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 three years or more, for
three 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>
<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>
As of December 31, 1995, the Templeton International Smaller Companies and
the Capital Growth Funds had not yet commenced operations.
*Prior to May 1, 1996, the Templeton Global Income Securities Fund was known as
the Global Income Fund.
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>
As of December 31, 1995, the Templeton International Smaller Companies and
the Capital Growth Funds had not yet commenced operations.
*Prior to May 1, 1996, the Templeton Global Income Securities Fund was known as
the Global Income Fund.
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.
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
computed 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.
Annuity Income
Periodic annuity income amounts may be illustrated using the historical
performance of the Sub-Accounts, the Standard & Poor's 500 Composite
Stock Price Index 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>
