- ----------- ----------
Net assets at beginning of year 92,469 - 149,393 - - -
------------ ----------- ---------- ---------- ----------- ----------
Net assets at end of year $ 150,481 92,469 322,284 149,393 14,234 -
============ =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Small Small Total Total
Cap Cap All All
Fund Fund Funds Funds
-------- ----- ---------- ----------
1995 1994 1995 1994
-------- ----- ---------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (25) - 188,557 86,043
Realized gains (losses) on investments, net - - 68,622 24,691
Net change in unrealized appreciation
(depreciation) on investments 183 - 896,966 (527,714)
-------- ----- ---------- ----------
Net increase (decrease) in net assets
from operations 158 - 1,154,145 (416,980)
-------- ----- ---------- ----------
Contract transactions (note 6):
Purchase payments 2,140 - 1,087,266 2,292,042
Transfers between funds 11,013 - (11,990) -
Surrenders and terminations (36) - (884,622) (511,208)
Rescissions (19) - (26,236) (40,261)
Other transactions (note 2) 4 - 2,644 600
-------- ----- ---------- ----------
Net increase (decrease) in net assets
resulting from contract transactions 13,102 - 167,062 1,741,173
-------- ----- ---------- ----------
Increase (decrease) in net assets 13,260 - 1,321,207 1,324,193
-------- ----- ---------- ----------
Net assets at beginning of year - - 6,382,004 5,057,811
-------- ----- ---------- ----------
Net assets at end of year $13,260 - 7,703,211 6,382,004
======== ===== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
Allianz Life Variable Account B (Variable Account) is a segregated investment
account of Allianz Life Insurance Company of North America (Allianz Life) and
is registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established on May 31, 1985 and commenced
operations January 24, 1989. Accordingly, it is an accounting entity wherein
all segregated account transactions are reflected.
The Variable Account's assets are the property of Allianz Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and
underwritten by Allianz Life. The assets of the Variable Account, equal to
the reserves and other liabilities of the Variable Account, are not chargeable
with liabilities that arise from any other business which Allianz Life may
conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc., in accordance with the selection made by the contract owner.
Not all funds are available as investment options for the products which
comprise the Variable Account.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Allianz Life.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include realized gain distributions received from
the respective funds and gains on the sale of fund shares as determined by the
average cost method. Realized gain distributions are reinvested in the
respective funds. Dividend distributions received from the FVF are reinvested
in additional shares of the FVF and are recorded as income to the Variable
Account on the ex-dividend date.
A Fixed Account investment option is available to deferred annuity contract
owners. This account is comprised of equity and fixed income investments
which are part of the general assets of Allianz Life. The liabilities of the
Fixed Account are part of the general obligations of Allianz Life and are not
included in the Variable Account. The guaranteed minimum rate of return on
the Fixed Account is 3%.
The Templeton Developing Markets Equity Fund and Templeton Global Growth Fund
were added as available investment options on March 15, 1994. The Templeton
Global Asset Allocation Fund, Fixed Account and Small Cap Fund were added as
available investment options on May 1, 1995, October 1, 1995 and November 1,
1995, respectively. The Zero Coupon - 1995 Fund matured and was closed on
December 15, 1995.
In April 1995, the Equity Growth Fund name was changed to Growth and Income
Fund.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3% or 5%. Charges to
annuity reserves for mortality and risk expense are reimbursed to Allianz Life
if the reserves required are less than originally estimated. If additional
reserves are required, Allianz Life reimburses the account.
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to 1.25% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily
basis equal, on an annual basis, to 0.15% of the daily net assets of the
Variable Account.
CONTRACT BASED EXPENSES
A contract maintenance charge is paid by the contract owner annually from each
deferred annuity contract by liquidating contract units at the end of the
contract year and at the time of full surrender. The amount of the charge is
$30 each year. Contract maintenance charges paid by the contract owners
during the years ended December 31, 1995 and 1994 were $4,294,361 and
$3,070,519, respectively. These contract charges are reflected in the
Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this
purpose, purchase payments are allocated 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; and (b) multiplying
each allocated purchase payment that has been held under the contract for the
period shown below by the charge shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VALUEMARK II VALUEMARK III
- ------------------- -------------------
Years Since Payment Charge Years Since Payment Charge
- ------------------- ------- ------------------- -------
0-1 5% 0-1 6%
1-2 5% 1-2 5%
2-3 4% 2-3 4%
3-4 3% 3-4 3%
4-5 1.5% 4-5 1.5%
5+ 0% 5+ 0%
</TABLE>
and (c) adding the products of each multiplication in (b) above.
A deferred annuity contract owner may, not more frequently than once annually
on a cumulative basis, make a surrender each contract year of fifteen percent
(15%) of purchase payments paid, less any prior surrenders, without incurring
a 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. Total
contingent deferred sales charges paid by the contract owners for the years
ended December 31, 1995 and 1994 were $12,373,225 and $8,600,401,
respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges paid by the contract owners for the years ended
December 31, 1995 and 1994 were $119,180 and $88,989, respectively. Transfer
charges are reflected in the financial statements as other transactions.
Transfers to the Fixed Account were $11,989,631 during the year ended December
31, 1995.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Allianz Life may, in 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 Allianz
Life may have to deduct such amounts at a later date.
On certain contracts, a systematic withdrawal plan is available which allows
an owner to withdraw up to 9% of purchase payments less prior surrenders
annually, paid monthly or quarterly, without incurring a contingent deferred
sales charge. The exercise of the systematic withdrawal plan in any contract
year replaces the 15% penalty free privilege for that year.
A rescission is defined as a contract that is returned to the Company by the
Contract Owner and canceled within the free-look period, generally within 10
days.
3. CAPITALIZATION
On January 5, 1994, $100 and $500,100 was provided by Allianz Life for the
establishment of the Templeton Developing Markets Equity Fund and Templeton
Global Growth Fund, respectively. All investments were withdrawn by Allianz
Life on August 29, 1994 at the then-current market value of $535,212.
On April 18, 1995, $500,000 was provided by Allianz Life for the establishment
of the Templeton Global Asset Allocation Fund. All investments were withdrawn
by Allianz Life on December 21, 1995 at the then-current market value of
$525,500.
On September 18, 1995, $250,000 was provided by Allianz Life for the
establishment of the Small Cap Fund. On December 31, 1995, the market value
of this investment was $255,750.
4. INVESTMENT TRANSACTIONS
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund $334,323
Growth and Income Fund 228,178
Precious Metals Fund 47,816
High Income Fund 113,096
Real Estate Securities Fund 27,566
U.S. Government Securities Fund 81,756
Utility Equity Fund 125,296
Zero Coupon Fund - 1995 7,693
Zero Coupon Fund - 2000 33,059
Zero Coupon Fund - 2005 23,101
Zero Coupon Fund - 2010 51,558
Global Income Fund 21,630
Investment Grade Intermediate Bond Fund 19,654
Income Securities Fund 163,073
Adjustable U.S. Government Fund 36,931
Templeton Pacific Growth Fund 85,778
Rising Dividends Fund 80,456
Templeton International Equity Fund 112,294
Templeton Developing Markets Equity Fund 74,549
Templeton Global Growth Fund 152,536
Templeton Global Asset Allocation Fund 18,572
Small Cap Fund 13,104
</TABLE>
5. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Allianz Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Allianz Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If in the future Allianz Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA)
Transactions in units for each fund for the years ended December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
--------- -------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1993 10,247 24,719 4,685 11,787 5,589 40,402
Contract transactions:
Purchase payments 33,071 9,135 2,732 4,967 4,417 7,429
Transfers between funds 2,902 4,379 1,303 422 2,206 (6,649)
Surrenders and terminations (6,011) (2,397) (409) (1,428) (525) (4,458)
Rescissions (792) (137) (26) (75) (41) (239)
Other transactions 20 (4) - 6 (1) 5
--------- -------- --------- -------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions 29,190 10,976 3,600 3,892 6,056 (3,912)
--------- -------- --------- -------- ----------- -----------
Accumulation units outstanding at December 31, 1994 39,437 35,695 8,285 15,679 11,645 36,490
========= ======== ========= ======== =========== ===========
Accumulation unit value per unit at December 31, 1994 $ 12.354 13.215 13.979 14.608 15.594 13.835
========= ======== ========= ======== =========== ===========
Contract transactions:
Purchase payments 15,069 6,403 796 2,877 1,233 3,115
Transfers between funds (13,495) 9,757 (1,290) 2,959 (792) (266)
Surrenders and terminations (9,580) (4,859) (846) (2,661) (1,077) (4,916)
Rescissions (410) (118) (24) (102) (17) (118)
Other transactions 19 15 (2) 4 6 8
--------- -------- --------- -------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions (8,397) 11,198 (1,366) 3,077 (647) (2,177)
--------- -------- --------- -------- ----------- -----------
Accumulation units outstanding at December 31, 1995 31,040 46,893 6,919 18,756 10,998 34,313
========= ======== ========= ======== =========== ===========
Accumulation unit value per unit at December 31, 1995 $ 12.883 17.310 14.109 17.252 18.073 16.298
========= ======== ========= ======== =========== ===========
Accumulation net assets at December 31, 1995 $399,901 811,706 97,630 323,580 198,773 559,234
========= ======== ========= ======== =========== ===========
</TABLE>
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA) (CONTINUED)
<TABLE>
<CAPTION>
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
----------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1993 84,217 3,092 3,787 2,020 1,405 13,054
Contract transactions:
Purchase payments 12,472 344 1,434 942 541 5,526
Transfers between funds (19,941) 224 114 (4) 864 (465)
Surrenders and terminations (6,391) (462) (357) (154) (204) (1,178)
Rescissions (264) (2) (24) (18) (17) (92)
Other transactions (11) (1) (1) (6) - 10
----------- ------- -------- ------- ------- --------
Net increase (decrease) in accumulation
units resulting from contract transactions (14,135) 103 1,166 760 1,184 3,801
----------- ------- -------- ------- ------- --------
Accumulation units outstanding at December 31, 1994 70,082 3,195 4,953 2,780 2,589 16,855
=========== ======= ======== ======= ======= ========
Accumulation unit value per unit at December 31, 1994 $ 15.104 14.380 15.373 16.096 15.930 13.726
=========== ======= ======== ======= ======= ========
Contract transactions:
Purchase payments 4,303 106 966 715 652 904
Transfers between funds 736 (2,398) 800 269 511 (1,494)
Surrenders and terminations (8,372) (905) (636) (249) (297) (2,058)
Rescissions (113) (3) (16) (10) (27) (28)
Other transactions 33 5 (1) (1) 9 2
----------- ------- -------- ------- ------- --------
Net increase (decrease) in accumulation
units resulting from contract transactions (3,413) (3,195) 1,113 724 848 (2,674)
----------- ------- -------- ------- ------- --------
Accumulation units outstanding at December 31, 1995 66,669 - 6,066 3,504 3,437 14,181
=========== ======= ======== ======= ======= ========
Accumulation unit value per unit at December 31, 1995 $ 19.565 - 18.294 20.914 22.431 15.522
=========== ======= ======== ======= ======= ========
Accumulation net assets at December 31, 1995 $1,304,348 - 110,965 73,292 77,136 220,143
=========== ======= ======== ======= ======= ========
</TABLE>
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA) (CONTINUED)
<TABLE>
<CAPTION>
Investment Adjustable Templeton
Grade Income U.S. Pacific Rising
Intermediate Securities Government Growth Dividends
Bond Fund Fund Fund Fund Fund
-------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1993 7,677 38,967 24,975 14,240 26,256
Contract transactions:
Purchase payments 2,779 19,487 10,678 10,676 6,295
Transfers between funds (28) 2,539 (12,898) 3,849 (1,955)
Surrenders and terminations (619) (4,065) (2,716) (1,371) (1,748)
Rescissions (37) (364) (184) (164) (83)
Other transactions - 5 10 1 13
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,095 17,602 (5,110) 12,991 2,522
-------------- ----------- ----------- ---------- ----------
Accumulation units outstanding at December 31, 1994 9,772 56,569 19,865 27,231 28,778
============== =========== =========== ========== ==========
Accumulation unit value per unit at December 31, 1994 $ 14.257 16.392 11.077 12.802 9.769
============== =========== =========== ========== ==========
Contract transactions:
Purchase payments 1,016 7,979 3,753 2,065 3,782
Transfers between funds 30 1,879 (6,551) (4,013) 4,493
Surrenders and terminations (1,099) (6,965) (2,397) (2,714) (3,208)
Rescissions (25) (192) (95) (82) (68)
Other transactions (2) 39 25 (4) 12
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions (80) 2,740 (5,265) (4,748) 5,011
-------------- ----------- ----------- ---------- ----------
Accumulation units outstanding at December 31, 1995 9,692 59,309 14,600 22,483 33,789
============== =========== =========== ========== ==========
Accumulation unit value per unit at December 31, 1995 $ 15.463 19.785 11.951 13.630 12.498
============== =========== =========== ========== ==========
Accumulation net assets at December 31, 1995 $ 149,882 1,173,447 174,507 306,448 422,318
============== =========== =========== ========== ==========
</TABLE>
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA) (CONTINUED)
<TABLE>
<CAPTION>
Templeton Templeton
Templeton Developing Templeton Global
International Markets Global Asset Small Total
Equity Equity Growth Allocation Cap All
Fund Fund Fund Fund Fund Funds
--------------- ----------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1993 24,026 - - - - 341,145
Contract transactions:
Purchase payments 23,800 5,673 8,715 - - 171,113
Transfers between funds 15,240 4,296 6,300 - - 2,698
Surrenders and terminations (2,341) (146) (265) - - (37,245)
Rescissions (268) (49) (114) - - (2,990)
Other transactions 7 - 1 - - 54
--------------- ----------- ---------- ----------- ------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions 36,438 9,774 14,637 - - 133,630
--------------- ----------- ---------- ----------- ------- ----------
Accumulation units outstanding
at December 31, 1994 60,464 9,774 14,637 - - 474,775
=============== =========== ========== =========== ======= ==========
Accumulation unit value per
unit at December 31, 1994 $ 12.161 9.454 10.201 - -
=============== =========== ========== =========== =======
Contract transactions:
Purchase payments 7,774 4,364 10,991 538 212 79,613
Transfers between funds (2,530) 2,372 4,306 916 1,096 (2,705)
Surrenders and terminations (5,662) (773) (1,448) (114) (4) (60,840)
Rescissions (168) (112) (183) (3) (2) (1,916)
Other transactions 5 (7) 6 1 - 172
--------------- ----------- ---------- ----------- ------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions (581) 5,844 13,672 1,338 1,302 14,324
--------------- ----------- ---------- ----------- ------- ----------
Accumulation units outstanding
at December 31, 1995 59,883 15,618 28,309 1,338 1,302 489,099
=============== =========== ========== =========== ======= ==========
Accumulation unit value per
unit at December 31, 1995 $ 13.263 9.582 11.339 10.591 10.146
=============== =========== ========== =========== =======
Accumulation net assets at December 31, 1995 $ 794,226 149,649 320,997 14,167 13,211 7,695,560
=============== =========== ========== =========== ======= ==========
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995 and 1994
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allianz Life Insurance Company of North America:
We have audited the accompanying consolidated balance sheets of Allianz Life
Insurance Company of North America (a wholly owned subsidiary of Allianz of
America, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Allianz Life Insurance Company of North America and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and changes in
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
In 1994, as discussed in note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In 1993, as discussed in notes 1,
8 and 10 to the consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 106, Accounting for Postretirement Benefits
Other Than Pensions and No. 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
February 6, 1996
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(in thousands except share data)
Assets 1995 1994
- ---------------------------------------------------------- ----------- ----------
<S> <C> <C>
Investments:
Fixed maturities, at amortized cost $ 0 90,615
Fixed maturities, at market 2,549,598 1,906,208
Equity securities, at market 254,458 131,712
Mortgage loans on real estate 203,128 163,099
Real estate, at cost 8,806 4,685
Investment in real estate partnerships, at equity 11,975 12,551
Certificates of deposit and short-term securities 31,501 155,307
Policy loans 104,184 101,899
Other long-term investments 650 1,117
----------- ----------
Total investments 3,164,300 2,567,193
Cash 10,936 63,883
Accrued investment income 36,858 34,786
Receivables (net of allowance for uncollectible
accounts of $7,697 in 1995 and $9,607 in 1994) 124,700 111,400
Reinsurance receivable:
Funds held on deposit 1,060,566 927,353
Recoverable on future policy benefit reserves 43,248 35,387
Recoverable on unpaid claims 109,075 105,603
Receivable on paid claims 22,172 26,736
Prepaid insurance premiums 4,078 4,317
Home office property and equipment (net of accumulated
depreciation of $21,256 in 1995 and $28,547 in 1994) 8,790 11,612
Deferred acquisition costs 826,994 798,442
Federal income tax recoverable 3,947 3,794
Other assets 11,048 9,818
----------- ----------
Assets, exclusive of separate account assets 5,426,712 4,700,324
Separate account assets 8,402,003 6,965,755
----------- ----------
Total assets $13,828,715 11,666,079
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1995 and 1994
(in thousands except share data)
Liabilities and Stockholder's Equity 1995 1994
- --------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Liabilities:
Future policy benefit reserves:
Life $ 1,088,964 1,022,537
Annuity 2,601,943 2,304,560
Policy and contract claims 371,898 355,411
Unearned premiums 34,181 40,376
Reinsurance payable 72,838 81,507
Deferred income taxes 140,174 5,807
Accrued expenses 41,266 29,006
Commissions due and accrued 22,979 24,190
Other policyholder funds 82,138 73,509
Other liabilities 19,137 76,314
------------ -----------
Liabilities, exclusive of separate account liabilities 4,475,518 4,013,217
Separate account liabilities 8,402,003 6,965,755
------------ -----------
Total liabilities 12,877,521 10,978,972
------------ -----------
Minority interest in subsidiary 0 7,662
------------ -----------
Stockholder's equity:
Common stock, $1 par value, 20,000,000 shares
authorized, issued and outstanding 20,000 20,000
Preferred stock, $1 par value, cumulative, 200 million
shares authorized, 25 million shares issued and outstanding
in 1995 and 40 million shares issued and outstanding in 1994 25,000 40,000
Additional paid-in capital 407,088 406,494
Net unrealized holding gain (loss) on securities
available-for-sale, net of deferred federal income taxes 139,204 (62,073)
Net unrealized Canadian currency loss (3,455) (3,787)
Retained earnings 363,357 278,811
------------ -----------
Total stockholder's equity 951,194 679,445
------------ -----------
Commitments and contingencies (notes 7 and 12)
Total liabilities and stockholder's equity $13,828,715 11,666,079
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 257,647 234,295 217,717
Other life policy considerations 93,158 92,254 88,003
Annuity considerations 147,112 120,240 69,583
Accident and health premiums 527,059 547,508 508,785
----------- --------- ---------
Total premiums and considerations 1,024,976 994,297 884,088
Premiums ceded 223,226 244,208 202,904
----------- --------- ---------
Net premiums and considerations 801,750 750,089 681,184
Investment income, net 201,158 181,291 174,831
Realized investment gains, net 29,202 829 28,318
Other 10,140 12,703 9,347
----------- --------- ---------
Total revenue 1,042,250 944,912 893,680
----------- --------- ---------
Benefits and expenses:
Life insurance benefits 268,163 254,326 233,694
Annuity benefits 145,636 131,793 113,500
Accident and health insurance benefits 374,743 379,122 341,676
----------- --------- ---------
Total benefits 788,542 765,241 688,870
Benefit recoveries 210,702 212,144 155,043
----------- --------- ---------
Net benefits 577,840 553,097 533,827
Commissions and other agent compensation 233,939 313,715 398,161
General and administrative expenses 115,419 111,116 109,333
Taxes, licenses and fees 17,672 22,514 25,239
Increase in deferred acquisition costs, net (28,552) (132,090) (253,234)
Minority interest in income of consolidated subsidiary (30) (66) 0
----------- --------- ---------
Total benefits and expenses 916,288 868,286 813,326
----------- --------- ---------
Income from operations before income taxes 125,962 76,626 80,354
----------- --------- ---------
Income tax expense (benefit):
Current 12,993 5,098 30,215
Deferred 25,772 16,053 (6,496)
----------- --------- ---------
Total income tax expense 38,765 21,151 23,719
----------- --------- ---------
Income before cumulative effect of
changes in accounting 87,197 55,475 56,635
Cumulative effect of changes in accounting 0 0 26,875
----------- --------- ---------
Net income $ 87,197 55,475 83,510
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 20,000 20,000 20,000
--------- --------- --------
Preferred Stock:
Balance at beginning of year 40,000 0 0
Issuance of stock during the year 0 40,000 0
Redemption of stock during the year (15,000) 0 0
--------- --------- --------
Balance at end of year 25,000 40,000 0
--------- --------- --------
Additional paid-in capital:
Balance at beginning of year 406,494 401,304 401,304
Additional contribution from parent 594 5,190 0
--------- --------- --------
Balance at end of year 407,088 406,494 401,304
--------- --------- --------
Net unrealized gain (loss) on investments:
Balance at beginning of year (62,073) 9,071 12,071
Cumulative effect of implementation of Statement
No. 115, net of deferred federal income taxes 0 74,866 0
Net unrealized gain on securities transferred
from held-to-maturity to available-for-sale
classification, net of deferred federal income taxes 1,789 0 0
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 199,488 (146,010) (3,000)
--------- --------- --------
Balance at end of year 139,204 (62,073) 9,071
--------- --------- --------
Net unrealized Canadian currency gain (loss):
Balance at beginning of year (3,787) (2,708) (1,835)
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 332 (1,079) (873)
--------- --------- --------
Balance at end of year (3,455) (3,787) (2,708)
--------- --------- --------
Retained earnings:
Balance at beginning of year 278,811 223,749 140,239
Net income 87,197 55,475 83,510
Cash dividend to stockholder (2,651) (413) 0
--------- --------- --------
Balance at end of year 363,357 278,811 223,749
--------- --------- --------
Total stockholder's equity $951,194 679,445 651,416
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 87,197 55,475 83,510
---------- --------- ---------
Adjustments to reconcile net income to net
cash used in operating activities:
Realized gains on investments (29,202) (829) (28,318)
Deferred federal income tax (benefit) expense 25,772 16,053 (6,496)
Cumulative effect of changes in accounting 0 0 (26,875)
Charges to policy account balances (120,254) (125,488) (105,912)
Interest credited to policy account balances 169,151 150,490 147,983
Change in:
Accrued investment income (2,072) (764) (2,725)
Receivables (13,300) 12,040 (20,206)
Reinsurance receivables (190,953) (93,453) (107,809)
Deferred acquisition costs (28,552) (132,090) (253,234)
Future policy benefit reserves 66,932 20,791 (9,557)
Policy and contract claims 25,116 25,072 40,211
Unearned premiums (6,195) (1,194) (2,111)
Reinsurance payable (8,669) 19,779 31,653
Current tax recoverable (153) (6,255) 1,085
Deferred tax liability 0 0 15,936
Accrued expenses and other liabilities (43,867) 54,626 14,657
Commissions due and accrued (1,211) 3,316 1,461
Depreciation and amortization (23,391) (11,498) (7,681)
Other, net 916 (86) 2,303
---------- --------- ---------
Total adjustments (179,932) (69,490) (315,635)
---------- --------- ---------
Net cash used in operating activities (92,735) (14,015) (232,125)
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
------------ --------- -----------
<S> <C> <C> <C>
Cash flows used in investing activities:
Purchase of fixed maturities, at amortized cost $ 0 0 (1,191,749)
Purchase of fixed maturities, at market (1,533,290) (928,532) 0
Purchase of equity securities (166,701) (145,267) (205,345)
Purchase of other long-term investments 0 (467) (650)
Funding of mortgage loans (66,301) (64,808) (20,097)
Sale of fixed maturities, at amortized cost 0 0 666,893
Sale of fixed maturities, at market 1,242,988 791,659 0
Matured or redeemed fixed maturities, at amortized cost 7,022 4,342 314,223
Matured fixed maturities, at market 38,991 32,508 0
Sale of equity securities 97,619 150,347 217,524
Repayment of mortgage loans 25,563 28,206 15,989
Sale of minority interest in subsidiary 0 0 8,189
Purchase of minority interest's shares in subsidiary (7,903) 0 0
Net change in certificates of deposit and
short-term securities 123,806 (96,344) 33,330
Other (2,851) (6,232) 782
------------ --------- -----------
Net cash used in investing activities (241,057) (234,588) (160,911)
------------ --------- -----------
Cash flows used in financing activities:
Policyholders' deposits to account balances $ 553,699 526,918 639,633
Policyholders' withdrawals from account balances (291,102) (235,309) (164,911)
Change in assets held under reinsurance agreements 36,354 (59,349) (75,658)
Net change in mortgage notes payable (1,049) (39) (36)
Additional paid-in capital from parent 594 5,190 0
Preferred stock transactions (15,000) 40,000 0
Cash dividends paid (2,651) (413) 0
------------ --------- -----------
Net cash used in financing activities 280,845 276,998 399,028
------------ --------- -----------
Net change in cash (52,947) 28,395 5,992
Cash at beginning of year 63,883 35,488 29,496
------------ --------- -----------
Cash at end of year $ 10,936 63,883 35,488
============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allianz Life Insurance Company of North America (the Company) is a wholly
owned subsidiary of Allianz of America, Inc. (AZOA), a majority-owned
subsidiary of Allianz A.G. Holding, a Federal Republic of Germany company.
The Company is a life insurance company which is licensed to sell both group
and individual life, annuity and accident and health policies in the United
States, Canada and several U.S. territories. Based on 1995 gross premium
volume, 13%, 71% and 16% of the Company's business is life, annuity and
accident and health, respectively. The Company's primary distribution
channels are through strategic alliances with other insurance companies and
third party marketing organizations. The Company has a significant
relationship as of December 31, 1995 with a mutual fund company and its
broker/dealer network related to sales of its variable life and variable
annuity products and another significant administration, marketing and
reinsurance relationship with an unrelated insurance company.
Following is a summary of the significant accounting policies reflected in the
accompanying consolidated financial statements.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) which vary in certain respects
from accounting rules prescribed or permitted by state insurance regulatory
authorities. The accounts of the Company's major subsidiaries, Preferred Life
Insurance Company of New York and Canadian American Financial Corporation and
other less significant subsidiaries have been consolidated. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts as previously reported have been reclassified to be consistent
with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
significantly from management's estimates.
RECOGNITION OF TRADITIONAL LIFE, GROUP LIFE AND GROUP ACCIDENT AND HEALTH
REVENUE
Traditional life products include products with guaranteed premiums and
benefits and consist principally of whole life and term insurance policies,
limited payment contracts and certain annuity products with life
contingencies.
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses for
traditional and group products are matched with earned premiums so that
profits are recognized over the premium paying periods of the contracts. This
matching is accomplished by establishing provisions for future policy benefits
and policy and contract claims, and deferring and amortizing related policy
acquisition costs.
<PAGE>
RECOGNITION OF NONTRADITIONAL AND VARIABLE LIFE AND ANNUITY REVENUE
Nontraditional and variable life insurance and interest sensitive contracts
that have significant mortality or morbidity risk are accounted for in
accordance with the retrospective deposit method. Interest sensitive
contracts that do not have significant mortality or morbidity risk are
accounted for in a manner consistent with interest bearing financial
instruments. For both types of contracts, premium receipts are reported as
deposits to the contractholder's account while revenues consist of amounts
assessed against contractholders including surrender charges and earned
administrative service fees. Mortality or morbidity charges are also
accounted for as revenue on those contracts containing mortality or morbidity
risk. Benefits consist of interest credited to contractholder's accounts and
claims or benefits incurred in excess of the contractholder's balance.
DEFERRED ACQUISITION COSTS
Acquisition costs, consisting of commissions and other costs which vary with
and are primarily related to production of new business, are deferred. For
traditional life and group life products, such costs are amortized over the
revenue-producing period of the related policies using the same actuarial
assumptions used in computing future policy benefit reserves. Acquisition
costs for accident and health insurance policies are deferred and amortized
over the lives of the policies in the same manner as premiums are earned. For
interest sensitive products, acquisition costs are amortized in relation to
the present value of expected future gross profits from investment margins and
mortality, morbidity and expense charges. Deferred acquisition costs amortized
during 1995, 1994 and 1993 were $117,782, $108,676 and $72,431, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves on traditional life products are computed by
the net level premium method based upon estimated future investment yield,
mortality and withdrawal assumptions, commensurate with the Company's
experience, modified as necessary to reflect anticipated trends, including
possible unfavorable deviations. Most life reserve interest assumptions are
graded from 9% to 5.5%.
Future policy benefit reserves for interest sensitive products are generally
carried at accumulated contract values. Reserves on some deferred annuity
contracts are computed based on contractholder cash value accumulations,
adjusted for mortality, withdrawal and interest margin assumptions.
Fair values of investment contracts, which include deferred annuities and
other annuities without significant mortality risk, were determined by testing
amounts payable on demand against discounted cash flows using interest rates
commensurate with the risks involved. Fair values are based on the amount
payable on demand at December 31, 1995 and 1994.
POLICY AND CONTRACT CLAIMS
Policy and contract claims represent an estimate of claims and claim
adjustment expenses on accident and health and life insurance policies that
have been reported but not yet paid and incurred but not yet reported as of
December 31.
REINSURANCE
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts
are recorded as reinsurance receivable. Reinsurance receivables are recognized
in a manner consistent with the liabilities related to the underlying
reinsured contracts.
<PAGE>
INVESTMENTS
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities which addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are classified in one of
three categories. Debt securities that the Company has the positive intent
and ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost. Debt and equity securities bought
and held principally for the purpose of selling them in the near term are
classified as "trading securities" and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not
classified as either "held-to-maturity securities" or "trading securities" are
classified as "available-for-sale securities" and reported at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of deferred taxes. SFAS No. 115 did not permit retroactive
application of its provisions. The Company classified the majority of its
investment portfolio as "available-for-sale securities" with a limited number
of securities classified as "held-to-maturity" at January 1, 1994.
At December 31, 1995, the Company transferred all of its securities with an
amortized cost of $83,357 classified as "held-to-maturity' to the
"available-for-sale" classifications as provided in the Financial Accounting
Standards Board (FASB) Special Report on the implementation of SFAS No. 115.
The effect of this transfer was an increase in stockholder's equity of $1,789.
All of the Company's investment portfolio is classified as
"available-for-sale" at December 31, 1995.
Short-term investments are carried at amortized cost which approximates
market. Policy loans are reflected at their unpaid principal balances.
Mortgage loans are reflected at unpaid principal balances adjusted for premium
and discount amortization and an allowance for uncollectible balances. During
1995, the Company adopted SFAS No. 114, Accounting by Creditors for Impairment
of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures. SFAS No. 114 addresses accounting by
creditors for impairment of certain loans. It requires that impaired loans
within the scope of the Statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, alternatively, at the loan's observable market price of the fair value of
supporting collateral. The Company analyzes loan impairment at least once a
year when assessing the adequacy of the allowance for possible credit losses.
SFAS No. 118 permits existing income recognition practices to continue. The
Company does not accrue interest on impaired loans and accounts for interest
income on a cash basis. The adoption of these Statements did not have a
material impact on the Company's net income or financial position.
Investments in real estate are reflected at the lower of cost or market value.
Real estate occupied by the Company is reflected at cost, less accumulated
depreciation. Investments in real estate, exclusive of land, are being
depreciated on a straight-line basis over estimated useful lives ranging from
3 to 30 years.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1995 and 1994, investments with a carrying value of $37,879
and $44,337, respectively, were held on deposit with various insurance
departments as required by statutory regulations.
The fair values of invested assets, excluding investments in real estate, are
deemed by management to approximate their estimated market values. The fair
value of mortgage loans has been calculated using discounted cash flows and is
based on pertinent information available to management as of year end. Policy
loan balances which are supported by the underlying cash value of the policies
approximate fair value. Changes in market conditions subsequent to year end
<PAGE>
may cause estimates of fair values to differ from the amounts presented
herein.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
SEPARATE ACCOUNTS
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the policyholders and contractholders.
Each account has specific investment objectives and the assets are carried at
market value. The assets of each account are legally segregated and are not
subject to claims which arise out of any other business of the Company.
Fair values of separate accounts assets were determined using the market value
of the investments held in segregated fund accounts. Fair values of separate
accounts liabilities were determined using the cash surrender values of the
policyholder's and contractholder's account.
RECEIVABLES
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
ACCOUNTING CHANGES
The impact of implementation of SFAS No. 115 in 1994 was an increase in equity
of $74,866 at January 1, 1994.
<TABLE>
<CAPTION>
The table below presents the cumulative effect of changes, net of tax, in
accounting principles implemented in 1993 on after tax net income:
<S> <C>
SFAS No. 106, Accounting for Postretirement Benefits Other Than Pensions $(4,006)
SFAS No. 109, Accounting for Income Taxes 30,881
--------
Total cumulative effect on after tax net income
of changes in accounting principles $26,875
========
</TABLE>
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
SFAS No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of by a company. The Company will adopt SFAS No. 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
<PAGE>
(2) BUSINESS COMBINATION
On May 31, 1993, the Company acquired the majority of the assets and
liabilities of Fidelity Union Life Insurance Company (FULICO), a wholly owned
subsidiary of AZOA, through an assumption reinsurance arrangement. FULICO
remained in existence retaining only its corporate charter and those assets
necessary to maintain its charter and licenses to conduct life insurance and
annuity business until it was sold in 1994.
The Company accounted for this transaction as an "as-if pooling of interests"
involving the combination of entities under the common control of AZOA.
Accordingly, all financial data for periods prior to May 31, 1993 were
restated to include the operations of FULICO and all intercompany transactions
were eliminated.
<TABLE>
<CAPTION>
Total revenues and net income, before adoption of any changes in accounting,
of the separate companies for the five-months ended May 31, 1993 were:
Allianz Life FULICO Combined
------------- ------ --------
<S> <C> <C> <C>
Five-months ended May 31, 1993:
Total revenue $ 309,159 78,814 387,973
Net income 19,224 12,944 32,168
</TABLE>
(3) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1995 consist of:
Amount
Amortized Estimated shown on
cost fair balance
or cost value sheet
---------- --------- ---------
<S> <C> <C> <C>
Fixed maturities - Available-for-sale:
U.S. government $ 793,311 867,793 867,793
States and political subdivisions 469 481 481
Foreign government 254,457 265,797 265,797
Public utilities 32,100 36,728 36,728
Corporate securities 709,906 747,609 747,609
Mortgage backed securities 516,538 548,182 548,182
Collateralized mortgage obligations 80,949 83,008 83,008
---------- --------- ---------
Total fixed maturities $2,387,730 2,549,598 2,549,598
---------- --------- ---------
Equity securities - Available-for-sale:
Common stocks:
Public utilities 9,305 10,377 10,377
Banks, trusts and insurance companies 6,305 7,108 7,108
Industrial and miscellaneous 171,163 221,002 221,002
Nonredeemable preferred stocks 14,835 15,971 15,971
---------- --------- ---------
Total equity securities $ 201,608 254,458 254,458
---------- --------- ---------
<PAGE>
Other investments:
Mortgage loans on real estate 203,128 XXXXXXXXX 203,128
Real estate:
Investment properties 8,806 XXXXXXXXX 8,806
Partnerships 11,975 XXXXXXXXX 11,975
Certificates of deposit and short term securities 31,501 XXXXXXXXX 31,501
Policy loans 104,184 XXXXXXXXX 104,184
Other long term investments 650 XXXXXXXXX 650
---------- --------- ---------
Total other investments $ 360,244 XXXXXXXXX 360,244
---------- --------- ---------
Total investments $2,949,582 XXXXXXXXX 3,164,300
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 and 1994, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of marketable securities are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Available-for-sale:
U.S. government $ 793,311 74,482 0 867,793
States and political subdivisions 469 12 0 481
Foreign government 254,457 11,613 273 265,797
Public utilities 32,100 4,628 0 36,728
Corporate securities 709,906 41,746 4,043 747,609
Mortgage backed securities 516,538 31,644 0 548,182
Collateralized mortgage obligations 80,949 2,751 692 83,008
---------- ---------- ---------- ---------
Total fixed maturities 2,387,730 166,876 5,008 2,549,598
Equity securities 201,608 61,753 8,903 254,458
---------- ---------- ---------- ---------
Total $2,589,338 228,629 13,911 2,804,056
========== ========== ========== =========
1994:
Held-to maturity:
Corporate securities $ 90,615 110 5,166 85,559
---------- ---------- ---------- ---------
Total held-to-maturity 90,615 110 5,166 85,559
---------- ---------- ---------- ---------
Available-for-sale:
U.S. government 495,048 49 31,403 463,694
States and political subdivisions 519 3 24 498
Foreign government 44,818 562 1,886 43,494
Public utilities 79,170 1,154 322 80,002
Corporate securities 1,099,623 7,034 63,790 1,042,867
Mortgage backed securities 228,894 0 7,815 221,079
Collateralized mortgage obligations 57,739 0 3,165 54,574
---------- ---------- ---------- ---------
Total fixed maturities 2,005,811 8,802 108,405 1,906,208
Equity securities 127,048 18,556 13,892 131,712
---------- ---------- ---------- ---------
Total available-for-sale 2,132,859 27,358 122,297 2,037,920
---------- ---------- ---------- ---------
Total $2,223,474 27,468 127,463 2,123,479
========== ========== ========== =========
</TABLE>
<PAGE>
The changes in unrealized gains (losses) on fixed maturities
available-for-sale securities were $261,471 and $(214,245) and the changes in
unrealized losses on held-to-maturity securities were $0 and $(8,783) for the
years ended December 31, 1995 and 1994, respectively. The change in
unrealized gains from fixed maturities was $33,645 for the year ended December
31, 1993.
The changes in unrealized gains (losses) in equity investments, which include
common stocks and nonredeemable preferred stocks, and other investments were
$48,186, $(9,587) and $(2,468) for the years ended December 31, 1995, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of fixed maturities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated
cost fair value
---------- ----------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 3,494 3,552
Due after one year through five years 282,290 295,698
Due after five years through ten years 1,252,516 1,337,963
Due after ten years 251,943 281,195
Mortgage backed securities 597,487 631,190
---------- ----------
Totals $2,387,730 2,549,598
========== ==========
</TABLE>
Gross gains of $41,962 and $26,848 and gross losses of $14,607 and $26,805
were realized on sales of available-for-sale securities in 1995 and 1994,
respectively; related taxes were $9,574 and $715 in 1995 and 1994,
respectively. Proceeds from redemptions of held-to-maturity securities
during 1995 and 1994 were $7,022 and $4,342, respectively, with no gain
or loss realized on the transactions. Proceeds from sales of fixed
maturity securities in 1993 were $666,893. Gross gains of $25,229 and
gross losses of $2,102 were realized on sales of fixed maturities in 1993;
related taxes were $8,094.
<TABLE>
<CAPTION>
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Fixed maturities, at amortized cost $ 0 0 23,127
Fixed maturities, at market 21,877 (2,712) 0
Equity securities 5,478 2,745 5,876
Mortgage loans (687) (1,667) (189)
Real estate 2,530 2,067 (513)
Other 4 396 17
-------- ------- -------
Net gains before taxes 29,202 829 28,318
<PAGE>
Tax expense on net realized gains 10,218 352 10,329
-------- ------- -------
Net gains after taxes $18,984 477 17,989
======== ======= =======
</TABLE>
In 1995, in conjunction with an expanded marketing agreement, the Company
provided an unrelated insurance company with $30 million in exchange for a
fifteen year convertible debenture paying 5% interest for the first five years
with the interest rate reset annually thereafter at the one-year LIBOR plus
1%. If converted, the Company would obtain approximately 10% equity ownership
in the unrelated company. The Company has no intention of converting the
debenture in the near term.
During 1995 and 1994, the Company entered into mortgage backed security
reverse repurchase transactions ("dollar rolls") with certain securities
dealers. Under this program, the Company sells certain securities for
delivery in the current month and simultaneously contracts with the same
dealer to repurchase similar, but not identical, securities on a specified
future date. The Company gives up the right to receive principal and interest
on the securities sold. As of December 31, 1995 there were no outstanding
amounts under the Company's dollar roll program. As of December 31, 1994,
mortgage backed securities underlying the agreements were carried at a market
value of $58,174 and other liabilities included $58,150 for funds received
under these agreements. Average balances outstanding were $67,735 and $66,110
and weighted average interest rates were 7.4% and 6.5% during 1995 and 1994,
respectively.
During 1995 and 1994 the Company participated in a securities lending program
that is administered by Allianz Investment Corporation (AIC), an affiliated
company. Under this program, the Company loans U.S. Treasury Notes to
qualified third parties. The Company obtains collateral for the loan equal to
102 percent of the estimated market value and accrued interest on the loaned
securities and receives a portion of the interest earned on the collateral.
In addition, the Company maintains full ownership rights to the securities
loaned, including investment income and has the ability to sell the securities
while they are on loan with the consent of the borrower. There were no
securities on loan at December 31, 1995. As of December 31, 1994, the
estimated market value of the loaned securities was $110,063, collateralized
by investments in FNMA securities.
<TABLE>
<CAPTION>
Impaired mortgage loans are defined as those where it is probable that amounts
due according to contractual terms, including principal and interest, will not
be collected. Impaired mortgage loans are measured by the Company at the fair
value of collateral. Interest income on impaired mortgage loans is recorded
on a cash basis. Below is a summary of impaired mortgage loans as of December
31, 1995.
Impaired Impaired Total
mortgage loans mortgage loans impaired
with a related without a related mortgage
allowance allowance loans
--------------- ----------------- --------
<S> <C> <C> <C>
Balance $ 9,210 8,541 17,751
Related allowance 3,580 - 3,580
--------------- ----------------- --------
Balance, net of allowance $ 5,630 8,541 14,171
=============== ================= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Below is a summary of interest income on impaired mortgage loans.
1995
-------
<S> <C>
Average impaired mortgage loans $19,671
Total interest income on impaired mortgage loans 1,100
Interest income on impaired mortgage loans recorded on a cash basis 1,100
</TABLE>
<TABLE>
<CAPTION>
The valuation allowances at December 31, 1995, 1994 and 1993 and the changes in the
allowance for the years then ended are summarized as follows:
Writedowns
Beginning Charged to Charged to End
of year Operations Allowance Recoveries of year
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Mortgage loans $ 11,552 914 0 1,979 10,487
Investment in real estate 1,550 0 0 1,550 0
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 13,102 914 0 3,529 10,487
========== ========== ========== ========== =======
December 31, 1994:
Mortgage loans $ 11,552 1,598 0 1,598 11,552
Investment in real estate 1,550 0 0 0 1,550
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 13,102 1,598 0 1,598 13,102
========== ========== ========== ========== =======
December 31, 1993:
Mortgage loans $ 13,602 0 0 2,050 11,552
Investment in real estate 1,854 973 0 1,277 1,550
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 15,456 973 0 3,327 13,102
========== ========== ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 6,284 6,966 142,814
Fixed maturities, at market 158,421 141,611 0
Mortgage loans 16,125 13,706 12,764
Policy loans 6,688 6,329 6,404
Short-term investments 7,182 3,012 4,159
<PAGE>
Dividends:
Preferred stock 581 495 231
Common stock 3,204 2,673 2,496
Rental income on real estate 2,781 3,135 2,540
Interest on assets held by reinsurers 10,445 10,470 10,074
Other 833 577 1,131
-------- ------- -------
Total investment income 212,544 188,974 182,613
Investment expenses 11,386 7,683 7,782
-------- ------- -------
Net investment income $201,158 181,291 174,831
======== ======= =======
</TABLE>
(4) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1995 1995 1994 1994
---------- ---------- ---------- ----------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets
- -------------------------------------------
Fixed maturities, at amortized cost:
Corporate securities $ 0 $ 0 $ 90,615 $ 85,559
Fixed maturities, at market:
U.S. Government 867,793 867,793 463,694 463,694
States and political subdivisions 481 481 498 498
Foreign governments 265,797 265,797 43,494 43,494
Public utilities 36,728 36,728 80,002 80,002
Corporate securities 747,609 747,609 1,042,867 1,042,867
Mortgage backed securities 548,182 548,182 221,079 221,079
Collateralized mortgage obligations 83,008 83,008 54,574 54,574
Equity securities 254,458 254,458 131,712 131,712
Mortgage loans 203,128 212,766 163,099 162,903
Short term investments 31,501 31,501 155,307 155,307
Policy loans 104,184 104,184 101,899 101,899
Other long term investments 650 650 1,117 1,117
Receivables 124,700 124,700 111,874 111,874
Separate accounts assets 8,402,003 8,402,003 6,965,755 6,965,755
Financial liabilities
- -------------------------------------------
Investment contracts 3,063,100 2,542,260 2,753,304 2,319,872
Separate account liabilities 8,402,003 8,181,725 6,965,755 6,715,730
</TABLE>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(5) RECEIVABLES
<TABLE>
<CAPTION>
<PAGE>
Receivables at December 31 consist of the following:
1995 1994
-------- -------
<S> <C> <C>
Premiums due $ 83,695 76,840
Agents balances 7,236 7,299
Related party receivables 922 1,042
Reinsurance commission receivable 16,693 13,723
Scholarship enrollment fees 6,822 6,753
Due from administrators 6,149 2,735
Other 3,183 3,008
-------- -------
Total receivables $124,700 111,400
======== =======
</TABLE>
(6) ACCIDENT AND HEALTH CLAIMS RESERVES
Accident and health claims reserves are based on long-range projections
subject to uncertainty. Uncertainty regarding reserves of a given accident
year is gradually reduced as new information emerges each succeeding year,
thereby allowing more reliable re-evaluations of such reserves. While
management believes that reserves as of December 31, 1995 are adequate,
uncertainties in the reserving process could cause such reserves to develop
favorably or unfavorably in the near term as new or additional information
emerges. Any adjustments to reserves are reflected in the operating results
of the periods in which they are made. Movements in reserves which are small
relative to the amount of such reserves could significantly impact future
reported earnings of the Company.
<TABLE>
<CAPTION>
Activity in the accident and health claims reserves, exclusive of long term
care, hospital indemnity and AIDS reserves of $18,858, $11,149 and $8,742 in
1995, 1994 and 1993, respectively, is summarized as follows:
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $96,090, $86,551 and $91,303 $185,028 170,123 168,872
Incurred related to:
Current year 242,024 230,995 226,815
Prior years (9,163) (7,290) (8,432)
--------- -------- --------
Total incurred 232,861 223,705 218,383
--------- -------- --------
Paid related to:
Current year 100,165 82,338 84,172
Prior years 125,920 126,462 132,960
--------- -------- --------
Total paid 226,085 208,800 217,132
--------- -------- --------
Balance at December 31, net of reinsurance
recoverables of $99,292, $96,090 and $86,551 $191,804 185,028 170,123
========= ======== ========
</TABLE>
There were no significant adjustments to accident and health claim liabilities
resulting from changes in estimates of benefits related to prior years.
<PAGE>
(7) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $1 million coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1995 are $873,724, $67,819
and $148,319 recoverable from insurers who, as of December 31, 1995, were
rated A+, A+ and B++, respectively by Best's Insurance Reports. A contingent
liability exists to the extent that the Company's reinsurers are unable to
meet their contractual obligations. Management is of the opinion that no
liability will accrue to the Company with respect to this contingency.
<TABLE>
<CAPTION>
Life insurance, annuities and accident and health business assumed from and ceded to other
companies is as follows:
Percentage
Assumed Ceded of amount
Gross from other to other Net assumed
Year ended amount companies companies amount to net
- -------------------------------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Life insurance In force $39,601,531 28,790,199 6,884,645 61,507,085 46.8%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 242,704 108,102 40,291 310,515 34.8%
Annuities 145,994 1,117 10,376 136,735 0.8%
Accident and health insurance 361,290 165,769 172,559 354,500 46.8%
----------- ---------- --------- ---------- -----------
Total premiums 749,988 274,988 223,226 801,750 34.3%
=========== ========== ========= ========== ===========
December 31, 1994:
Life insurance In force $39,789,859 24,411,513 6,893,030 57,308,342 42.6%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 230,241 96,308 35,578 290,971 33.1%
Annuities 119,045 1,195 6,806 113,434 1.1%
Accident and health insurance 388,759 158,749 201,824 345,684 45.9%
----------- ---------- --------- ---------- -----------
Total premiums 738,045 256,252 244,208 750,089 34.2%
=========== ========== ========= ========== ===========
December 31, 1993:
Life insurance In force $39,784,564 21,861,833 6,297,943 55,348,454 39.5%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 220,287 85,433 42,323 263,397 32.4%
Annuities 68,713 870 6,633 62,950 1.4%
Accident and health insurance 365,894 142,891 153,948 354,837 40.3%
----------- ---------- --------- ---------- -----------
Total premiums 654,894 229,194 202,904 681,184 33.6%
=========== ========== ========= ========== ===========
</TABLE>
<PAGE>
Of the amounts ceded to others, the Company ceded life insurance inforce of
$182,638, $86,055 and $30,841 in 1995, 1994 and 1993, respectively, and life
insurance premiums earned of $641, $203 and $98 in 1995, 1994 and 1993,
respectively, to its ultimate parent Allianz Aktiengesellshaft. The Company
also ceded accident and health premiums earned to Allianz Aktiengesellshaft of
$(7,520), $12,256 and $8,966 in 1995, 1994 and 1993.
In addition to the above transactions, the Company ceded a portion of its
mortality risk associated with the variable annuity product to Allianz
Aktiengesellshaft. The Company recorded a recoverable on future policy
benefit reserves of $930 as of December 31, 1995.
(8) INCOME TAXES
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Total income tax expense (benefit) for the years ended December 31 are as follows:
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $ 12,993 5,098 30,215
-------- -------- --------
Deferred tax (benefit) expense 25,772 16,053 (10,847)
Benefit of operating loss carryforwards 0 0 3,406
Adjustment of deferred tax assets and
liabilities for enacted change in tax rates 0 0 945
-------- -------- --------
Total deferred tax (benefit) expense 25,772 16,053 (6,496)
-------- -------- --------
Total income tax expense attributable to operations 38,765 21,151 23,719
Income tax effect on equity:
Income tax allocated to cumulative effect of
adoption of SFAS No. 106 0 0 (2,064)
Income tax allocated to stockholder's equity:
Adoption of SFAS No. 115 0 40,312 0
Attributable to unrealized gains and losses for the year 108,559 (79,201) 62
-------- -------- --------
Total income tax effect on equity $147,324 (17,738) 21,717
======== ======== ========
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Income tax expense computed at the statutory rate of 35% in 1995, 1994 and 1993,
varies from tax expense reported in the Consolidated Statements of Income for the
respective years ended December 31 as follows:
<PAGE>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $44,087 26,819 28,125
Dividends received deductions and tax-exempt interest (5,430) (3,967) (2,189)
Foreign tax (464) (79) (1,324)
Interest on tax deficiency 408 (716) 528
Impact of statutory rate change on deferred tax liability 0 0 945
Utilization of net operating loss and alternative
minimum tax credits 0 0 (2,549)
Other 164 (906) 183
-------- ------- -------
Income tax expense as reported $38,765 21,151 23,719
======== ======= =======
</TABLE>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE BALANCE SHEET
<TABLE>
<CAPTION>
Tax effects of temporary differences giving rise to the significant components of the
net deferred tax liability at December 31 are as follows:
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Provision for post retirement benefits $ 1,936 1,885
Allowance for uncollectible accounts 2,283 2,961
Policy reserves 175,963 188,602
Unrealized losses on investments in available for sale securities 0 35,584
-------- -------
Total deferred tax assets 180,182 229,032
-------- -------
Deferred tax liabilities:
Deferred acquisition costs 234,393 229,577
Net unrealized gain 72,975 0
Other 12,988 5,262
-------- -------
Total deferred tax liabilities 320,356 234,839
-------- -------
Net deferred tax liability $140,174 5,807
======== =======
</TABLE>
Although realization is not assured, the Company believes it is not necessary
to establish a valuation allowance for the deferred tax asset as it is more
likely than not the deferred tax asset will be realized principally through
future reversals of existing taxable temporary differences and future taxable
income. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future reversals of existing
taxable temporary differences and future taxable income are reduced.
As of December 31, 1995, the Company had no tax loss carryforwards or
alternative minimum tax credits.
The Company files a consolidated federal income tax return with AZOA and all
of its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share
of the tax liability pursuant to United States Treasury Department
regulations. The Company and each of its insurance subsidiaries generally
will be paid for the tax benefit on their losses, and any other tax
attributes, to the extent they could have obtained a benefit against their
<PAGE>
post-1990 separate return taxable income or tax. Income taxes paid by the
Company were $14,865, $15,162 and $28,465 in 1995, 1994 and 1993,
respectively. At December 31, 1995 and 1994 the Company has a tax recoverable
from AZOA of $3,257 and $5,095 and a recoverable from Revenue Canada Taxation
of $690 and a payable to Revenue Canada Taxation of $1,301, respectively.
(9) RELATED PARTY TRANSACTIONS
In November 1995, the Company purchased the 400 non-voting common shares in
its subsidiary, Canadian American Financial Corporation from AZOA for $7,903.
The acquisition of the shares increased the Company's equity ownership in both
voting and non-voting common stock to 100%.
As of December 31, 1995 and 1994, Allianz Real Estate (AzRE), a wholly owned
subsidiary of AZOA, owned 100% of the stock or was a limited partner of
certain entities whose assets include mortgage loans issued by the Company
amounting to $6,245 and $12,100, respectively. Included in the mortgage loans
are properties originally foreclosed upon by the Company of which the balances
at December 31, 1995 and 1994 are $1,650 and $4,575, respectively.
Allianz Investment Corporation (AIC) manages the Company's investment
portfolio. The Company paid AIC $1,024, $1,285 and $1,207 in 1995, 1994 and
1993, respectively, for investment advisory fees. The Company's liability to
AIC was $377 and $0 at December 31, 1995 and 1994, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $3,752, $4,228 and $4,715
in 1995, 1994 and 1993, respectively. The Company's liability for data center
charges was $337 and $457 at December 31, 1995 and 1994, respectively.
The Company reimbursed AZOA $738, $817 and $339 in 1995, 1994 and 1993,
respectively, for certain administrative services performed. The Company's
liability to AZOA was $528 and $264 at December 31, 1995 and 1994,
respectively.
In June 1994, the Company authorized 200 million shares of preferred stock
with a par value of $1 per share. This preferred stock is issuable in series
with the number of shares, redemption rights and dividend rate designated by
the Board of Directors for each series. Dividends are cumulative at a rate
reflective of prevailing market conditions at time of issue and are payable
semiannually. Dividend payments are restricted by provisions in State of
Minnesota statutes. In June 1994, the Company issued 25 millions shares of
Series A preferred stock with a dividend rate of 6.4% to AZOA for $25,000. In
December 1994, the Company issued 15 millions shares of Series B preferred
stock with a dividend rate of 6.95% to AZOA for $15,000. In December 1995,
the Company redeemed and canceled the 15 million shares of Series B preferred
stock issued to AZOA. There are currently 25 million shares of Series A
preferred stock issued and outstanding.
In 1995 and 1994, AZOA contributed additional capital to the Company of $594
and $5,190, respectively.
(10) EMPLOYEE BENEFIT PLANS
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes
contributions to a money purchase pension plan on behalf of eligible
participants. All employees, excluding agents, are eligible to participate in
the Primary Retirement Plan after two years of service. The contributions are
based on a percentage of the participant's salary with the participants being
100% vested upon eligibility. It is the Company's policy to fund the plan
costs as accrued. Total pension contributions were $860, $918 and $1,363 in
1995, 1994 and 1993, respectively.
<PAGE>
The Company participates in the Allianz Asset Accumulation Plan (Allianz
Plan), a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The
total Company match for 1995, 1994 and 1993 Plan participants was 100%. All
employees, excluding agents, are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after
three years of service. The Allianz Plan will accept participants' pretax or
after-tax contributions up to 15% of the participant's compensation. It is the
Company's policy to fund the Allianz Plan costs as accrued. The Company has
accrued $1,188, $1,266 and $1,270 in 1995, 1994 and 1993, respectively, toward
planned contributions.
The Company sponsors an asset accumulation plan for field agents. Under the
Plan provisions, the Company will match 100% of eligible agents' contributions
up to a maximum of 3% of a participant's compensation. The Plan accepts
participant's pretax or after tax contributions up to 10% of participant's
compensation. It is the Company's policy to fund the Plan costs as accrued.
In 1995, the Company discontinued support of its individual agency field force
and suspended contributions to the Plan as of January 1, 1996. Also during
1995, participation in the Plan decreased significantly resulting in a partial
plan termination whereby participants as of January 1, 1995 became fully
vested in the Plan. The Company has no intention to fully terminate the Plan
in the near term. Total Company contributions to the Plan were $118, $386 and
$319 in 1995, 1994 and 1993, respectively.
The Company adopted SFAS No. 106, effective January 1, 1993 which requires
benefits paid to retirees, other than pension benefits, to be accrued. The
transition obligation associated with this adoption was $4,006, which is net
of a $2,064 tax benefit. The Company's current plan obligation is $5,532 and
the liability is included in "Other liabilities" in the accompanying balance
sheet.
(11) STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded in determining statutory policyholders'
surplus. These items include, among other, deferred acquisition costs,
furniture and fixtures, accident and health premiums receivable which are more
than 90 days past due, deferred taxes and undeclared dividends to
policyholders. Additionally, future life policy and annuity benefit reserves
calculated for statutory accounting do not include provisions for withdrawals.
<TABLE>
<CAPTION>
The differences between stockholder's equity and net income reported in accordance with statutory
accounting practices and the accompanying consolidated financial statements as of and for the year ended
December 31 are as follows:
Stockholder's Stockholder's Net Net Net
equity equity Income Income Income
--------------- -------------- -------- --------- ---------
1995 1994 1995 1994 1993
--------------- -------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 299,186 294,334 11,565 6,895 657
Adjustments:
Change in reserve basis (211,678) (339,283) (43,642) (109,473) (138,864)
Deferred acquisition costs 826,994 798,442 28,552 132,090 253,240
Net deferred taxes (140,174) (5,807) (25,772) (16,053) 6,496
Statutory asset valuation reserve 100,462 59,169 0 0 0
Statutory interest maintenance reserve 25,061 16,305 8,756 (4,768) 11,178
Modified coinsurance reinsurance (119,178) (51,947) 104,222 44,920 (75,611)
<PAGE>
Unrealized gains (losses) on investments 163,237 (99,408) 0 0 0
Nonadmitted assets 1,471 2,302 0 0 0
Cumulative effect of accounting changes 0 0 0 0 26,875
Other 5,813 5,338 3,516 1,864 (461)
--------------- -------------- -------- --------- ---------
As reported in the accompanying
consolidated financial statements $ 951,194 679,445 87,197 55,475 83,510
=============== ============== ======== ========= =========
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1995 and 1994 was in compliance with these requirements. The maximum amount
of dividends which can be paid by Minnesota insurance companies to
stockholders without prior approval of the Commissioner of Commerce is subject
to restrictions relating to statutory earned surplus, also known as unassigned
funds. Unassigned funds are determined in accordance with the accounting
procedures and practices governing preparation of the statutory annual
statement, minus 25% of earned surplus attributable to unrealized capital
gains. In accordance with Minnesota Statutes, the Company may declare and pay
from its surplus, cash dividends of not more than the greater of 10% of its
beginning of the year statutory surplus in any year, or the net gain from
operations of the insurer, not including realized gains, for the 12-month
period ending the 31st day of the next preceding year. In 1995 and 1994,
respectively, the Company paid dividends on preferred stock in the amount of
$2,651 and $413, respectively to AZOA. Dividends of $23,433 could be paid in
1996 without prior approval of the Commissioner of Commerce.
REGULATORY RISK BASED CAPITAL
<TABLE>
<CAPTION>
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial
balances or various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of an enterprise's regulatory
total adjusted capital to its authorized control level risk-based capital, as
defined by the NAIC. Enterprises below specific triggerpoints or ratios are
classified within certain levels, each of which requires specified corrective
action. The levels and ratios are as follows:
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
- ------------------------ ------------------------------------
<S> <C>
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
</TABLE>
The Company met the minimum risk-based capital requirements for the years
ended December 31, 1995 and 1994.
<PAGE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted
by such authorities. Currently, prescribed statutory accounting practices
include state laws, regulations, and general administrative rules, as well as
a variety of publications of the NAIC. Permitted statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC currently has a
project underway to codify statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project will likely change the definition of
what comprises prescribed versus permitted statutory accounting practices, and
may result in changes to existing accounting policies insurance enterprises
use to prepare their statutory financial statements. The Company does not
currently use permitted statutory accounting practices which have a
significant impact on its statutory financial statements.
(12) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In the opinion
of management, the ultimate resolution of such litigation will not have a
material adverse effect on the consolidated financial position of the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(13) FOREIGN CURRENCY TRANSLATION
<TABLE>
<CAPTION>
The net assets of the Company's foreign operations are translated into U.S.
dollars using exchange rates in effect at each year end. Translation adjustments
arising from differences in exchange rates from period to period are included in
the accumulated foreign currency translation adjustment reported as a separate
component of stockholder's equity. An analysis of this account for the respective
years ended December 31 follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(3,787) (2,708) (1,835)
-------- ------- -------
Aggregate adjustment for the period resulting from
translation adjustments 511 (1,659) (1,746)
Amount of income tax benefit for period related to
aggregate adjustment (179) 580 873
-------- ------- -------
Net aggregate translation included in equity 332 (1,079) (873)
-------- ------- -------
Ending amount of cumulative translation adjustments $(3,455) (3,787) (2,708)
======== ======= =======
Canadian foreign exchange rate at end of year 0.7329 0.7129 0.7554
</TABLE>
<PAGE>
(14) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business for 1995, 1994 and 1993:
As of December 31 For the year ended December 31
--------- --------- -------- -------- --------- ------- --------- --------- --------- ---------
Amortiz-
Future Premium Benefits, ation
policy Other revenue claims of
Deferred benefits, policy and losses, deferred
policy losses, claims other Net and policy
acquis- claims and contract invest- settle- acquis- Other Premiums
ition and loss Unearned benefits consider- ment ment ition operating written
costs expense premiums payable ations income expenses costs (a) expenses (b)
--------- --------- -------- -------- --------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
Life $ 179,915 1,088,964 5,493 62,660 310,514 83,741 239,287 8,475 124,415
Annuities 629,515 2,601,943 0 580 136,736 98,214 89,321 (34,235) 137,000
Accident
and health 17,564 0 28,688 308,658 354,500 19,203 249,232 (2,792) 105,615
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 826,994 3,690,907 34,181 371,898 801,750 201,158 577,840 (28,552) 367,030
========= ========= ======== ======== ========= ======= ========= ========= =========
1994:
Life $ 188,390 1,022,537 6,012 63,728 290,971 78,100 228,383 6,889 114,767
Annuities 595,280 2,304,560 0 360 113,434 86,168 88,100 (140,776) 210,933
Accident
and health 14,772 0 34,364 291,323 345,684 17,023 236,614 1,797 121,645
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 798,442 3,327,097 40,376 355,411 750,089 181,291 553,097 (132,090) 447,345
========= ========= ======== ======== ========= ======= ========= ========= =========
1993:
Life $ 195,279 989,309 7,389 57,763 263,397 80,422 206,157 (10,925) 186,457
Annuities 454,504 1,986,801 0 578 62,950 78,674 86,227 (243,113) 191,783
Accident
and health 16,569 0 34,181 264,583 354,837 15,735 241,443 804 154,493
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 666,352 2,976,110 41,570 322,924 681,184 174,831 533,827 (253,234) 532,733
========= ========= ======== ======== ========= ======= ========= ========= =========
</TABLE>
(a) Represents the net change in deferred policy acquisition cost reported in
the income statement.
(b) Premiums written are not applicable for life insurance companies.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in
Part B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1995 and 1994.
3. Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1995, 1994 and 1993.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
6. Notes to Consolidated Financial Statements - December 31, 1995,
1994 and 1993.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Independent Auditors' Report.
2. Statements of Net Assets as of December 31, 1995.
3. Statements of Operations for the years ended December 31, 1995
and 1994.
4. Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994.
5. Notes to Financial Statements - December 31, 1995.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account#
2. Not Applicable
3. Principal Underwriter Agreement*
4. Individual Immediate Variable Annuity Contract****
5. Application for Individual Immediate Variable Annuity
6. (i) Copy of Articles of Incorporation of the Company#
(ii) Copy of the Bylaws of the Company#
7. Not Applicable
8. Form of Fund Participation Agreement
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart***
27. Financial Data Schedule
* Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 filed on September 20, 1988 (File No. 811-05618).
** Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Form N-4 filed on April 27, 1990 (File No. 811-05618).
*** Incorporated by reference to Post-Effective Amendment No. 12 to
Registrant's Form N-4 filed on February 23, 1994 (File No. 811-05618).
**** Incorporated by reference to Registrant's Form N-4 filed on March 8,
1994 (File No. 33-76190).
***** Incorporated by reference to Registrant's Post-Effective Amendment No.
1 to Form N-4 filed on April 25, 1995 (File No. 33-76190).
# Incorporated by reference to Registrant's Post-Effective Amendment No.
2 to Form N-4 which was electronically filed on November 1, 1995.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
_________________ _____________________
<S> <C>
Lowell C. Anderson Chairman, President, Chief
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive 777 San Marin Drive
Novato, CA 94998 Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Blvd.
Minneapolis, MN 55439
Dr. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 17
D - 70178
Stuttgart, Germany
Edward J. Bonach Senior Vice President, Chief Financial
1750 Hennepin Avenue Officer and Treasurer
Minneapolis, MN 55403
Alan A. Grove Vice President-Law & Secretary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James President-Individual Marketing
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Reverend Dennis J. Dease Director
c/o University of St. Thomas
215 Summit Avenue
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Center
Sixth & Margrette
Minneapolis, MN 55403
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
The Company organizational chart is incorporated by reference to
Post-Effective Amendment No. 9 to Form N-4 as filed on April 30, 1993 (File
No. 811-05618).
Item 27. Number of Contract Owners
As of March 13, 1996, there were 68 qualified Contract Owners and 31
non-qualified Contract Owners with Contracts in the Separate Account.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason
of being or having been a Director, officer, or employee of the corporation
(or by reason of serving any other organization at the request of the
corporation) shall be indemnified to the extent permitted by the laws of the
State of Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, Inc. is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers and directors of NALAC Financial
Plans, Inc.:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
________________ _____________________
<S> <C>
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
James P. Kelso Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis,
Minnesota, maintains physical possession of the accounts, books or documents
of the Variable Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this registration statement
and has caused this registration statement to be signed on its behalf in the
City of Minneapolis and State of Minnesota, on this 17th day of April,
1996.
<TABLE>
<CAPTION>
<S> <C>
ALLIANZ LIFE
VARIABLE ACCOUNT B
(Registrant)
By: ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /s/ ALAN A. GROVE
_______________________________
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
By: /s/ ALAN A. GROVE
________________________________
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board,
Lowell C. Anderson* President and Chief 4-17-96
Lowell C. Anderson Executive Officer Date
Herbert F. Hansmeyer* Director 4/17/96
Herbert F. Hansmeyer Date
Michael P. Sullivan* Director 4-17-96
Michael P. Sullivan Date
Dr. Jerry E. Robertson* Director 4-17-96
Dr. Jerry E. Robertson Date
Dr. Gerhard Rupprecht* Director 4-17-96
Dr. Gerhard Rupprecht Date
Edward J. Bonach* Chief Financial Officer 4-17-96
Edward J. Bonach Date
Rev. Dennis J. Dease* Director 4-17-96
Rev. Dennis J. Dease Date
James R. Campbell* Director 4-17-96
James R. Campbell Date
* By /s/ ALAN A. GROVE
_____________________
Attorney-in-Fact
</TABLE>
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, undersigned, a Director Allianz Life
Insurance Company of North America ("Allianz Life"), a corporation duly
organized under the laws of the State of Minnesota, do hereby appoint Lowell
C. Anderson and Alan A. Grove as my attorney and agents, for me, and in my
name as a Director of Allianz Life on behalf of Allianz Life or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of a security under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Act.
SIGNATURE WITNESS DATE
/s/ Gerhard Rupprecht /s/Dr. Schelling 11-13-1995
_____________________ _______________ ____________
Dr. Gerhard Rupprecht Dr. Schelling
Director Notary
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Reverend Dennis Dease, a Director
of Allianz Life Insurance Company of North America (ALLIANZ LIFE), a
corporation duly organized under the laws of the State of Minnesota, do
hereby appoint Lowell C. Andersen and Alan A. Grove, each individually
as my attorney and agent, for me, and in my name as a Director of ALLIANZ
LIFE con behalf of ALLIANZ LIFE or otherwise, with full power to execute,
deliver, and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable
to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 26th day of March, 1996.
WITNESS:
/s/ CATHLEEN B. BARRETT
- -------------------------
NOTARY PUBLIC - MINNESOTA
/s/ DENNIS DEASE
-----------------------------
Rev. Dennis Dease
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James R. Campbell, a Director of
Allianz Life Insurance Company of North America (ALLIANZ LIFE), a corporation
duly organized under the laws of the State of Minnesota, do hereby appoint
Lowell C. Anderson and Alan A. Grove, each individually as my attorney and
agent, for me, and in my name as a Director of ALLIANZ LIFE on behalf of
ALLIANZ LIFE or otherwise, with full power to execute, deliver, and file with
the Securities and Exchange Commission all documents required for registration
of a security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 26 day of March, 1996.
WITNESS:
/S/ CONNIE F. KNOWLES /S/ JAMES R. CAMPBELL
_______________________ _______________________
James R. Campbell
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit Page
99.B5 Application for Individual Immediate Annuity
99.B8 Form of Fund Participation Agreement
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Information
27 Financial Data Schedule
<TABLE>
<CAPTION>
<S> <C>
VALUEMARK Application for An Individual Immediate Variable Annuity
INCOME Issued by ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
PLUS
</TABLE>
________________________________________________________________________
1. ANNUITANT/OWNER (Please provide proof of age.) For Home Office Use
Only
________________________________________________________________________
Name First Middle Last Sex M F
Address Date of Birth
City State Zip Code
Social Security # Daytime Phone ( )
________________________________________________________________________
2. JOINT ANNUITANT (Optional) (Please provide proof of age.)
________________________________________________________________________
Name First Middle Last Sex M F
Social Security # Date of Birth
Relationship to Annuitant:
WILL THE JOINT ANNUITANT BE AN OWNER? Yes No Note: If the
Contract is
an IRA the
Joint
Annuitant
cannot be an
Owner.
________________________________________________________________________
3. BENEFICIARY (Please give name(s) and relationship to the
Annuitant/Owner.)
________________________________________________________________________
Primary Beneficiary Relationship
Contingent Beneficiary Relationship
Unless otherwise stated, Beneficiaries of like classes shall share
equally with right of survivorship. The Annuitant/Owner reserves the
right to change the Beneficiary(ies) unless indicated above.
________________________________________________________________________
4. PURCHASE PAYMENT
________________________________________________________________________
Single Purchase Payment $ (make check payable to
ALLIANZ LIFE.)
________________________________________________________________________
5. ANNUITY INCOME DATE
________________________________________________________________________
A. Income Date: B. Payment frequency:
1st or 15th Monthly Quarterly Semi-annually
Annually
________________________________________________________________________
6. PLAN INFORMATION
________________________________________________________________________
Non-Qualified Qualified IRA Transfer Direct Rollover
Rollover(within 60 days of
receipt of funds)
Other
________________________________________________________________________
7. HOME OFFICE USE ONLY (This box not for use in PA & WV)
________________________________________________________________________
F40060 (9-95) VIP APP 11/95
________________________________________________________________________
8. REPLACEMENT INFORMATION
________________________________________________________________________
This annuity WILL WILL NOT replace any existing life insurance
or annuities.
________________________________________________________________________
9. ANNUITY OPTIONS (Select by checking one box.)
________________________________________________________________________
<TABLE>
<CAPTION>
<C> <S>
OPTION 1- SINGLE LIFE ANNUITY (Payable only during the lifetime
of the Annuitant/Owner).
OPTION 2- SINGLE LIFE ANNUITY (Payable during the lifetime of
the Annuitant/Owner with a GUARANTEED MINIMUM NUMBER
OF PAYMENTS).
(SELECT ONE) 60 months (5 yr) 120 months (10 yr)
180 months (15 yr) 240 months (20 yr)
OPTION 3- JOINT AND LAST SURVIVOR LIFE ANNUITY (Payable during
the lifetime of the Annuitant/Owner and Joint Annuitant
with continuing payments to Joint Annuitant using
percentage selected).
(SELECT ONE) 100 % 75% 50%
OPTION 4- JOINT AND LAST SURVIVOR LIFE ANNUITY (with a
GUARANTEED MINIMUM NUMBER OF PAYMENTS during the joint
lifetime of the Annuitant/Owner and Joint Annuitant
with no reduction in the amount after the death of the
first Joint Annuitant).
(SELECT ONE) 60 months (5 yr) 120 months (10 yr)
180 months (15 yr) 240 months (20 yr)
OPTION 5- UNIT REFUND LIFE ANNUITY (Payable during the lifetime
of the Annuitant/Owner with refund of unpaid
GUARANTEED UNITS at the time of death).
</TABLE>
________________________________________________________________________
10. INITIAL PURCHASE PAYMENT ALLOCATION
________________________________________________________________________
ALLIANZ LIFE VARIABLE ACCOUNT B. EACH FUND ALLOCATION MUST BE AT
LEAST 10%. USE WHOLE PERCENTAGES ONLY.
<TABLE>
<CAPTION>
<S> <C>
% Growth and Income Fund % Templeton Developing Markets
Equity Fund
% Income Securities Fund % Templeton Global Asset
Allocation Fund
% Money Market Fund % Templeton Global Growth Fund
% Rising Dividends Fund % Templeton International Equity
Fund
% Small Cap Fund % Templeton Pacific Growth Fund
% Utility Equity Fund % Other
% TOTAL (MUST EQUAL 100%)
</TABLE>
________________________________________________________________________
11. SPECIAL INSTRUCTIONS
________________________________________________________________________
________________________________________________________________________
12. TELEPHONE ACCESS AUTHORIZATION
________________________________________________________________________
Yes No If answered "yes", Allianz Life Insurance Company of
North America (Allianz Life) and its Variable Annuity administrator
are authorized to honor telephone instructions from the
Annuitant/Owner to transfer among sub-accounts.
By initialing this box, an Annuitant/Owner gives the Registered
Rep/Agent of record, authority to transfer among sub-accounts.
This authorization is subject to the terms and provisions in the
Contract and prospectus. Allianz Life will not be held liable for
any loss, liability, cost, or expense for acting on the telephone
instructions. Allianz Life's liability for erroneous transfers,
unless clearly contrary to instructions received, will be limited to
the correction of the allocations on a current basis.
________________________________________________________________________
13. AGREEMENT AND ACKNOWLEDGMENT
________________________________________________________________________
BY SIGNING BELOW THE ANNUITANT/OWNER(S) UNDERSTANDS THAT:
A) THE ANNUITY PAYMENTS MAY INCREASE OR DECREASE DEPENDING ON THE
CONTRACT'S INVESTMENT RESULTS;
B) THE VARIABLE ANNUITY APPLIED FOR IS SUITABLE FOR THE
ANNUITANT/OWNER(S) FINANCIAL SITUATION AND NEEDS; AND
C) THEY HAVE RECEIVED A CURRENT PROSPECTUS.
Each Annuitant/Owner agrees that to the best of their knowledge and
belief, all statements and answers in this application are complete
and true. It is further agreed that these statements and answers
will become part of any Contract to be issued. No representative is
authorized to modify this agreement or waive any of Allianz Life
Insurance Company of North America's (Allianz Life) rights or
requirements. If Allianz Life makes a change in the space designated
Home Office Use Only in order to correct any apparent errors or
omissions, it will be approved by acceptance of the Contract;
however, any material changes must be accepted in writing by the
Annuitant/Owner(s).
I HAVE READ AND UNDERSTAND THE AGREEMENT AND ACKNOWLEDGMENT SECTION.
Please send the Statement of Additional Information.
Signed at City State on Date
X Annuitant/Owner X Joint Annuitant(if applicable)
X Witness & Registered Rep/Agent
Broker-Dealer (print) Print Name of Registered Rep/Agent
Branch Office (print) Registered Rep/Agent Telephone Number
REGISTERED REP/AGENT CERTIFICATION;
By signing above, the Registered Rep/Agent certifies that:
1. The questions contained in this application were asked of the
Annuitant/Owner and the answers duly recorded; that this
application is complete and true to the best of my knowledge and
belief; and
2. I am NASD registered and state licensed for variable annuity
contracts where this application is written and delivered; and
3. This annuity WILL WILL NOT replace or change in whole or in
part any life insurance or annuities now in force, (if yes,
provide details and any necessary forms); and
4. I have received $________________________ as the Single Purchase
Payment.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MAIL FOR OVERNIGHT
APPLICATION DELIVERIES
TO: Allianz Life MAIL TO: Allianz Life
VIP Service Center VIP Service Center
P.O. Box 30343 Attention: Mail Code
276-2001
Tampa, FL 33630-3343 9393 North Florida
Avenue
Tampa, FL 33612
</TABLE>
F40060 (9-95)
PARTICIPATION AGREEMENT
Between
FRANKLIN VALUEMARK FUNDS
and
NORTH AMERICAN LIFE AND CASUALTY COMPANY
THIS AGREEMENT, effective the 1st day of January, 1990 by and between North
American Life and Casualty Company, a Minnesota corporation (hereinafter the
"Company") on its own behalf and on behalf of one or more segregated asset
accounts of the Company or its affiliates (hereinafter the "Account"), and
Franklin Valuemark Funds, a Massachusetts business trust (hereinafter the
"Trust").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by the Company
and its affiliates (hereinafter the "Company"); and
WHEREAS, the beneficial Interest in the Trust is divided into several series of
shares, each designated a "Fund" and each representing the interests in a
particular managed pool of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission, dated September 7, 1989 (File No. 812-7303), granting the Company
and variable annuity and variable life insurance separate accounts exemptions
from certain provisions of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and certain Rules thereunder, to the extent
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of the Company
(hereinafter the "Mixed Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the company has registered or will register certain variable annuity
and/or life insurance contracts under the 1933 Act (hereinafter "Contracts");
and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable contracts
(the Contract(s) and the Account(s) covered by this Agreement, and the
corresponding Funds covered by this Agreement in which the Account(s) invest,
are specified in Schedule A attached hereto as may be modified from time to
time); and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Fund on behalf of the Account to
fund the Contracts;
NOW, THEREFORE, in consideration or their mutual promises, the Trust and the
Company agree as follows:
ARTICLE 1. SALE OF TRUST SHARES
1.1 The Trust agrees to sell to the company those shares of the Trust which the
Account orders, executing such orders on a daily basis at the net value next
computed after receipt by the Trust or its designee of the order for the shares
of the Trust. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders and receipt by such designee
shall constitute receipt by the Trust; provided that the Trust received notice
of such order by 9:30 a.m. New York time on the next following business day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Securities and Exchange Commission.
1.2. The Trust agrees to make Trust shares available for the duration or this
Agreement for purchase at the applicable net asset value per share by the
Company and its Account on those days on which the Trust calculates its net
asset value pursuant to rules of the Securities and Exchange Commission and the
Trust shall use reasonable efforts to calculate such net asset value on each day
on which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (hereinafter the "Trustees") may
refuse to sell shares of any Funds to any person, or suspend or terminate the
offering of shares of any Fund if such action is required by law or regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to the Company
and their separate accounts. No shares of any Fund will be sold to the general
public.
1.4. The Trust agrees to redeem for cash, on the Company's request, any full or
fractional shares of the Trust held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Trust for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Trust
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5. The company shall pay for the Trust shares on the next Business Day after
an order to purchase shares is made in accordance with the provisions of Section
1.1 hereof. Payment shall be in federal funds transmitted by wire or by a credit
for any shares redeemed.
1.6. Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
1.7. The Trust shall furnish same day notice (by wire or telephone followed by
written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Trust's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Fund shares
in additional shares of that Fund. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Trust
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:30 p.m. New York time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act (or exempt therefrom), that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Minnesota law and
has registered or, prior to any issuance or sale of the Contracts, will register
the Account as a unit investment trust in accordance with the provisions of the
1940 Act (unless exempt therefrom) to serve as a segregated investment account
for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws or Massachusetts and all applicable federal
and state securities laws and that the Trust is and shall remain registered
under the 1940 Act. The Trust shall amend the Registration Statement for its
shares under the 1933 Act and the 1940 Act from time to time as required in
order to affect the continuous offering of its shares. The Trust shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
2.3. The Trust represents that the Trust is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, (the
"Code") and that every effort will be made to maintain such qualifications
(under Subchapter M or any successor or similar provision) and that the Trust
will notify the Company immediately upon having a reasonable basis for believing
that the Trust has ceased to so qualify or that the Trust might not so qualify
in the future.
2.4. The Trust undertakes to have a Board of Trustees, a majority of whom are
not interested persons of the Trust, formulate and approve of any plan under
Rule 12b-1 to finance distribution expenses.
2.5. The Trust represents that it will sell and distribute the Trust shares in
accordance with all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly existing
under the laws of the State of Massachusetts and that it does and will comply
with the 1940 Act.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. The Trust shall provide the Company (at the Trust's expense) with as many
copies of the Trust's current prospectus as the Company may reasonably request.
If requested by the Company in lieu thereof, the Trust shall provide such
documentation (including a final "camera ready" copy of the new prospectus as
set in type at the Trust's expense) and other assistance as is reasonably
necessary in order for the Company once a year (or more frequently if the
prospectus for the Trust is supplemented or amended) to have the prospectus for
the Contracts and the Trust's prospectus printed together in one document (such
printing to be at the Trust's expense).
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust is available from the Trust. The Trust, at its
expense, shall print and provide such Statement free of charge to the Company
and to any owner of a contract or prospective owner who requests such Statement.
3.3. The Trust, at its expense, shall provide the Company with copies of its
proxy material, reports to stockholders and other communications to stockholders
in such quantity as the Company shall reasonably require for distributing to
Contract owners.
3.4. If and to the extent required by law (or the Mixed Funding Exemptive Order)
the Company shall:
1. solicit voting instructions from contract owners;
2. vote the Trust shares in accordance with instructions received from Contract
owners; and
3. vote Trust shares for which no instructions have been received in the same
proportion as Trust shares of such Fund for which instructions have been
received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges or
variable contract owners. The Company reserves the right to vote Trust shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company shall be responsible, with the guidance and assistance of
the Trust, assuring that each of their separate account participating in the
Trust calculates voting privileges in a manner consistent with the standards set
forth on Schedule B attached hereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Trust or
its designee, each piece of sales literature or other promotional material in
which the Trust, its investment adviser or underwriter is named, a reasonable
time prior to its use. No such material shall be used if the Trust or its
designee object to such use within 15 Business Days after receipt of such
material.
4.2. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement or prospectus for the Trust shares, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports or proxy statements for the Trust, or in sales literature
or other promotional material approved by the Trust or its designee except with
the permission of the Trust.
4.3. The Trust shall furnish, or shall cause to be furnished, to the Company or
its designee, each piece of sales literature or other promotional material in
which the Company and/or its separate account(s), is named a reasonable time
prior to its use. No such material shall be used if the Company or its designee
object to such use within 15 Business Days after receipt or such material.
4.4. The Trust shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account, or the Contracts
other than information or representations contained in a registration statement
or prospectus for the Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports for the Account
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all amendments
to any of the above, that relate to the Trust or its shares, prior to or
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities. The Trust shall also
promptly inform the Company of the results or any examination by the Securities
and Exchange Commission (or other regulatory authorities), and shall provide the
Company with a copy of any "deficiency letter" or other correspondence or
written report regarding any such examination.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" means advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboard),
and sales literature (such as brochures, circulars, market letters and form
letters), distributed or made generally available to customers or the public.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no Fee or other compensation to the Company under this
Agreement, and the Company shall pay no fee or other compensation to the Trust.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Trust, in accordance with
applicable state laws prior to their sale. The Trust shall bear the expenses for
the cost of registration and qualification of the Trust's shares, preparation
and filing of the Trust's prospectus and registration statement, proxy materials
and reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by federal or state law, and all taxes on the issuance or
transfer of the Trust's shares.
5.3. The Trust shall bear the expenses of printing and distributing the Trust's
prospectus to owners of Contracts issued by the Company and or distributing the
Trust's proxy materials and reports to such Contract owners.
5.4. In the event the Trust adds one or more additional Funds and the Company
desires to make such Funds available to its Contract owners as an underlying
investment medium, a new Schedule A or an amendment to this Agreement shall be
executed by the parties authorizing the issuance of shares or the new Funds to
the Account.
ARTICLE VI. DIVERSIFICATION
6.1. The Trust represents, and warrants that the Trust will at all times invest
its assets in such a manner as to ensure that the Contracts will be treated as
annuity, endowment, or life insurance contracts under the code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Trust will at all times comply with Section 817(h) of the Code and the
Regulations Section 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulation.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Trust (the "Board") will monitor the Trust for
the existence of any material irreconcilable conflict between the interest of
the Contract owners of all separate accounts investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
Action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no action or interpretive letter or any similar
action by insurance, tax or securities regulatory authorities (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Fund are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions or Contract owners. The Board shall promptly inform the
Company to determine that a material irreconcilable conflict exists and the
implications thereof.
7.2. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense, and to the extent reasonably practicable (as
determined by a majority or the disinterested Trustees) take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets, allocable to some or all of the separate
accounts from the Trust or any Fund and reinvesting such assets in a different
investment medium, including (but not limited to) another Fund of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity Contract owners or life insurance Contract
owners) that votes in favor of such Segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.3. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six months after the
Board informs the Company in writing that it has determined that such decision
has created an irreconcilable material conflict, provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
7.4. For purposes of Section 7.2 though 7.4 of this Agreement, a majority of the
disinterested members of the Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.2 to establish a new funding
medium for the Contracts, if an offer to do so has been declined by vote of a
majority or Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
ARTICLE VIII.INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Trust and each of
its Trustees and officers and each person, if any, who controls the Trust within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
1. arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Trust for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
2. arise out of or as a result of statements or representations (other than
statements or representations contained in the Registration Statement,
prospectus or sales literature of the Trust not supplied by the Company, or
persons under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Trust Shares; or
3. arise out of any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, prospectus, or sales literature
of the Trust or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to
the Trust by or on behalf of the company; or
4. arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company,
except to the extent provided in Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Trust,
whichever is applicable.
8.1(c) The Company shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will be not
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.l(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust Shares or the Contracts or the operation of
the Trust and the Indemnified Parties will provide the Company with all relevant
information and documents requested by the Company. For purposes of this Section
8.1(d), the "commencement" of proceedings shall include any informal or formal
communications from the Securities and Exchange Commission or its staff (or the
receipt of information from any other persons or entities) indicating that
enforcement action by said Commission or staff may be contemplated or
forthcoming.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws or Minnesota.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Mixed Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate with respect to one, some, or all Funds for
one, some, or all Contracts or Accounts:
1. at the option of any party upon six month's advance written notice to the
other parties;
2. at the option of the Company to the extent that shares of Funds are not
reasonably available to meet the requirements of the Contracts or are not
appropriate funding vehicles for the Contracts, as determined by the
Company reasonably and in good faith. Prompt notice of the election to
terminate for such cause and an explanation or such cause shall be
furnished by the Company; or
3. as provided in Article VII.
10.2. The notice shall specify the Fund(s) and Contract(s) or Account(s) as to
which the Agreement is to be terminated.
10.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 1O.1 (a) may be exercised for cause
or for no cause.
10.4. Effect of Termination. Notwithstanding any termination of this Agreement,
the Trust shall at the option of the Company, continue to make available
additional shares of the Trust pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the existing contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Trust: Deborah Gatzek, Vice President
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
If to the Company: Mr. Robert S. James, President-Financial Markets
North American Life and Casualty Company 1750 Hennepin
Avenue
Minneapolis, Minnesota 55403
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain.
12.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.4. If any provision or this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitations the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
IN WITNESS WHEREOF, each of the parties has cause this Agreement to be executed
in its name and on its behalf by its duly authorized representative and its seal
to be hereunder affixed hereto as or the date specified below.
Company:
By two authorized officers,
By: /s/Robert S. James
Title: President, Financial Markets Division
Date: 5/24/92
By: /s/Michael T. Westermeyer
Title: Second Vice President and Senior Counsel
Date: 5/20/92
Trust:
By its authorized officers,
By: /s/Deborah Gatzek
Title: Secretary
Date: 3/31/92
SCHEDULE A
Franklin Valuemark Funds (Trust) is a diversified, open-end management
investment company consisting of the following separate Funds:
Adjustable U.S. Government Fund Equity Growth Fund Global Income Fund High
Income Fund Income Securities Fund Investment Grade Intermediate Bond Fund
Money Market Fund Precious Metals Funds Real Estate Securities Fund U.S.
Government Securities Fund Utility Equity Fund Zero Coupon Fund - 1995
Zero Coupon Fund - 2000 Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Effective March 1, 1992:
Rising Dividend Fund
International Equity Fund
Pacific Growth Fund
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachusetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective March 15, 1994:
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund"
"Effective May 1, 1995:
Templeton Global Asset Allocation Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed
in its name and on its behalf by its duly authorized representatives as of the
date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Date: 6/30/95
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Date: 6/16/95
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective November 1, 1995:
Small Cap Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representatives
as of the date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective May 1, 1996:
Capital Growth Fund
Templeton International Smaller Companies Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representatives
as of the date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 22, 1996
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Re: Opinion and Consent of Counsel
Allianz Life Variable Account B
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, of a Registration Statement on Form N-4 for the Individual
Immediate Variable Annuity Contracts to be issued by Allianz Life Insurance
Company of North America and its separate account, Allianz Life Variable
Account B.
We are of the following opinions:
1. Allianz Life Insurance Company of North America is a valid and existing
stock life insurance company of the state of Minnesota.
2. Allianz Life Variable Account B is a separate investment account of
Allianz Life Insurance Company of North America created and validly
existing pursuant to the Minnesota Insurance Laws and the Regulations
thereunder.
3. Upon the acceptance of purchase payments made by an Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
__________________________________
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors
Allianz Life Insurance Company of North America:
We consent to the use of our report, dated January 22, 1996, on the financial
statements of Allianz Life Variable Account B and our report dated February 6,
1996, on the consolidated financial statements of Allianz Life Insurance
Company of North America and subsidiaries included herein and to the reference
to our Firm under the heading "EXPERTS."
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 17, 1996
EXHIBIT 13
CALCULATION OF PERFORMANCE INFORMATION
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
ALLIANZ LIFE VARIABLE ACCOUNT B
AVERAGE ANNUAL TOTAL RETURN
VALUATION DATE DECEMBER 31, 1995
PURCHASE YEARS TOTAL 1995 AVERAGE TOTAL
FUND AMOUNT INVESTED VALUE ANNUAL RETURN RETURN
- ---------------------------------------- --------- -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
Money Market Fund $1,000.00 6 $1,204.79 4.20% 20.48%
Growth and Income Fund $1,000.00 6 $1,692.23 30.91% 69.22%
Precious Metals Fund $1,000.00 6 $1,144.82 0.84% 14.48%
High Income Fund $1,000.00 6 $1,713.48 18.03% 71.35%
Real Estate Securities Fund $1,000.00 6 $1,734.97 15.83% 73.50%
U.S. Government Securities Fund $1,000.00 6 $1,555.83 17.73% 55.58%
Utility Equity Fund $1,000.00 6 $1,621.45 29.45% 62.14%
Zero Coupon - 2000 Fund $1,000.00 6 $1,661.44 18.92% 66.14%
Zero Coupon - 2005 Fund $1,000.00 6 $1,825.30 29.86% 82.53%
Zero Coupon - 2010 Fund $1,000.00 6 $1,944.19 40.74% 94.42%
Global Income Fund $1,000.00 6 $1,428.64 13.01% 42.86%
Investment Grade Intermediate Bond Fund $1,000.00 6 $1,447.16 8.39% 44.72%
Income Securities Fund $1,000.00 6 $1,826.72 20.64% 82.67%
Adjustable U.S. Government Fund $1,000.00 5 $1,189.88 7.81% 18.99%
Templeton Pacific Growth Fund $1,000.00 3 $1,393.41 6.40% 39.34%
Rising Dividends Fund $1,000.00 3 $1,148.67 27.83% 14.87%
Templeton International Equity Fund $1,000.00 3 $1,372.28 8.98% 37.23%
Templeton Developing Markets Equity Fund $1,000.00 1 $1,012.49 1.25% 1.25%
Templeton Global Growth Fund $1,000.00 1 $1,110.57 11.06% 11.06%
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
ALLIANZ LIFE VARIABLE ACCOUNT B
AVERAGE ANNUAL TOTAL RETURN
ORIGINAL PURCHASE DECEMBER 31, 1989
VALUATION DATE DECEMBER 31, 1995
DOLLAR UNITS THIS ACCUMULATED ACCUMULATED
DATE TRANSACTION AMOUNT UNIT VALUE TRANSACTION UNITS VALUE
- -------- ------------ ------------ --------------- ------------ ----------- ------------
<C> <S> <C> <C> <C> <C> <C>
Money Market Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.63670089 94.014 94.014 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.28816298 (0.089) 93.925 $ 1,060.24
12-31-91 Contract Fee ($1.00) 11.74177967 (0.085) 93.840 $ 1,101.85
12-31-92 Contract Fee ($1.00) 11.93209752 (0.084) 93.756 $ 1,118.71
12-31-93 Contract Fee ($1.00) 12.06579747 (0.083) 93.673 $ 1,130.24
12-31-94 Contract Fee ($1.00) 12.35398427 (0.081) 93.592 $ 1,156.23
12-31-95 Contract Fee ($1.00) 12.88349436 (0.078) 93.514 $ 1,204.79
Growth and Income Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.17968496 98.235 98.235 $ 1,000.00
12-31-90 Contract Fee ($1.00) 9.80273477 (0.102) 98.133 $ 961.97
12-31-91 Contract Fee ($1.00) 11.94928651 (0.084) 98.049 $ 1,171.62
12-31-92 Contract Fee ($1.00) 12.57361730 (0.080) 97.969 $ 1,231.82
12-31-93 Contract Fee ($1.00) 13.67694811 (0.073) 97.896 $ 1,338.92
12-31-94 Contract Fee ($1.00) 13.21462941 (0.076) 97.820 $ 1,292.66
12-31-95 Contract Fee ($1.00) 17.30965999 (0.058) 97.762 $ 1,692.23
Precious Metals Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 12.24727889 81.651 81.651 $ 1,000.00
12-31-90 Contract Fee ($1.00) 10.38739461 (0.096) 81.555 $ 847.14
12-31-91 Contract Fee ($1.00) 10.63476279 (0.094) 81.461 $ 866.32
12-31-92 Contract Fee ($1.00) 9.42437104 (0.106) 81.355 $ 766.72
12-31-93 Contract Fee ($1.00) 14.46354903 (0.069) 81.286 $ 1,175.68
12-31-94 Contract Fee ($1.00) 13.97879422 (0.072) 81.214 $ 1,135.27
12-31-95 Contract Fee ($1.00) 14.10867153 (0.071) 81.143 $ 1,144.82
High Income Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.02140026 99.786 99.786 $ 1,000.00
12-31-90 Contract Fee ($1.00) 9.02570091 (0.111) 99.675 $ 899.64
12-31-91 Contract Fee ($1.00) 11.58287531 (0.086) 99.589 $ 1,153.53
12-31-92 Contract Fee ($1.00) 13.27789297 (0.075) 99.514 $ 1,321.34
12-31-93 Contract Fee ($1.00) 15.15511991 (0.066) 99.448 $ 1,507.15
12-31-94 Contract Fee ($1.00) 14.60759128 (0.068) 99.380 $ 1,451.70
12-31-95 Contract Fee ($1.00) 17.25181285 (0.058) 99.322 $ 1,713.48
Real Estate Securities Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.36764805 96.454 96.454 $ 1,000.00
12-31-90 Contract Fee ($1.00) 8.99958346 (0.111) 96.343 $ 867.05
12-31-91 Contract Fee ($1.00) 11.84810701 (0.084) 96.259 $ 1,140.49
12-31-92 Contract Fee ($1.00) 13.09547341 (0.076) 96.183 $ 1,259.56
12-31-93 Contract Fee ($1.00) 15.36898235 (0.065) 96.118 $ 1,477.24
12-31-94 Contract Fee ($1.00) 15.59407180 (0.064) 96.054 $ 1,497.87
12-31-95 Contract Fee ($1.00) 18.07282328 (0.055) 95.999 $ 1,734.97
U.S. Government Securities Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.42700481 95.905 95.905 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.19888952 (0.089) 95.816 $ 1,073.03
12-31-91 Contract Fee ($1.00) 12.79761583 (0.078) 95.738 $ 1,225.22
12-31-92 Contract Fee ($1.00) 13.58621153 (0.074) 95.664 $ 1,299.71
12-31-93 Contract Fee ($1.00) 14.69826319 (0.068) 95.596 $ 1,405.10
12-31-94 Contract Fee ($1.00) 13.83490825 (0.072) 95.524 $ 1,321.57
12-31-95 Contract Fee ($1.00) 16.29770051 (0.061) 95.463 $ 1,555.83
Utility Equity Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 12.00985184 83.265 83.265 $ 1,000.00
12-31-90 Contract Fee ($1.00) 12.06229784 (0.083) 83.182 $ 1,003.37
12-31-91 Contract Fee ($1.00) 14.82143005 (0.067) 83.115 $ 1,231.88
12-31-92 Contract Fee ($1.00) 15.88865152 (0.063) 83.052 $ 1,319.58
12-31-93 Contract Fee ($1.00) 17.31879581 (0.058) 82.994 $ 1,437.36
12-31-94 Contract Fee ($1.00) 15.10395032 (0.066) 82.928 $ 1,252.54
12-31-95 Contract Fee ($1.00) 19.56451758 (0.051) 82.877 $ 1,621.45
Zero Coupon - 2000 Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.96121568 91.231 91.231 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.44624093 (0.087) 91.144 $ 1,043.26
12-31-91 Contract Fee ($1.00) 13.57017992 (0.074) 91.070 $ 1,235.84
12-31-92 Contract Fee ($1.00) 14.59489368 (0.069) 91.001 $ 1,328.15
12-31-93 Contract Fee ($1.00) 16.71742785 (0.060) 90.941 $ 1,520.30
12-31-94 Contract Fee ($1.00) 15.37318118 (0.065) 90.876 $ 1,397.05
12-31-95 Contract Fee ($1.00) 18.29362036 (0.055) 90.821 $ 1,661.44
Zero Coupon - 2005 Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 11.40639141 87.670 87.670 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.54507771 (0.087) 87.583 $ 1,011.15
12-31-91 Contract Fee ($1.00) 13.70496151 (0.073) 87.510 $ 1,199.32
12-31-92 Contract Fee ($1.00) 14.97467685 (0.067) 87.443 $ 1,309.43
12-31-93 Contract Fee ($1.00) 18.04995514 (0.055) 87.388 $ 1,577.35
12-31-94 Contract Fee ($1.00) 16.09601101 (0.062) 87.326 $ 1,405.60
12-31-95 Contract Fee ($1.00) 20.91363234 (0.048) 87.278 $ 1,825.30
Zero Coupon - 2010 Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 11.48553376 87.066 87.066 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.38999240 (0.088) 86.978 $ 990.68
12-31-91 Contract Fee ($1.00) 13.48230431 (0.074) 86.904 $ 1,171.67
12-31-92 Contract Fee ($1.00) 14.66961344 (0.068) 86.836 $ 1,273.85
12-31-93 Contract Fee ($1.00) 18.14448916 (0.055) 86.781 $ 1,574.60
12-31-94 Contract Fee ($1.00) 15.92982416 (0.063) 86.718 $ 1,381.40
12-31-95 Contract Fee ($1.00) 22.43134838 (0.045) 86.673 $ 1,944.19
Global Income Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.81282377 92.483 92.483 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.70599212 (0.085) 92.398 $ 1,081.61
12-31-91 Contract Fee ($1.00) 12.96200318 (0.077) 92.321 $ 1,196.67
12-31-92 Contract Fee ($1.00) 12.73250766 (0.079) 92.242 $ 1,174.47
12-31-93 Contract Fee ($1.00) 14.64984870 (0.068) 92.174 $ 1,350.34
12-31-94 Contract Fee ($1.00) 13.72629720 (0.073) 92.101 $ 1,264.21
12-31-95 Contract Fee ($1.00) 15.52246997 (0.064) 92.037 $ 1,428.64
Investment Grade Intermediate Bond Fund
------------ ------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.63475348 94.031 94.031 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.28106339 (0.089) 93.942 $ 1,059.77
12-31-91 Contract Fee ($1.00) 12.87857355 (0.078) 93.864 $ 1,208.83
12-31-92 Contract Fee ($1.00) 13.44210000 (0.074) 93.790 $ 1,260.73
12-31-93 Contract Fee ($1.00) 14.38929401 (0.069) 93.721 $ 1,348.58
12-31-94 Contract Fee ($1.00) 14.25707517 (0.070) 93.651 $ 1,335.19
12-31-95 Contract Fee ($1.00) 15.46342330 (0.065) 93.586 $ 1,447.16
Income Securities Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.78314539 92.737 92.737 $ 1,000.00
12-31-90 Contract Fee ($1.00) 9.84219360 (0.102) 92.635 $ 911.73
12-31-91 Contract Fee ($1.00) 13.58029545 (0.074) 92.561 $ 1,257.01
12-31-92 Contract Fee ($1.00) 15.16252410 (0.066) 92.495 $ 1,402.46
12-31-93 Contract Fee ($1.00) 17.73437317 (0.056) 92.439 $ 1,639.35
12-31-94 Contract Fee ($1.00) 16.39171653 (0.061) 92.378 $ 1,514.23
12-31-95 Contract Fee ($1.00) 19.78534185 (0.051) 92.327 $ 1,826.72
Adjustable U.S. Government Fund
------------ --------------- ------------
12-31-90 Purchase $ 1,000.00 9.99925491 100.007 100.007 $ 1,000.00
12-31-91 Contract Fee ($1.00) 10.69751831 (0.093) 99.914 $ 1,068.83
12-31-92 Contract Fee ($1.00) 11.01976506 (0.091) 99.823 $ 1,100.03
12-31-93 Contract Fee ($1.00) 11.25360475 (0.089) 99.734 $ 1,122.37
12-31-94 Contract Fee ($1.00) 11.07653376 (0.090) 99.644 $ 1,103.71
12-31-95 Contract Fee ($1.00) 11.95134157 (0.084) 99.560 $ 1,189.88
Templeton Pacific Growth Fund
------------ --------------- ------------ -----------
12-31-92 Purchase $ 1,000.00 9.76096735 102.449 102.449 $ 1,000.00
12-31-93 Contract Fee ($1.00) 14.23330574 (0.070) 102.379 $ 1,457.19
12-31-94 Contract Fee ($1.00) 12.80173310 (0.078) 102.301 $ 1,309.63
12-31-95 Contract Fee ($1.00) 13.63037545 (0.073) 102.228 $ 1,393.41
Rising Dividends Fund
------------ --------------- ------------
12-31-92 Purchase $ 1,000.00 10.84771473 92.185 92.185 $ 1,000.00
12-31-93 Contract Fee ($1.00) 10.32720317 (0.097) 92.088 $ 951.01
12-31-94 Contract Fee ($1.00) 9.76873744 (0.102) 91.986 $ 898.59
12-31-95 Contract Fee ($1.00) 12.49836348 (0.080) 91.906 $ 1,148.67
Templeton International Equity Fund
------------ --------------- ------------ -----------
12-31-92 Purchase $ 1,000.00 9.64241309 103.708 103.708 $ 1,000.00
12-31-93 Contract Fee ($1.00) 12.22565227 (0.082) 103.626 $ 1,266.90
12-31-94 Contract Fee ($1.00) 12.16131942 (0.082) 103.544 $ 1,259.23
12-31-95 Contract Fee ($1.00) 13.26267921 (0.075) 103.469 $ 1,372.28
Templeton Developing Markets Equity Fund
------------ ------------ --------------- ------------ -----------
12-31-94 Purchase $ 1,000.00 9.45424664 105.773 105.773 $ 1,000.00
12-31-95 Contract Fee ($1.00) 9.58170209 (0.104) 105.669 $ 1,012.49
Templeton Global Growth Fund
------------ --------------- ------------ -----------
12-31-94 Purchase $ 1,000.00 10.20085584 98.031 98.031 $ 1,000.00
12-31-95 Contract Fee ($1.00) 11.33894840 (0.088) 97.943 $ 1,110.57
</TABLE>
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<NAME> ALLIANZ LIFE VARIABLE ACCOUNT B
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