File Nos. 33-23035
811-05618
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 15 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 22 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
_______________________________
(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
_______________________________________________
(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403
_____________________________________ _________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 347-6596
Name and Address of Agent for Service
_____________________________________
Michael T. Westermeyer
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1996 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
______ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount
of securities in accordance with Rule 24f-2 under the Investment Company Act
of 1940. Registrant filed a Rule 24f-2 Notice for the most recent fiscal year
on or about February 28, 1996.
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
________ ________
<S> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions. . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights. . . . . . . . . . . Highlights
Item 4. Condensed Financial Information. . . . . . . Condensed Financial
Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . The Company; The
Variable Account;
Franklin Valuemark
Funds
Item 6. Deductions. . . . . . . . . . . . . . . . . . Charges and
Deductions
Item 7. General Description of Variable Annuity
Contracts. . . . . . . . . . . . . . . . . . . The Contracts
Item 8. Annuity Period. . . . . . . . . . . . . . . . Annuity Provisions
Item 9. Death Benefit. . . . . . . . . . . . . . . . . The Contracts;
Annuity Provisions
Item 10. Purchases and Contract Value.. . . . . . . . . Purchase Payments
and Contract Value
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Surrenders
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Tax Status
Item 13. Legal Proceedings. . . . . . . . . . . . . . . Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . . Table of Contents of
the Statement of
Additional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
________ ________
<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . . The Company
Item 18. Services. . . . . . . . . . . . . .. . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . .. . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item so numbered, in Part C to this Registration
Statement.
PART A
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Home Office: Valuemark Service Center:
1750 Hennepin Avenue 300 Berwyn Park
Minneapolis, MN 55403-2195 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
May 1, 1996
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to
aid individuals in long-term planning for retirement or other long-term
purposes. This is not appropriate as a trading vehicle.
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Tax Status - Qualified Plans.") However, because of the
minimum purchase requirements, these Contracts may not be appropriate for some
periodic payment retirement plans.
Purchase payments for the Contracts will be allocated to a segregated
investment account of Allianz Life Insurance Company of North America (the
"Company") which account has been designated Allianz Life Variable Account B
(the "Variable Account") or to the Company's Fixed Account. THE FIXED ACCOUNT
MAY NOT BE AVAILABLE IN ALL STATES. IN CALIFORNIA, THE TEMPLETON
INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND ARE NOT
AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT. (CHECK WITH
YOUR AGENT REGARDING AVAILABILITY.)
Prior to May 1, 1993, the Variable Account was known as NALAC Variable Account
B. The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty- three Funds: the
Money Market Fund, the Adjustable U.S. Government Fund, the High Income
Fund, the Investment Grade Intermediate Bond Fund, the Templeton Global
Income Securities Fund, The U.S. Government Securities Fund, the
Zero Coupon Funds - 2000, 2005 and 2010 , the Growth and Income
Fund, the Income Securities Fund,the Real Estate Securities Fund, the
Rising Dividends Fund, the Templeton Global Asset Allocation Fund, the
Utility Equity Fund, the Capital Growth Fund, the Precious Metals
Fund, the Small Cap Fund, the Templeton Developing Markets Equity Fund,
the Templeton Global Growth Fund, the Templeton International Equity
Fund , the Templeton International Smaller Companies Fund, and the
Templeton Pacific Growth Fund. SUBJECT TO REGULATORY APPROVAL, SHARES
OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF
THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE
BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER.
THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S. GOVERNMENT FUND AND
THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO LONGER BE AVAILABLE
AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS. SEE "FRANKLIN VALUEMARK
FUNDS - PROPOSED SUBSTITUTION TRANSACTION." Prior to May 1, 1996, the
Templeton Global Income Securities Fund was known as the Global Income
Fund. See "Highlights" and "Tax Status" for a discussion of owner
control of the underlying investments in a variable annuity contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," which is available at
no charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents of the Statement of Additional Information can be found
on the last page of this Prospectus. For the Statement of Additional
Information, call or write the Home Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Home Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the Statement of Additional Information are dated
May 1, 1996 , and may be amended from time to time.
This Prospectus should be kept for future reference.
IN THE STATE OF OREGON, ALL REFERENCES TO FRANKLIN VALUEMARK II REFER TO
VALUEMARK II.
TABLE OF CONTENTS
Page
DEFINITIONS
HIGHLIGHTS
FEE TABLE
CONDENSED FINANCIAL INFORMATION
THE COMPANY
THE VARIABLE ACCOUNT
FRANKLIN VALUEMARK FUNDS
Description of the Funds
General
Substitution of Securities
Proposed Substitution Transaction
Voting Rights
CHARGES AND DEDUCTIONS
Deduction for Contingent Deferred Sales Charge (Sales Load)
Reduction or Elimination of Contingent Deferred Sales Charge
Deduction for Mortality and Expense Risk Charge
Deduction for Administrative Expense Charge
Deduction for Contract Maintenance Charge
Deduction for Premium Taxes
Deduction for Income Taxes
Deduction for Trust Expenses
Deduction for Transfer Fee
THE CONTRACTS
Ownership
Assignment
Beneficiary
Change of Beneficiary
Annuitant
Death of the Contract Owner Before the Income Date
Death of the Annuitant Prior to the Income Date
Death of the Annuitant After the Income Date
ANNUITY PROVISIONS
Income Date
Change in Income Date and Annuity Option
Annuity Options
Annuity Units
Annuity Unit Value
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
Allocation of Purchase Payments
Transfer of Contract Values
Dollar Cost Averaging
Automatic Investment Plan
Contract Value
Accumulation Unit
DISTRIBUTOR
SURRENDERS
Systematic Withdrawal
Delay of Payments
ADMINISTRATION OF THE CONTRACTS
PERFORMANCE DATA
Money Market Sub-Account
Other Sub-Accounts
Performance Ranking
TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
Accumulation Unit - An accounting unit of measure used to calculate the
Contract Value prior to the Income Date.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any
time prior to the Income Date unless the Contract Owner is not a natural
person.
Annuity Option - An arrangement under which annuity payments are made under
the Contract.
Annuity Period - The period starting on the Income Date.
Annuity Unit - An accounting unit of measure used to calculate annuity
payments after the Income Date.
Company - Allianz Life Insurance Company of North America at its Valuemark
Service Center shown on the cover page of this Prospectus.
Contingent Owner - In those Contracts containing Contingent Owner provisions,
the Contingent Owner is named in the application, unless changed. Only the
spouse of the Owner may be the Contingent Owner.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The Contract Owner is named in the application, unless
changed, and has all rights under the Contract. If Joint Owners are named, all
references to Contract Owner shall mean the Joint Owners.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
Effective Date - The date on which the first Contract Year begins.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fixed Account - The Company's general investment account which contains all
the assets of the Company with the exception of the Variable Account and other
segregated asset accounts.
Fund - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
Income Date - The date on which annuity payments are to commence.
Joint Owner - In Contracts containing Joint Owner provisions, if there is more
than one Contract Owner, each Contract Owner shall be a Joint Owner of the
Contract. Joint Owners have equal ownership rights and must both authorize
any exercising of those ownership rights unless otherwise allowed by the
Company. Any Joint Owner must be the spouse of the other Joint Owner (except
in Pennsylvania).
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) or 408 of the
Internal Revenue Code.
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Internal
Revenue Code.
Sub-Account - A segment of the Variable Account. Each Sub-Account is
invested in shares of a Fund of an Eligible Investment.
Surrender Value - The Contract Value for the Valuation Period next
following the Valuation Period during which the written request to the
Company for surrender is received, reduced by the sum of: (i) any applicable
premium taxes not previously deducted; (ii) any applicable Contract Maintenance
Charge; and (iii) any applicable Contingent Deferred Sales Charge.
Valuation Date - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading, which is Monday through Friday,
except for normal business holidays.
Valuation Period - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Allianz Life Variable Account B, into which purchase payments may be
allocated.
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated
investment account of Allianz Life Insurance Company of North America (the
"Company") which has been designated Allianz Life Variable Account B (the
"Variable Account") or to the Company's Fixed Account. SUBJECT TO
REGULATORY APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE
SUBSTITUTED FOR SHARES OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE
INVESTMENT GRADE INTERMEDIATE BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER. THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S.
GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO
LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS. SEE
"FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION TRANSACTION."
THE FIXED ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES. IN CALIFORNIA,
THE TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL
GROWTH FUND ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA
INSURANCE DEPARTMENT. (CHECK WITH YOUR AGENT REGARDING AVAILABILITY.)
On April 1, 1993, the Company changed its name from North American Life and
Casualty Company to its present name. Prior to May 1, 1993, the Variable
Account was known as NALAC Variable Account B. The Variable Account invests
in shares of Franklin Valuemark Funds (the "Trust"). (See "Franklin Valuemark
Funds.") CONTRACT OWNERS BEAR THE INVESTMENT RISK FOR ALL AMOUNTS ALLOCATED
TO THE VARIABLE ACCOUNT.
The Contract may be returned within 10 days (or for a longer period in states
where required) after it is received ("Free Look Period"). It can be mailed
or delivered to either the Company or the agent who sold it. Return of the
Contract by mail is effective on being postmarked, properly addressed and
postage prepaid. The returned Contract will be treated as if the Company had
never issued it. The Company will promptly refund the Contract Value in
states where permitted. This may be more or less than the purchase payments.
In states where required and where the Contract is purchased pursuant to an
Individual Retirement Annuity, the Company will promptly refund the purchase
payments, less any withdrawals. The Company has reserved the right to
allocate initial purchase payments to the Money Market Sub-Account (except
those allocated to the Fixed Account) until the expiration of the Free Look
Period. If the Company does so allocate the initial purchase payment to the
Money Market Sub-Account, it will refund the greater of the purchase payments,
less any withdrawals, or the Contract Value. It is the Company's current
practice to directly allocate the initial purchase payments to the
sub-accounts and/or to the Fixed Account as selected by the Contract Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event
of a surrender. The Contingent Deferred Sales Charge is imposed on surrenders
of purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
The Contingent Deferred Sales Charge will vary in amount, depending upon the
Contract Year in which the purchase payment being surrendered was made. The
Company currently makes available a systematic withdrawal plan which allows
for additional options in some instances. (See "Surrenders - Systematic
Withdrawal.") The Contingent Deferred Sales Charge is found in the Fee Table.
(See also "Charges and Deductions - Deduction for Contingent Deferred Sales
Charge (Sales Load).") The maximum Contingent Deferred Sales Charge is 5% of
purchase payments. For purposes of determining the applicability of the
Contingent Deferred Sales Charge, surrenders are deemed to be on a first-in,
first-out basis.
There is a Mortality and Expense Risk Charge which is equal, on an annual
basis, to 1.25% of the average daily net assets of the Variable Account. This
Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality
and Expense Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis,
to 0.15% of the average daily net assets of the Variable Account. This Charge
compensates the Company for costs associated with the administration of the
Contract and the Variable Account. (See "Charges and Deductions - Deduction
for Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.")
Under certain circumstances there may be assessed a transfer fee when a
Contract Owner transfers Contract Values. (See "Charges and Deductions -
Deduction for Transfer Fee.")
There is a ten percent (10%) federal income tax penalty that may be applied
to the income portion of any distribution from the Contracts. However, the
penalty is not imposed under certain circumstances. See "Tax Status - Tax
Treatment of Withdrawals - Non-Qualified Contracts" and "Tax Treatment of
Withdrawals - Qualified Contracts." For a further discussion of the taxation
of the Contracts, see "Tax Status."
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Contract Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions made by the Contract Owner and
does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989 and only apply to (i) salary reduction
contributions made after December 31, 1988; (ii) to income attributable to
such contributions; and (iii) to amounts held as of December 31, 1988. The
limitations on withdrawals do not affect rollovers or transfers between
certain Qualified Plans. Contract Owners should consult their own tax counsel
or other tax adviser regarding distributions. (See "Tax Status - Tax
Sheltered Annuities - Withdrawal Limitations".)
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract
for tax purposes if the owner of the contract has excessive control over the
investment underlying the contract. The issuance of such guidelines may
require the Company to impose limitations on a Contract Owner's right to
control the investment. It is not known whether any such guidelines would
have a retroactive effect (see "Tax Status - Diversification").
The Company offers other deferred variable annuity contracts but does not
permit exchange of those contracts for the Contracts offered by this
Prospectus.
Because of certain exemptive and exclusionary provisions, interests in the
Fixed Account are not registered under the Securities Act of 1933 and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the Fixed Account nor
any interests therein are subject to the provisions of these Acts, and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in the Prospectus relating to the
Fixed Account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B FEE TABLE*
______________________________________________________________
<S> <C> <C>
Contract Owner Transaction Fees
Contingent Deferred Sales Charge** Years Since
(as a percentage of purchase payments) Payment Charge
___________ _______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Current Transfer Fee*** First 12 transfers in a
Contract Year are free.
Thereafter, the fee is $25
(or 2% of the amount
transferred, if less).
Prescheduled automatic
dollar cost averaging
transfers are not counted.
Contract Maintenance Charge $30 per Contract per year
(Prior to the Income Date the charge is
waived for Contracts having Contract Values
or purchase payments less withdrawals of
$100,000 or more.)
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
_____
Total Variable Account Annual Expenses 1.40%
</TABLE>
<TABLE>
<CAPTION>
<C> <S>
* Applies to all twenty-three Sub-Accounts of the Variable Account.
** Once each Contract Year, a Contract Owner may surrender up to fifteen
percent (15%) of purchase payments paid less any prior surrenders
without incurring a Contingent Deferred Sales Charge. If no withdrawal
is made during a Contract Year, the 15% is cumulative into future
years. If less than 15% is withdrawn in a Contract Year, the remaining
percentage is not available in future years. See also "Surrenders -
Systematic Withdrawal" for additional options.
*** The Contract provides that if more than three transfers have been made
in a Contract Year, the Company reserves the right to deduct a transfer
fee which shall not exceed the lesser of $25 or 2% of the amount
transferred.
</TABLE>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management Fees for each Fund are based on a percentage of that
Fund's assets under management. See "Franklin Valuemark Funds"
in this Prospectus and "Management" in the Trust prospectus.
The "Management and Business Management Fees" include investment
advisory, other management and administrative fees not included as
"Other Expenses" below that were paid to the Managers and Business
Managers to the Trust for the 1995 calendar year (except for
the Money Market Fund, the Zero Coupon Fund-2000, the Zero Coupon
Fund-2005, the Zero Coupon Fund-2010, the Small Cap Fund, the
Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund and the Capital Growth Fund). The purpose of
the Table is to assist the Contract Owner in understanding the various
costs and expenses that a Contract Owner will incur, directly or
indirectly, on amounts allocated to the Variable Account.
<TABLE>
<CAPTION>
Management
and Business Total
Management Other Annual
Fees(1/) Expenses Expenses
____________ ________ ________
<S> <C> <C> <C>
Money Market Fund (2/) .51% .02% .53%
Growth and Income Fund .49% .03% .52%
Precious Metals Fund .61% .05% .66%
Real Estate Securities Fund .56% .03% .59%
Utility Equity Fund .47% .03% .50%
High Income Fund .53% .03% .56%
Templeton Global Income Securities
Fund (3/) .55% .09% .64%
Investment Grade Intermediate Bond Fund .58% .03% .61%
Income Securities Fund .47% .04% .51%
The U.S. Government Securities Fund .49% .03% .52%
Adjustable U.S. Government Fund .56% .03% .59%
Zero Coupon Fund-2000 (4/) .37% .03% .40%
Zero Coupon Fund-2005 (4/) .37% .03% .40%
Zero Coupon Fund-2010 (4/) .37% .03% .40%
Rising Dividends Fund .75% .03% .78%
Templeton International Equity Fund .83% .09% .92%
Templeton Pacific Growth Fund .90% .11% 1.01%
Templeton Global Growth Fund .93% .04% .97%
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
Templeton Global Asset Allocation Fund <5/> .80% .10% .90%
Small Cap Fund (6/) .75% .15% .90%
Templeton International Smaller Companies
Fund (7/) 1.00% .10% 1.10%
Capital Growth Fund (7/) .75% .04% .79%
<FN>
1/ The Business Management Fee is a direct expense for the Templeton
Global Asset Allocation Fund and the Templeton International Smaller
Companies Fund ; the other Funds pay for similar services indirectly
through the Management Fee. See "Management" in the Trust Prospectus for
further information regarding Management and Business Management Fees.
2/ Franklin Advisers Inc. agreed in advance to waive a portion of its
Management Fee and to make certain payments to reduce expenses of the Money
Market Fund during 1995 and is currently continuing this arrangement in 1996.
This arrangement may be terminated at any time. With this reduction,
Management Fees and Total Annual Expenses of the Money Market Fund
represented 0.38% and 0.40%, respectively, of the average daily net assets
of the Fund.
3/ Prior to May 1, 1996, the Templeton Global Income Securities Fund was
known as the Global Income Fund.
4/ Net of management fees waived and/or expense reimbursements.
Although not obligated to, Franklin Advisers, Inc. has agreed in advance to
waive a portion of its management fees and to make certain payments to reduce
expenses of the three Zero Coupon Funds through at least December 31, 1996
such that the aggregate expenses of the Zero Coupon Fund-2000, the Zero Coupon
Fund-2005 and the Zero Coupon Fund-2010 will not exceed 0.40% of each Fund's
net assets. Absent the management fee waivers and expense payments, for the
year ended December 31, 1995, the Total Annual Expenses and Management and
Business Management Fees would have been as follows: Zero Coupon Fund-2000,
.63% and .60%; Zero Coupon Fund-2005, .66% and .63%; and Zero Coupon
Fund-2010, .66% and .63%.
5/ The Templeton Global Asset Allocation Fund commenced operations May 1,
1995. The expenses shown are estimated expenses for 1996.
6/ The Small Cap Fund commenced operations November 1, 1995. The
expenses shown are estimated expenses for the Fund for 1996.
7/ The Templeton International Smaller Companies Fund and the Capital
Growth Fund have not yet commenced operations. The expenses shown are
estimated expenses for the Funds for 1996.
</TABLE>
The following Tables reflect expenses of the Variable Account as well as of
the Trust. The dollar figures should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. The $30 Contract Maintenance Charge is included in the Examples as
a prorated charge of $1. Since the average Contract account size for
the Contracts described in this Prospectus is greater than $1,000, the expense
effect of the Contract Maintenance Charge is reduced accordingly. For
additional information, see "Charges and Deductions" in this Prospectus and
"Management" in the Trust Prospectus.
Premium taxes are not reflected in the Tables. Premium taxes may apply.
EXAMPLES
If the Contract is fully surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ _____ _____ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 63 $ 89 $ 125 $ 292
Growth and Income Fund $ 64 $ 89 $ 124 $ 291
Precious Metals Fund $ 65 $ 93 $ 132 $ 310
Real Estate Securities Fund $ 64 $ 91 $ 128 $ 300
Utility Equity Fund $ 63 $ 88 $ 123 $ 288
High Income Fund $ 64 $ 90 $ 126 $ 296
Templeton Global Income Securities
Fund $ 65 $ 93 $ 131 $ 307
Investment Grade Intermediate Bond Fund $ 65 $ 92 $ 129 $ 303
Income Securities Fund $ 63 $ 88 $ 123 $ 290
The U.S. Government Securities Fund $ 64 $ 89 $ 124 $ 291
Adjustable U.S. Government Fund $ 64 $ 91 $ 128 $ 300
Zero Coupon Fund-2000# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2005# $ 62 $ 85 $ 117 $ 275
Zero Coupon Fund-2010# $ 62 $ 85 $ 117 $ 275
Rising Dividends Fund $ 66 $ 97 $ 139 $ 325
Templeton International Equity Fund $ 68 $ 102 $ 147 $ 344
Templeton Pacific Growth Fund $ 69 $ 104 $ 152 $ 355
Templeton Global Growth Fund $ 68 $ 103 $ 150 $ 350
Templeton Developing Markets Equity Fund $ 73 $ 117 $ 174 $ 405
Templeton Global Asset Allocation Fund* $ 67 $ 101 $ 146 $ 341
Small Cap Fund* $ 67 $ 101 $ 146 $ 341
Templeton International Smaller Companies
Fund** $ 69 $ 107 $ 157 $ 367
Capital Growth Fund** $ 66 $ 97 $ 139 $ 327
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</TABLE>
If the Contract is not surrendered at the end of the applicable time period
and no prior surrenders have occurred, the Contract Owner would have incurred
the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded semi-annually:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
____ ______ ______ ______
<S> <C> <C> <C> <C>
Money Market Fund $ 21 $ 67 $ 121 $ 292
Growth and Income Fund $ 21 $ 67 $ 120 $ 291
Precious Metals Fund $ 22 $ 71 $ 128 $ 310
Real Estate Securities Fund $ 21 $ 69 $ 124 $ 300
Utility Equity Fund $ 20 $ 66 $ 119 $ 288
High Income Fund $ 21 $ 68 $ 122 $ 296
Templeton Global Income Securities
Fund $ 22 $ 71 $ 127 $ 307
Investment Grade Intermediate Bond Fund $ 22 $ 70 $ 125 $ 303
Income Securities Fund $ 20 $ 66 $ 119 $ 290
The U.S. Government Securities Fund $ 21 $ 67 $ 120 $ 291
Adjustable U.S. Government Fund $ 21 $ 69 $ 124 $ 300
Zero Coupon Fund-2000# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2005# $ 19 $ 63 $ 113 $ 275
Zero Coupon Fund-2010# $ 19 $ 63 $ 113 $ 275
Rising Dividends Fund $ 23 $ 75 $ 135 $ 325
Templeton International Equity Fund $ 25 $ 80 $ 143 $ 344
Templeton Pacific Growth Fund $ 26 $ 82 $ 148 $ 355
Templeton Global Growth Fund $ 25 $ 81 $ 146 $ 350
Templeton Developing Markets Equity Fund $ 30 $ 95 $ 170 $ 405
Templeton Global Asset Allocation Fund* $ 24 $ 79 $ 142 $ 341
Small Cap Fund* $ 24 $ 79 $ 142 $ 341
Templeton International Smaller Companies
Fund** $ 26 $ 85 $ 153 $ 367
Capital Growth Fund** $ 23 $ 75 $ 135 $ 327
<FN>
* Annualized
** Estimated
# Calculated with waiver of fees and reimbursement of expenses
</TABLE>
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Allianz Life Insurance Company of
North America and the financial statements of Allianz Life Variable Account B
may be found in the Statement of Additional Information.
The table below gives per unit information about the financial history of each
Fund from the inception of each to December 31, 1995.#
This information should be read in conjunction with the financial statements
and related notes to the Variable Account included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(Number of units in thousands)
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
Franklin Valuemark Funds: 1995 1994 1993 1992 1991
_____________ _____________ ____________ ____________ ___________
Money Market Fund
Unit value at beginning of period $ 12.354 $12.066 $11.932 $11.742 $11.288
Unit value at end of period $ 12.883 $12.354 $12.066 $11.932 $11.742
Number of units outstanding at end of period 31,040 39,437 10,247 6,951 5,682
Growth and Income Fund
Unit value at beginning of period $ 13.215 $13.677 $12.574 $11.949 $9.803
Unit value at end of period $ 17.310 $13.215 $13.677 $12.574 $11.949
Number of units outstanding at end of period 46,893 35,695 24,719 17,144 9,671
Precious Metals Fund
Unit value at beginning of period $ 13.979 $14.464 $9.424 $10.635 $10.387
Unit value at end of period $ 14.109 $13.979 $14.464 $9.424 $10.635
Number of units outstanding at end of period 6,919 8,285 4,685 1,419 833
High Income Fund
Unit value at beginning of period $ 14.608 $15.155 $13.278 $11.583 $9.026
Unit value at end of period $ 17.252 $14.608 $15.155 $13.278 $11.583
Number of units outstanding at end of period 18,756 15,679 11,787 4,780 1,923
Real Estate Securities Fund
Unit value at beginning of period $ 15.594 $15.369 $13.095 $11.848 $9.000
Unit value at end of period $ 18.073 $15.594 $15.369 $13.095 $11.848
Number of units outstanding at end of period 10,998 11,645 5,589 1,052 394
The U.S. Government Securities Fund
Unit value at beginning of period $ 13.835 $14.698 $13.586 $12.798 $11.199
Unit value at end of period $ 16.298 $13.835 $14.698 $13.586 $12.798
Number of units outstanding at end of period 34,313 36,490 40,402 25,054 14,426
Utility Equity Fund
Unit value at beginning of period $ 15.104 $17.319 $15.889 $14.821 $12.062
Unit value at end of period $ 19.565 $15.104 $17.319 $15.889 $14.821
Number of units outstanding at end of period 66,669 70,082 84,217 39,387 16,188
Zero Coupon Fund - 2000
Unit value at beginning of period $ 15.373 $16.717 $14.595 $13.570 $11.446
Unit value at end of period $ 18.294 $15.373 $16.717 $14.595 $13.570
Number of units outstanding at end of period 6,066 4,953 3,787 2,886 2,012
Zero Coupon Fund - 2005
Unit value at beginning of period $ 16.096 $18.050 $14.975 $13.705 $11.545
Unit value at end of period $ 20.914 $16.096 $18.050 $14.975 $13.705
Number of units outstanding at end of period 3,504 2,780 2,020 1,090 795
Zero Coupon Fund - 2010
Unit value at beginning of period $ 15.930 $18.144 $14.670 $13.482 $11.390
Unit value at end of period $ 22.431 $15.930 $18.144 $14.670 $13.482
Number of units outstanding at end of period 3,437 2,589 1,405 849 1,150
Templeton Global Income Securities Fund*
Unit value at beginning of period $ 13.726 $14.650 $12.733 $12.962 $11.706
Unit value at end of period $ 15.522 $13.726 $14.650 $12.733 $12.962
Number of units outstanding at end of period 14,181 16,855 13,054 5,487 2,979
Investment Grade Intermediate Bond Fund
Unit value at beginning of period $ 14.257 $14.389 $13.442 $12.879 $11.281
Unit value at end of period $ 15.463 $14.257 $14.389 $13.442 $12.879
Number of units outstanding at end of period 9,692 9,772 7,677 3,333 1,311
Income Securities Fund
Unit value at beginning of period $ 16.392 $17.734 $15.163 $13.580 $9.842
Unit value at end of period $ 19.785 $16.392 $17.734 $15.163 $13.580
Number of units outstanding at end of period 59,309 56,569 38,967 11,397 4,472
Adjustable U.S. Government Fund
Unit value at beginning of period $ 11.077 $11.254 $11.020 $10.698 $9.999
Unit value at end of period $ 11.951 $11.077 $11.254 $11.020 $10.698
Number of units outstanding at end of period 14,600 19,865 24,975 21,858 12,077
Templeton Pacific Growth Fund
Unit value at beginning of period $ 12.802 $14.233 $9.761 $10.000** NA
Unit value at end of period $ 13.630 $12.802 $14.233 $9.761 NA
Number of units outstanding at end of period 22,483 27,231 14,240 534 NA
Rising Dividends Fund
Unit value at beginning of period $ 9.769 $10.327 $10.848 $10.000** NA
Unit value at end of period $ 12.498 $9.769 $10.327 $10.848 NA
Number of units outstanding at end of period 33,789 28,778 26,256 8,388 NA
Templeton International Equity Fund
Unit value at beginning of period $ 12.161 $12.226 $9.642 $10.000** NA
Unit value at end of period $ 13.263 $12.161 $12.226 $9.642 NA
Number of units outstanding at end of period 59,883 60,464 24,026 1,329 NA
Templeton Developing Markets Equity Fund
Unit value at beginning of period $ 9.454 $10.000** NA NA NA
Unit value at end of period $ 9.582 $9.454 NA NA NA
Number of units outstanding at end of period 15,618 9,774 NA NA NA
Templeton Global Growth Fund
Unit value at beginning of period $ 10.201 $10.000** NA NA NA
Unit value at end of period $ 11.339 $10.201 NA NA NA
Number of units outstanding at end of period 28,309 14,637 NA NA NA
Templeton Global Asset Allocation Fund
Unit value at beginning of period $ 10.000** NA NA NA NA
Unit value at end of period $ 10.591 NA NA NA NA
Number of units outstanding at end of period 1,338 NA NA NA NA
Small Cap Fund
Unit value at beginning of period $ 10.000** NA NA NA NA
Unit value at end of period $ 10.146 NA NA NA NA
Number of units outstanding at end of period 1,302 NA NA NA NA
<S> <C> <C>
(Number of units in thousands) January 9,
Year ended 1989 to
December 31, December 31
Franklin Valuemark Funds: 1990 1989
____________ ___________
Money Market Fund
Unit value at beginning of period $10.637 $10.000
Unit value at end of period $11.288 $10.637
Number of units outstanding at end of period 5,768 1,199
Growth and Income Fund*
Unit value at beginning of period $10.180 $10.000
Unit value at end of period $9.803 $10.180
Number of units outstanding at end of period 5,356 1,662
Precious Metals Fund
Unit value at beginning of period $12.247 $10.000
Unit value at end of period $10.387 $12.247
Number of units outstanding at end of period 1,015 167
High Income Fund
Unit value at beginning of period $10.021 $10.000
Unit value at end of period $9.026 $10.021
Number of units outstanding at end of period 1,056 612
Real Estate Securities Fund
Unit value at beginning of period $10.368 $10.000
Unit value at end of period $9.000 $10.368
Number of units outstanding at end of period 200 57
The U.S. Government Securities Fund
Unit value at beginning of period $10.427 $10.000
Unit value at end of period $11.199 $10.427
Number of units outstanding at end of period 5,450 1,102
Utility Equity Fund
Unit value at beginning of period $12.010 $10.000
Unit value at end of period $12.062 $12.010
Number of units outstanding at end of period 6,300 1,173
Zero Coupon Fund - 2000
Unit value at beginning of period $10.961 $10.000
Unit value at end of period $11.446 $10.961
Number of units outstanding at end of period 1,041 162
Zero Coupon Fund - 2005
Unit value at beginning of period $11.406 $10.000
Unit value at end of period $11.545 $11.406
Number of units outstanding at end of period 406 86
Zero Coupon Fund - 2010
Unit value at beginning of period $11.486 $10.000
Unit value at end of period $11.390 $11.486
Number of units outstanding at end of period 581 194
Templeton Global Income Securities Fund
Unit value at beginning of period $10.813 $10.000
Unit value at end of period $11.706 $10.813
Number of units outstanding at end of period 1,322 278
Investment Grade Intermediate Bond Fund
Unit value at beginning of period $10.635 $10.000
Unit value at end of period $11.281 $10.635
Number of units outstanding at end of period 595 200
Income Securities Fund
Unit value at beginning of period $10.783 $10.000
Unit value at end of period $9.842 $10.783
Number of units outstanding at end of period 3,011 1,508
Adjustable U.S. Government Fund
Unit value at beginning of period $10.000** NA
Unit value at end of period $9.999 NA
Number of units outstanding at end of period 75 NA
Templeton Pacific Growth Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Rising Dividends Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton International Equity Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton Developing Markets Equity Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton Global Growth Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Templeton Global Asset Allocation Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
Small Cap Fund
Unit value at beginning of period NA NA
Unit value at end of period NA NA
Number of units outstanding at end of period NA NA
<FN>
# As of December 31, 1995, the Templeton International Smaller Companies Fund and Capital Growth Fund
had not yet commenced operations.
* Prior to May 1, 1996, the Templeton Global Income Securities Fund was known as the Global Income
Fund.
** Unit Value at inception was $10.00.
</TABLE>
The Accumulation Unit Value at the inception was $10.00 for each Fund.
Inception was 1/24/89 for the Growth and Income, Templeton Global Income
Securities, High Income, Income Securities, Precious Metals, Real Estate
Securities, Utility Equity, Investment Grade Intermediate Bond and Money
Market Funds; 3/13/89 for The U.S. Government Securities and the three
Zero Coupon Funds; 12/3/90 for the Adjustable U.S. Government Fund; 1/24/92
for the Rising Dividends, Templeton International Equity and the
Templeton Pacific Growth Funds; 3/15/94 for the Templeton Global Growth
and Templeton Developing Markets Equity Funds; 5/1/95 for the
Templeton Global Asset Allocation Fund; and 11/1/95 for the Small Cap Fund.
The Templeton International Smaller Companies Fund and the Capital Growth
Fund are new in 1996.
THE COMPANY
Allianz Life Insurance Company of North America (the "Company") is a stock
life insurance company organized under the laws of the state of Minnesota in
1896. On April 1, 1993, the Company changed its name from North American Life
and Casualty Company ("NALAC") to its present name. The Company is a
wholly-owned subsidiary of Allianz Versicherungs-AG Holding ("Allianz").
Allianz is headquartered in Munich, Germany, and has sales outlets throughout
the world. Both NALAC and Fidelity Union Life Insurance Company of Dallas,
Texas had been owned by Allianz since 1979. Over the last decade there
has been a gradual consolidation of operations. On May 31, 1993, Fidelity
Union was consolidated into the Company. The Company offers fixed and variable
life insurance and annuities, and group life, accident and health insurance.
NALAC Financial Plans, Inc. is a wholly-owned subsidiary of the Company. It
provides marketing services for the Company and is the principal underwriter
of the Contracts. NALAC Financial Plans, Inc. is reimbursed for expenses
incurred in the distribution of the Contracts.
Administration for the Contracts is provided at the Company's Valuemark
Service Center: 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031, (800) 624-0197.
THE VARIABLE ACCOUNT
The Variable Account was established pursuant to a resolution of the Board of
Directors on May 31, 1985. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However,
the assets of the Variable Account equal to the reserves, and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds.
Currently, there are twenty- three Funds available under Franklin
Valuemark Funds.
FRANKLIN VALUEMARK FUNDS
Each of the twenty- three Sub-Accounts of the Variable Account is
invested solely in the shares of one of the twenty- three Funds of
Franklin Valuemark Funds ("Trust"). The Trust is an open-end management
investment company registered under the 1940 Act. While a brief summary of
the investment objectives is set forth below, more comprehensive information,
including a discussion of potential risks, is found in the accompanying
prospectus for the Trust, which is included with this Prospectus.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR
THE TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San Mateo,
California 94404, serves as each Fund's (except the Templeton Global Growth
Fund, the Templeton Developing Markets Equity Fund, the Templeton Global
Asset Allocation Fund and the Templeton International Smaller Companies Fund)
investment manager. The investment manager for the Templeton Global Growth
Fund and the Templeton Global Asset Allocation Fund is Templeton Global
Advisors Limited, formerly known as Templeton, Galbraith & Hansberger, Ltd.,
Lyford Cay Nassau, N.P. Bahamas. As of October 1, 1995, the investment manager
for the Templeton Developing Markets Equity Fund is Templeton Asset
Management Ltd., formerly known as Templeton Investment Management (Singapore)
Pte Ltd., 20 Raffles Place, Ocean Towers, Singapore. The investment manager
for the Templeton International Smaller Companies Fund is Templeton Investment
Counsel, Inc., Broward Financial Centre, Fort Lauderdale, Florida. All
investment managers or subadvisers are referred to collectively as "Managers."
The Managers are direct or indirect wholly-owned subsidiaries of Franklin
Resources, Inc., a publicly-owned holding company. The Managers, subject to
the overall policies, control and direction and review of the Board of
Trustees of the Trust, are responsible for recommending and providing advice
with respect to each Fund's investments, and for determining which securities
will be purchased, retained or sold as well as for execution of portfolio
transactions. Certain Managers have retained one or more subadvisers.
Advisers act as investment manager or administrator to 36 U.S. registered
investment companies (119 separate series) with aggregate assets of over $81
billion.
Templeton Global Investors, Inc. ("Business Manager"), Broward Financial
Centre, Suite 2100, Ft. Lauderdale, Florida, provides certain administrative
facilities and services for certain of the Funds.
Franklin Templeton Investor Services, Inc., 777 Mariners Island Blvd., San
Mateo, California 94404, also a wholly-owned subsidiary of Franklin Resources,
Inc., maintains the records of the Trust's shareholder accounts, processes
purchases and redemptions of shares, and serves as each Fund's dividend paying
agent.
Description of the Funds
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
The Money Market Fund seeks high current income consistent with capital
preservation and liquidity. The Fund will pursue its objective by investing
exclusively in high quality money market instruments. An investment in the
Money Market Fund is neither insured nor guaranteed by the U.S. Government.
The Money Market Fund attempts to maintain a stable net asset value of
$1.00 per share, although no assurances can be given that the Fund will be
able to do so.
FUNDS SEEKING CURRENT INCOME
Adjustable U.S. Government Fund
The Adjustable U.S. Government Fund seeks a high level of current income,
consistent with lower volatility of principal, by investing primarily in
adjustable rate securities which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. SUBJECT TO REGULATORY
APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND WILL BE
SUBSTITUTED FOR SHARES OF THE FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER, AND THUS, FOLLOWING THE SUBSTITUTION, THE FUND
WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE INVESTMENT FOR CONTRACT
OWNERS. SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION
TRANSACTION" BELOW.
High Income Fund
The High Income Fund seeks a high level of current income, with capital
appreciation as a secondary objective, by investing in debt obligations and
dividend-paying common and preferred stocks. Debt obligations include high
yield, high risk, lower rated obligations (commonly referred to as
"junk bonds"), which involve increased risks related to the
creditworthiness of their issuers.
Investment Grade Intermediate Bond Fund
The Investment Grade Intermediate Bond Fund seeks current income, consistent
with preservation of capital, primarily through investment in
intermediate-term, investment grade corporate obligations and in U.S.
government securities. SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S.
GOVERNMENT SECURITIES FUND WILL BE SUBSTITUTED FOR SHARES OF THE FUND ON
OCTOBER 25, 1996, OR AS SOON AS POSSIBLE THEREAFTER, AND THUS, FOLLOWING THE
SUBSTITUTION, THE FUND WOULD NO LONGER BE AVAILABLE AS AN ELIGIBLE INVESTMENT
FOR CONTRACT OWNERS. SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED
SUBSTITUTION TRANSACTION" BELOW.
Templeton Global Income Securities Fund
The Templeton Global Income Securities Fund (formerly the Global Income
Fund) seeks a high level of current income, consistent with preservation
of capital, with capital appreciation as a secondary consideration,
through investing in foreign and domestic debt obligations, including up
to 25% in high yield, high risk, lower rated debt obligations (commonly
referred to as "junk bonds"), and related currency transactions.
Investing in a non-diversified fund of global securities including those
of developing markets issuers, involves increased susceptibility to the
special risks associated with foreign investing.
The U.S. Government Securities Fund
The U.S. Government Securities Fund seeks current income and safety of
capital by investing exclusively in obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
Zero Coupon Funds
There are three Zero Coupon Funds. Each of the Funds mature in
the specified target year as follows:
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
The three Zero Coupon Funds seek a high investment return consistent
with the preservation of capital, by investing primarily in zero coupon
securities. In response to interest rate changes, these securities may
experience greater fluctuations in market value than interest-paying
securities of similar maturities. The Funds may not be appropriate for
short-term investors or those who intend to withdraw money before the
maturity date.
Additional Zero Coupon Funds may be added to the Trust in the future. Should
any such Funds be available for investment at the maturity date of any
existing Zero Coupon Fund, such Funds will be available as an investment
option for Contract Owners who select such option. If no selection has been
made by a Contract Owner prior to the maturity date of a Zero Coupon Fund, the
Account Value held in the Sub-Account underlying the Owner's Contract will be
automatically transferred to the Money Market Sub-Account. The Company will
notify the Owner of a maturing Zero Coupon Fund in writing at least 30 days
prior to the maturity. Included with the notification will be investment
options available at that time as well as the automatic Money Market option.
The Zero Coupon Funds may not be appropriate for Contract Owners who
do not plan to have their purchase payments invested in the Zero Coupon
Sub-Accounts for the long-term or until maturity of the portfolio.
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
The Growth and Income Fund seeks capital appreciation, with current income
return as a secondary objective, by investing primarily in U.S. common
stocks, securities convertible into common stocks, and preferred stocks.
Income Securities Fund
The Income Securities Fund seeks to maximize income while maintaining
prospects for capital appreciation by investing in a diversified portfolio of
domestic and foreign, including developing markets, debt obligations
and/or equity securities. Debt obligations include high yield, high risk,
lower rated obligations (commonly referred to as "junk bonds") which involve
increased risks related to the creditworthiness of their issuers.
Real Estate Securities Fund
The Real Estate Securities Fund seeks capital appreciation, with current
income return as a secondary objective, by concentrating its investments in
publicly traded securities of U.S. companies in the real estate industry.
Rising Dividends Fund
The Rising Dividends Fund seeks capital appreciation, primarily through
investment in the equity securities of companies that have paid consistently
rising dividends over the past ten years. Preservation of capital is also an
important consideration. The Fund seeks current income incidental to capital
appreciation.
Templeton Global Asset Allocation Fund
The Templeton Global Asset Allocation Fund seeks a high level of total return
through a flexible policy of investing in equity securities, debt obligations,
including up to 25% in high yield, high risk, lower rated debt obligations,
(commonly referred to as "junk bonds") and money market instruments of issuers
in any nation, including developing markets nations. The mix of investments
among the three market segments will be adjusted in an attempt to capitalize
on total return potential produced by changing economic conditions throughout
the world. Foreign investing involves special risks.
Utility Equity Fund
The Utility Equity Fund seeks both capital appreciation and current income by
investing in securities of domestic and foreign issuers, including developing
markets, issuers engaged in the public utilities industry.
FUNDS SEEKING CAPITAL GROWTH
Capital Growth Fund
The Capital Growth Fund seeks capital appreciation, with current income as a
secondary consideration. The Fund invests primarily in equity securities,
including common stocks and securities convertible into common stocks.
Precious Metals Fund
The Precious Metals Fund seeks capital appreciation, with current income
return as a secondary objective, by concentrating its investments in
securities of U.S. and foreign companies, including those in developing
markets, engaged in mining, processing or dealing in gold and other
precious metals.
Small Cap Fund
The Small Cap Fund seeks long-term capital growth. The Fund seeks to
accomplish its objective by investing primarily in equity securities of small
capitalization growth companies. The Fund may also invest in foreign
securities, including those of developing markets issuers. Because of the
Fund's investments in small capitalization companies, an investment in the
Fund may involve greater risks and higher volatility and should not be
considered a complete investment program.
Templeton Developing Markets Equity Fund
The Templeton Developing Markets Equity Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily
inequities of issuers in countries having developing markets. The Fund
is subject to the heightened foreign securities investment risks that
accompany foreign developing markets and an investment in the Fund may be
considered speculative.
Templeton Global Growth Fund
The Templeton Global Growth Fund seeks long-term capital growth. The Fund
hopes to achieve its objective through a flexible policy of investing in
stocks and debt obligations of companies and governments of any nation,
including developing markets. The realization of income, if any, is only
incidental to accomplishment of the Fund's objective of long-term capital
growth. Foreign investing involves special risks.
Templeton International Equity Fund
The Templeton International Equity Fund seeks long-term growth of
capital. Under normal conditions, the Templeton International Equity
Fund will invest at least 65% of its total assets in an internationally
mixed portfolio of foreign equity securities which trade on markets in
countries other than the U.S., including developing markets, and are (i)
issued by companies domiciled in countries other than the United States or
(ii) issued by companies that derive at least 50% of either their revenues or
pre-tax income from activities outside of the U.S. Foreign investing involves
special risks.
Templeton International Smaller Companies Fund
The Templeton International Smaller Companies Fund seeks long-term capital
appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of smaller companies outside the U.S.,
including developing markets. Foreign investing involves special risks
and smaller company investments may involve higher volatility. An
investment in the Fund may not be considered a complete investment
program.
Templeton Pacific Growth Fund
The Templeton Pacific Growth Fund seeks long-term growth of capital, primarily
through investing at least 65% of its total assets in equity securities which
trade on markets in the Pacific Rim, including developing markets and are (i)
issued by companies domiciled in the Pacific Rim, including developing markets
or (ii) issued by companies that derive at least 50% of either their revenues
or pre-tax income from activities in the Pacific Rim. Investing in a portfolio
of geographically concentrated foreign securities, including developing
markets, involves increased susceptibility to the special risks of foreign
investing and an investment in the Fund may be considered speculative.
THE TEMPLETON GLOBAL ASSET ALLOCATION FUND, TEMPLETON DEVELOPING MARKETS
EQUITY FUND, TEMPLETON GLOBAL GROWTH FUND, TEMPLETON GLOBAL INCOME
SECURITIES FUND, GROWTH AND INCOME FUND, INCOME SECURITIES FUND, INVESTMENT
GRADE INTERMEDIATE BOND FUND, TEMPLETON INTERNATIONAL EQUITY FUND,
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND, MONEY MARKET FUND, TEMPLETON
PACIFIC GROWTH FUND, PRECIOUS METALS FUND, SMALL CAP FUND, AND UTILITY
EQUITY FUND MAY INVEST MORE THAN 10% OF THEIR TOTAL NET ASSETS IN
FOREIGN SECURITIES WHICH ARE SUBJECT TO SPECIAL AND ADDITIONAL RISKS
RELATED TO CURRENCY FLUCTUATIONS, MARKET VOLATILITY AND ECONOMIC, SOCIAL AND
POLITICAL UNCERTAINTY; INVESTING IN DEVELOPING MARKETS INVOLVES SIMILAR BUT
HEIGHTENED RISKS RELATED TO THE RELATIVELY SMALL SIZE AND LESSER LIQUIDITY
OF THESE MARKETS. SEE "HIGHLIGHTED RISK CONSIDERATIONS, FOREIGN TRANSACTIONS"
IN THE TRUST PROSPECTUS.
THE HIGH INCOME FUND AND THE INCOME SECURITIES FUND MAY INVEST UP TO 100% OF
THEIR RESPECTIVE NET ASSETS IN DEBT OBLIGATIONS RATED BELOW INVESTMENT GRADE,
COMMONLY KNOWN AS "JUNK BONDS," OR IN OBLIGATIONS WHICH HAVE NOT BEEN RATED BY
ANY RATING AGENCY. INVESTMENTS RATED BELOW INVESTMENT GRADE INVOLVE GREATER
RISKS, INCLUDING PRICE VOLATILITY AND RISK OF DEFAULT THAN INVESTMENTS IN
HIGHER RATED OBLIGATIONS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS IN LIGHT OF THE SECURITIES IN
WHICH THEY INVEST. SEE "HIGHLIGHTED RISK CONSIDERATIONS, LOWER RATED DEBT
OBLIGATIONS" IN THE TRUST PROSPECTUS.
General
There is no assurance that the investment objectives of any of the Funds will
be met. Contract Owners bear the complete investment risk for Contract Values
allocated to a Sub-Account.
Additional Funds and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Purchase Payments.")
Substitution of Securities
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or if, in the judgment of the Company,
further investment in such shares should become inappropriate in view of the
purpose of the Contract, the Company may substitute shares of another Eligible
Investment (or Fund within the Trust). No substitution of securities in any
Sub-Account may take place without prior approval of the Securities and
Exchange Commission and under such requirements as it may impose.
Proposed Substitution Transaction
1. Description. Under its authority described above, the Company has
proposed a substitution transaction (the "Substitution") such that shares of
The U.S. Government Securities Fund ("Government Fund") would be substituted
for all shares of both the Adjustable U.S. Government Fund ("Adjustable
Fund") and the Investment Grade Intermediate Bond Fund ("Bond Fund") held by
Sub-Accounts of the Variable Account. Contract Owners' interests in the
Adjustable and Bond Funds Sub-Accounts would be replaced by interests of
equivalent value in the Government Fund Sub-Account. As a result, following
the Substitution, the Adjustable Fund and Bond Fund Sub-Accounts would no
longer be available to Contract Owners.
In April 1996, the Company and the Variable Account filed an application with
the Securities and Exchange Commission requesting an order approving the
Substitution. Upon obtaining the order, and subject to any prior approval by
applicable state insurance authorities, the Company and the Variable Account
propose to complete the Substitution on October 25, 1996 or as soon as possible
thereafter.
2. Reasons for Substitution. The Company has proposed the Substitution for
several reasons: the similarity of the affected Funds' investment objectives,
strategies and risks; the limited recent demand by Contract Owners for
fixed-income investment choices; and the potential to benefit Contract Owners
through economies of scale, including potentially lower operating expenses,
by consolidating the affected Funds' assets.
3. Effect on Contract Owners. Except as stated in this paragraph, Contract
Owners may continue to redeem or transfer their Contract Values as stated
under "PURCHASE PAYMENTS AND CONTRACT VALUE - Transfer of Contract Values."
Within five days after the Substitution, the Company will send to Contract
Owners a written notice showing the shares of the Adjustable Fund and the
Bond Fund that have been eliminated and the shares of the Government Fund
that have been substituted (the "Notice"). For a 30-day period beginning on
the date following the mailing of the Notice, transfers out of the Government
Fund Sub-Account to any other available Sub-Account will not count toward the
limit on the annual number of free transfers. However, transfers pursuant
to a "market timing" strategy will continue to be subject to the applicable
restrictions on such transfers as described under "Transfer of Contract
Values."
Contract Owners considering new purchases or transfers to either the Adjustable
or Bond Funds may also wish to consider the Government Fund, which has similar
investment objectives and policies, and to consult with their investment
representatives. See the accompanying Franklin Valuemark Funds prospectus.
Immediately following the Substitution, the Company will treat the Sub-Accounts
invested in shares of the Adjustable Fund, Bond Fund and Government Fund as a
single Sub-Account of the Variable Account for administrative purposes. The
Company will effect the Substitution by simultaneously placing orders to redeem
all shares of the Adjustable Fund and Bond Fund and to purchase shares of the
Government Fund equal in value to the shares redeemed. The net asset values of
all affected shares will be determined as of the close of the business day
immediately before the date of these orders. The Company will bear the expenses
of the Substitution, and will send affected Contract Owners a notice within
five days after the Substitution. The Company believes, based on its review of
existing federal income tax laws and regulations, that the Substitution will
not have any tax consequences to Contract Owners.
Effective immediately, Contract Owners may elect to use the Government Fund
Sub-Account as the source account for investments in other Funds through the
Dollar Cost Averaging ("DCA") program. If the Adjustable Fund Sub-Account is
a Contract Owner's DCA source account at the time of the Substitution, the
Government Fund Sub-Account will automatically become the DCA source account
after the Substitution. If a Contract Owner is using DCA to invest in the
Bond Fund Sub-Account, his or her DCA program will be adjusted to reflect
DCA into the Government Fund Sub-Account using the same allocation
percentages when the Substitution occurs, unless he or she has previously
contacted the Company to select other Sub-Accounts. For further
information, please contact the Company's Valuemark Service Center at
(800) 624-0197.
Voting Rights
In accordance with its view of present applicable law, the Company will vote
the shares of the Trust held in the Variable Account at special meetings of
the shareholders of the Trust in accordance with instructions received from
persons having the voting interest in the Variable Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. The Trust does not hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate
accounts of the Company and its affiliates. The Trust does not foresee any
disadvantage to Contract Owners arising out of the fact that the Trust may be
made available to separate accounts which are used in connection with both
variable annuity and variable life insurance products. Nevertheless, the
Trust's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto. If such a conflict
were to occur, one of the separate accounts might withdraw its investment in
the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values, the Variable
Account and the Fixed Account. These charges and deductions are:
Deduction for Contingent Deferred Sales Charge (Sales Load)
If all or a portion of the Surrender Value (see "Surrenders") is surrendered,
a Contingent Deferred Sales Charge (sales load) will be calculated at the time
of each surrender and will be deducted from the Contract Value. This charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Contingent Deferred Sales Charge
applies only to those purchase payments received within five (5) years of the
date of surrender. In calculating the Contingent Deferred Sales Charge,
purchase payments are allocated to the amount surrendered on a first-in,
first-out basis. The amount of the Contingent Deferred Sales Charge is
calculated by: (a) allocating purchase payments to the amount surrendered;
(b) multiplying each such allocated purchase payment that has been held under
the Contract for the period shown below by the charge shown below:
<TABLE>
<CAPTION>
<S> <C>
Years Since Payment Charge
___________________ _______
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
</TABLE>
and (c) adding the products of each multiplication in (b) above. The charge
will not exceed 5% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is withdrawn
in a Contract Year, the remaining percentage is not available in future years.
No Contingent Deferred Sales Charge will be deducted from purchase payments
which have been held under the Contract for more than five (5) Contract Years
or as annuity payments. See also "Surrenders - Systematic Withdrawal." The
Company may also eliminate or reduce the Contingent Deferred Sales Charge
under the Company procedures then in effect. (See "Charges and Deductions -
Reduction or Elimination of Contingent Deferred Sales Charge.")
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The amount deducted from the Contract
Value will be determined by canceling Accumulation Units from each applicable
Sub-Account and/or subtracting values from the Fixed Account in the ratio that
the value of each Sub-Account and/or the Fixed Account bears to the total
Contract Value. The Contract Owner must specify in writing in advance which
units are to be canceled or values are to be reduced if other than the above
method of cancellation is desired.
To the extent that the Contingent Deferred Sales Charge is insufficient to
cover the actual costs of distribution, the Company may use any of its
corporate assets, including potential profit which may arise from the
Mortality and Expense Risk Charge, to make up any difference.
Reduction or Elimination of Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or
to a group of individuals in a manner that results in savings of sales
expenses. The entitlement to a reduction of the Contingent Deferred Sales
Charge will be determined by the Company after examination of the following
factors: (1) the size of the group; (2) the total amount of purchase payments
expected to be received from the group; (3) the nature of the group for which
the Contracts are purchased, and the persistency expected in that group; (4)
the purpose for which the Contracts are purchased and whether that purpose
makes it likely that expenses will be reduced; and (5) any other circumstances
which the Company believes to be relevant to determining whether reduced
sales or administrative expenses may be expected. None of the reductions
in charges for sales is contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The Contingent Deferred Sales Charge may also be eliminated when
the Contract is sold by an agent of the Company to any members of his or her
family and the commission is reduced. In no event will reductions or
elimination of the Contingent Deferred Sales Charge be permitted where
reductions or elimination will unfairly discriminate against any person.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets
of the Variable Account (consisting of approximately .90% for mortality risks
and approximately .35% for expense risks). The mortality risk borne by the
Company arises from its contractual obligation to make annuity payments after
the Income Date for the life of the Annuitant in accordance with annuity rates
guaranteed in the Contracts. In addition, the Company assumes a mortality risk
for the guaranteed minimum death benefit provided under the Contract. The
expense risk assumed by the Company is that all actual expenses involved in
administering the Contracts, including Contract maintenance costs,
administrative costs, mailing costs, data processing costs, legal fees,
accounting fees, filing fees, and the costs of other services may exceed the
amount recovered from the Contract Maintenance Charge and the Administrative
Expense Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot
be increased.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets
of the Variable Account. This charge, together with the Contract Maintenance
Charge (see below), is to reimburse the Company for the expenses it incurs in
the establishment and maintenance of the Contracts and the Variable Account.
These expenses include, but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Contract Owner
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees,
filing fees, the costs of other services necessary for Contract Owner
servicing, and all accounting, valuation, regulatory and reporting
requirements. The Company does not intend to profit from this charge. This
charge will be reduced to the extent that the amount of this charge is in
excess of that necessary to reimburse the Company for its administrative
expenses. Should this charge prove to be insufficient, the Company will not
increase this charge and will incur the loss.
Deduction for Contract Maintenance Charge
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. Prior to the Income Date the
charge is waived for Contracts having Contract Values or purchase payments
less withdrawals of $100,000 or more. This charge is to reimburse the Company
for its administrative expenses (see above). Prior to the Income Date, this
charge is deducted by canceling Accumulation Units from each applicable
Sub-Account and/or by subtracting values from the Fixed Account in the ratio
that the value of each Sub-Account or the Fixed Account bears to the total
Contract Value. When the Contract is surrendered for its full Surrender Value
on other than a Contract Anniversary, the entire Contract Maintenance Charge
will be deducted at the time of surrender. On and after the Income Date, the
Contract Maintenance Charge will be collected pro rata on a monthly basis
($2.50 per month) and will result in a reduction of the monthly annuity
payments.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium
taxes currently imposed by certain states on the Contracts offered hereby
range from 0% to 3.5% of premiums paid. Some states assess premium taxes at
the time purchase payments are made; others assess premium taxes at the time
annuity payments begin. The Company will, in its sole discretion, determine
when taxes have resulted from: the investment experience of the Variable
Account; receipt by the Company of the purchase payment(s); or commencement of
annuity payments. The Company may, at its sole discretion, pay taxes when due
and deduct that amount from the Contract Value at a later date. Payment at an
earlier date does not waive any right the Company may have to deduct amounts
at a later date.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for
any income taxes incurred by it as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it
was sufficient. Currently, no federal income taxes are assessed against
the Variable Account. However, if the tax laws should change, the Company
reserves the right to deduct the amount of such taxes from the Variable
Account. The Company will deduct any withholding taxes required by applicable
law.
Deduction for Trust Expenses
There are other deductions from, and expenses paid out of, the assets of
Franklin Valuemark Funds , which are described in the accompanying
Trust prospectus.
Deduction for Transfer Fee
Prior to the Income Date, a Contract Owner may transfer all or a part of the
Contract Owner's interest without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. The
Contract provides that if more than three transfers have been made in the
Contract Year, the Company reserves the right to deduct a transfer fee. The
maximum transfer fee that the Company may deduct, per transfer, is the lesser
of $25 or 2% of the amount transferred. Currently twelve transfers may be
made in a Contract Year without a charge. Thereafter, the charge is $25 (or
2% of the amount transferred, if less). Currently, prescheduled automatic
dollar cost averaging transfers are not counted. The Company reserves the
right to charge a fee for all transfers after the Income Date, which fee,
per transfer, will not exceed the lesser of $25 or 2% of the amount
transferred. The transfer fee at any given time will not be set at a
level greater than its cost and will contain no element of profit.
THE CONTRACTS
Ownership
The Contract Owner and if provided for in the Contract, any Joint Owner as
named on the Contract Schedule, have all rights and may receive all benefits
under the Contract. The Contract Owner if provided for in the Contract, may
name a Contingent Owner or change the Contract Owner at any time. Any Joint
Owner must be the spouse of the other Joint Owner (except in Pennsylvania) and
any Contingent Owner must be the spouse of the Contract Owner. Upon the death
of the Contract Owner, the Contingent Owner or the surviving Joint Owner, as
applicable, may elect to keep the Contract in force and become the new
Contract Owner, if they are the spouse of the Contract Owner. In those states
where a non-spousal Joint Owner is permitted, the death benefit must be paid
in accordance with the Internal Revenue Code and the Joint Owner cannot
continue the Contract in force. A change of Contract Owner or Contingent
Owner will automatically revoke any prior designation of Contract Owner or
Contingent Owner. A request for change must be: (1) made in writing; and (2)
received by the Company at its Valuemark Service Center. After the transfer
is recorded, the change will become effective as of the date the written
request is signed. A new designation of Contract Owner, Joint Owner or
Contingent Owner (as applicable) will not apply to any payment made or action
taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered
held by a natural person and treated as an annuity contract for tax purposes.
Tax advice should be sought prior to purchasing a Contract which is to be
owned by a trust or other non-natural person.
Assignment
The Contract Owner may assign the Contract at any time during his or her
lifetime. The Company will not be bound by any assignment until written
notice is received by the Company at its Valuemark Service Center. The
Company is not responsible for the validity of any assignment. The Contract
Owner's rights and those of any revocably-named person will be subject to the
assignment. An assignment will not affect any payments the Company may make
or actions the Company may take before such assignment has been recorded at
its Valuemark Service Center.
If the Contract is issued pursuant to a Qualified Plan, it may not be
assigned, pledged or otherwise transferred except as may be allowed under
applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named in the
application and, unless changed, are entitled to receive any death benefits to
be paid. Upon the death of the Contract Owner, the Contingent Owner or
surviving Joint Owner (as applicable), will be the designated Beneficiary and
any other Beneficiary named will be treated as a Contingent Beneficiary,
unless otherwise indicated.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by
filing a written request with the Company at its Valuemark Service Center
unless an irrevocable Beneficiary designation was previously filed. After the
change is recorded, it will take effect as of the date the request was signed.
If the request reaches the Valuemark Service Center after the Annuitant or
Contract Owner, as applicable, dies but before any payment is made, the
change will be valid. The Company will not be liable for any payment made or
action taken before it records the change.
Annuitant
The Annuitant must be a natural person. The maximum age of the Annuitant on
the Effective Date is 80 years old. The Annuitant may be changed at any time
prior to the Income Date unless the Contract is owned by a non-natural person.
(See "Death of the Annuitant Prior to the Income Date".) Joint Annuitants
are allowed at the time of annuitization only. The Annuitant has no rights or
privileges prior to the Income Date. When an Annuity Option is elected, the
amount payable as of the Income Date is based on the age (and sex, where
permissible) of the Annuitant, as well as the Option selected and the Contract
Value. The Annuitant becomes the Contract Owner on or after the Income Date.
Death of the Contract Owner Before the Income Date
In those Contracts where a Contingent Owner has been named, in the event of
the death of the Contract Owner prior to the Income Date, the Contingent
Owner, if any, becomes the designated Beneficiary and any other Beneficiary
named will be treated as a Contingent Beneficiary, unless otherwise indicated.
In those Contracts where Joint Owners have been named, upon the death of
either Joint Owner prior to the Income Date, the surviving Joint Owner, if
any, becomes the designated Beneficiary and any other Beneficiary named will
be treated as a Contingent Beneficiary, unless otherwise indicated. Only the
Owner's spouse may be the Contingent Owner or a Joint Owner (except in
Pennsylvania). If there is no surviving Contingent Owner or Joint Owner, a
death benefit is payable to the Beneficiary designated by the Contract Owner.
The death benefit paid will be the greater of the Surrender Value or the
guaranteed death benefit. The value of the death benefit will be
determined as of the Valuation Period next following the date both due proof
of death and a payment election are received by the Company. The guaranteed
death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the
purchase payment.
2. On each Contract Anniversary, but not beyond the Contract Anniversary
following the Contract Owner's 80th birthday, the guaranteed death benefit
will be determined as follows:
a. the guaranteed death benefit as of the previous Contract
Anniversary;
b. plus any purchase payments made during the previous Contract Year;
c. minus any amounts surrendered during the previous Contract Year;
d. the sum of a, b and c multiplied by 1.05.
3. On dates other than a Contract Anniversary and on Contract
Anniversaries following the Contract Owner's 81st birthday, the guaranteed
death benefit equals the guaranteed death benefit on the previous Contract
Anniversary, plus purchase payments made since the previous Contract
Anniversary, less amounts surrendered since the previous Contract Anniversary.
For purposes of the guaranteed death benefit calculation, reference to the
Contract Owner's age shall be the age of the oldest Joint Owner when
applicable. The guaranteed death benefit will always be calculated as in
point (3) above after the date of death of the Contract Owner.
The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit;
(The value of the death benefit is equal to the greater of the guaranteed death
benefit or the Surrender Value as of the Valuation Period next following the
date due proof of death and a payment election are received by the Company.)
B. The payment of the entire death benefit within 5 years of the date of
the Contract Owner's death; (The value of the death benefit under Option B is
determined by comparing the guaranteed death benefit to the Contract Value
as of the Valuation Period next following the date both due proof of death
and a payment election are received by the Company. If the Contract Value
is the greater, it will be the death benefit. If the guaranteed death benefit
is the greater, it will be the death benefit and any distribution of such
death benefit will be reduced by the sum of any applicable premium taxes,
Contract Maintenance Charges and Contingent Deferred Sales Charges.)
The death benefit will no longer be guaranteed by the Company.
C. Payment over the lifetime of the designated Beneficiary or over a
period not extending beyond the life expectancy of the designated Beneficiary
with distribution beginning within one year of the death of the Contract Owner
(See "Annuity Provisions - Annuity Options"). (The value of the death benefit
under Option C is determined by comparing the guaranteed death benefit to the
Contract Value as of the Valuation Period next following the date both due
proof of death and a payment election are received by the Company. If
the Contract Value is greater it will be treated as the death benefit.
If the guaranteed death benefit is the greater, it will be the death
benefit.)
D. If the Beneficiary is the Contract Owner's spouse, he/she can continue
the Contract in his/her own name. (The value of the death benefit under
Option D is determined by comparing the guaranteed death benefit to the
Contract Value as of the Valuation Period next following the date both due
proof of death and a payment election are received by the Company. If the
Contract Value is greater, it will remain the Contract Value. If the
guaranteed death benefit is greater, it will become the new Contract Value.
Any distribution by the new Owner will be reduced by the sum of any applicable
premium taxes, Contract Maintenance Charges and Contingent Deferred Sales
Charges.)
If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.
Death of the Annuitant Prior to the Income Date
If the Annuitant dies on or before the Income Date and the Annuitant is
different from the Contract Owner, the Contract Owner may designate a new
Annuitant. If one is not designated, the Contract Owner will be the
Annuitant, provided the Contract Owner is a natural person. If the Contract
Owner is a non-natural person, then for the purposes of the death benefit, the
Annuitant shall be treated as the Contract Owner and the death of the
Annuitant shall be treated as a death of the Contract Owner.
Death of the Annuitant After the Income Date
If the Annuitant dies after the Income Date, the death benefit, if any, will
be payable to the Beneficiary as specified in the Annuity Option elected. The
Company will require proof of the Annuitant's death. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
ANNUITY PROVISIONS
Income Date
The Contract Owner selects an Income Date at the time of application (or at
the time of issue for certain Contracts). The Income Date must always be the
first day of a calendar month. The Income Date may not be later than the
month following the Annuitant's 85th birthday or 10 years from the Effective
Date, if later. If no Income Date is selected on the application, the date
will be the later of the Annuitant's 65th birthday (or 85th birthday for
certain Contracts) or 10 years from the Effective Date.
Change in Income Date and Annuity Option
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calendar month. The Income Date
may not be later than the month following the Annuitant's 85th birthday (or 10
years from the Effective Date, if later).
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, select and/or change the
Annuity Option.
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may select
one of the Annuity Options. The Annuity Options are available on a fixed or
variable basis or a combination of fixed and variable (not available in all
states), except the LIFE ANNUITY WITH CASH REFUND Option which is only
available on a fixed basis.
The amount of the initial annuity payment is dependent on (i) the Contract
Value at the time of annuitization, (ii) the Annuity Option selected, (iii)
the Age of the Annuitant and any joint Annuitant, and (iv) the sex of the
Annuitant and any joint Annuitant where allowed (see "Tax Status - Qualified
Plans"). Under a fixed option, the dollar value of subsequent annuity payments
will not vary. Under a variable option, subsequent annuity payments will vary
based on the investment performance of the Sub-Accounts selected. Current
purchase rates available may be more favorable than those guaranteed in the
Contract.
The following Annuity Options are available:
LIFE ANNUITY. Monthly annuity payments are paid during the life of an
Annuitant, ceasing with the last annuity payment due prior to the Annuitant's
death.
LIFE ANNUITY WITH GUARANTEE FOR A MINIMUM PERIOD. The Company will make
monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the annuity tables contained in the Contract. The
amount of each monthly payment per $1,000 of proceeds is based on the age (and
sex, where permissible) of the Annuitant when the first payment is made and on
the guaranteed period chosen. If the Annuitant dies within the guaranteed
period, the discounted value of the unpaid guaranteed payments will be paid by
the Company as a final payment.
JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid during the
joint lifetime of the Annuitant and a designated second person and are paid
thereafter during the remaining lifetime of the survivor, ceasing with the
last annuity payment due prior to the survivor's death.
LIFE ANNUITY WITH CASH REFUND. The Company will pay equal monthly payments
during the life of the Annuitant. Upon the death of the Annuitant, after
payments have started, the Company will pay in one sum any excess of the
amount of the proceeds applied under this Option over the total of all
payments made under this Option. The amount of each monthly payment per
$1,000 of proceeds is based on the age (and sex, where permissible) of the
Annuitant when the first payment is made.
Annuity Units
The dollar amount of the first monthly variable annuity payment is determined
by applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible)
of the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Sub-Account of the Variable Account. The number of Annuity Units is
determined for each Sub-Account and is based upon the available value in each
Sub-Account as of the date annuity payments are to begin.
The dollar amount determined for each Sub-Account will then be aggregated for
purposes of making payments. The pro rata portion of the Contract Maintenance
Charge is deducted.
The dollar amount of the second and later variable annuity payments is equal
to the number of Annuity Units determined for each Sub-Account times the
Annuity Unit value for that Sub-Account as of the due date of the payment.
This amount may increase or decrease from month to month. The pro rata
portion of the Contract Maintenance Charge is deducted each month.
The annuity tables contained in the Contract are based on a five percent (5%)
assumed investment rate. If the actual net investment rate exceeds five
percent (5%), payments will increase. Conversely, if the actual rate is less
than five percent (5%), annuity payments will decrease. If a higher assumed
investment rate were used, the initial payment would be higher, but the
actual net investment rate would have to be higher in order for annuity
payments to increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the
investment performance of the Sub-Account selected and the amount of each
annuity payment will vary accordingly.
Annuity Unit Value
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1) and dividing the result by (3) and multiplying the
result by .999866337248 (.999866337248 is the daily factor to neutralize the
assumed net investment rate, discussed above, of 5% per annum which is built
into the annuity rate table) where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units;
plus or minus
b. the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation
of the Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
The Contracts may be purchased under a flexible purchase payment plan.
Purchase payments are payable in the frequency and in the amount selected by
the Contract Owner. The initial purchase payment is due on the Effective
Date. The initial purchase payment must be at least $2,000. Subsequent
purchase payments must be at least $250. These minimum amounts are not waived
for Qualified Plans. The Company reserves the right to decline any
application (except in New Jersey) or purchase payment. Amounts in excess of
$1 million require preapproval by the Company. The Company may, at its sole
discretion, waive the minimum payment requirements. The Contract Owner may
elect to increase, decrease or change the frequency of purchase payments.
Allocation of Purchase Payments
Purchase payments are allocated to one or more of the Sub-Accounts within the
Variable Account or to the Fixed Account as selected by the Contract Owner.
SUBJECT TO REGULATORY APPROVAL, SHARES OF THE U.S. GOVERNMENT SECURITIES FUND
WILL BE SUBSTITUTED FOR SHARES OF THE ADJUSTABLE U.S. GOVERNMENT FUND AND THE
INVESTMENT GRADE INTERMEDIATE BOND FUND ON OCTOBER 25, 1996, OR AS SOON AS
POSSIBLE THEREAFTER. THUS, FOLLOWING THE SUBSTITUTION, THE ADJUSTABLE U.S.
GOVERNMENT FUND AND THE INVESTMENT GRADE INTERMEDIATE BOND FUND WILL NO
LONGER BE AVAILABLE AS ELIGIBLE INVESTMENTS FOR CONTRACT OWNERS.
SEE "FRANKLIN VALUEMARK FUNDS - PROPOSED SUBSTITUTION TRANSACTION." THE
FIXED ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES. IN CALIFORNIA, THE
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND AND THE CAPITAL GROWTH FUND
ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT.
(CHECK WITH YOUR AGENT REGARDING AVAILABILITY.) For each Sub-Account,
the purchase payments are converted into Accumulation Units. The number of
Accumulation Units credited to the Contract is determined by dividing
the purchase payment allocated to the Sub-Account by the value of the
Accumulation Unit for the Sub-Account. Purchase payments allocated
to the Fixed Account are credited in dollars.
The Company has reserved the right to allocate initial purchase payments to
the Money Market Sub-Account (except those allocated to the Fixed Account)
until the expiration of the Free Look Period. In the event that the Company
does so allocate initial purchase payments to the Money Market Sub-Account, at
the end of the Free Look Period the Contract Value will be allocated to the
Sub-Account(s) selected by the Contract Owner. Currently, however, the
Company will allocate the initial purchase payment directly to the
Sub-Account(s) and/or the Fixed Account as selected by the Contract Owner.
Transfers do not change the allocation instructions for payments. Subsequent
payments will be allocated as directed by the Contract Owner in instructions
accompanying a payment; if no direction is given, the allocation will be that
which has been most recently directed for payments by the Contract Owner. The
Contract Owner may change the allocation of future payments without fee,
penalty or other charge upon written notice or telephone instructions to the
Valuemark Service Center. A change will be effective for payments received on
or after receipt of the written notice or telephone instructions.
The Company reserves the right to limit the number of Sub-Accounts that
a Contract Owner may invest in at any one time. Currently, the Contract Owner
may initially select up to nine Sub-Accounts. The Company reserves
the right to change the maximum number of Sub-Accounts in the future.
For initial purchase payments, if the forms required to issue a Contract are
received in good order, the Company will apply the purchase payment to the
Variable Account and credit the Contract with Accumulation Units and/or to the
Fixed Account and credit the Contract with dollars within two business days of
receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). If the forms required to
issue a Contract are not in good order, the Company will attempt to get them
in good order or the Company will return the forms and the purchase payment
within five business days. The Company will not retain purchase payments for
more than five business days while processing incomplete forms unless it has
been so authorized by the purchaser.
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units and/or to
Fixed Account and credit the Contract with dollars during the Valuation Period
next following the Valuation Period during which the purchase payment was
received in good order.
Transfer of Contract Values
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Sub-Account to another Sub-Account or to or
from the Fixed Account without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. If more
than three transfers have been made in the Contract Year, the Company reserves
the right to deduct a transfer fee. Currently, 12 transfers may be made in a
Contract Year without a charge. (See "Charges and Deductions - Deduction for
Transfer Fee.") Upon regulatory approval of the proposed Substitution
transaction, Contract Owners who have selected the Adjustable U.S.
Government Fund or the Investment Grade Intermediate Bond Fund may be entitled
to certain special transfer rights. See "Franklin Valuemark Funds -
Proposed Substitution Transaction."
Neither the Variable Account nor the Trust are designed for professional
market timing organizations, other entities or individuals using programmed,
large, or frequent transfers. A pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to a Fund and may be refused.
Accounts under common ownership or control may be aggregated for purposes of
transfer limits. In coordination with the Trust, the Company reserves the
right to restrict the transfer privilege or reject any specific purchase
payment allocation request for any person whose transactions seem to follow
a timing pattern.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company reserves the right to charge
for all transfers after the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer
fee will be deducted from the amount which is transferred if the entire amount
in the Sub-Account or the Fixed Account is being transferred; otherwise from
the amount remaining in the Sub-Account or the Fixed Account from which the
transfer is made.
b. The minimum amount which may be transferred is the lesser of (i) $1,000
from each Sub-Account or the Fixed Account; or (ii) the Contract Owner's
entire interest in the Sub-Account or the Fixed Account.
c. No partial transfer will be made if the Contract Owner's remaining
Contract Value in the Sub-Account or the Fixed Account will be less than
$1,000.
d. Transfers will be effected during the Valuation Period next following
receipt by the Company of a written transfer request (or by telephone, if
authorized) containing all required information. However, no transfer may be
made effective within seven calendar days prior to the date on which the first
annuity payment is due. No transfers may occur until the end of the Free-Look
Period. (See "Highlights.")
e. On or after the Income Date, the Contract Owner may not make a transfer
from the Fixed Account to the Variable Account. Currently, on or after the
Income Date, one transfer to the Fixed Account will be allowed.
f. After Income Date, no transfer may be made if it will result in any
selected Sub-Account or the Fixed Account providing less than 10% of the
annuity benefits under the Contract.
g. Any transfer direction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
h. The Company reserves the right at any time and without prior notice to
any party to terminate, suspend or modify the transfer privileges described
above subject to applicable state law and regulation.
A Contract Owner may elect to make transfers by telephone. To elect this
option the Contract Owner must do so in writing to the Company. If there are
Joint Owners, unless the Company is informed to the contrary, instructions
will be accepted from either one of the Joint Owners. The Company will use
reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. The Company tape records all
telephone instructions.
Transfers do not change the allocation instructions for future payments. (See
"Purchase Payments and Contract Value - Allocation of Purchase Payments.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from the Money Market
Sub-Account, the Adjustable U.S. Government Sub-Account, The U.S. Government
Securities Sub-Account or the Fixed Account to the Contract's other
Sub-Accounts (maximum of eight) at regular intervals. By allocating amounts
on a regularly scheduled basis as opposed to allocating the total amount at
one particular time, a Contract Owner may be less susceptible to the impact of
market fluctuations. Upon regulatory approval of the proposed Substitution
transaction, the Adjustable U.S. Government Fund and the Investment Grade
Intermediate Bond Fund will no longer be available in the Dollar Cost
Averaging program. See "Franklin Valuemark Funds - Proposed Substitution
Transaction."
Dollar Cost Averaging may be selected for 12 to 36 months. The minimum amount
per period to allocate is $1,000. All Dollar Cost Averaging transfers will be
made effective the tenth of the month (or the next Valuation Date if the tenth
of the month is not a Valuation Date). Election into this program may occur
at any time by properly completing the Dollar Cost Averaging election form,
returning it to the Company by the first of the month, to be effective that
month, and insuring that sufficient value is in either the Money Market
Sub-Account, the Adjustable U.S. Government Sub-Account, The U.S. Government
Securities Sub-Account or the Fixed Account.
When utilizing the Dollar Cost Averaging program, a Contract Owner must be
invested in either the Money Market Sub-Account, the Adjustable U.S.
Government Sub-Account, The U.S. Government Securities Sub-Account or the
Fixed Account and may invest in a maximum of eight of the other Sub-Accounts.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the value of the Money
Market Sub-Account, the Adjustable U.S. Government Sub-Account, The U.S.
Government Securities Sub-Account or the Fixed Account (as applicable) is
insufficient to complete the next transfer; (3) the Contract Owner requests
termination in writing and such writing is received by the first of the month
in order to cancel the transfer scheduled to take effect that month; or (4)
the Contract is terminated. The Dollar Cost Averaging program may not be
active following the Income Date. There is no current charge for Dollar Cost
Averaging but the Company reserves the right to charge for this program.
In the event there are additional transfers, the transfer fee may be charged.
The Company does not intend to profit from any such charge. Transfers made
pursuant to the Dollar Cost Averaging Program are not counted in determining
the applicability of the transfer fee.
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program by which a contract Owner may
make monthly or quarterly investments by electronic funds transfer from their
checking or savings account if their bank is a member of an Automatic Clearing
House. Election of this program may occur at the time a contract is issued,
or at any time thereafter by completing and signing the appropriate form and
returning it to the Company. The form must be received in good order by the
first of the month in order for AIP to begin that sam month. Investments take
place on the 20th of the month, or the next business day. AIP may not be used
for the initial purchase payment. The minimum investment that may be made by
AIP is $250.
AIP is subject to any regulations that may govern the bank account, the
Automatic Clearing House, or the Contract. The Company may correct any error
by a debit or credit to the contract Owner's bank account and/or Contract.
Participation in AIP may be stopped at any time at the request of the Contract
Owner. When the Company is advised to stop AIP, no automatic investments will
be processed until signed authorization is received to initiate the plan
again. The Company will need to be notified by the first of the month in order
to stop or change AIP within that month. If a transaction is rejected or
returned to the Company for any reason, including stop payment, insufficient
funds, or account closed, the respective number of units will be removed from
the Contract Owner's account, and AIP will be discounted.
If AIP is used for a tax-qualified Contract, the contract Owner should contact
his or her tax advisor for maximum contributions.
Contract Value
The value of the Contract is the sum of the values attributable to the
Contract for each Sub-Account and the Fixed Account. The value of each
Sub-Account is determined by multiplying the number of Accumulation Units
attributable to the Contract in the Sub-Account by the value of an
Accumulation Unit for the Sub-Account.
Accumulation Unit
For each Sub-Account, purchase payments are converted into Accumulation Units.
This is done by dividing each purchase payment by the value of an
Accumulation Unit for the Valuation Period during which the purchase payment
is allocated to the Sub-Account. The Accumulation Unit value for each
Sub-Account was arbitrarily set initially at $10. The Accumulation Unit value
for any later Valuation Period is determined by subtracting (b) from (a) and
dividing the result by (c) where:
a. is the net result of
1) the assets of the Sub-Account attributable to Accumulation Units
(i.e., the aggregate value of the underlying Eligible Investments
held at the end of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the operation
of the Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge (See "Charges and
Deductions"); and
c. is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
DISTRIBUTOR
NALAC Financial Plans, Inc. ("NFP"), 1750 Hennepin Avenue, Minneapolis,
Minnesota, acts as the distributor of the Contracts. NFP is a wholly-owned
subsidiary of the Company. The Contracts are offered on a continuous basis.
NFP has subcontracted with Franklin Advisers, Inc. ("Advisers") for it and/or
certain of its affiliates to provide certain marketing support services and
NFP compensates these entities for their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions, up to an amount currently equal to
6.0% of purchase payments, for promotional or distribution expenses associated
with the marketing of the Contracts. The Company may, by agreement with the
broker/dealer, pay commissions as a combination of a certain percentage amount
at the time of sale and a trail commission (which when combined could exceed
6.0% of purchase payments). In addition, under certain circumstances, the
Company and/or Advisers or certain of its affiliates, under a marketing
support agreement with NFP, may pay certain sellers for other services not
directly related to the sale of the Contracts such as special marketing
support allowances. Commissions may be recovered from broker-dealers if a full
or partial surrender occurs within 12 months of a purchase payment.
SURRENDERS
While the Contract is in force and before the Income Date, the Company will,
upon written request to the Company by the Contract Owner, allow the surrender
of all or a portion of the Contract for its Surrender Value. Surrenders will
result in the cancellation of Accumulation Units from each applicable
Sub-Account and/or a reduction in the Fixed Account value in the ratio that
the value of each Sub-Account and/or the Fixed Account value bears to the
total Contract Value. The Contract Owner must specify in writing in advance
which units are to be canceled or values are to be reduced if other than the
above mentioned method of cancellation is desired. The Company will pay the
amount of any surrender from the Variable Account within seven (7) days of
receipt of a valid request, unless the "Delay of Payments" provision is in
effect. (See "Surrenders - Delay of Payments.")
Certain tax withdrawal penalties and restrictions may apply to surrenders from
the Contracts. (See "Tax Status.") For Contracts purchased in connection
with 403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Contract Owner:
(1) attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes
disabled (within the meaning of Section 72(m)(7) of the Code); or (5) in the
case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions made by the
Contract Owner and does not include any investment results. The limitations
on withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
Systematic Withdrawal
The Company permits a systematic withdrawal plan which enables a Contract
Owner to pre-authorize a periodic exercise of the contractual withdrawal
rights described above. Systematic withdrawal is not available for
Non-Qualified Contracts where the Contract Owner is under age 59 1/2. Certain
tax penalties and restrictions may apply to systematic withdrawals from the
Contracts. (See "Tax Status - Tax Treatment of Withdrawals - Qualified
Contracts.") Contract Owners entering into such a plan instruct the Company to
withdraw a level dollar amount from the Contract on a monthly or quarterly
basis. Currently, systematic withdrawal on a monthly or quarterly basis is
available to Contract Owners who have a Contract Value of $50,000 or more and
on a quarterly basis only to Contract Owners who have a Contract Value of at
least $20,000 but less than $50,000. The amount deducted will result in the
cancellation of Accumulation Units from each applicable Sub-Account and/or
the reduction of values in the Fixed Account in the ratio that the
value of each Sub-Account and/or the Fixed Account bears to the total Contract
Value. The Contract Owner must specify in writing in advance which units
are to be canceled or values are to be reduced if other than the above
mentioned method of cancellation is desired. The Company reserves the right
to modify the eligibility rules at any time, without notice. The total
systematic withdrawal in a Contract Year which can be made without incurring
a Contingent Deferred Sales Charge is limited to not more than 9% of the
Contract Value. However, the 9% limit may be increased to allow systematic
withdrawals to meet the applicable minimum distribution requirements for
Qualified Contracts. The exercise of the systematic withdrawal plan in any
Contract Year replaces the 15% amount which is allowable per year without
incurring a Contingent Deferred Sales Charge. Any other withdrawal in a
year when the systematic withdrawal plan has been utilized will be subject
to the Contingent Deferred Sales Charge.
Delay of Payments
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held in
the Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2. and 3. exist.
The Company reserves the right to defer payment for a withdrawal or transfer
from the Fixed Account for the period permitted by law but not for more than
six months after written election is received by the Company.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") pursuant to an Administration
Agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. The Company pays all fees and
charges of DVFS. DVFS serves as the administrator to various insurance
companies offering variable and fixed annuity and variable life insurance
contracts. The Company's ability to administer the Contracts could be
adversely affected should DVFS elect to terminate the Agreement.
PERFORMANCE DATA
Money Market Sub-Account
From time to time, the Company or NFP may advertise the "yield" and
"effective yield" of the Money Market Sub-Account. Both yield figures
will be based on historical earnings and are not intended to indicate
future performance. The "yield" of the Money Market Sub-Account refers to
the income generated by Contract Values in the Money Market Sub-Account
over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized." That is, the amount of income generated
by the investment during that week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the Contract Values
in the Money Market Sub-Account. The "effective yield" is calculated
similarly but, when annualized, the income earned by Contract Values in the
Money Market Sub-Account is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The computation of the yield
calculation includes a deduction for the Mortality and Expense Risk Charge,
the Administrative Expense Charge and the Contract Maintenance Charge.
Other Sub-Accounts
From time to time, the Company or NFP may publish the current
yields and total returns for the other Sub-Accounts in advertisements and
communications to Contract Owners. The current yield for each Sub-Account
will be calculated by dividing the annualization of the interest income
earned by the underlying Fund during a recent 30-day period by the maximum
Accumulation Unit value at the end of such period. Total return information
will include the underlying Fund's average annual compounded rate of return
over the most recent four calendar quarters and the period from the underlying
Fund's inception of operations, based upon the value of the Accumulation
Units acquired through a hypothetical $1,000 investment at the Accumulation
Unit value at the beginning of the specified period and the value of the
Accumulation Unit at the end of such period, assuming reinvestment of
all distributions and the deduction of the Mortality and Expense Risk
Charge, Administrative Expense Charge and the prorated Contract
Maintenance Charge. Each Sub-Account may also advertise aggregate and
average total return information over different periods of time.
In each case, the yield and total return figures will reflect all recurring
charges against the Sub-Account's income, including the deduction for the
Mortality and Expense Risk Charge, the Administrative Expense Charge and the
Contract Maintenance Charge for the applicable time period. The Company or
NFP may, in addition, advertise or present yield or total return performance
information computed on a different basis, or for the Funds. Contract Owners
should note that the investment results of each Sub-Account will fluctuate
over time, and any presentation of a Sub-Account's current yield or total
return for any prior period should not be considered as a representation of
what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations for a
hypothetical contract may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the Statement of Additional
Information.
Performance Ranking
The performance of each or all of the Sub-Accounts of the Variable Account may
be compared in its advertisements and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual
funds with investment objectives similar to each of the Sub-Accounts of the
Variable Account or indices. Lipper Analytical Services, Inc. ("Lipper") and
the Variable Annuity Research and Data Service ("VARDS") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide
basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS rank such issuers on the
basis of total return, assuming reinvestment of distributions, but do not take
sales charges, redemption fees or certain expense deductions at the separate
account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparisons, such as
CDA/Weisenberger and Morningstar.
TAX STATUS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The
Company cannot predict the probability that any changes in such laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of such changes. The Company does not guarantee the tax status of
the Contracts. Purchasers bear the complete risk that the Contracts may not
be treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable
state or other tax laws.
General
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period certain
or refund feature) bears to the expected return under the Contract. The
exclusion amount for payments based on a variable annuity option is determined
by dividing the cost basis of the Contract (adjusted for any period certain or
refund guarantee) by the number of years over which the annuity is expected to
be paid. Payments received after the investment in the Contract has been
recovered (i.e. when the total of the excludable amounts equal the investment
in the Contract) are fully taxable. The taxable portion is taxed at ordinary
income rates. For certain types of Qualified Plans there may be no cost basis
in the Contract within the meaning of Section 72 of the Code. Contract Owners,
Annuitants and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified in accordance with regulations prescribed by the United
States Treasury Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract. The Code contains a safe
harbor provision which provides that annuity contracts such as the Contracts
meet the diversification requirements if, as of the end of each quarter, the
underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. government securities and securities
of other regulated investment companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The
regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the regulations, an investment portfolio will be
deemed adequately diversified if: (1) no more than 55% of the value of the
total assets of the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the portfolio is represented
by any two investments; (3) no more than 80% of the value of the total assets
of the portfolio is represented by any three investments; and (4) no more than
90% of the value of the total assets of the portfolio is represented by any
four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by the Managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Variable Account will cause the Contract
Owner to be treated as the owner of the assets of the Variable Account,
thereby resulting in the loss of favorable tax treatment for the Contract. At
this time it cannot be determined whether additional guidance will be provided
and what standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published
rulings issued by the Internal Revenue Service in which it was held that the
policy owner was not the owner of the assets of the separate account. It is
unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Variable Account resulting in the imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets of
the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may
result in adverse tax consequences, including more rapid taxation of the
distributed amounts from such combination of contracts. Contract Owners
should consult a tax adviser prior to purchasing more than one non-qualified
annuity contract in any calendar year period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a
trust or other entity as an agent for a natural person nor to Contracts held
by Qualified Plans. Purchasers should consult their own tax counsel or other
tax adviser before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non-periodic payments. However, the
Contract Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement generally does not apply to: a) a series of substantially equal
payments made at least annually for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and
a designated beneficiary, or for a specified period of 10 years or
more; or b) distributions which are required minimum distributions; or c)
the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions). Participants should consult their own
tax counsel or other tax adviser regarding withholding requirements.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of
the Contract Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his Beneficiary; (e) under an
immediate annuity; or (f) which are allocable to purchase payments made prior
to August 14, 1982.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase
payment requirements, these Contracts may not be appropriate for some periodic
payment retirement plans. Taxation of participants in each Qualified Plan
varies with the type of plan and terms and conditions of each specific plan.
Contract Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated into the Company's administrative
procedures. Contract Owners, participants and Beneficiaries are responsible
for determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Following are general
descriptions of the types of Qualified Plans with which the Contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and
will have differing applications, depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection
with Qualified Plans will utilize annuity tables which do not differentiate on
the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described
in this Prospectus. Generally, Contracts issued pursuant to Qualified Plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in violation
of applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts.")
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amounts of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of Withdrawals
- - Qualified Contracts.") Purchasers of Contracts for use with an H.R. 10 Plan
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includable in the gross income of the
employee until the employee receives distributions from the Contract. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals -
Qualified Contracts" and "Tax-Sheltered Annuities - Withdrawal Limitations.")
Employee loans are not allowed under these Contracts. Any employee should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which may be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements
imposed by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers of
Contracts to be qualified as Individual Retirement Annuities should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to establish
various types of retirement plans for employees. These retirement plans may
permit the purchase of the Contracts to provide benefits under the Plan.
Contributions to the Plan for the benefit of employees will not be includable
in the gross income of the employee until distributed from the Plan. The tax
consequences to participants may vary, depending upon the particular Plan
design. However, the Code places limitations and restrictions on all Plans,
including on such items as: amount of allowable contributions; form, manner
and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Participant loans are not allowed under the Contracts purchased
in connection with these Plans. (See "Tax Treatment of Withdrawals -
Qualified Contracts.") Purchasers of Contracts for use with Corporate Pension
or Profit- Sharing Plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
Tax Treatment of Withdrawals - Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty
tax on the taxable portion of any distribution from qualified retirement
plans, including Contracts issued and qualified under Code Sections 401 (H.R.
10 and Corporate Pension and Profit-Sharing Plans), 403(b) (Tax-Sheltered
Annuities) and 408(b) (Individual Retirement Annuities). To the extent
amounts are not includable in gross income because they have been properly
rolled over to an IRA or to another eligible Qualified Plan, no tax penalty
will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Contract Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) after separation from service,
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the
Contract Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and his
designated beneficiary; (d) distributions to a Contract Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Contract Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Contract Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; and (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order.
The exceptions stated in items (d), (e) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in item (c) applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
Generally, distributions from a Qualified Plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70 1/2. Required distributions must be over a period not exceeding the
life expectancy of the individual or the joint lives or life expectancies of
the individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year may be
subject to an additional 15% excise tax unless an exception applies.
Tax-Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 59
1/2; (2) separates from service; (3) dies; (4) becomes disabled (within the
meaning of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the
Contract Owner's Contract Value which represents contributions by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, and to income
attributable to such contributions and to income attributable to amounts held
as of December 31, 1988. The limitations on withdrawals do not affect
rollovers and transfers between certain Qualified Plans. Contract Owners
should consult their own tax counsel or other tax adviser regarding any
distributions.
FINANCIAL STATEMENTS
Audited consolidated financial statements of the Company and audited financial
statements of the Variable Account as of and for the year ended December 31,
1995 are included in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Distributor is a party or to which the assets of the Variable Account are
subject. The Company is not involved in any litigation that is of material
importance in relation to its total assets or that relates to the Variable
Account.
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
Item Page
_____ ____
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Data . . . . . . . . . . . . . . . . . . .
Annuity Provisions. . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payout. . . . . . . . . . . . . . . . . . . . . .
Fixed Annuity Payout . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PAYMENT
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 DATED NOVEMBER 1, 1995 FOR THE
INDIVIDUAL FLEXIBLE PAYMENT 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 IS 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
Fixed Annuity Payout
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .
COMPANY
Information regarding Allianz Life Insurance Company of North America (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. The Company is rated A+ (Superior) by A.M. BEST,
an independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
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
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 the Contract Maintenance 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
Company does not currently advertise yield for the Money Market Sub-Account.
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
Accumulation 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 Accumulation 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, the Administrative Expense Charge and Contract Maintenance
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 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
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
Purchase Payment at the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load 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
Accumulation Unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and the
Contract Maintenance Charge) by the Accumulation 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:
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 Accumulation Units outstanding during
the period
d = the maximum offering price per Accumulation Unit on the last day of
the period
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.
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.
At the Income 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. Both sex distinct and unisex Annuity Tables are
utilized by the Company, depending on the state and type of Contract. If, as
of the Income Date, the then current Annuity Option rates applicable to this
class of Contracts provide a larger income than that guaranteed for the same
form of annuity under this Contract, the larger amount will be paid. The
dollar amount of annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the
value of an Annuity Unit as of the Income 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. The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
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.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Account value on the day immediately preceding
the Annuity Date will be used to determine the Fixed Annuity monthly payment.
The monthly Annuity Payment will be based upon the Contract Value at the time
of annuitization, the Annuity Option selected, the age of the annuitant and
any joint annuitant and the sex of the annuitant and joint annuitant where
allowed.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of and for
the year ended December 31, 1995, included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts. The audited financial statements of the Variable Account as of
and for the year ended December 31, 1995 are also included herein.
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
December 31, 1995
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account B as of December 31, 1995, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended.
These financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Investment securities held in custody for the benefit of the Variable Account
were confirmed to us by the Franklin Valuemark Funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of
Allianz Life Variable Account B at December 31, 1995, the results of their
operations for the year then ended and the changes in their net assets for
each of the years in the two-years then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 22, 1996
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities
December 31, 1995
(In thousands)
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
-------- ------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Money Market Fund, 400,242
shares, cost $400,242 $400,242 - - - - -
Growth and Income Fund, 47,441
shares, cost $642,464 - 813,146 - - - -
Precious Metals Fund,
6,938 shares, cost $95,110 - - 97,687 - - -
High Income Fund, 23,702
shares, cost $297,487 - - - 323,767 - -
Real Estate Securities Fund,
11,432 shares, cost $172,084 - - - - 198,914 -
U.S. Government Securities Fund,
39,967 shares, cost $517,705 - - - - - 559,540
-------- ------- -------- ------- ---------- ----------
Total assets 400,242 813,146 97,687 323,767 198,914 559,540
-------- ------- -------- ------- ---------- ----------
Liabilities:
Accrued mortality and expense risk charges 274 370 51 167 126 273
Accrued administrative charges 33 44 6 20 15 33
-------- ------- -------- ------- ---------- ----------
Total liabilities 307 414 57 187 141 306
-------- ------- -------- ------- ---------- ----------
Net assets $399,935 812,732 97,630 323,580 198,773 559,234
======== ======= ======== ======= ========== ==========
Contract owners' equity:
Contracts in accumulation period (note 6) $399,901 811,706 97,630 323,580 198,773 559,234
Contracts in annuity payment
period (note 2) 34 1,026 - - - -
-------- ------- -------- ------- ---------- ----------
Total contract owners' equity $399,935 812,732 97,630 323,580 198,773 559,234
======== ======= ======== ======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
(In thousands)
Zero Zero Zero
Utility Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Income
Fund 2000 2005 2010 Fund
---------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Utility Equity Fund, 72,973
shares, cost $1,140,098 $1,306,215 - - - -
Zero Coupon Fund - 2000,
7,059 shares, cost $97,854 - 111,030 - - -
Zero Coupon Fund - 2005,
4,220 shares, cost $61,163 - - 73,337 - -
Zero Coupon Fund - 2010,
4,278 shares, cost $63,295 - - - 77,181 -
Global Income Fund, 16,365
shares, cost $208,411 - - - - 220,267
---------- ------- ------ ------ -------
Total assets 1,306,215 111,030 73,337 77,181 220,267
---------- ------- ------ ------ -------
Liabilities:
Accrued mortality and expense risk charges 643 58 40 40 111
Accrued administrative charges 77 7 5 5 13
---------- ------- ------ ------ -------
Total liabilities 720 65 45 45 124
---------- ------- ------ ------ -------
Net assets $1,305,495 110,965 73,292 77,136 220,143
========== ======= ====== ====== =======
Contract owners' equity:
Contracts in accumulation period (note 6) $1,304,348 110,965 73,292 77,136 220,143
Contracts in annuity payment
period (note 2) 1,147 - - - -
---------- ------- ------ ------ -------
Total contract owners' equity $1,305,495 110,965 73,292 77,136 220,143
========== ======= ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
(In thousands)
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
------------- ---------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Investment Grade Intermediate Bond
Fund, 10,675 shares, cost $141,092 $ 149,978 - - - - -
Income Securities Fund, 71,388
shares, cost $1,051,796 - 1,175,760 - - - -
Adjustable U.S. Government Fund,
16,228 shares, cost $175,816 - - 174,610 - - -
Templeton Pacific Growth Fund,
22,071 shares, cost $293,424 - - - 307,008 - -
Rising Dividends Fund, 33,432
shares, cost $356,060 - - - - 423,255 -
Templeton International Equity Fund,
59,699 shares, cost $741,003 - - - - - 795,190
------------- ---------- ---------- --------- --------- -------------
Total assets 149,978 1,175,760 174,610 307,008 423,255 795,190
------------- ---------- ---------- --------- --------- -------------
Liabilities:
Accrued mortality and expense risk charges 86 551 92 147 235 464
Accrued administrative charges 10 66 11 18 28 56
------------- ---------- ---------- --------- --------- -------------
Total liabilities 96 617 103 165 263 520
------------- ---------- ---------- --------- --------- -------------
Net assets $ 149,882 1,175,143 174,507 306,843 422,992 794,670
============= ========== ========== ========= ========= =============
Contract owners' equity:
Contracts in accumulation period (note 6) $ 149,882 1,173,447 174,507 306,448 422,318 794,226
Contracts in annuity payment
period (note 2) - 1,696 - 395 674 444
------------- ---------- ---------- --------- --------- -------------
Total contract owners' equity $ 149,882 1,175,143 174,507 306,843 422,992 794,670
============= ========== ========== ========= ========= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Assets and Liabilities (Continued)
December 31, 1995
(In thousands)
Templeton Templeton
Developing Templeton Global
Markets Global Asset Small Total
Equity Growth Allocation Cap All
Fund Fund Fund Fund Funds
----------- --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Developing Markets Equity
Fund, 15,394 shares, cost $153,792 $ 150,553 - - -
Templeton Global Growth Fund,
27,442 shares, cost $295,657 - 322,442 - -
Templeton Global Asset Allocation
Fund, 1,364 shares, cost $14,024 - - 14,347 -
Small Cap Fund, 1,299 shares,
cost $13,104 - - - 13,287
----------- --------- ---------- ------
Total assets 150,553 322,442 14,347 13,287 7,707,756
----------- --------- ---------- ------ ---------
Liabilities:
Accrued mortality and expense risk charges 64 141 101 24 4,058
Accrued administrative charges 8 17 12 3 487
----------- --------- ---------- ------ ---------
Total liabilities 72 158 113 27 4,545
----------- --------- ---------- ------ ---------
Net assets $ 150,481 322,284 14,234 13,260 7,703,211
=========== ========= ========== ====== =========
Contract owners' equity:
Contracts in accumulation period (note 6) $ 149,649 320,997 14,167 13,211 7,695,560
Contracts in annuity payment
period (note 2) 832 1,287 67 49 7,651
----------- --------- ---------- ------ ---------
Total contract owners' equity $ 150,481 322,284 14,234 13,260 7,703,211
=========== ========= ========== ====== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations
For the year ended December 31, 1995
(In thousands)
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
---------- -------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 23,692 7,314 1,546 19,247 5,958 37,956
---------- -------- --------- -------- ----------- -----------
Expenses:
Mortality and expense risk charges 5,334 7,672 1,334 3,643 2,319 6,765
Administrative charges 640 921 160 437 278 812
---------- -------- --------- -------- ----------- -----------
Total expenses 5,974 8,593 1,494 4,080 2,597 7,577
---------- -------- --------- -------- ----------- -----------
Investment income (loss), net 17,718 (1,279) 52 15,167 3,361 30,379
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 15,921 1,145 - - -
---------- -------- --------- -------- ----------- -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 421,429 39,408 64,829 49,344 34,264 84,760
Cost of investments sold (421,429) (34,253) (63,824) (46,046) (32,787) (82,065)
---------- -------- --------- -------- ----------- -----------
Total realized gains (losses) on
sales of investments, net - 5,155 1,005 3,298 1,477 2,695
---------- -------- --------- -------- ----------- -----------
Realized gains (losses)
on investments, net - 21,076 2,150 3,298 1,477 2,695
Net change in unrealized appreciation
(depreciation) on investments - 147,406 (2,147) 27,669 22,517 54,968
---------- -------- --------- -------- ----------- -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net - 168,482 3 30,967 23,994 57,663
---------- -------- --------- -------- ----------- -----------
Net increase (decrease) in
net assets from operations $ 17,718 167,203 55 46,134 27,355 88,042
========== ======== ========= ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the year ended December 31, 1995
(In thousands)
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
---------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 65,100 2,930 4,248 2,593 1,881 8,424
---------- -------- -------- ------- -------- --------
Expenses:
Mortality and expense risk charges 14,486 478 1,208 751 726 2,797
Administrative charges 1,738 57 145 90 87 336
---------- -------- -------- ------- -------- --------
Total expenses 16,224 535 1,353 841 813 3,133
---------- -------- -------- ------- -------- --------
Investment income (loss), net 48,876 2,395 2,895 1,752 1,068 5,291
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 14 - - - -
---------- -------- -------- ------- -------- --------
Realized gains (losses)
on sales of investments:
Proceeds from sales 134,789 53,632 11,775 8,345 34,323 54,834
Cost of investments sold (133,200) (53,046) (10,694) (7,592) (31,336) (55,040)
---------- -------- -------- ------- -------- --------
Total realized gains (losses) on
sales of investments, net 1,589 586 1,081 753 2,987 (206)
---------- -------- -------- ------- -------- --------
Realized gains (losses)
on investments, net 1,589 600 1,081 753 2,987 (206)
Net change in unrealized appreciation
(depreciation) on investments 255,500 (597) 12,514 13,063 15,696 22,286
---------- -------- -------- ------- -------- --------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 257,089 3 13,595 13,816 18,683 22,080
---------- -------- -------- ------- -------- --------
Net increase (decrease) in
net assets from operations $ 305,965 2,398 16,490 15,568 19,751 27,371
========== ======== ======== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the year ended December 31, 1995
(In thousands)
Investment Adjustable Templeton Templeton
Grade Income U.S. Pacific Rising International
Intermediate Securities Government Growth Dividends Equity
Bond Fund Fund Fund Fund Fund Fund
-------------- ----------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 5,974 58,967 12,390 6,144 7,357 12,759
-------------- ----------- ----------- ---------- ---------- --------------
Expenses:
Mortality and expense risk charges 1,832 13,095 2,381 4,028 4,379 9,608
Administrative charges 220 1,571 286 483 526 1,153
-------------- ----------- ----------- ---------- ---------- --------------
Total expenses 2,052 14,666 2,667 4,511 4,905 10,761
-------------- ----------- ----------- ---------- ---------- --------------
Investment income (loss), net 3,922 44,301 9,723 1,633 2,452 1,998
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds - 4,746 - 2,555 - 15,808
-------------- ----------- ----------- ---------- ---------- --------------
Realized gains (losses)
on sales of investments:
Proceeds from sales 16,878 62,553 87,316 142,977 21,235 99,450
Cost of investments sold (16,254) (60,199) (88,643) (142,382) (19,912) (95,103)
-------------- ----------- ----------- ---------- ---------- --------------
Total realized gains (losses) on
sales of investments, net 624 2,354 (1,327) 595 1,323 4,347
-------------- ----------- ----------- ---------- ---------- --------------
Realized gains (losses)
on investments, net 624 7,100 (1,327) 3,150 1,323 20,155
Net change in unrealized appreciation
(depreciation) on investments 7,237 145,457 6,258 14,929 81,539 42,587
-------------- ----------- ----------- ---------- ---------- --------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 7,861 152,557 4,931 18,079 82,862 62,742
-------------- ----------- ----------- ---------- ---------- --------------
Net increase (decrease) in
net assets from operations $ 11,783 196,858 14,654 19,712 85,314 64,740
============== =========== =========== ========== ========== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Operations (Continued)
For the year ended December 31, 1995
(In thousands)
Templeton Templeton Templeton
Developing Global Global Asset Small Total
Markets Growth Allocation Cap All
Equity Fund Fund Fund Fund Funds
------------- ---------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 465 1,261 240 - 286,446
------------- ---------- ------------- ------ -----------
Expenses:
Mortality and expense risk charges 1,523 2,919 101 22 87,401
Administrative charges 183 350 12 3 10,488
------------- ---------- ------------- ------ -----------
Total expenses 1,706 3,269 113 25 97,889
------------- ---------- ------------- ------ -----------
Investment income (loss), net (1,241) (2,008) 127 (25) 188,557
Realized gains (losses) and
unrealized appreciation
(depreciation) on investments:
Realized capital gain
distributions on mutual funds 109 - - - 40,298
------------- ---------- ------------- ------ -----------
Realized gains (losses)
on sales of investments:
Proceeds from sales 19,245 6,235 4,619 1 1,452,241
Cost of investments sold (19,631) (5,932) (4,548) (1) (1,423,917)
------------- ---------- ------------- ------ -----------
Total realized gains (losses) on
sales of investments, net (386) 303 71 - 28,324
------------- ---------- ------------- ------ -----------
Realized gains (losses)
on investments, net (277) 303 71 - 68,622
Net change in unrealized appreciation
(depreciation) on investments 3,149 26,429 323 183 896,966
------------- ---------- ------------- ------ -----------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 2,872 26,732 394 183 965,588
------------- ---------- ------------- ------ -----------
Net increase (decrease) in
net assets from operations $ 1,631 24,724 521 158 1,154,145
============= ========== ============= ====== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets
For the years ended December 31, 1995 and 1994
(In thousands)
Growth Growth
Money Money and and Precious Precious
Market Market Income Income Metals Metals
Fund Fund Fund Fund Fund Fund
---------- -------- -------- -------- --------- ---------
1995 1994 1995 1994 1995 1994
---------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 17,718 9,560 (1,279) (2,959) 52 (793)
Realized gains (losses) on investments, net - - 21,076 8,145 2,150 3,017
Net change in unrealized appreciation
(depreciation) on investments - - 147,406 (21,586) (2,147) (5,762)
---------- -------- -------- -------- --------- ---------
Net increase (decrease) in net assets
from operations 17,718 9,560 167,203 (16,400) 55 (3,538)
---------- -------- -------- -------- --------- ---------
Contract transactions (note 6):
Purchase payments 190,018 402,816 98,725 124,695 11,049 38,433
Transfers between funds (169,358) 34,121 150,088 59,547 (17,212) 19,303
Surrenders and terminations (120,722) (73,487) (73,514) (32,245) (11,728) (5,784)
Rescissions (5,198) (9,660) (1,783) (1,852) (326) (354)
Other transactions (note 2) 238 250 240 (54) (36) (2)
---------- -------- -------- -------- --------- ---------
Net increase (decrease) in net assets
resulting from contract transactions (105,022) 354,040 173,756 150,091 (18,253) 51,596
---------- -------- -------- -------- --------- ---------
Increase (decrease) in net assets (87,304) 363,600 340,959 133,691 (18,198) 48,058
---------- -------- -------- -------- --------- ---------
Net assets at beginning of year 487,239 123,639 471,773 338,082 115,828 67,770
---------- -------- -------- -------- --------- ---------
Net assets at end of year $ 399,935 487,239 812,732 471,773 97,630 115,828
========== ======== ======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Real Real U.S. U.S.
High High Estate Estate Government Government
Income Income Securities Securities Securities Securities
Fund Fund Fund Fund Fund Fund
--------- -------- ----------- ----------- ----------- -----------
1995 1994 1995 1994 1995 1994
--------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 15,167 6,592 3,361 (357) 30,379 20,347
Realized gains (losses) on investments, net 3,298 2,133 1,477 79 2,695 1,513
Net change in unrealized appreciation
(depreciation) on investments 27,669 (15,346) 22,517 (466) 54,968 (57,407)
--------- -------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 46,134 (6,621) 27,355 (744) 88,042 (35,547)
--------- -------- ----------- ----------- ----------- -----------
Contract transactions (note 6):
Purchase payments 47,086 73,592 19,829 69,260 47,766 105,968
Transfers between funds 46,491 5,342 (12,435) 35,863 (5,307) (93,935)
Surrenders and terminations (43,591) (20,894) (17,397) (8,032) (74,423) (62,167)
Rescissions (1,643) (1,104) (277) (635) (1,813) (3,388)
Other transactions (note 2) 77 84 99 (9) 132 64
--------- -------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions 48,420 57,020 (10,181) 96,447 (33,645) (53,458)
--------- -------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 94,554 50,399 17,174 95,703 54,397 (89,005)
--------- -------- ----------- ----------- ----------- -----------
Net assets at beginning of year 229,026 178,627 181,599 85,896 504,837 593,842
--------- -------- ----------- ----------- ----------- -----------
Net assets at end of year $323,580 229,026 198,773 181,599 559,234 504,837
========= ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Zero Zero Zero Zero
Utility Utility Coupon Coupon Coupon Coupon
Equity Equity Fund - Fund - Fund - Fund -
Fund Fund 1995 1995 2000 2000
----------- ---------- -------- ------- -------- -------
1995 1994 1995 1994 1995 1994
----------- ---------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 48,876 31,566 2,395 2,048 2,895 2,226
Realized gains (losses) on investments, net 1,589 (4,505) 600 613 1,081 795
Net change in unrealized appreciation
(depreciation) on investments 255,500 (209,171) (597) (2,957) 12,514 (8,436)
----------- ---------- -------- ------- -------- -------
Net increase (decrease) in net assets
from operations 305,965 (182,110) 2,398 (296) 16,490 (5,415)
----------- ---------- -------- ------- -------- -------
Contract transactions (note 6):
Purchase payments 73,558 196,908 1,557 4,941 16,203 22,614
Transfers between funds 10,721 (313,095) (36,522) 3,202 13,339 1,608
Surrenders and terminations (141,926) (97,394) (13,413) (6,634) (10,927) (5,586)
Rescissions (1,891) (4,132) (49) (35) (263) (371)
Other transactions (note 2) 537 (179) 88 (8) (17) (11)
----------- ---------- -------- ------- -------- -------
Net increase (decrease) in net assets
resulting from contract transactions (59,001) (217,892) (48,339) 1,466 18,335 18,254
----------- ---------- -------- ------- -------- -------
Increase (decrease) in net assets 246,964 (400,002) (45,941) 1,170 34,825 12,839
----------- ---------- -------- ------- -------- -------
Net assets at beginning of year 1,058,531 1,458,533 45,941 44,771 76,140 63,301
----------- ---------- -------- ------- -------- -------
Net assets at end of year $1,305,495 1,058,531 - 45,941 110,965 76,140
=========== ========== ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Zero Zero Zero Zero
Coupon Coupon Coupon Coupon Global Global
Fund - Fund - Fund - Fund - Income Income
2005 2005 2010 2010 Fund Fund
-------- ------- ------- ------- -------- --------
1995 1994 1995 1994 1995 1994
-------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,752 1,027 1,068 736 5,291 3,045
Realized gains (losses) on investments, net 753 626 2,987 135 (206) 1,653
Net change in unrealized appreciation
(depreciation) on investments 13,063 (5,757) 15,696 (3,733) 22,286 (20,889)
-------- ------- ------- ------- -------- --------
Net increase (decrease) in net assets
from operations 15,568 (4,104) 19,751 (2,862) 27,371 (16,191)
-------- ------- ------- ------- -------- --------
Contract transactions (note 6):
Purchase payments 13,119 15,613 12,239 8,813 13,098 78,997
Transfers between funds 4,711 (294) 9,807 13,300 (21,421) (5,062)
Surrenders and terminations (4,654) (2,526) (5,624) (3,226) (29,898) (16,449)
Rescissions (185) (306) (469) (265) (400) (1,310)
Other transactions (note 2) (23) (96) 177 6 25 137
-------- ------- ------- ------- -------- --------
Net increase (decrease) in net assets
resulting from contract transactions 12,968 12,391 16,130 18,628 (38,596) 56,313
-------- ------- ------- ------- -------- --------
Increase (decrease) in net assets 28,536 8,287 35,881 15,766 (11,225) 40,122
-------- ------- ------- ------- -------- --------
Net assets at beginning of year 44,756 36,469 41,255 25,489 231,368 191,246
-------- ------- ------- ------- -------- --------
Net assets at end of year $73,292 44,756 77,136 41,255 220,143 231,368
======== ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Investment Investment Adjustable Adjustable
Grade Grade Income Income U.S. U.S.
Intermediate Intermediate Securities Securities Government Government
Bond Fund Bond Fund Fund Fund Fund Fund
-------------- ------------- ----------- ----------- ----------- -----------
1995 1994 1995 1994 1995 1994
-------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,922 1,833 44,301 14,009 9,723 8,204
Realized gains (losses) on investments, net 624 677 7,100 4,517 (1,327) (2,310)
Net change in unrealized appreciation
(depreciation) on investments 7,237 (3,562) 145,457 (86,577) 6,258 (10,031)
-------------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations 11,783 (1,052) 196,858 (68,051) 14,654 (4,137)
-------------- ------------- ----------- ----------- ----------- -----------
Contract transactions (note 6):
Purchase payments 15,136 39,681 145,910 334,009 43,555 119,427
Transfers between funds 364 (430) 33,034 44,929 (75,287) (144,039)
Surrenders and terminations (16,323) (8,811) (125,202) (68,497) (27,666) (30,329)
Rescissions (379) (527) (3,470) (6,184) (1,087) (2,051)
Other transactions (note 2) (24) (2) 670 81 296 110
-------------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from contract transactions (1,226) 29,911 50,942 304,338 (60,189) (56,882)
-------------- ------------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 10,557 28,859 247,800 236,287 (45,535) (61,019)
-------------- ------------- ----------- ----------- ----------- -----------
Net assets at beginning of year 139,325 110,466 927,343 691,056 220,042 281,061
-------------- ------------- ----------- ----------- ----------- -----------
Net assets at end of year $ 149,882 139,325 1,175,143 927,343 174,507 220,042
============== ============= =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Templeton Templeton Templeton Templeton
Pacific Pacific Rising Rising International International
Growth Growth Dividends Dividends Equity Equity
Fund Fund Fund Fund Fund Fund
----------- ---------- ---------- ---------- -------------- --------------
1995 1994 1995 1994 1995 1994
----------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 1,633 (3,669) 2,452 746 1,998 (6,764)
Realized gains (losses) on investments, net 3,150 2,541 1,323 (1,037) 20,155 6,161
Net change in unrealized appreciation
(depreciation) on investments 14,929 (32,730) 81,539 (14,714) 42,587 (22,558)
----------- ---------- ---------- ---------- -------------- --------------
Net increase (decrease) in net assets
from operations 19,712 (33,858) 85,314 (15,005) 64,740 (23,161)
----------- ---------- ---------- ---------- -------------- --------------
Contract transactions (note 6):
Purchase payments 27,022 145,620 42,756 62,677 99,403 301,166
Transfers between funds (52,319) 54,656 50,303 (19,751) (30,418) 196,400
Surrenders and terminations (35,125) (18,242) (35,907) (17,224) (72,338) (29,507)
Rescissions (1,057) (2,213) (750) (821) (2,115) (3,386)
Other transactions (note 2) (45) 16 131 122 59 87
----------- ---------- ---------- ---------- -------------- --------------
Net increase (decrease) in net assets
resulting from contract transactions (61,524) 179,837 56,533 25,003 (5,409) 464,760
----------- ---------- ---------- ---------- -------------- --------------
Increase (decrease) in net assets (41,812) 145,979 141,847 9,998 59,331 441,599
----------- ---------- ---------- ---------- -------------- --------------
Net assets at beginning of year 348,655 202,676 281,145 271,147 735,339 293,740
----------- ---------- ---------- ---------- -------------- --------------
Net assets at end of year $ 306,843 348,655 422,992 281,145 794,670 735,339
=========== ========== ========== ========== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Templeton Templeton Templeton Templeton
Developing Developing Templeton Templeton Global Global
Markets Markets Global Global Asset Asset
Equity Equity Growth Growth Allocation Allocation
Fund Fund Fund Fund Fund Fund
------------ ----------- ---------- ---------- ----------- ----------
1995 1994 1995 1994 1995 1994
------------ ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (1,241) (542) (2,008) (812) 127 -
Realized gains (losses) on investments, net (277) (77) 303 15 71 -
Net change in unrealized appreciation
(depreciation) on investments 3,149 (6,388) 26,429 356 323 -
------------ ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
from operations 1,631 (7,007) 24,724 (441) 521 -
------------ ----------- ---------- ---------- ----------- ----------
Contract transactions (note 6):
Purchase payments 42,027 57,484 119,490 89,328 5,580 -
Transfers between funds 22,865 43,967 46,237 64,368 9,316 -
Surrenders and terminations (7,387) (1,472) (15,658) (2,702) (1,163) -
Rescissions (1,069) (501) (1,966) (1,166) (27) -
Other transactions (note 2) (55) (2) 64 6 7 -
------------ ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from contract transactions 56,381 99,476 148,167 149,834 13,713 -
------------ ----------- ---------- ---------- ----------- ----------
Increase (decrease) in net assets 58,012 92,469 172,891 149,393 14,234 -
------------ ----------- ---------- ---------- ----------- ----------
Net assets at beginning of year 92,469 - 149,393 - - -
------------ ----------- ---------- ---------- ----------- ----------
Net assets at end of year $ 150,481 92,469 322,284 149,393 14,234 -
============ =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Statements of Changes in Net Assets (Continued)
For the years ended December 31, 1995 and 1994
(In thousands)
Small Small Total Total
Cap Cap All All
Fund Fund Funds Funds
-------- ----- ---------- ----------
1995 1994 1995 1994
-------- ----- ---------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ (25) - 188,557 86,043
Realized gains (losses) on investments, net - - 68,622 24,691
Net change in unrealized appreciation
(depreciation) on investments 183 - 896,966 (527,714)
-------- ----- ---------- ----------
Net increase (decrease) in net assets
from operations 158 - 1,154,145 (416,980)
-------- ----- ---------- ----------
Contract transactions (note 6):
Purchase payments 2,140 - 1,087,266 2,292,042
Transfers between funds 11,013 - (11,990) -
Surrenders and terminations (36) - (884,622) (511,208)
Rescissions (19) - (26,236) (40,261)
Other transactions (note 2) 4 - 2,644 600
-------- ----- ---------- ----------
Net increase (decrease) in net assets
resulting from contract transactions 13,102 - 167,062 1,741,173
-------- ----- ---------- ----------
Increase (decrease) in net assets 13,260 - 1,321,207 1,324,193
-------- ----- ---------- ----------
Net assets at beginning of year - - 6,382,004 5,057,811
-------- ----- ---------- ----------
Net assets at end of year $13,260 - 7,703,211 6,382,004
======== ===== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
of
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
Allianz Life Variable Account B (Variable Account) is a segregated investment
account of Allianz Life Insurance Company of North America (Allianz Life) and
is registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established on May 31, 1985 and commenced
operations January 24, 1989. Accordingly, it is an accounting entity wherein
all segregated account transactions are reflected.
The Variable Account's assets are the property of Allianz Life and are held
for the benefit of the owners and other persons entitled to payments under
variable annuity contracts issued through the Variable Account and
underwritten by Allianz Life. The assets of the Variable Account, equal to
the reserves and other liabilities of the Variable Account, are not chargeable
with liabilities that arise from any other business which Allianz Life may
conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc., in accordance with the selection made by the contract owner.
Not all funds are available as investment options for the products which
comprise the Variable Account.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Allianz Life.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include realized gain distributions received from
the respective funds and gains on the sale of fund shares as determined by the
average cost method. Realized gain distributions are reinvested in the
respective funds. Dividend distributions received from the FVF are reinvested
in additional shares of the FVF and are recorded as income to the Variable
Account on the ex-dividend date.
A Fixed Account investment option is available to deferred annuity contract
owners. This account is comprised of equity and fixed income investments
which are part of the general assets of Allianz Life. The liabilities of the
Fixed Account are part of the general obligations of Allianz Life and are not
included in the Variable Account. The guaranteed minimum rate of return on
the Fixed Account is 3%.
The Templeton Developing Markets Equity Fund and Templeton Global Growth Fund
were added as available investment options on March 15, 1994. The Templeton
Global Asset Allocation Fund, Fixed Account and Small Cap Fund were added as
available investment options on May 1, 1995, October 1, 1995 and November 1,
1995, respectively. The Zero Coupon - 1995 Fund matured and was closed on
December 15, 1995.
In April 1995, the Equity Growth Fund name was changed to Growth and Income
Fund.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3% or 5%. Charges to
annuity reserves for mortality and risk expense are reimbursed to Allianz Life
if the reserves required are less than originally estimated. If additional
reserves are required, Allianz Life reimburses the account.
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis equal, on an annual basis, to 1.25% of the daily net assets of the
Variable Account.
An administrative charge is deducted from the Variable Account on a daily
basis equal, on an annual basis, to 0.15% of the daily net assets of the
Variable Account.
CONTRACT BASED EXPENSES
A contract maintenance charge is paid by the contract owner annually from each
deferred annuity contract by liquidating contract units at the end of the
contract year and at the time of full surrender. The amount of the charge is
$30 each year. Contract maintenance charges paid by the contract owners
during the years ended December 31, 1995 and 1994 were $4,294,361 and
$3,070,519, respectively. These contract charges are reflected in the
Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender. For this
purpose, purchase payments are allocated on a first-in, first-out basis. The
amount of the contingent deferred sales charge is calculated by: (a)
allocating purchase payments to the amount surrendered; and (b) multiplying
each allocated purchase payment that has been held under the contract for the
period shown below by the charge shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VALUEMARK II VALUEMARK III
- ------------------- -------------------
Years Since Payment Charge Years Since Payment Charge
- ------------------- ------- ------------------- -------
0-1 5% 0-1 6%
1-2 5% 1-2 5%
2-3 4% 2-3 4%
3-4 3% 3-4 3%
4-5 1.5% 4-5 1.5%
5+ 0% 5+ 0%
</TABLE>
and (c) adding the products of each multiplication in (b) above.
A deferred annuity contract owner may, not more frequently than once annually
on a cumulative basis, make a surrender each contract year of fifteen percent
(15%) of purchase payments paid, less any prior surrenders, without incurring
a contingent deferred sales charge. For a partial surrender, the contingent
deferred sales charge will be deducted from the remaining contract value, if
sufficient; otherwise it will be deducted from the amount surrendered. Total
contingent deferred sales charges paid by the contract owners for the years
ended December 31, 1995 and 1994 were $12,373,225 and $8,600,401,
respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges paid by the contract owners for the years ended
December 31, 1995 and 1994 were $119,180 and $88,989, respectively. Transfer
charges are reflected in the financial statements as other transactions.
Transfers to the Fixed Account were $11,989,631 during the year ended December
31, 1995.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Allianz Life may, in its sole
discretion, pay taxes when due and deduct that amount from the contract value
at a later date. Payment at an earlier date does not waive any right Allianz
Life may have to deduct such amounts at a later date.
On certain contracts, a systematic withdrawal plan is available which allows
an owner to withdraw up to 9% of purchase payments less prior surrenders
annually, paid monthly or quarterly, without incurring a contingent deferred
sales charge. The exercise of the systematic withdrawal plan in any contract
year replaces the 15% penalty free privilege for that year.
A rescission is defined as a contract that is returned to the Company by the
Contract Owner and canceled within the free-look period, generally within 10
days.
3. CAPITALIZATION
On January 5, 1994, $100 and $500,100 was provided by Allianz Life for the
establishment of the Templeton Developing Markets Equity Fund and Templeton
Global Growth Fund, respectively. All investments were withdrawn by Allianz
Life on August 29, 1994 at the then-current market value of $535,212.
On April 18, 1995, $500,000 was provided by Allianz Life for the establishment
of the Templeton Global Asset Allocation Fund. All investments were withdrawn
by Allianz Life on December 21, 1995 at the then-current market value of
$525,500.
On September 18, 1995, $250,000 was provided by Allianz Life for the
establishment of the Small Cap Fund. On December 31, 1995, the market value
of this investment was $255,750.
4. INVESTMENT TRANSACTIONS
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund $334,323
Growth and Income Fund 228,178
Precious Metals Fund 47,816
High Income Fund 113,096
Real Estate Securities Fund 27,566
U.S. Government Securities Fund 81,756
Utility Equity Fund 125,296
Zero Coupon Fund - 1995 7,693
Zero Coupon Fund - 2000 33,059
Zero Coupon Fund - 2005 23,101
Zero Coupon Fund - 2010 51,558
Global Income Fund 21,630
Investment Grade Intermediate Bond Fund 19,654
Income Securities Fund 163,073
Adjustable U.S. Government Fund 36,931
Templeton Pacific Growth Fund 85,778
Rising Dividends Fund 80,456
Templeton International Equity Fund 112,294
Templeton Developing Markets Equity Fund 74,549
Templeton Global Growth Fund 152,536
Templeton Global Asset Allocation Fund 18,572
Small Cap Fund 13,104
</TABLE>
5. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Allianz Life, which is taxed as a life insurance company under
the Internal Revenue Code.
Allianz Life does not expect to incur any federal income taxes in the
operation of the Variable Account. If in the future Allianz Life determines
that the Variable Account may incur federal income taxes, it may then assess a
charge against the Variable Account for such taxes.
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA)
Transactions in units for each fund for the years ended December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Growth Real U.S.
Money and Precious High Estate Government
Market Income Metals Income Securities Securities
Fund Fund Fund Fund Fund Fund
--------- -------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1993 10,247 24,719 4,685 11,787 5,589 40,402
Contract transactions:
Purchase payments 33,071 9,135 2,732 4,967 4,417 7,429
Transfers between funds 2,902 4,379 1,303 422 2,206 (6,649)
Surrenders and terminations (6,011) (2,397) (409) (1,428) (525) (4,458)
Rescissions (792) (137) (26) (75) (41) (239)
Other transactions 20 (4) - 6 (1) 5
--------- -------- --------- -------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions 29,190 10,976 3,600 3,892 6,056 (3,912)
--------- -------- --------- -------- ----------- -----------
Accumulation units outstanding at December 31, 1994 39,437 35,695 8,285 15,679 11,645 36,490
========= ======== ========= ======== =========== ===========
Accumulation unit value per unit at December 31, 1994 $ 12.354 13.215 13.979 14.608 15.594 13.835
========= ======== ========= ======== =========== ===========
Contract transactions:
Purchase payments 15,069 6,403 796 2,877 1,233 3,115
Transfers between funds (13,495) 9,757 (1,290) 2,959 (792) (266)
Surrenders and terminations (9,580) (4,859) (846) (2,661) (1,077) (4,916)
Rescissions (410) (118) (24) (102) (17) (118)
Other transactions 19 15 (2) 4 6 8
--------- -------- --------- -------- ----------- -----------
Net increase (decrease) in accumulation
units resulting from contract transactions (8,397) 11,198 (1,366) 3,077 (647) (2,177)
--------- -------- --------- -------- ----------- -----------
Accumulation units outstanding at December 31, 1995 31,040 46,893 6,919 18,756 10,998 34,313
========= ======== ========= ======== =========== ===========
Accumulation unit value per unit at December 31, 1995 $ 12.883 17.310 14.109 17.252 18.073 16.298
========= ======== ========= ======== =========== ===========
Accumulation net assets at December 31, 1995 $399,901 811,706 97,630 323,580 198,773 559,234
========= ======== ========= ======== =========== ===========
</TABLE>
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA) (CONTINUED)
<TABLE>
<CAPTION>
Zero Zero Zero Zero
Utility Coupon Coupon Coupon Coupon Global
Equity Fund - Fund - Fund - Fund - Income
Fund 1995 2000 2005 2010 Fund
----------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1993 84,217 3,092 3,787 2,020 1,405 13,054
Contract transactions:
Purchase payments 12,472 344 1,434 942 541 5,526
Transfers between funds (19,941) 224 114 (4) 864 (465)
Surrenders and terminations (6,391) (462) (357) (154) (204) (1,178)
Rescissions (264) (2) (24) (18) (17) (92)
Other transactions (11) (1) (1) (6) - 10
----------- ------- -------- ------- ------- --------
Net increase (decrease) in accumulation
units resulting from contract transactions (14,135) 103 1,166 760 1,184 3,801
----------- ------- -------- ------- ------- --------
Accumulation units outstanding at December 31, 1994 70,082 3,195 4,953 2,780 2,589 16,855
=========== ======= ======== ======= ======= ========
Accumulation unit value per unit at December 31, 1994 $ 15.104 14.380 15.373 16.096 15.930 13.726
=========== ======= ======== ======= ======= ========
Contract transactions:
Purchase payments 4,303 106 966 715 652 904
Transfers between funds 736 (2,398) 800 269 511 (1,494)
Surrenders and terminations (8,372) (905) (636) (249) (297) (2,058)
Rescissions (113) (3) (16) (10) (27) (28)
Other transactions 33 5 (1) (1) 9 2
----------- ------- -------- ------- ------- --------
Net increase (decrease) in accumulation
units resulting from contract transactions (3,413) (3,195) 1,113 724 848 (2,674)
----------- ------- -------- ------- ------- --------
Accumulation units outstanding at December 31, 1995 66,669 - 6,066 3,504 3,437 14,181
=========== ======= ======== ======= ======= ========
Accumulation unit value per unit at December 31, 1995 $ 19.565 - 18.294 20.914 22.431 15.522
=========== ======= ======== ======= ======= ========
Accumulation net assets at December 31, 1995 $1,304,348 - 110,965 73,292 77,136 220,143
=========== ======= ======== ======= ======= ========
</TABLE>
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA) (CONTINUED)
<TABLE>
<CAPTION>
Investment Adjustable Templeton
Grade Income U.S. Pacific Rising
Intermediate Securities Government Growth Dividends
Bond Fund Fund Fund Fund Fund
-------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accumulation units outstanding at December 31, 1993 7,677 38,967 24,975 14,240 26,256
Contract transactions:
Purchase payments 2,779 19,487 10,678 10,676 6,295
Transfers between funds (28) 2,539 (12,898) 3,849 (1,955)
Surrenders and terminations (619) (4,065) (2,716) (1,371) (1,748)
Rescissions (37) (364) (184) (164) (83)
Other transactions - 5 10 1 13
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,095 17,602 (5,110) 12,991 2,522
-------------- ----------- ----------- ---------- ----------
Accumulation units outstanding at December 31, 1994 9,772 56,569 19,865 27,231 28,778
============== =========== =========== ========== ==========
Accumulation unit value per unit at December 31, 1994 $ 14.257 16.392 11.077 12.802 9.769
============== =========== =========== ========== ==========
Contract transactions:
Purchase payments 1,016 7,979 3,753 2,065 3,782
Transfers between funds 30 1,879 (6,551) (4,013) 4,493
Surrenders and terminations (1,099) (6,965) (2,397) (2,714) (3,208)
Rescissions (25) (192) (95) (82) (68)
Other transactions (2) 39 25 (4) 12
-------------- ----------- ----------- ---------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions (80) 2,740 (5,265) (4,748) 5,011
-------------- ----------- ----------- ---------- ----------
Accumulation units outstanding at December 31, 1995 9,692 59,309 14,600 22,483 33,789
============== =========== =========== ========== ==========
Accumulation unit value per unit at December 31, 1995 $ 15.463 19.785 11.951 13.630 12.498
============== =========== =========== ========== ==========
Accumulation net assets at December 31, 1995 $ 149,882 1,173,447 174,507 306,448 422,318
============== =========== =========== ========== ==========
</TABLE>
<PAGE>
6. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS EXCEPT
PER UNIT DATA) (CONTINUED)
<TABLE>
<CAPTION>
Templeton Templeton
Templeton Developing Templeton Global
International Markets Global Asset Small Total
Equity Equity Growth Allocation Cap All
Fund Fund Fund Fund Fund Funds
--------------- ----------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1993 24,026 - - - - 341,145
Contract transactions:
Purchase payments 23,800 5,673 8,715 - - 171,113
Transfers between funds 15,240 4,296 6,300 - - 2,698
Surrenders and terminations (2,341) (146) (265) - - (37,245)
Rescissions (268) (49) (114) - - (2,990)
Other transactions 7 - 1 - - 54
--------------- ----------- ---------- ----------- ------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions 36,438 9,774 14,637 - - 133,630
--------------- ----------- ---------- ----------- ------- ----------
Accumulation units outstanding
at December 31, 1994 60,464 9,774 14,637 - - 474,775
=============== =========== ========== =========== ======= ==========
Accumulation unit value per
unit at December 31, 1994 $ 12.161 9.454 10.201 - -
=============== =========== ========== =========== =======
Contract transactions:
Purchase payments 7,774 4,364 10,991 538 212 79,613
Transfers between funds (2,530) 2,372 4,306 916 1,096 (2,705)
Surrenders and terminations (5,662) (773) (1,448) (114) (4) (60,840)
Rescissions (168) (112) (183) (3) (2) (1,916)
Other transactions 5 (7) 6 1 - 172
--------------- ----------- ---------- ----------- ------- ----------
Net increase (decrease) in accumulation
units resulting from contract transactions (581) 5,844 13,672 1,338 1,302 14,324
--------------- ----------- ---------- ----------- ------- ----------
Accumulation units outstanding
at December 31, 1995 59,883 15,618 28,309 1,338 1,302 489,099
=============== =========== ========== =========== ======= ==========
Accumulation unit value per
unit at December 31, 1995 $ 13.263 9.582 11.339 10.591 10.146
=============== =========== ========== =========== =======
Accumulation net assets at December 31, 1995 $ 794,226 149,649 320,997 14,167 13,211 7,695,560
=============== =========== ========== =========== ======= ==========
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995 and 1994
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allianz Life Insurance Company of North America:
We have audited the accompanying consolidated balance sheets of Allianz Life
Insurance Company of North America (a wholly owned subsidiary of Allianz of
America, Inc.) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Allianz Life Insurance Company of North America and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and changes in
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
In 1994, as discussed in note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In 1993, as discussed in notes 1,
8 and 10 to the consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 106, Accounting for Postretirement Benefits
Other Than Pensions and No. 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
February 6, 1996
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(in thousands except share data)
Assets 1995 1994
- ---------------------------------------------------------- ----------- ----------
<S> <C> <C>
Investments:
Fixed maturities, at amortized cost $ 0 90,615
Fixed maturities, at market 2,549,598 1,906,208
Equity securities, at market 254,458 131,712
Mortgage loans on real estate 203,128 163,099
Real estate, at cost 8,806 4,685
Investment in real estate partnerships, at equity 11,975 12,551
Certificates of deposit and short-term securities 31,501 155,307
Policy loans 104,184 101,899
Other long-term investments 650 1,117
----------- ----------
Total investments 3,164,300 2,567,193
Cash 10,936 63,883
Accrued investment income 36,858 34,786
Receivables (net of allowance for uncollectible
accounts of $7,697 in 1995 and $9,607 in 1994) 124,700 111,400
Reinsurance receivable:
Funds held on deposit 1,060,566 927,353
Recoverable on future policy benefit reserves 43,248 35,387
Recoverable on unpaid claims 109,075 105,603
Receivable on paid claims 22,172 26,736
Prepaid insurance premiums 4,078 4,317
Home office property and equipment (net of accumulated
depreciation of $21,256 in 1995 and $28,547 in 1994) 8,790 11,612
Deferred acquisition costs 826,994 798,442
Federal income tax recoverable 3,947 3,794
Other assets 11,048 9,818
----------- ----------
Assets, exclusive of separate account assets 5,426,712 4,700,324
Separate account assets 8,402,003 6,965,755
----------- ----------
Total assets $13,828,715 11,666,079
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1995 and 1994
(in thousands except share data)
Liabilities and Stockholder's Equity 1995 1994
- --------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Liabilities:
Future policy benefit reserves:
Life $ 1,088,964 1,022,537
Annuity 2,601,943 2,304,560
Policy and contract claims 371,898 355,411
Unearned premiums 34,181 40,376
Reinsurance payable 72,838 81,507
Deferred income taxes 140,174 5,807
Accrued expenses 41,266 29,006
Commissions due and accrued 22,979 24,190
Other policyholder funds 82,138 73,509
Other liabilities 19,137 76,314
------------ -----------
Liabilities, exclusive of separate account liabilities 4,475,518 4,013,217
Separate account liabilities 8,402,003 6,965,755
------------ -----------
Total liabilities 12,877,521 10,978,972
------------ -----------
Minority interest in subsidiary 0 7,662
------------ -----------
Stockholder's equity:
Common stock, $1 par value, 20,000,000 shares
authorized, issued and outstanding 20,000 20,000
Preferred stock, $1 par value, cumulative, 200 million
shares authorized, 25 million shares issued and outstanding
in 1995 and 40 million shares issued and outstanding in 1994 25,000 40,000
Additional paid-in capital 407,088 406,494
Net unrealized holding gain (loss) on securities
available-for-sale, net of deferred federal income taxes 139,204 (62,073)
Net unrealized Canadian currency loss (3,455) (3,787)
Retained earnings 363,357 278,811
------------ -----------
Total stockholder's equity 951,194 679,445
------------ -----------
Commitments and contingencies (notes 7 and 12)
Total liabilities and stockholder's equity $13,828,715 11,666,079
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 257,647 234,295 217,717
Other life policy considerations 93,158 92,254 88,003
Annuity considerations 147,112 120,240 69,583
Accident and health premiums 527,059 547,508 508,785
----------- --------- ---------
Total premiums and considerations 1,024,976 994,297 884,088
Premiums ceded 223,226 244,208 202,904
----------- --------- ---------
Net premiums and considerations 801,750 750,089 681,184
Investment income, net 201,158 181,291 174,831
Realized investment gains, net 29,202 829 28,318
Other 10,140 12,703 9,347
----------- --------- ---------
Total revenue 1,042,250 944,912 893,680
----------- --------- ---------
Benefits and expenses:
Life insurance benefits 268,163 254,326 233,694
Annuity benefits 145,636 131,793 113,500
Accident and health insurance benefits 374,743 379,122 341,676
----------- --------- ---------
Total benefits 788,542 765,241 688,870
Benefit recoveries 210,702 212,144 155,043
----------- --------- ---------
Net benefits 577,840 553,097 533,827
Commissions and other agent compensation 233,939 313,715 398,161
General and administrative expenses 115,419 111,116 109,333
Taxes, licenses and fees 17,672 22,514 25,239
Increase in deferred acquisition costs, net (28,552) (132,090) (253,234)
Minority interest in income of consolidated subsidiary (30) (66) 0
----------- --------- ---------
Total benefits and expenses 916,288 868,286 813,326
----------- --------- ---------
Income from operations before income taxes 125,962 76,626 80,354
----------- --------- ---------
Income tax expense (benefit):
Current 12,993 5,098 30,215
Deferred 25,772 16,053 (6,496)
----------- --------- ---------
Total income tax expense 38,765 21,151 23,719
----------- --------- ---------
Income before cumulative effect of
changes in accounting 87,197 55,475 56,635
Cumulative effect of changes in accounting 0 0 26,875
----------- --------- ---------
Net income $ 87,197 55,475 83,510
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 20,000 20,000 20,000
--------- --------- --------
Preferred Stock:
Balance at beginning of year 40,000 0 0
Issuance of stock during the year 0 40,000 0
Redemption of stock during the year (15,000) 0 0
--------- --------- --------
Balance at end of year 25,000 40,000 0
--------- --------- --------
Additional paid-in capital:
Balance at beginning of year 406,494 401,304 401,304
Additional contribution from parent 594 5,190 0
--------- --------- --------
Balance at end of year 407,088 406,494 401,304
--------- --------- --------
Net unrealized gain (loss) on investments:
Balance at beginning of year (62,073) 9,071 12,071
Cumulative effect of implementation of Statement
No. 115, net of deferred federal income taxes 0 74,866 0
Net unrealized gain on securities transferred
from held-to-maturity to available-for-sale
classification, net of deferred federal income taxes 1,789 0 0
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 199,488 (146,010) (3,000)
--------- --------- --------
Balance at end of year 139,204 (62,073) 9,071
--------- --------- --------
Net unrealized Canadian currency gain (loss):
Balance at beginning of year (3,787) (2,708) (1,835)
Net unrealized gain (loss) during the year,
net of deferred federal income taxes 332 (1,079) (873)
--------- --------- --------
Balance at end of year (3,455) (3,787) (2,708)
--------- --------- --------
Retained earnings:
Balance at beginning of year 278,811 223,749 140,239
Net income 87,197 55,475 83,510
Cash dividend to stockholder (2,651) (413) 0
--------- --------- --------
Balance at end of year 363,357 278,811 223,749
--------- --------- --------
Total stockholder's equity $951,194 679,445 651,416
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 87,197 55,475 83,510
---------- --------- ---------
Adjustments to reconcile net income to net
cash used in operating activities:
Realized gains on investments (29,202) (829) (28,318)
Deferred federal income tax (benefit) expense 25,772 16,053 (6,496)
Cumulative effect of changes in accounting 0 0 (26,875)
Charges to policy account balances (120,254) (125,488) (105,912)
Interest credited to policy account balances 169,151 150,490 147,983
Change in:
Accrued investment income (2,072) (764) (2,725)
Receivables (13,300) 12,040 (20,206)
Reinsurance receivables (190,953) (93,453) (107,809)
Deferred acquisition costs (28,552) (132,090) (253,234)
Future policy benefit reserves 66,932 20,791 (9,557)
Policy and contract claims 25,116 25,072 40,211
Unearned premiums (6,195) (1,194) (2,111)
Reinsurance payable (8,669) 19,779 31,653
Current tax recoverable (153) (6,255) 1,085
Deferred tax liability 0 0 15,936
Accrued expenses and other liabilities (43,867) 54,626 14,657
Commissions due and accrued (1,211) 3,316 1,461
Depreciation and amortization (23,391) (11,498) (7,681)
Other, net 916 (86) 2,303
---------- --------- ---------
Total adjustments (179,932) (69,490) (315,635)
---------- --------- ---------
Net cash used in operating activities (92,735) (14,015) (232,125)
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
------------ --------- -----------
<S> <C> <C> <C>
Cash flows used in investing activities:
Purchase of fixed maturities, at amortized cost $ 0 0 (1,191,749)
Purchase of fixed maturities, at market (1,533,290) (928,532) 0
Purchase of equity securities (166,701) (145,267) (205,345)
Purchase of other long-term investments 0 (467) (650)
Funding of mortgage loans (66,301) (64,808) (20,097)
Sale of fixed maturities, at amortized cost 0 0 666,893
Sale of fixed maturities, at market 1,242,988 791,659 0
Matured or redeemed fixed maturities, at amortized cost 7,022 4,342 314,223
Matured fixed maturities, at market 38,991 32,508 0
Sale of equity securities 97,619 150,347 217,524
Repayment of mortgage loans 25,563 28,206 15,989
Sale of minority interest in subsidiary 0 0 8,189
Purchase of minority interest's shares in subsidiary (7,903) 0 0
Net change in certificates of deposit and
short-term securities 123,806 (96,344) 33,330
Other (2,851) (6,232) 782
------------ --------- -----------
Net cash used in investing activities (241,057) (234,588) (160,911)
------------ --------- -----------
Cash flows used in financing activities:
Policyholders' deposits to account balances $ 553,699 526,918 639,633
Policyholders' withdrawals from account balances (291,102) (235,309) (164,911)
Change in assets held under reinsurance agreements 36,354 (59,349) (75,658)
Net change in mortgage notes payable (1,049) (39) (36)
Additional paid-in capital from parent 594 5,190 0
Preferred stock transactions (15,000) 40,000 0
Cash dividends paid (2,651) (413) 0
------------ --------- -----------
Net cash used in financing activities 280,845 276,998 399,028
------------ --------- -----------
Net change in cash (52,947) 28,395 5,992
Cash at beginning of year 63,883 35,488 29,496
------------ --------- -----------
Cash at end of year $ 10,936 63,883 35,488
============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allianz Life Insurance Company of North America (the Company) is a wholly
owned subsidiary of Allianz of America, Inc. (AZOA), a majority-owned
subsidiary of Allianz A.G. Holding, a Federal Republic of Germany company.
The Company is a life insurance company which is licensed to sell both group
and individual life, annuity and accident and health policies in the United
States, Canada and several U.S. territories. Based on 1995 gross premium
volume, 13%, 71% and 16% of the Company's business is life, annuity and
accident and health, respectively. The Company's primary distribution
channels are through strategic alliances with other insurance companies and
third party marketing organizations. The Company has a significant
relationship as of December 31, 1995 with a mutual fund company and its
broker/dealer network related to sales of its variable life and variable
annuity products and another significant administration, marketing and
reinsurance relationship with an unrelated insurance company.
Following is a summary of the significant accounting policies reflected in the
accompanying consolidated financial statements.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) which vary in certain respects
from accounting rules prescribed or permitted by state insurance regulatory
authorities. The accounts of the Company's major subsidiaries, Preferred Life
Insurance Company of New York and Canadian American Financial Corporation and
other less significant subsidiaries have been consolidated. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts as previously reported have been reclassified to be consistent
with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
significantly from management's estimates.
RECOGNITION OF TRADITIONAL LIFE, GROUP LIFE AND GROUP ACCIDENT AND HEALTH
REVENUE
Traditional life products include products with guaranteed premiums and
benefits and consist principally of whole life and term insurance policies,
limited payment contracts and certain annuity products with life
contingencies.
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses for
traditional and group products are matched with earned premiums so that
profits are recognized over the premium paying periods of the contracts. This
matching is accomplished by establishing provisions for future policy benefits
and policy and contract claims, and deferring and amortizing related policy
acquisition costs.
<PAGE>
RECOGNITION OF NONTRADITIONAL AND VARIABLE LIFE AND ANNUITY REVENUE
Nontraditional and variable life insurance and interest sensitive contracts
that have significant mortality or morbidity risk are accounted for in
accordance with the retrospective deposit method. Interest sensitive
contracts that do not have significant mortality or morbidity risk are
accounted for in a manner consistent with interest bearing financial
instruments. For both types of contracts, premium receipts are reported as
deposits to the contractholder's account while revenues consist of amounts
assessed against contractholders including surrender charges and earned
administrative service fees. Mortality or morbidity charges are also
accounted for as revenue on those contracts containing mortality or morbidity
risk. Benefits consist of interest credited to contractholder's accounts and
claims or benefits incurred in excess of the contractholder's balance.
DEFERRED ACQUISITION COSTS
Acquisition costs, consisting of commissions and other costs which vary with
and are primarily related to production of new business, are deferred. For
traditional life and group life products, such costs are amortized over the
revenue-producing period of the related policies using the same actuarial
assumptions used in computing future policy benefit reserves. Acquisition
costs for accident and health insurance policies are deferred and amortized
over the lives of the policies in the same manner as premiums are earned. For
interest sensitive products, acquisition costs are amortized in relation to
the present value of expected future gross profits from investment margins and
mortality, morbidity and expense charges. Deferred acquisition costs amortized
during 1995, 1994 and 1993 were $117,782, $108,676 and $72,431, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves on traditional life products are computed by
the net level premium method based upon estimated future investment yield,
mortality and withdrawal assumptions, commensurate with the Company's
experience, modified as necessary to reflect anticipated trends, including
possible unfavorable deviations. Most life reserve interest assumptions are
graded from 9% to 5.5%.
Future policy benefit reserves for interest sensitive products are generally
carried at accumulated contract values. Reserves on some deferred annuity
contracts are computed based on contractholder cash value accumulations,
adjusted for mortality, withdrawal and interest margin assumptions.
Fair values of investment contracts, which include deferred annuities and
other annuities without significant mortality risk, were determined by testing
amounts payable on demand against discounted cash flows using interest rates
commensurate with the risks involved. Fair values are based on the amount
payable on demand at December 31, 1995 and 1994.
POLICY AND CONTRACT CLAIMS
Policy and contract claims represent an estimate of claims and claim
adjustment expenses on accident and health and life insurance policies that
have been reported but not yet paid and incurred but not yet reported as of
December 31.
REINSURANCE
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts
are recorded as reinsurance receivable. Reinsurance receivables are recognized
in a manner consistent with the liabilities related to the underlying
reinsured contracts.
<PAGE>
INVESTMENTS
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities which addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are classified in one of
three categories. Debt securities that the Company has the positive intent
and ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost. Debt and equity securities bought
and held principally for the purpose of selling them in the near term are
classified as "trading securities" and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not
classified as either "held-to-maturity securities" or "trading securities" are
classified as "available-for-sale securities" and reported at fair value, with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of deferred taxes. SFAS No. 115 did not permit retroactive
application of its provisions. The Company classified the majority of its
investment portfolio as "available-for-sale securities" with a limited number
of securities classified as "held-to-maturity" at January 1, 1994.
At December 31, 1995, the Company transferred all of its securities with an
amortized cost of $83,357 classified as "held-to-maturity' to the
"available-for-sale" classifications as provided in the Financial Accounting
Standards Board (FASB) Special Report on the implementation of SFAS No. 115.
The effect of this transfer was an increase in stockholder's equity of $1,789.
All of the Company's investment portfolio is classified as
"available-for-sale" at December 31, 1995.
Short-term investments are carried at amortized cost which approximates
market. Policy loans are reflected at their unpaid principal balances.
Mortgage loans are reflected at unpaid principal balances adjusted for premium
and discount amortization and an allowance for uncollectible balances. During
1995, the Company adopted SFAS No. 114, Accounting by Creditors for Impairment
of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures. SFAS No. 114 addresses accounting by
creditors for impairment of certain loans. It requires that impaired loans
within the scope of the Statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, alternatively, at the loan's observable market price of the fair value of
supporting collateral. The Company analyzes loan impairment at least once a
year when assessing the adequacy of the allowance for possible credit losses.
SFAS No. 118 permits existing income recognition practices to continue. The
Company does not accrue interest on impaired loans and accounts for interest
income on a cash basis. The adoption of these Statements did not have a
material impact on the Company's net income or financial position.
Investments in real estate are reflected at the lower of cost or market value.
Real estate occupied by the Company is reflected at cost, less accumulated
depreciation. Investments in real estate, exclusive of land, are being
depreciated on a straight-line basis over estimated useful lives ranging from
3 to 30 years.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1995 and 1994, investments with a carrying value of $37,879
and $44,337, respectively, were held on deposit with various insurance
departments as required by statutory regulations.
The fair values of invested assets, excluding investments in real estate, are
deemed by management to approximate their estimated market values. The fair
value of mortgage loans has been calculated using discounted cash flows and is
based on pertinent information available to management as of year end. Policy
loan balances which are supported by the underlying cash value of the policies
approximate fair value. Changes in market conditions subsequent to year end
<PAGE>
may cause estimates of fair values to differ from the amounts presented
herein.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
SEPARATE ACCOUNTS
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the policyholders and contractholders.
Each account has specific investment objectives and the assets are carried at
market value. The assets of each account are legally segregated and are not
subject to claims which arise out of any other business of the Company.
Fair values of separate accounts assets were determined using the market value
of the investments held in segregated fund accounts. Fair values of separate
accounts liabilities were determined using the cash surrender values of the
policyholder's and contractholder's account.
RECEIVABLES
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year end may cause
estimates of fair values to differ from the amounts presented herein.
ACCOUNTING CHANGES
The impact of implementation of SFAS No. 115 in 1994 was an increase in equity
of $74,866 at January 1, 1994.
<TABLE>
<CAPTION>
The table below presents the cumulative effect of changes, net of tax, in
accounting principles implemented in 1993 on after tax net income:
<S> <C>
SFAS No. 106, Accounting for Postretirement Benefits Other Than Pensions $(4,006)
SFAS No. 109, Accounting for Income Taxes 30,881
--------
Total cumulative effect on after tax net income
of changes in accounting principles $26,875
========
</TABLE>
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
SFAS No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of by a company. The Company will adopt SFAS No. 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
<PAGE>
(2) BUSINESS COMBINATION
On May 31, 1993, the Company acquired the majority of the assets and
liabilities of Fidelity Union Life Insurance Company (FULICO), a wholly owned
subsidiary of AZOA, through an assumption reinsurance arrangement. FULICO
remained in existence retaining only its corporate charter and those assets
necessary to maintain its charter and licenses to conduct life insurance and
annuity business until it was sold in 1994.
The Company accounted for this transaction as an "as-if pooling of interests"
involving the combination of entities under the common control of AZOA.
Accordingly, all financial data for periods prior to May 31, 1993 were
restated to include the operations of FULICO and all intercompany transactions
were eliminated.
<TABLE>
<CAPTION>
Total revenues and net income, before adoption of any changes in accounting,
of the separate companies for the five-months ended May 31, 1993 were:
Allianz Life FULICO Combined
------------- ------ --------
<S> <C> <C> <C>
Five-months ended May 31, 1993:
Total revenue $ 309,159 78,814 387,973
Net income 19,224 12,944 32,168
</TABLE>
(3) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1995 consist of:
Amount
Amortized Estimated shown on
cost fair balance
or cost value sheet
---------- --------- ---------
<S> <C> <C> <C>
Fixed maturities - Available-for-sale:
U.S. government $ 793,311 867,793 867,793
States and political subdivisions 469 481 481
Foreign government 254,457 265,797 265,797
Public utilities 32,100 36,728 36,728
Corporate securities 709,906 747,609 747,609
Mortgage backed securities 516,538 548,182 548,182
Collateralized mortgage obligations 80,949 83,008 83,008
---------- --------- ---------
Total fixed maturities $2,387,730 2,549,598 2,549,598
---------- --------- ---------
Equity securities - Available-for-sale:
Common stocks:
Public utilities 9,305 10,377 10,377
Banks, trusts and insurance companies 6,305 7,108 7,108
Industrial and miscellaneous 171,163 221,002 221,002
Nonredeemable preferred stocks 14,835 15,971 15,971
---------- --------- ---------
Total equity securities $ 201,608 254,458 254,458
---------- --------- ---------
<PAGE>
Other investments:
Mortgage loans on real estate 203,128 XXXXXXXXX 203,128
Real estate:
Investment properties 8,806 XXXXXXXXX 8,806
Partnerships 11,975 XXXXXXXXX 11,975
Certificates of deposit and short term securities 31,501 XXXXXXXXX 31,501
Policy loans 104,184 XXXXXXXXX 104,184
Other long term investments 650 XXXXXXXXX 650
---------- --------- ---------
Total other investments $ 360,244 XXXXXXXXX 360,244
---------- --------- ---------
Total investments $2,949,582 XXXXXXXXX 3,164,300
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 and 1994, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of marketable securities are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Available-for-sale:
U.S. government $ 793,311 74,482 0 867,793
States and political subdivisions 469 12 0 481
Foreign government 254,457 11,613 273 265,797
Public utilities 32,100 4,628 0 36,728
Corporate securities 709,906 41,746 4,043 747,609
Mortgage backed securities 516,538 31,644 0 548,182
Collateralized mortgage obligations 80,949 2,751 692 83,008
---------- ---------- ---------- ---------
Total fixed maturities 2,387,730 166,876 5,008 2,549,598
Equity securities 201,608 61,753 8,903 254,458
---------- ---------- ---------- ---------
Total $2,589,338 228,629 13,911 2,804,056
========== ========== ========== =========
1994:
Held-to maturity:
Corporate securities $ 90,615 110 5,166 85,559
---------- ---------- ---------- ---------
Total held-to-maturity 90,615 110 5,166 85,559
---------- ---------- ---------- ---------
Available-for-sale:
U.S. government 495,048 49 31,403 463,694
States and political subdivisions 519 3 24 498
Foreign government 44,818 562 1,886 43,494
Public utilities 79,170 1,154 322 80,002
Corporate securities 1,099,623 7,034 63,790 1,042,867
Mortgage backed securities 228,894 0 7,815 221,079
Collateralized mortgage obligations 57,739 0 3,165 54,574
---------- ---------- ---------- ---------
Total fixed maturities 2,005,811 8,802 108,405 1,906,208
Equity securities 127,048 18,556 13,892 131,712
---------- ---------- ---------- ---------
Total available-for-sale 2,132,859 27,358 122,297 2,037,920
---------- ---------- ---------- ---------
Total $2,223,474 27,468 127,463 2,123,479
========== ========== ========== =========
</TABLE>
<PAGE>
The changes in unrealized gains (losses) on fixed maturities
available-for-sale securities were $261,471 and $(214,245) and the changes in
unrealized losses on held-to-maturity securities were $0 and $(8,783) for the
years ended December 31, 1995 and 1994, respectively. The change in
unrealized gains from fixed maturities was $33,645 for the year ended December
31, 1993.
The changes in unrealized gains (losses) in equity investments, which include
common stocks and nonredeemable preferred stocks, and other investments were
$48,186, $(9,587) and $(2,468) for the years ended December 31, 1995, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of fixed maturities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated
cost fair value
---------- ----------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 3,494 3,552
Due after one year through five years 282,290 295,698
Due after five years through ten years 1,252,516 1,337,963
Due after ten years 251,943 281,195
Mortgage backed securities 597,487 631,190
---------- ----------
Totals $2,387,730 2,549,598
========== ==========
</TABLE>
Gross gains of $41,962 and $26,848 and gross losses of $14,607 and $26,805
were realized on sales of available-for-sale securities in 1995 and 1994,
respectively; related taxes were $9,574 and $715 in 1995 and 1994,
respectively. Proceeds from redemptions of held-to-maturity securities
during 1995 and 1994 were $7,022 and $4,342, respectively, with no gain
or loss realized on the transactions. Proceeds from sales of fixed
maturity securities in 1993 were $666,893. Gross gains of $25,229 and
gross losses of $2,102 were realized on sales of fixed maturities in 1993;
related taxes were $8,094.
<TABLE>
<CAPTION>
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Fixed maturities, at amortized cost $ 0 0 23,127
Fixed maturities, at market 21,877 (2,712) 0
Equity securities 5,478 2,745 5,876
Mortgage loans (687) (1,667) (189)
Real estate 2,530 2,067 (513)
Other 4 396 17
-------- ------- -------
Net gains before taxes 29,202 829 28,318
<PAGE>
Tax expense on net realized gains 10,218 352 10,329
-------- ------- -------
Net gains after taxes $18,984 477 17,989
======== ======= =======
</TABLE>
In 1995, in conjunction with an expanded marketing agreement, the Company
provided an unrelated insurance company with $30 million in exchange for a
fifteen year convertible debenture paying 5% interest for the first five years
with the interest rate reset annually thereafter at the one-year LIBOR plus
1%. If converted, the Company would obtain approximately 10% equity ownership
in the unrelated company. The Company has no intention of converting the
debenture in the near term.
During 1995 and 1994, the Company entered into mortgage backed security
reverse repurchase transactions ("dollar rolls") with certain securities
dealers. Under this program, the Company sells certain securities for
delivery in the current month and simultaneously contracts with the same
dealer to repurchase similar, but not identical, securities on a specified
future date. The Company gives up the right to receive principal and interest
on the securities sold. As of December 31, 1995 there were no outstanding
amounts under the Company's dollar roll program. As of December 31, 1994,
mortgage backed securities underlying the agreements were carried at a market
value of $58,174 and other liabilities included $58,150 for funds received
under these agreements. Average balances outstanding were $67,735 and $66,110
and weighted average interest rates were 7.4% and 6.5% during 1995 and 1994,
respectively.
During 1995 and 1994 the Company participated in a securities lending program
that is administered by Allianz Investment Corporation (AIC), an affiliated
company. Under this program, the Company loans U.S. Treasury Notes to
qualified third parties. The Company obtains collateral for the loan equal to
102 percent of the estimated market value and accrued interest on the loaned
securities and receives a portion of the interest earned on the collateral.
In addition, the Company maintains full ownership rights to the securities
loaned, including investment income and has the ability to sell the securities
while they are on loan with the consent of the borrower. There were no
securities on loan at December 31, 1995. As of December 31, 1994, the
estimated market value of the loaned securities was $110,063, collateralized
by investments in FNMA securities.
<TABLE>
<CAPTION>
Impaired mortgage loans are defined as those where it is probable that amounts
due according to contractual terms, including principal and interest, will not
be collected. Impaired mortgage loans are measured by the Company at the fair
value of collateral. Interest income on impaired mortgage loans is recorded
on a cash basis. Below is a summary of impaired mortgage loans as of December
31, 1995.
Impaired Impaired Total
mortgage loans mortgage loans impaired
with a related without a related mortgage
allowance allowance loans
--------------- ----------------- --------
<S> <C> <C> <C>
Balance $ 9,210 8,541 17,751
Related allowance 3,580 - 3,580
--------------- ----------------- --------
Balance, net of allowance $ 5,630 8,541 14,171
=============== ================= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Below is a summary of interest income on impaired mortgage loans.
1995
-------
<S> <C>
Average impaired mortgage loans $19,671
Total interest income on impaired mortgage loans 1,100
Interest income on impaired mortgage loans recorded on a cash basis 1,100
</TABLE>
<TABLE>
<CAPTION>
The valuation allowances at December 31, 1995, 1994 and 1993 and the changes in the
allowance for the years then ended are summarized as follows:
Writedowns
Beginning Charged to Charged to End
of year Operations Allowance Recoveries of year
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Mortgage loans $ 11,552 914 0 1,979 10,487
Investment in real estate 1,550 0 0 1,550 0
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 13,102 914 0 3,529 10,487
========== ========== ========== ========== =======
December 31, 1994:
Mortgage loans $ 11,552 1,598 0 1,598 11,552
Investment in real estate 1,550 0 0 0 1,550
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 13,102 1,598 0 1,598 13,102
========== ========== ========== ========== =======
December 31, 1993:
Mortgage loans $ 13,602 0 0 2,050 11,552
Investment in real estate 1,854 973 0 1,277 1,550
---------- ---------- ---------- ---------- -------
Total valuation allowance $ 15,456 973 0 3,327 13,102
========== ========== ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 6,284 6,966 142,814
Fixed maturities, at market 158,421 141,611 0
Mortgage loans 16,125 13,706 12,764
Policy loans 6,688 6,329 6,404
Short-term investments 7,182 3,012 4,159
<PAGE>
Dividends:
Preferred stock 581 495 231
Common stock 3,204 2,673 2,496
Rental income on real estate 2,781 3,135 2,540
Interest on assets held by reinsurers 10,445 10,470 10,074
Other 833 577 1,131
-------- ------- -------
Total investment income 212,544 188,974 182,613
Investment expenses 11,386 7,683 7,782
-------- ------- -------
Net investment income $201,158 181,291 174,831
======== ======= =======
</TABLE>
(4) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1995 1995 1994 1994
---------- ---------- ---------- ----------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets
- -------------------------------------------
Fixed maturities, at amortized cost:
Corporate securities $ 0 $ 0 $ 90,615 $ 85,559
Fixed maturities, at market:
U.S. Government 867,793 867,793 463,694 463,694
States and political subdivisions 481 481 498 498
Foreign governments 265,797 265,797 43,494 43,494
Public utilities 36,728 36,728 80,002 80,002
Corporate securities 747,609 747,609 1,042,867 1,042,867
Mortgage backed securities 548,182 548,182 221,079 221,079
Collateralized mortgage obligations 83,008 83,008 54,574 54,574
Equity securities 254,458 254,458 131,712 131,712
Mortgage loans 203,128 212,766 163,099 162,903
Short term investments 31,501 31,501 155,307 155,307
Policy loans 104,184 104,184 101,899 101,899
Other long term investments 650 650 1,117 1,117
Receivables 124,700 124,700 111,874 111,874
Separate accounts assets 8,402,003 8,402,003 6,965,755 6,965,755
Financial liabilities
- -------------------------------------------
Investment contracts 3,063,100 2,542,260 2,753,304 2,319,872
Separate account liabilities 8,402,003 8,181,725 6,965,755 6,715,730
</TABLE>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(5) RECEIVABLES
<TABLE>
<CAPTION>
<PAGE>
Receivables at December 31 consist of the following:
1995 1994
-------- -------
<S> <C> <C>
Premiums due $ 83,695 76,840
Agents balances 7,236 7,299
Related party receivables 922 1,042
Reinsurance commission receivable 16,693 13,723
Scholarship enrollment fees 6,822 6,753
Due from administrators 6,149 2,735
Other 3,183 3,008
-------- -------
Total receivables $124,700 111,400
======== =======
</TABLE>
(6) ACCIDENT AND HEALTH CLAIMS RESERVES
Accident and health claims reserves are based on long-range projections
subject to uncertainty. Uncertainty regarding reserves of a given accident
year is gradually reduced as new information emerges each succeeding year,
thereby allowing more reliable re-evaluations of such reserves. While
management believes that reserves as of December 31, 1995 are adequate,
uncertainties in the reserving process could cause such reserves to develop
favorably or unfavorably in the near term as new or additional information
emerges. Any adjustments to reserves are reflected in the operating results
of the periods in which they are made. Movements in reserves which are small
relative to the amount of such reserves could significantly impact future
reported earnings of the Company.
<TABLE>
<CAPTION>
Activity in the accident and health claims reserves, exclusive of long term
care, hospital indemnity and AIDS reserves of $18,858, $11,149 and $8,742 in
1995, 1994 and 1993, respectively, is summarized as follows:
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $96,090, $86,551 and $91,303 $185,028 170,123 168,872
Incurred related to:
Current year 242,024 230,995 226,815
Prior years (9,163) (7,290) (8,432)
--------- -------- --------
Total incurred 232,861 223,705 218,383
--------- -------- --------
Paid related to:
Current year 100,165 82,338 84,172
Prior years 125,920 126,462 132,960
--------- -------- --------
Total paid 226,085 208,800 217,132
--------- -------- --------
Balance at December 31, net of reinsurance
recoverables of $99,292, $96,090 and $86,551 $191,804 185,028 170,123
========= ======== ========
</TABLE>
There were no significant adjustments to accident and health claim liabilities
resulting from changes in estimates of benefits related to prior years.
<PAGE>
(7) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $1 million coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk to minimize its exposure
to significant losses from reinsurer insolvencies.
Included in reinsurance receivables at December 31, 1995 are $873,724, $67,819
and $148,319 recoverable from insurers who, as of December 31, 1995, were
rated A+, A+ and B++, respectively by Best's Insurance Reports. A contingent
liability exists to the extent that the Company's reinsurers are unable to
meet their contractual obligations. Management is of the opinion that no
liability will accrue to the Company with respect to this contingency.
<TABLE>
<CAPTION>
Life insurance, annuities and accident and health business assumed from and ceded to other
companies is as follows:
Percentage
Assumed Ceded of amount
Gross from other to other Net assumed
Year ended amount companies companies amount to net
- -------------------------------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Life insurance In force $39,601,531 28,790,199 6,884,645 61,507,085 46.8%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 242,704 108,102 40,291 310,515 34.8%
Annuities 145,994 1,117 10,376 136,735 0.8%
Accident and health insurance 361,290 165,769 172,559 354,500 46.8%
----------- ---------- --------- ---------- -----------
Total premiums 749,988 274,988 223,226 801,750 34.3%
=========== ========== ========= ========== ===========
December 31, 1994:
Life insurance In force $39,789,859 24,411,513 6,893,030 57,308,342 42.6%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 230,241 96,308 35,578 290,971 33.1%
Annuities 119,045 1,195 6,806 113,434 1.1%
Accident and health insurance 388,759 158,749 201,824 345,684 45.9%
----------- ---------- --------- ---------- -----------
Total premiums 738,045 256,252 244,208 750,089 34.2%
=========== ========== ========= ========== ===========
December 31, 1993:
Life insurance In force $39,784,564 21,861,833 6,297,943 55,348,454 39.5%
----------- ---------- --------- ---------- -----------
Premiums:
Life insurance 220,287 85,433 42,323 263,397 32.4%
Annuities 68,713 870 6,633 62,950 1.4%
Accident and health insurance 365,894 142,891 153,948 354,837 40.3%
----------- ---------- --------- ---------- -----------
Total premiums 654,894 229,194 202,904 681,184 33.6%
=========== ========== ========= ========== ===========
</TABLE>
<PAGE>
Of the amounts ceded to others, the Company ceded life insurance inforce of
$182,638, $86,055 and $30,841 in 1995, 1994 and 1993, respectively, and life
insurance premiums earned of $641, $203 and $98 in 1995, 1994 and 1993,
respectively, to its ultimate parent Allianz Aktiengesellshaft. The Company
also ceded accident and health premiums earned to Allianz Aktiengesellshaft of
$(7,520), $12,256 and $8,966 in 1995, 1994 and 1993.
In addition to the above transactions, the Company ceded a portion of its
mortality risk associated with the variable annuity product to Allianz
Aktiengesellshaft. The Company recorded a recoverable on future policy
benefit reserves of $930 as of December 31, 1995.
(8) INCOME TAXES
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Total income tax expense (benefit) for the years ended December 31 are as follows:
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $ 12,993 5,098 30,215
-------- -------- --------
Deferred tax (benefit) expense 25,772 16,053 (10,847)
Benefit of operating loss carryforwards 0 0 3,406
Adjustment of deferred tax assets and
liabilities for enacted change in tax rates 0 0 945
-------- -------- --------
Total deferred tax (benefit) expense 25,772 16,053 (6,496)
-------- -------- --------
Total income tax expense attributable to operations 38,765 21,151 23,719
Income tax effect on equity:
Income tax allocated to cumulative effect of
adoption of SFAS No. 106 0 0 (2,064)
Income tax allocated to stockholder's equity:
Adoption of SFAS No. 115 0 40,312 0
Attributable to unrealized gains and losses for the year 108,559 (79,201) 62
-------- -------- --------
Total income tax effect on equity $147,324 (17,738) 21,717
======== ======== ========
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Income tax expense computed at the statutory rate of 35% in 1995, 1994 and 1993,
varies from tax expense reported in the Consolidated Statements of Income for the
respective years ended December 31 as follows:
<PAGE>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $44,087 26,819 28,125
Dividends received deductions and tax-exempt interest (5,430) (3,967) (2,189)
Foreign tax (464) (79) (1,324)
Interest on tax deficiency 408 (716) 528
Impact of statutory rate change on deferred tax liability 0 0 945
Utilization of net operating loss and alternative
minimum tax credits 0 0 (2,549)
Other 164 (906) 183
-------- ------- -------
Income tax expense as reported $38,765 21,151 23,719
======== ======= =======
</TABLE>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE BALANCE SHEET
<TABLE>
<CAPTION>
Tax effects of temporary differences giving rise to the significant components of the
net deferred tax liability at December 31 are as follows:
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Provision for post retirement benefits $ 1,936 1,885
Allowance for uncollectible accounts 2,283 2,961
Policy reserves 175,963 188,602
Unrealized losses on investments in available for sale securities 0 35,584
-------- -------
Total deferred tax assets 180,182 229,032
-------- -------
Deferred tax liabilities:
Deferred acquisition costs 234,393 229,577
Net unrealized gain 72,975 0
Other 12,988 5,262
-------- -------
Total deferred tax liabilities 320,356 234,839
-------- -------
Net deferred tax liability $140,174 5,807
======== =======
</TABLE>
Although realization is not assured, the Company believes it is not necessary
to establish a valuation allowance for the deferred tax asset as it is more
likely than not the deferred tax asset will be realized principally through
future reversals of existing taxable temporary differences and future taxable
income. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future reversals of existing
taxable temporary differences and future taxable income are reduced.
As of December 31, 1995, the Company had no tax loss carryforwards or
alternative minimum tax credits.
The Company files a consolidated federal income tax return with AZOA and all
of its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share
of the tax liability pursuant to United States Treasury Department
regulations. The Company and each of its insurance subsidiaries generally
will be paid for the tax benefit on their losses, and any other tax
attributes, to the extent they could have obtained a benefit against their
<PAGE>
post-1990 separate return taxable income or tax. Income taxes paid by the
Company were $14,865, $15,162 and $28,465 in 1995, 1994 and 1993,
respectively. At December 31, 1995 and 1994 the Company has a tax recoverable
from AZOA of $3,257 and $5,095 and a recoverable from Revenue Canada Taxation
of $690 and a payable to Revenue Canada Taxation of $1,301, respectively.
(9) RELATED PARTY TRANSACTIONS
In November 1995, the Company purchased the 400 non-voting common shares in
its subsidiary, Canadian American Financial Corporation from AZOA for $7,903.
The acquisition of the shares increased the Company's equity ownership in both
voting and non-voting common stock to 100%.
As of December 31, 1995 and 1994, Allianz Real Estate (AzRE), a wholly owned
subsidiary of AZOA, owned 100% of the stock or was a limited partner of
certain entities whose assets include mortgage loans issued by the Company
amounting to $6,245 and $12,100, respectively. Included in the mortgage loans
are properties originally foreclosed upon by the Company of which the balances
at December 31, 1995 and 1994 are $1,650 and $4,575, respectively.
Allianz Investment Corporation (AIC) manages the Company's investment
portfolio. The Company paid AIC $1,024, $1,285 and $1,207 in 1995, 1994 and
1993, respectively, for investment advisory fees. The Company's liability to
AIC was $377 and $0 at December 31, 1995 and 1994, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $3,752, $4,228 and $4,715
in 1995, 1994 and 1993, respectively. The Company's liability for data center
charges was $337 and $457 at December 31, 1995 and 1994, respectively.
The Company reimbursed AZOA $738, $817 and $339 in 1995, 1994 and 1993,
respectively, for certain administrative services performed. The Company's
liability to AZOA was $528 and $264 at December 31, 1995 and 1994,
respectively.
In June 1994, the Company authorized 200 million shares of preferred stock
with a par value of $1 per share. This preferred stock is issuable in series
with the number of shares, redemption rights and dividend rate designated by
the Board of Directors for each series. Dividends are cumulative at a rate
reflective of prevailing market conditions at time of issue and are payable
semiannually. Dividend payments are restricted by provisions in State of
Minnesota statutes. In June 1994, the Company issued 25 millions shares of
Series A preferred stock with a dividend rate of 6.4% to AZOA for $25,000. In
December 1994, the Company issued 15 millions shares of Series B preferred
stock with a dividend rate of 6.95% to AZOA for $15,000. In December 1995,
the Company redeemed and canceled the 15 million shares of Series B preferred
stock issued to AZOA. There are currently 25 million shares of Series A
preferred stock issued and outstanding.
In 1995 and 1994, AZOA contributed additional capital to the Company of $594
and $5,190, respectively.
(10) EMPLOYEE BENEFIT PLANS
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes
contributions to a money purchase pension plan on behalf of eligible
participants. All employees, excluding agents, are eligible to participate in
the Primary Retirement Plan after two years of service. The contributions are
based on a percentage of the participant's salary with the participants being
100% vested upon eligibility. It is the Company's policy to fund the plan
costs as accrued. Total pension contributions were $860, $918 and $1,363 in
1995, 1994 and 1993, respectively.
<PAGE>
The Company participates in the Allianz Asset Accumulation Plan (Allianz
Plan), a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 50% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The
total Company match for 1995, 1994 and 1993 Plan participants was 100%. All
employees, excluding agents, are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after
three years of service. The Allianz Plan will accept participants' pretax or
after-tax contributions up to 15% of the participant's compensation. It is the
Company's policy to fund the Allianz Plan costs as accrued. The Company has
accrued $1,188, $1,266 and $1,270 in 1995, 1994 and 1993, respectively, toward
planned contributions.
The Company sponsors an asset accumulation plan for field agents. Under the
Plan provisions, the Company will match 100% of eligible agents' contributions
up to a maximum of 3% of a participant's compensation. The Plan accepts
participant's pretax or after tax contributions up to 10% of participant's
compensation. It is the Company's policy to fund the Plan costs as accrued.
In 1995, the Company discontinued support of its individual agency field force
and suspended contributions to the Plan as of January 1, 1996. Also during
1995, participation in the Plan decreased significantly resulting in a partial
plan termination whereby participants as of January 1, 1995 became fully
vested in the Plan. The Company has no intention to fully terminate the Plan
in the near term. Total Company contributions to the Plan were $118, $386 and
$319 in 1995, 1994 and 1993, respectively.
The Company adopted SFAS No. 106, effective January 1, 1993 which requires
benefits paid to retirees, other than pension benefits, to be accrued. The
transition obligation associated with this adoption was $4,006, which is net
of a $2,064 tax benefit. The Company's current plan obligation is $5,532 and
the liability is included in "Other liabilities" in the accompanying balance
sheet.
(11) STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded in determining statutory policyholders'
surplus. These items include, among other, deferred acquisition costs,
furniture and fixtures, accident and health premiums receivable which are more
than 90 days past due, deferred taxes and undeclared dividends to
policyholders. Additionally, future life policy and annuity benefit reserves
calculated for statutory accounting do not include provisions for withdrawals.
<TABLE>
<CAPTION>
The differences between stockholder's equity and net income reported in accordance with statutory
accounting practices and the accompanying consolidated financial statements as of and for the year ended
December 31 are as follows:
Stockholder's Stockholder's Net Net Net
equity equity Income Income Income
--------------- -------------- -------- --------- ---------
1995 1994 1995 1994 1993
--------------- -------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 299,186 294,334 11,565 6,895 657
Adjustments:
Change in reserve basis (211,678) (339,283) (43,642) (109,473) (138,864)
Deferred acquisition costs 826,994 798,442 28,552 132,090 253,240
Net deferred taxes (140,174) (5,807) (25,772) (16,053) 6,496
Statutory asset valuation reserve 100,462 59,169 0 0 0
Statutory interest maintenance reserve 25,061 16,305 8,756 (4,768) 11,178
Modified coinsurance reinsurance (119,178) (51,947) 104,222 44,920 (75,611)
<PAGE>
Unrealized gains (losses) on investments 163,237 (99,408) 0 0 0
Nonadmitted assets 1,471 2,302 0 0 0
Cumulative effect of accounting changes 0 0 0 0 26,875
Other 5,813 5,338 3,516 1,864 (461)
--------------- -------------- -------- --------- ---------
As reported in the accompanying
consolidated financial statements $ 951,194 679,445 87,197 55,475 83,510
=============== ============== ======== ========= =========
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1995 and 1994 was in compliance with these requirements. The maximum amount
of dividends which can be paid by Minnesota insurance companies to
stockholders without prior approval of the Commissioner of Commerce is subject
to restrictions relating to statutory earned surplus, also known as unassigned
funds. Unassigned funds are determined in accordance with the accounting
procedures and practices governing preparation of the statutory annual
statement, minus 25% of earned surplus attributable to unrealized capital
gains. In accordance with Minnesota Statutes, the Company may declare and pay
from its surplus, cash dividends of not more than the greater of 10% of its
beginning of the year statutory surplus in any year, or the net gain from
operations of the insurer, not including realized gains, for the 12-month
period ending the 31st day of the next preceding year. In 1995 and 1994,
respectively, the Company paid dividends on preferred stock in the amount of
$2,651 and $413, respectively to AZOA. Dividends of $23,433 could be paid in
1996 without prior approval of the Commissioner of Commerce.
REGULATORY RISK BASED CAPITAL
<TABLE>
<CAPTION>
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial
balances or various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of an enterprise's regulatory
total adjusted capital to its authorized control level risk-based capital, as
defined by the NAIC. Enterprises below specific triggerpoints or ratios are
classified within certain levels, each of which requires specified corrective
action. The levels and ratios are as follows:
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event Capital (less than or equal to)
- ------------------------ ------------------------------------
<S> <C>
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
</TABLE>
The Company met the minimum risk-based capital requirements for the years
ended December 31, 1995 and 1994.
<PAGE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted
by such authorities. Currently, prescribed statutory accounting practices
include state laws, regulations, and general administrative rules, as well as
a variety of publications of the NAIC. Permitted statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC currently has a
project underway to codify statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project will likely change the definition of
what comprises prescribed versus permitted statutory accounting practices, and
may result in changes to existing accounting policies insurance enterprises
use to prepare their statutory financial statements. The Company does not
currently use permitted statutory accounting practices which have a
significant impact on its statutory financial statements.
(12) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In the opinion
of management, the ultimate resolution of such litigation will not have a
material adverse effect on the consolidated financial position of the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(13) FOREIGN CURRENCY TRANSLATION
<TABLE>
<CAPTION>
The net assets of the Company's foreign operations are translated into U.S.
dollars using exchange rates in effect at each year end. Translation adjustments
arising from differences in exchange rates from period to period are included in
the accumulated foreign currency translation adjustment reported as a separate
component of stockholder's equity. An analysis of this account for the respective
years ended December 31 follows:
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(3,787) (2,708) (1,835)
-------- ------- -------
Aggregate adjustment for the period resulting from
translation adjustments 511 (1,659) (1,746)
Amount of income tax benefit for period related to
aggregate adjustment (179) 580 873
-------- ------- -------
Net aggregate translation included in equity 332 (1,079) (873)
-------- ------- -------
Ending amount of cumulative translation adjustments $(3,455) (3,787) (2,708)
======== ======= =======
Canadian foreign exchange rate at end of year 0.7329 0.7129 0.7554
</TABLE>
<PAGE>
(14) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business for 1995, 1994 and 1993:
As of December 31 For the year ended December 31
--------- --------- -------- -------- --------- ------- --------- --------- --------- ---------
Amortiz-
Future Premium Benefits, ation
policy Other revenue claims of
Deferred benefits, policy and losses, deferred
policy losses, claims other Net and policy
acquis- claims and contract invest- settle- acquis- Other Premiums
ition and loss Unearned benefits consider- ment ment ition operating written
costs expense premiums payable ations income expenses costs (a) expenses (b)
--------- --------- -------- -------- --------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
Life $ 179,915 1,088,964 5,493 62,660 310,514 83,741 239,287 8,475 124,415
Annuities 629,515 2,601,943 0 580 136,736 98,214 89,321 (34,235) 137,000
Accident
and health 17,564 0 28,688 308,658 354,500 19,203 249,232 (2,792) 105,615
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 826,994 3,690,907 34,181 371,898 801,750 201,158 577,840 (28,552) 367,030
========= ========= ======== ======== ========= ======= ========= ========= =========
1994:
Life $ 188,390 1,022,537 6,012 63,728 290,971 78,100 228,383 6,889 114,767
Annuities 595,280 2,304,560 0 360 113,434 86,168 88,100 (140,776) 210,933
Accident
and health 14,772 0 34,364 291,323 345,684 17,023 236,614 1,797 121,645
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 798,442 3,327,097 40,376 355,411 750,089 181,291 553,097 (132,090) 447,345
========= ========= ======== ======== ========= ======= ========= ========= =========
1993:
Life $ 195,279 989,309 7,389 57,763 263,397 80,422 206,157 (10,925) 186,457
Annuities 454,504 1,986,801 0 578 62,950 78,674 86,227 (243,113) 191,783
Accident
and health 16,569 0 34,181 264,583 354,837 15,735 241,443 804 154,493
--------- --------- -------- -------- --------- ------- --------- --------- ---------
$ 666,352 2,976,110 41,570 322,924 681,184 174,831 533,827 (253,234) 532,733
========= ========= ======== ======== ========= ======= ========= ========= =========
</TABLE>
(a) Represents the net change in deferred policy acquisition cost reported in
the income statement.
(b) Premiums written are not applicable for life insurance companies.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part B
hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1995 and 1994.
3. Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1995, 1994 and 1993.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
6. Notes to Consolidated Financial Statements - December 31,
1995, 1994 and 1993.
The following financial statements of the Variable Account are included in
Part B hereof.
1. Independent Auditors' Report.
2. Statements of Net Assets as of December 31, 1995.
3. Statements of Operations for the years ended December 31,
1995 and 1994.
4. Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994.
5. Notes to Financial Statements - December 31, 1995.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing
the establishment of the Variable Account#
2. Not Applicable
3. Principal Underwriter Agreement*
4. Individual Variable Annuity Contract
5. Application for Individual Variable Annuity Contract
6. (i) Copy of Articles of Incorporation of the Company#
(ii) Copy of the Bylaws of the Company#
7. Not Applicable
8. Form of Fund Participation Agreement
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart***
27. Financial Data Schedule
* Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 filed on September 20, 1988.
** Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Form N-4 filed on April 27, 1990.
*** Incorporated by reference to Post-Effective Amendment No. 9 to
Registrant's Form N-4 filed on April 30, 1993.
# Incorporated by reference to Post-Effective Amendment No. 14
to Registrant's Form N-4 electronically filed on October 27,
1995.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
_________________ _____________________
<S> <C>
Lowell C. Anderson Chairman, President, Chief Executive
1750 Hennepin Avenue Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Boulevard
Minneapolis, MN 55439
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Dr. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Edward J. Bonach Senior Vice President, Chief Financial
1750 Hennepin Avenue Officer and Treasurer
Minneapolis, MN 55403
Alan A. Grove Vice President-Law & Secretary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James President-Individual Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis J. Dease Director
c/o University of St. Thomas
215 Summit Ave.
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Center
Sixth & Margrette
Minneapolis, MN 55403
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is incorporated by reference to
Post-Effective Amendment No. 9 to Form N-4 as filed on April 30, 1993.
Item 27. Number of Contract Owners
As of March 13, 1996, there were 42,956 qualified Contract Owners and 84,959
non-qualified Contract Owners with Contracts in the Separate Account.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason
of being or having been a Director, officer, or employee of the corporation
(or by reason of serving any other organization at the request of the
corporation) shall be indemnified to the extent permitted by the laws of the
State of Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, Inc. is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers and directors of NALAC Financial
Plans, Inc.:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
________________ _____________________
<S> <C>
James P. Kelso Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Cathy Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis,
Minnesota, maintains physical possession of the accounts, books or documents
of the Variable Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has caused this Registration Statement to be signed on its behalf in the
City of Minneapolis and State of Minnesota, on this 17th day of April,
1996.
<TABLE>
<CAPTION>
<S> <C>
ALLIANZ LIFE
VARIABLE ACCOUNT B
(Registrant)
By: ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /s/ ALAN A. GROVE
_____________________
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
By: /S/ ALAN A. GROVE
____________________
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board, President
Lowell C. Anderson and Chief Executive Officer 4-17-96
Herbert F. Hansmeyer* Director
Herbert F. Hansmeyer 4-17-96
Michael P. Sullivan* Director
Michael P. Sullivan 4-17-96
Dr. Jerry E. Robertson* Director
Dr. Jerry E. Robertson 4-17-96
Dr. Gerhard Rupprecht* Director
Dr. Gerhard Rupprecht 4-17-96
Edward J. Bonach* Chief Financial Officer
Edward J. Bonach 4-17-96
Rev. Dennis J. Dease* Director
Rev. Dennis J. Dease 4-17-96
James R. Campbell* Director
James R. Campbell 4-17-96
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
*By Power of Attorney
By: /s/ ALAN A. GROVE
______________________
Alan A. Grove
Attorney-in-Fact
</TABLE>
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, undersigned, a Director Allianz Life
Insurance Company of North America ("Allianz Life"), a corporation duly
organized under the laws of the State of Minnesota, do hereby appoint Lowell
C. Anderson and Alan A. Grove as my attorney and agents, for me, and in my
name as a Director of Allianz Life on behalf of Allianz Life or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of a security under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Act.
SIGNATURE WITNESS DATE
/s/ Gerhard Rupprecht /s/Dr. Schelling 11-13-1995
_____________________ _______________ ____________
Dr. Gerhard Rupprecht Dr. Schelling
Director Notary
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Reverend Dennis Dease, a Director
of Allianz Life Insurance Company of North America (ALLIANZ LIFE), a
corporation duly organized under the laws of the State of Minnesota, do
hereby appoint Lowell C. Andersen and Alan A. Grove, each individually
as my attorney and agent, for me, and in my name as a Director of ALLIANZ
LIFE con behalf of ALLIANZ LIFE or otherwise, with full power to execute,
deliver, and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable
to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 26th day of March, 1996.
WITNESS:
/s/ CATHLEEN B. BARRETT
- -------------------------
NOTARY PUBLIC - MINNESOTA
/s/ DENNIS DEASE
-----------------------------
Rev. Dennis Dease
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James R. Campbell, a Director of
Allianz Life Insurance Company of North America (ALLIANZ LIFE), a corporation
duly organized under the laws of the State of Minnesota, do hereby appoint
Lowell C. Anderson and Alan A. Grove, each individually as my attorney and
agent, for me, and in my name as a Director of ALLIANZ LIFE on behalf of
ALLIANZ LIFE or otherwise, with full power to execute, deliver, and file with
the Securities and Exchange Commission all documents required for registration
of a security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 26 day of March, 1996.
WITNESS:
/S/ CONNIE F. KNOWLES /S/ JAMES R. CAMPBELL
_______________________ _______________________
James R. Campbell
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 15
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit Page
EX-99.B4 Individual Variable Annuity Contract
EX-99.B5 Application for Individual Variable Annuity Contract
EX-99.B8 Form of Fund Participation Agreement
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
EX-27 Financial Data Schedule
Allianz Life Insurance Company of North America [ALLIANZ GRAPHIC]
1750 Hennepin Avenue South
Minneapolis, MN 55403-2195
A Stock Company
(Herein Called the Company)
This is a legal Contract between the Contract Owner (referred to in this
Contract as you and your) and Allianz Life Insurance Company of North America
(herein referred to as we, us and our). We will make annuity payments to the
Annuitant as set forth in this Contract beginning on the Income Date.
This Contract is issued in consideration of the payment of the initial
purchase payment.
READ YOUR CONTRACT CAREFULLY
RIGHT TO CANCEL THIS CONTRACT
THIS CONTRACT MAY BE RETURNED WITHIN 10 DAYS AFTER YOU RECEIVE IT. IT CAN BE
MAILED OR DELIVERED TO EITHER US OR THE AGENT WHO SOLD IT. RETURN OF THIS
CONTRACT BY MAIL IS EFFECTIVE ON BEING POSTMARKED, PROPERLY ADDRESSED AND
POSTAGE PRE-PAID. THE RETURNED CONTRACT WILL BE TREATED AS IF WE HAD NEVER
ISSUED IT. WE WILL PROMPTLY REFUND THE CONTRACT VALUE IN STATES WHERE
PERMITTED. THIS MAY BE MORE OR LESS THAN THE PURCHASE PAYMENTS. WE HAVE THE
RIGHT TO ALLOCATE PAYMENTS TO THE MONEY MARKET FUND UNTIL THE EXPIRATION OF
THE FREE-LOOK PERIOD. IF WE SO ALLOCATE PAYMENTS, WE WILL REFUND THE GREATER
OF THE PURCHASE PAYMENTS, LESS ANY WITHDRAWALS, OR THE CONTRACT VALUE.
Benefits available under this Contract are not less than those required by
statute of the state in which this Contract is delivered.
This is a Variable Annuity Contract with annuity payments and Contract Values
increasing or decreasing depending on the experience of the Variable Account
which is set forth in the Contract Schedule.
Signed by the Company.
Vice President and Secretary Chairman of the Board, President & CEO
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY
NONPARTICIPATING
CONTRACT SCHEDULE
ANNUITANT: (JOHN DOE) INITIAL PREMIUM:
($90,000.00)
CONTRACT NUMBER: (DA 40010 0 78987)
MINIMUM PREMIUM:
CONTRACT OWNER: (JOHN DOE) ($2,000.00 INITIAL)
($ 250.00 SUBSEQUENT)
JOINT OWNER: (N/A)
EFFECTIVE DATE: (09/09/1995)
INCOME DATE: (09/09/2005)
CONTRACT MAINTENANCE CHARGE: $30 each Contract Year (Prior to the Income Date
the fee is waived if either the Purchase Payments less Withdrawals or Contract
Value is $100,000.00 or more). After the Income Date the Contract Maintenance
Charge will be collected pro rata on a monthly basis.
MORTALITY AND EXPENSE RISK CHARGE: Equal on an annual basis to 1.25% of the
average daily net assets of the Variable Account.
ADMINISTRATIVE EXPENSE CHARGE: Equal on an annual basis to .15% of the average
daily net assets of the Variable Account.
CURRENT TRANSFER FEE: The lesser of ($25 per transfer or 2%) of the amount
transferred (12 free transfers per Contract Year prior to the Income Date).
Prescheduled automatic dollar cost averaging transfers are not counted.
MAXIMUM TRANSFER FEE: The lesser of $25 per transaction or 2% of the amount
transferred (3 free transfers guaranteed per Contract Year prior to the Income
Date).
<TABLE>
<CAPTION>
<S> <C>
INITIAL ALLOCATION OF PAYMENTS:
(MONEY MARKET....................50%) (PRECIOUS METALS.............50%)
ELIGIBLE INVESTMENTS: THE FRANKLIN VALUEMARK FUNDS
(-MONEY MARKET FUND) (-UTILITY EQUITY FUND)
(-GROWTH & INCOME FUND) (-HIGH INCOME FUND)
(-REAL ESTATE SECURITIES FUND) (-U.S. GOVERNMENT SECURITIES FUND)
(-GLOBAL INCOME FUND) (-ZERO COUPON 2000)
(-INCOME SECURITIES FUND) (-ZERO COUPON 2005)
(-PRECIOUS METAL FUND) (-ZERO COUPON 2010)
(-INVESTMENT GRADE INTERMEDIATE BOND FUND) (-RISING DIVIDENDS FUND)
(-SMALL CAP FUND) (-TEMPLETON GLOBAL GROWTH FUND)
(-ADJUSTABLE U.S. GOVERNMENT FUND) (-TEMPLETON PACIFIC GROWTH FUND)
(-TEMPLETON INTERNATIONAL EQUITY FUND) (-TEMPLETON GLOBAL ASSET ALLOCATION FUND)
(-TEMPLETON DEVELOPING MARKETS EQUITY FUND)
</TABLE>
VARIABLE ACCOUNT: ALLIANZ LIFE VARIABLE ACCOUNT B
ANNUITY SERVICE OFFICE:
(VALUEMARK SERVICE CENTER)
(300 BERWYN PARK)
(P.O. BOX 3031)
(BERWYN, PA 19312-0031)
((800)624-0197)
FOR USE WITH ALLIANZ LIFE VARIABLE ACCOUNT B
A SEPARATE INVESTMENT ACCOUNT OF
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
TABLE OF CONTENTS
RIGHT TO CANCEL THIS CONTRACT
CONTRACT SCHEDULE
SURRENDER PROVISIONS
SURRENDER
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
DEFINITIONS
ACCUMULATION UNIT
AGE
ANNUITANT
ANNUITY OPTION
ANNUITY UNIT
CONTRACT ANNIVERSARY
CONTRACT OWNER
CONTRACT VALUE
CONTRACT YEAR
EFFECTIVE DATE
ELIGIBLE INVESTMENTS
FUND
INCOME DATE
JOINT OWNER
VALUATION DATE
VALUATION PERIOD
VARIABLE ACCOUNT
GENERAL PROVISIONS
THE CONTRACT
NON-PARTICIPATION IN SURPLUS
INCONTESTABILITY
MISSTATEMENT OF AGE OR SEX
CONTRACT SETTLEMENT
REPORTS
TAXES
EVIDENCE OF SURVIVAL
PROTECTION OF PROCEEDS
MODIFICATION OF CONTRACT
OWNERSHIP PROVISIONS
CONTRACT OWNER
TRANSFER OF OWNERSHIP
ASSIGNMENT
BENEFICIARY PROVISIONS
BENEFICIARY
CHANGE OF BENEFICIARY
DEATH OF BENEFICIARY
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS
CHANGE IN PURCHASE PAYMENTS
NO DEFAULT
ALLOCATION OF PURCHASE PAYMENTS
VARIABLE ACCOUNT
GENERAL DESCRIPTION
INVESTMENT ALLOCATIONS TO THE VARIABLE ACCOUNT
VALUATION OF ASSETS
CONTRACT VALUE
TRANSFERS
ACCUMULATION UNIT
MORTALITY AND EXPENSE RISK CHARGE
ADMINISTRATIVE EXPENSE CHARGE
MORTALITY AND EXPENSE GUARANTEE
CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE
ANNUITY PROVISIONS
INCOME DATE
CHANGE IN INCOME DATE
ANNUITY OPTIONS
CHANGE IN ANNUITY OPTION
FIXED OPTIONS
OPTION 1 - LIFE ANNUITY WITH GUARANTEE FOR MINIMUM PERIOD
OPTION 2 - LIFE ANNUITY WITH CASH REFUND
TABLE OF FIXED SETTLEMENT OPTIONS
VARIABLE OPTIONS
OPTION 3 - LIFE ANNUITY
OPTION 4 - LIFE ANNUITY WITH 10 YEAR GUARANTEE
OPTION 5 -JOINT AND LAST SURVIVOR ANNUITY
TABLE OF VARIABLE SETTLEMENT OPTIONS
PROCEEDS PAYABLE ON DEATH
DEATH OF THE CONTRACT OWNER PRIOR TO THE INCOME DATE
DEATH OF THE ANNUITANT
DELAY OF PAYMENTS
SURRENDER PROVISIONS
SURRENDER - While this Contract is in force and before the Income Date, we
will, upon written request, allow the surrender of all or a portion of this
Contract for its Surrender Value. Surrenders will result in the cancellation
of Accumulation Units from each applicable sub-account in the ratio that the
value of each sub-account bears to the total Contract Value. You must specify
in writing in advance which units are to be canceled if other than the above
mentioned method of cancellation is desired. We will pay the amount of any
surrender within seven (7) days of receipt of a request unless the "Delay of
Payments" provision is in effect.
The Surrender Value will be the Contract Value for the Valuation Period next
following the Valuation Period during which the written request to us for
surrender is received reduced by the sum of:
1. any applicable premium taxes not previously deducted;
2. any applicable Contract Maintenance Charge; and
3. any applicable Contingent Deferred Sales Charge.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE - If all or a portion of the
Surrender Value is surrendered, a Contingent Deferred Sales Charge will be
calculated at the time of each surrender and will be deducted from the
Contract Value. In calculating the Contingent Deferred Sales Charge, purchase
payments will be allocated to the amount surrendered on a first-in, first-out
basis.
The amount of the Contingent Deferred Sales Charge is calculated by:
1. allocating purchase payments to the amount surrendered; and
2. multiplying each such allocated purchase payment that has been held
under the Contract for the period shown below by the charge shown below.
Years Since Payment Charge
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
3. adding the products of each multiplication in (2) above.
For a partial surrender, the Contract Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The amount deducted from the Contract
Value will be determined be canceling Accumulation Units from each applicable
sub-account in the ratio that the value of each sub-account bears to the total
Contract Value. You must specify in writing in advance which units are to be
canceled if other than the above method of cancellation is desired.
Once each Contract Year, you may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no withdrawal is made during a
Contract Year, the 15% is cumulative into future years. If less than 15% is
withdrawn in a Contract Year, the remaining percentage is not available in
future years.
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the
Contract Value prior to the Income Date.
AGE - Age last birthday unless otherwise specified.
ANNUITANT - The person upon whose continuation of life any annuity payment
involving life contingencies depends. You may change the Annuitant at any
time prior to the Income Date unless the Contract Owner is not a natural
person.
ANNUITY OPTION - An arrangement under which annuity payments are made under
this Contract.
ANNUITY UNIT - An accounting unit of measure used to calculate annuity
payments after the Income Date.
CONTRACT ANNIVERSARY - An anniversary of the Effective Date of this Contract.
CONTRACT OWNER - The person(s) who own the Contract as named in our records
as Owner or Joint Owner. If Joint Owners are named, all references to
Contract Owner shall mean the Joint Owners.
CONTRACT VALUE - The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
CONTRACT YEAR - Any period of twelve (12) months commencing with the
Effective Date and each Contract Anniversary thereafter.
EFFECTIVE DATE - The date shown on the Contract Schedule on which the first
Contract Year begins.
ELIGIBLE INVESTMENT(S) - Those investments available under the Contract.
Current Eligible Investments are shown on the Contract Schedule.
FUND - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
INCOME DATE - The date on which annuity payments are to commence.
JOINT OWNER - If there is more than one Contract Owner, each Contract Owner
shall be a Joint Owner of the Contract. Joint Owners have equal ownership
rights and must both authorize any exercising of those ownership rights unless
otherwise allowed by the Company. Any Joint Owner must be the spouse of the
other Joint Owner.
VALUATION DATE - The Variable Account will be valued each day that the New
York Stock Exchange is open for trading.
VALUATION PERIOD - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
VARIABLE ACCOUNT - A separate account maintained by us in which a portion of
our assets has been allocated for, this and certain other contracts. It has
been designated on the Contract Schedule.
GENERAL PROVISIONS
THE CONTRACT - The entire Contract consists of this Contract, and any
attached application endorsements or riders. This Contract may be changed or
altered only by our President or Secretary. Any change, modification or
waiver must be made in writing.
NON-PARTICIPATING IN SURPLUS - This Contract does not share in any
distribution of our profits or surplus.
INCONTESTABILITY - We will not contest this Contract from its Effective Date.
MISSTATEMENT OF AGE OR SEX - We may require proof of Age of the Annuitant
before making any like contingent annuity payment provided for by this
Contract. If the Age or sex of the Annuitant has been misstated the amount
payable will be the amount that the Contract Value would have provided at the
true Age or sex.
Once annuity payments have begun, any underpayments will be made up in one sum
with the next annuity payment, and overpayments will be deducted from the
future annuity payments until the total is repaid.
CONTRACT SETTLEMENT - This Contract must be returned to us upon any
settlement. Prior to any settlement as a death claim, due proof of death must
be submitted to us. Any paid-up annuity, cash surrender or death benefits
that may be available are not less than the minimum benefits required by
statute.
REPORTS - We will furnish you with a report showing the Contract Value at
least once each calender year. We will also furnish an annual report of the
Variable Account. These reports will be sent to your last known address.
TAXES - Any taxes paid to any governmental entity will be charged against the
Contract Value. We will, in our sole discretion, determine when taxes have
resulted from: the investment experience of the Variable Account; receipt by
us of the purchase payment(s); or commencement of annuity payments. We may,
at our 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 we may have to deduct amounts at a later date.
EVIDENCE OF SURVIVAL - Where any benefits under this Contract are contingent
upon the recipient being alive on a given date, we may require proof
satisfactory to us that the condition has been met.
PROTECTION OF PROCEEDS - No Beneficiary may commute, encumber, alienate or
assign any payments under this Contract before they are due. To the extent
permitted by law, no payments will be subject to the debts, contracts or
engagements of any Beneficiary or to any judicial process to levy upon or
attach the same for payment thereof.
MODIFICATION OF CONTRACT - This Contract may not be modified by us without
your consent except as may be required by applicable law.
OWNERSHIP PROVISIONS
CONTRACT OWNER - The Contract Owner or any Joint Owners are named on the
Contract Schedule. The Contract Owner may exercise all the rights of this
Contract, subject to the rights of:
1. any assignee under an assignment filed with our Service Office; and
2. any irrevocably named Beneficiary.
Upon the death of either Joint Owner prior to the Income Date, the surviving
Joint Owner may retain all ownership rights and privileges or take distribution
of the proceeds as defined in the section "Proceeds Payable on Death". The
Annuitant becomes the Owner on and after the Income Date.
TRANSFER OF OWNERSHIP - You may transfer ownership of this Contract. A
written request, dated and signed by you, must be filed at our Service Office.
We may require this Contract for endorsement. After the transfer is
recorded, it will take effect as of the date the request was signed.
Any transfer of ownership terminates the interest of any existing Contract
Owner. It does not change the Beneficiary, nor transfer the Beneficiary's
interest. Any change or transfer of ownership is subject to any payment made
by us before endorsement.
ASSIGNMENT - You may assign this Contract. A copy of any assignment must be
filed with our Service Office. We are not responsible for the validity of any
assignment. If you assign this Contract your rights and those of any
revocably-named person will be subject to the assignment. An assignment will
not affect any payments we may make or actions we may take before such
assignment has been recorded at our Service Office.
BENEFICIARY PROVISIONS
BENEFICIARY - The Beneficiary and any Contingent Beneficiary are named by the
Contract Owner. Prior to the Income Date, the Beneficiary(ies) named in our
records at the death of the Contract Owner will receive the Proceeds Payable
on Death. Upon the death of either Joint Owner prior to the Income Date, the
surviving Joint Owner, if any, will be the designated Beneficiary and any
other Beneficiary designation on record with us at the time of death will be
treated as a Contingent Beneficiary unless otherwise indicated.
CHANGE OF BENEFICIARY - You may change the Beneficiary. A written request,
dated and signed by you, must be filed at our Service Office. After the
change is recorded, it will take effect as of the date the request was signed.
If the request reaches our Service Office after the Contract Owner dies, but
before any payment is made, the change will be valid.
DEATH OF BENEFICIARY - If all of the Beneficiaries and Contingent
Beneficiaries die prior to the Contract Owner's death, we will pay the death
benefit in one sum to your estate.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS - Purchase payments are payable according to the frequency
and in the amount selected by you. The initial purchase payment is due on the
Effective Date. We reserve the right to decline any application or purchase
payment. Minimum purchase payments allowed are shown in the Contract
Schedule.
CHANGE IN PURCHASE PAYMENTS - You may elect to increase or decrease or to
change the frequency of purchase payments.
NO DEFAULT - Unless surrendered, this Contract remains in force until the
Income Date and will not be in default if no additional purchase payments are
made.
ALLOCATION OF PURCHASE PAYMENTS - Payments are allocated to one or more of
the Funds of the Variable Account. If allocations are made in percentages,
whole percentages must be used. We have the right to allocate purchase
payments to the Money Market Fund until the expiration of the free-look
period. Thereafter, the Contract Value will be allocated to one or more of
the Funds as shown in the Contract Schedule. We reserve the right to limit
the number of allocations that you can have at any one time.
VARIABLE ACCOUNT
GENERAL DESCRIPTION - The name of the Variable Account is shown in the
Contract Schedule. The assets of the Variable Account are our property but
are not chargeable with the liabilities arising out of any other business we
may conduct except to the extent that the assets of the Variable Account
exceed the liabilities of the Variable Account arising under the Contracts
supported by the Variable Account.
INVESTMENT ALLOCATIONS TO THE VARIABLE ACCOUNT - The assets of the Variable
Account are segregated by Eligible Investments or Funds and where appropriate
by Funds within the Eligible Fund, thus establishing a series of sub-accounts
within the Variable Account.
We may, from time to time, add additional Eligible Investments or Funds. In
such event, you may be permitted to select from these other Eligible
Investments or Funds limited by the terms and conditions we may impose on such
transactions.
We may also substitute other Eligible Investments or Funds. The investment
policy of the Variable Account will not be changed without approval pursuant
to the insurance laws of the State of Minnesota. If required, approval of
or change of any investment policy will be filed with the Insurance Department
of the state where this Contract is delivered.
VALUATION OF ASSETS - Assets of Eligible Investments within each sub-account
will be valued at their net asset value on each Valuation Date.
CONTRACT VALUE - Purchase payments are allocated among the various
sub-accounts within the Variable Account. For each sub-account, the purchase
payments are converted into Accumulation Units. The number of Accumulation
Units credited to the Contract is determined by dividing the purchase payments
allocated to the sub-account by the value of the Accumulation Unit for the
sub-account. Surrenders will result in the cancellation of Accumulation
Units. The value of the Contract is the sum of the values for the Contract
within each sub-account. The value of each sub-account is determined by
multiplying the number of Accumulation Units attributable to the sub-account
by the Accumulation Unit value for the sub-account.
TRANSFERS - Prior to the Income Date, you may transfer all or a part of your
interest in a sub-account to another sub-account. We reserve the right to
charge for transfers if there are more than 3 transfers made in a Contract
Year prior to the Income Date. After the Income Date, provided a variable
annuity option was selected, you may make transfers. We reserve the right to
charge for all transfers after the Income Date. The maximum charge is shown
on the Contract Schedule. All transfers are subject to the following:
1. The deduction of any transfer fee that may be imposed as shown in the
Contract Schedule. The transfer fee will be deducted from the amount which is
transferred if the entire amount in the sub-account is being transferred,
otherwise from the sub-account from which the transfer is made.
2. The minimum amount which may be transferred is the lesser of (A) $1,000;
or (B) your entire interest in the sub-account.
3. No partial transfer will be made if your remaining Contract Value in the
sub-account will be less than $1,000.
4. Transfers will be effected during the Valuation Period next following
receipt by us of a written transfer request (or by telephone, if authorized)
containing all required information. However, no transfer may be effective
within seven calender days of the date on which the first annuity payment is
due. No transfer may occur until the end of the free-look period.
5. Any transfer direction must clearly specify:
a. the amount which is to be transferred; and
b. the sub-accounts which are to be affected.
6. We reserve the right at any time and without prior notice to any party to
terminate, suspend or modify the transfer privileges described above.
7. After the Income Date, transfers may not take place between a fixed
annuity option and a variable annuity option.
ACCUMULATION UNIT - Purchase payments are converted into Accumulation Units
by dividing each purchase payment by the Accumulation Unit value for the
Valuation Period during which the purchase payment is allocated to the
Variable Account. The Accumulation Unit value for each sub-account was
arbitrarily set initially at $10. The Accumulation Unit value for any later
Valuation Period is determined by subtracting (2) from (1) and dividing the
result by (3) where:
1. is the net result of:
a. the assets of the sub-account attributable to Accumulation Units; plus
or minus
b. the cumulative charge or credit for taxes reserved which is determined
by us to have resulted from the operation of the sub-account.
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge
and for the Administrative Expense Charge, which are shown on the Contract
Schedule; and
3. is the number of Accumulation Units outstanding at the end of the
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE - We deduct a Mortality and Expense Risk
Charge equal, on an annual basis, to the amount shown on the Contract Schedule.
The Mortality and Expense Risk Charge compensates us for assuming the
mortality and expense risks under this Contract.
ADMINISTRATIVE EXPENSE CHARGE - We deduct an Administrative Expense Charge
equal, on an annual basis, to the amount shown on the Contract Schedule. The
Administrative Expense Charge compensates us for some of the costs associated
with the administration of this Contract and the Variable Account.
MORTALITY AND EXPENSE GUARANTEE - We guarantee that the dollar amount of each
annuity payment after the first will not be affected by variations in
mortality or expense experience.
CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE - We deduct an annual Contract
Maintenance Charge shown on the Contract Schedule. Prior to the Income Date,
this will be deducted from the Contract Value by canceling Accumulation Units
to reimburse us for expenses relating to maintenance of this Contract. The
Contract Maintenance Charge will be deducted from the Contract Value on each
Contract Anniversary while this Contract is in force. The number of
Accumulation Units to be canceled will be from each applicable sub-account in
the ratio that the value of each sub-account bears to the total Contract
Value.
If this Contract is surrendered for its full Surrender Value on other than the
Contract Anniversary, the full Contract Maintenance Charge will be deducted at
the time of surrender.
On and after the Income Date, the Contract Maintenance Charge will be
collected pro-rata on a monthly basis and this will result in a reduction of
the monthly annuity payments.
ANNUITY PROVISIONS
INCOME DATE - You select an Income Date at the time of issue. The Income
Date must always be the first day of a calender month. The earliest Income
Date is one month after the Effective Date. The latest Income Date is the
later of the first day of the first calender month following the Annuitant's
85th birthday or 10 years from the Effective Date.
CHANGE IN INCOME DATE - You may, upon at least (30) days prior written notice
to us, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calender month. The Income
Date may not be later than the first day of the first calendar month
following the Annuitant's 85th birthday or 10 years from the Effective Date.
ANNUITY OPTIONS
CHANGE IN ANNUITY OPTION - You may, upon at least thirty (30) days prior
written notice to us, at any time prior to the Income Date, select and/or
change the Annuity Option.
Instead of having the proceeds paid in one sum, the Owner may select one of
the Annuity Options. These may be on a fixed or variable basis or a
combination thereof. We may, at the time of election of an Annuity Option,
offer more favorable rates in lieu of those guaranteed here. We also make
available other options.
FIXED OPTIONS
OPTION 1 - LIFE ANNUITY WITH GUARANTEE FOR MINIMUM PERIOD. We will make
equal monthly payments during the life of the Annuitant, but at least for the
minimum period shown in the Table. The amount of each monthly payment per
$1000 of proceeds is based on the Age and sex of the Annuitant when the first
payment is made, and on the guaranteed period chosen. If the Annuitant dies
within the guaranteed period, the discounted value of the unpaid guaranteed
payments, commuted on the basis of interest at the rate of 2 1/2 per cent per
year, compounded yearly, will be paid by us as a final payment.
OPTION 2 - LIFE ANNUITY WITH CASH REFUND. We will pay equal monthly payments
during the life of the Annuitant. Upon the death of the Annuitant, after
payments have started, we will pay in one sum any excess of the amount of the
proceeds applied under this Option over the total of all payments made under
this Option. The amount of each monthly payment per $1000 of proceeds is
based on the Age and sex of the Annuitant when the first payment is made.
<TABLE>
<CAPTION>
FIXED ANNUITY OPTIONS (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Monthly Payments Per $ 1,000 of Proceeds
APPLIED UNDER OPTIONS 1 AND 2
Age of Payee Age of Payee OPTION 1
Nearest Birthday OPTION 1 Nearest Birthday 10 Years 20 Years
When First 10 Years 20 Years OPTION 2 When First Minimum Minimum OPTION 2
Payment is Made Minimum Minimum Payment is made
Male Female Male Female
11 & under $ 2.63 $ 2.61 $ 2.59 46 51 $ 4.00 3.89 $ 3.84
12 2.64 2.63 2.60 47 52 4.17 3.95 3.86
13 2.66 2.65 2.62 48 53 4.25 4.01 3.92
14 2.67 2.66 2.63 49 54 4.33 4.07 3.98
10 & under 15 2.69 2.68 2.65 50 55 4.42 4.12 4.04
11 16 2.71 2.70 2.67 51 56 4.50 4.18 4.11
12 17 2.73 2.71 2.68 52 57 4.60 4.24 4.18
13 18 2.74 2.73 2.70 53 58 4.68 4.30 4.25
14 19 2.76 2.75 2.72 54 59 4.78 4.36 4.33
15 20 2.78 2.77 2.74 55 60 4.90 4.41 4.40
16 21 2.81 2.79 2.76 56 61 5.01 4.47 4.49
17 22 2.83 2.81 2.78 57 62 5.12 4.53 4.57
18 23 2.85 2.84 2.80 58 63 5.23 4.58 4.66
19 24 2.88 2.86 2.82 59 64 5.35 4.64 4.75
20 25 2.90 2.88 2.84 60 65 5.48 4.70 4.85
21 26 2.93 2.91 2.87 61 66 5.61 4.75 4.95
22 27 2.96 2.93 2.89 62 67 5.74 4.80 5.05
23 28 2.98 2.96 2.92 63 68 5.87 4.85 5.16
24 29 3.01 2.99 2.94 64 69 6.01 4.90 5.27
25 30 3.04 3.02 2.97 65 70 6.16 4.94 5.38
26 31 3.08 3.05 3.00 66 71 6.30 4.98 5.52
27 32 3.11 3.08 3.03 67 72 6.35 5.02 5.65
28 33 3.14 3.11 3.05 68 73 6.68 5.05 5.78
29 34 3.18 3.15 3.08 69 74 6.76 5.09 5.92
30 35 3.22 3.16 3.11 70 75 6.91 5.12 6.07
31 36 3.26 3.22 3.15 71 76 7.07 5.14 6.23
32 37 3.30 3.25 3.18 72 77 7.23 5.17 6.39
33 38 3.34 3.29 3.22 73 78 7.36 5.19 6.56
34 39 3.38 3.33 3.25 74 79 7.54 5.20 6.74
35 40 3.43 3.37 3.28 75 80 7.69 5.22 6.82
36 41 3.48 3.41 3.33 76 81 7.84 5.23 7.12
37 42 3.56 3.45 3.37 77 82 7.98 5.24 7.33
38 43 3.59 3.50 3.41 78 83 8.13 5.25 7.55
39 44 3.61 3.54 3.45 79 84 8.26 5.26 7.78
40 45 3.70 3.59 3.50 80 85 & over 8.38 5.26 8.02
41 46 3.76 3.64 3.54 81 8.51 5.26 8.27
42 47 3.82 3.69 3.58 82 8.63 5.26 8.54
43 48 3.83 3.74 3.64 83 8.73 5.26 8.83
44 49 3.95 3.79 3.69 84 8.83 5.26 9.12
45 50 4.02 3.84 3.74 85 & over 8.92 5.26 9.45
</TABLE>
Moneys unpaid at the death of an Annuitant will be paid to the Beneficiary or
Owner's estate unless otherwise provided.
The above fixed settlement option rates are guaranteed by us for the life of
the Contract.
The annuity tables shown do not reflect the Contract Maintenance Charge which
is assessed by us as described in this Contract.
For Contract issued in connection with plans qualified under Sections 401,
403(b) or 408 of the internal Revenue Code and where unisex rates are
required, female guaranteed rates apply.
VARIABLE OPTIONS
The amount of the first monthly payment depends on the optional annuity form
elected and the Age and sex of the Annuitant. This Contract contains tables
indicating the dollar amount of the first monthly payment under each optional
annuity form for each $1,000 of value applied. The tables are determined from
the 1983 Individual Annuitant Mortality Table with interest at the rate of 5%
per annum. If, when annuity payments are elected, we are using tables of
annuity rates for these Contracts which result in larger annuity payments, we
will use those tables instead.
The dollar amount of the first monthly variable annuity payment is determined
by applying the Contract Value (after deduction of any premium taxes not
previously deducted) to the table using the Age and sex of the Annuitant and
any joint Annuitant. A number of Annuity Units is then determined by dividing
this dollar amount by the then current Annuity Unit value. Thereafter, the
number of Annuity Units remains unchanged during the period of annuity
payments. This determination is made separately for each sub-account
of the Variable Account. The number of Annuity Units is determined for each
sub-account and is based upon the available value in each sub-account as of
the date annuity payments are to begin.
The dollar amount determined for each sub-account will then be aggregated for
purposes of making payments.
The dollar amount of the second and later variable annuity payments is equal
to the number of Annuity Units determined for each sub-account times the
Annuity Unit Value for that sub-account as of the due date of the payment.
This amount may increase or decrease from month to month.
The value of an Annuity Unit for a sub-account is determined by subtracting
(2) from (1) and dividing the result by (3) and multiplying the result by
.9959424 (.9959424 is a factor to neutralize the assumed net investment rate,
discussed above, of 5% per annum which is built into the annuity rate tables
below and which is not applicable because the actual net investment rate is
credited instead) where:
1. is the net result of:
a. the assets of the sub-account attributable to the Annuity Units;
plus or minus
b. the cumulative charge or credit for taxes reserved which is
determined by us to have resulted from the operation of the sub-account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Expense Charge, which are shown in the
Contract Schedule; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
OPTION 3 - LIFE ANNUITY. Monthly annuity payments are paid during the life
of an Annuitant ceasing with the last Annuity Payment due prior to the
Annuitant's death.
OPTION 4 - LIFE ANNUITY WITH 10 YEAR GUARANTEE. Monthly annuity payments are
paid during the life of an Annuitant, but at least for the 10 year minimum.
OPTION 5 -JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and a designated second person and
are paid thereafter during the remaining lifetime of the survivor, ceasing
with the last annuity payment due prior to the survivor's death.
<TABLE>
<CAPTION>
Options On a Variable Basis
Option 3: Life Income*
Monthly Income per $1,000 annuitized
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Age Male Female Age Male Female Age Male Female Age Male Female
30 4.43 4.33 44 4.85 4.64 58 5.79 5.36 72 8.22 7.24
31 4.45 4.34 45 4.89 4.67 59 5.89 5.44 73 8.50 7.48
32 4.47 4.36 46 4.94 4.71 60 6.00 5.52 74 8.81 7.73
33 4.49 4.37 47 4.99 4.74 61 6.12 5.61 75 9.13 8.04
34 4.51 4.39 48 5.05 4.78 62 6.25 5.71 76 9.49 8.31
35 4.54 4.41 49 5.10 4.83 63 6.39 5.82 77 9.87 8.64
36 4.56 4.43 50 5.16 4.87 64 6.54 5.93 78 10.29 9.00
37 4.59 4.45 51 5.22 4.92 65 6.70 6.06 79 10.74 9.38
38 4.62 4.47 52 5.29 4.97 66 6.88 6.19 80 11.23 9.82
39 4.65 4.50 53 5.36 5.03 67 7.06 6.33 81 11.76 10.29
40 4.69 4.52 54 5.44 5.08 68 7.26 6.46 82 12.33 10.81
41 4.72 4.55 55 5.52 5.15 69 7.48 6.65 83 12.96 11.39
42 4.76 4.58 56 5.60 5.21 70 7.71 6.83 84 13.80 12.02
43 4.80 4.60 57 5.69 5.28 71 7.96 7.03 85 14.34 12.70
</TABLE>
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Option 4: Life Income with 10 years Payments Guaranteed*
Monthly Income per $1,000 annuitized
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Age Male Female Age Male Female Age Male Female Age Male Female
30 4.42 4.33 44 4.83 4.53 58 5.70 5.21 72 7.55 6.94
31 4.44 4.34 45 4.87 4.66 59 5.79 5.39 73 7.73 7.12
32 4.46 4.36 46 4.92 4.70 60 5.89 5.47 74 7.91 7.30
33 4.48 4.37 47 4.96 4.72 61 5.99 5.55 75 8.09 7.50
34 4.51 4.39 48 5.01 4.77 62 6.10 5.64 76 8.28 7.70
35 4.53 4.41 49 5.06 4.81 63 6.22 5.74 77 8.47 7.90
36 4.56 4.43 50 5.12 4.86 64 6.34 5.84 78 8.65 8.11
37 4.58 4.45 51 5.18 4.90 65 6.47 5.95 79 8.83 8.33
38 4.61 4.47 52 5.24 4.95 66 6.61 6.07 80 9.01 8.54
39 4.64 4.49 53 5.31 5.00 67 6.75 6.19 81 9.18 8.75
40 4.68 4.52 54 5.37 5.06 68 6.90 6.32 82 9.34 8.98
41 4.71 4.54 55 5.45 5.12 69 7.05 6.47 83 9.50 9.16
42 4.75 4.57 56 5.53 5.18 70 7.21 6.61 84 9.64 9.34
43 4.79 4.50 57 5.61 5.24 71 7.38 6.77 85 9.77 9.51
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Option 5: Joint (Male and Female) and Last Survivor*
Monthly Income per $1,000 annuitized
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Female Age .. 40 45 50 55 60 65 70 75
Male Age
40 4.39 4.45 4.49 4.53 4.57 4.59 4.61 4.63
45 4.42 4.50 4.57 4.64 4.70 4.74 4.78 4.81
50 4.45 4.54 4.65 4.75 4.84 4.93 5.00 5.05
60 4.48 4.60 4.75 4.93 5.12 5.32 5.51 5.67
70 4.49 4.63 4.82 5.05 5.34 5.69 6.10 6.52
75 4.50 4.64 4.84 5.08 5.40 5.82 6.34 6.95
<FN>
Values not shown are available on request from our home office.
*The annuity tables shown do not reflect the Contract Maintenance Charge which
is assessed by us as described in this Contract.
For Contracts issued in connection with plans qualified under Section 401,
403(b) or 408 of the Internal Revenue Code and where unisex rates are
required, female guaranteed rates apply.
</TABLE>
PROCEEDS PAYABLE ON DEATH
DEATH OF THE CONTRACT OWNER PRIOR TO THE INCOME DATE - In the event of your
death prior to the Income Date, a death benefit is payable to the
Beneficiary(ies) designated by you. Upon the death of either Joint Owner, the
surviving Joint Owner, if any, will be the designated Beneficiary. Any other
Beneficiary designation on record with the Company at the time of death will
be treated as a Contingent Beneficiary unless otherwise indicated. The value
of the death benefit will be determined as of the Valuation Period next
following the date both due proof of death and a payment election form(s) are
received by us.
The value of the death benefit is equal to the greater of the guaranteed death
benefit or the Surrender Value.
The guaranteed death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the
purchase payment.
2. On each Contract Anniversary, but not beyond the Contract Anniversary
following the Contract Owner's 80th birthday, the guaranteed death benefit
will be recalculated as follows:
a. the guaranteed death benefit as of the previous Contract
Anniversary;
b. plus any purchase payments made during the previous Contract Year;
c. minus any amounts surrendered during the previous Contract Year;
d. the sum of a, b and c multiplied by 1.05.
3. On dates other than a Contract Anniversary and on Contract Anniversaries
following the Contract Owner's 81st birthday, the guaranteed death benefit
equals the guaranteed death benefit on the previous Contract Anniversary, plus
purchase payments made since the previous Contract Anniversary less amounts
surrendered since the previous Contract Anniversary.
A Beneficiary may elect the death benefit to be paid under one of the following
options:
OPTION A - lump sum payment of the death benefit; or
OPTION B - the payment of the entire death benefit within 5 years of the date
of the Contract Owner's death; or
OPTION C - payment over the lifetime of the designated Beneficiary or over a
period not extending beyond the life expectancy of the designated Beneficiary
with distribution beginning within 1 year of the date of death of the Contract
Owner (see Annuity Options section of this Contract).
If the designated Beneficiary is your spouse, he/she can continue the Contract
in his/her own name.
If no payment option is elected, an Option A settlement will be made at the
end of the sixty (60) day period following receipt of proof of death. Any
election of an option other than Option A, must be made in writing to us
within 60 days following our receipt of proof of death.
Return of this Contract is required at the time a death claim is submitted.
DEATH OF THE ANNUITANT - If the Annuitant dies on or before the Income Date,
a new Annuitant may be named. If no Annuitant is named, the Contract Owner
will be the Annuitant. If the Contract Owner is not a natural person, the
death of the Annuitant will be treated as death of the Contract Owner. If the
Annuitant dies after the Income Date, the death benefit, if any, will be
payable to the Beneficiary as specified in the Annuity Option elected. We
will require proof of the Annuitant's death. Death benefits will be paid at
least as rapidly as under the method of distribution in effect at the
Annuitant's death.
DELAY OF PAYMENTS
We will make any payments under this Contract within 7 days for a request
received in good order. We reserve the right to suspend or postpone any type
of payment from the Variable Account for any period when:
1. the New York Stock Exchange is closed for other than customary weekend
and holiday closings;
2. trading on the Exchange is restricted;
3. an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account or determine
their value; or
4. the Securities and Exchange Commission so permits delay for the
protection of security holders.
The applicable rules of the Securities and Exchange Commission will govern as
to whether the conditions in (2) or (3) exist.
(FRANKLIN VALUEMARK II LOGO)
A VARIABLE ANNUITY ISSUED BY
ALLIANZ LIFE INSURANCE
COMPANY OF NORTH AMERICA
VARIABLE ANNUITY APPLICATION
________________________________________________________________________
OWNER
Name Last First Middle Home Office Use Only
DA
Address Street City State Zip Code
Date of Birth Sex Social Security Number Telephone:
Day ( )
________________________________________________________________________
JOINT OWNER
(Optional - must be
Spouse of Owner)
Name Last First Middle
Date of Birth Sex Social Security Number Telephone:
Day ( )
________________________________________________________________________
DESIGNATED ANNUITANT
(If different from Owner.
Must be Age 80 or younger.)
Name Last First Middle
Address Street City State Zip Code
Date of Birth Sex Social Security Number Relationship
to Owner
________________________________________________________________________
OWNER'S BENEFICIARY
DESIGNATION(S)
Full Name of Beneficiary(ies) and Relationship to Owner:
Primary: Relationship:
Contingent: Relationship:
Unless otherwise stated, Beneficiaries of like class shall share
equally with right of survivorship. The Owner reserves the right
to change the Beneficiary(ies) unless indicated above. In the
event of death of Owner, surviving Joint Owner becomes Primary
Beneficiary.
________________________________________________________________________
PURCHASE
PAYMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Purchase Select Income Date: Tax Qualified Plans:
Payment $_________ Mo. Day Yr. IRA SEP IRA
Make check payable 01 (Circle One):403(b)TSA
to: If no date is selected Transfer 401(Corp.
Rollover Plan)
ALLIANZ LIFE , Income Date will be Regular Other
the later of one month
after age 85 or 10th Contribution for
Contract Anniversary. Tax Year ____________
</TABLE>
Is this Annuity intended to replace or change existing life
insurance or annuities? Yes ____ No____
_____________________________________________________________________
_____________________________________________________________________
INITIAL INVESTMENT
ALLOCATION FOR
FRANKLIN VALUEMARK
ANNUITY
<TABLE>
<CAPTION>
SELECT UP TO 9 INVESTMENT OPTIONS. USE WHOLE PERCENTAGES ONLY.
<S> <C>
__ Adjustable U.S. Gov't Fund __ Templeton Global Asset Alloc Fd
__ Global Income Fund __ Templeton Global Growth Fund
__ Growth and Income Fund __ Templeton International Eq Fund
__ High Income Fund __ Templeton Pacific Growth Fund
__ Income Securities Fund __ U.S. Government Securities Fund
__ Inv Grade Intermediate Bond Fund __ Utility Equity Fund
__ Money Market Fund __ Zero Coupon Fund - 2000
__ Precious Metals Fund __ Zero Coupon Fund - 2005
__ Real Estate Securities Fund __ Zero Coupon Fund - 2010
__ Rising Dividends Fund __ Allianz Life Fixed Account
__ Small Cap Fund __ Other ________________________
__ Templeton Develop Mkts Eq Fund __ TOTAL (MUST EQUAL 100%)
</TABLE>
________________________________________________________________________
TELEPHONE
ACCESS
AUTHORIZATION
__ Yes __ No If answered yes, Allianz Life and its Variable
Annuity administrator are authorized to honor telephone
instructions from the Owner to transfer account values among
sub-accounts, and the Fixed Account; and to disburse partial
surrenders.
__________ By initialing this box, the Owner gives the Registered
Rep/Agent of Record, the authority to transfer account values
among the sub-accounts and the fixed account(s). If no selection
is indicated, telephone access authorization will be permitted for
the Contract Owner only. This authorization is subject to the
terms and provisions in the contract and prospectus. Allianz Life
will employ reasonable procedures to confirm that telephone
instructions are genuine. If it does not, it may be liable for
any losses due to unauthorized or fraudulent transfers.
For partial surrenders, Allianz Life's sole responsibility is to
send a check to the Owner's address or wire the proceeds to the
Owner's account at a commercial ban (a savings bank may not be
used) or to the Owner's account at a member firm of a national
securities exchange.
________________________________________________________________________
HOME OFFICE
USE ONLY
(THIS BOX NOT FOR
USE IN PA OR WV)
________________________________________________________________________
F40040 Continued on reverse side. V2 APP
________________________________________________________________________
DOLLAR COST AVERAGING:
MUST HAVE A PERCENTAGE DIRECTED TO THE MONEY MARKET FUND, ADJUSTABLE
U.S. GOVERNMENT FUND, OR THE ALLIANZ LIFE FIXED ACCOUNT(S) IN THE
INITIAL INVESTMENT ALLOCATION SECTION ON THE FRONT SIDE.
Please Dollar Cost Average $________monthly (minimum $1,000) over a
________month period (12 months minimum, 36 months maximum). Transfers
from the __Money Market Fund (default) or __Adjustable U.S. Government
Fund or __ Allianz Life Fixed Account(s) to the following (8 maximum):
USE WHOLE PERCENTAGES ONLY.
<TABLE>
<CAPTION>
<S> <C>
__ Global Income Fund __ Templeton Int'l Equity Fund
__ Growth and Income Fund __ Templeton Pacific Growth Fund
__ High Income Fund __ U.S. Gov't Securities Fund
__ Income Securities Fund __ Utility Equity Fund
__ Inv Grade Intermediate Bond Fund __ Zero Coupon Fund - 2000
__ Precious Metals Fund __ Zero Coupon Fund - 2005
__ Real Estate Securities Fund __ Zero Coupon Fund - 2010
__ Rising Dividends Fund __ Other ________________________
__ Small Cap Fund __ TOTAL
__ Templeton Develop Mkts Equity Fd (MUST EQUAL 100%)
__ Templeton Global Asset Alloc Fd
__ Templeton Global Growth Fund
</TABLE>
________________________________________________________________________
ACKNOWLEDGMENT:
BY SIGNING BELOW, THE OWNER UNDERSTANDS THAT:
A) THE ANNUITY VALUE FOR PAYMENTS ALLOCATED TO THE VARIABLE ACCOUNTS MAY
INCREASE OR DECREASE DEPENDING ON THE CONTRACT'S INVESTMENT RESULTS
AND NO MINIMUM CASH VALUE IS GUARANTEED; AND
B) THIS ANNUITY IS A LONG TERM COMMITMENT TO MEET INSURANCE NEEDS AND
FINANCIAL GOALS; AND I ACKNOWLEDGE RECEIPT OF THE MOST RECENT
PROSPECTUS; AND
C) THE VARIABLE ANNUITY APPLIED FOR IS NOT UNSUITABLE FOR MY INSURANCE
INVESTMENT OBJECTIVES, FINANCIAL SITUATION AND NEEDS.
________________________________________________________________________
NOTICE:
The owner agrees that to the best of his/her knowledge and belief, all
statements and answers in this application are complete and true. It is
further agreed that these statements and answers will become a part of
any contract to be issued. No representative is authorized to modify
this agreement or waive any of Allianz Life's rights or requirements.
If Allianz Life makes a change in the space designated Home Office Use
Only in order to correct any apparent errors or omissions, it will be
approved by acceptance of the contract; however, any material changes
must be accepted in writing by the Owner.
________________________________________________________________________
I HAVE READ AND UNDERSTAND THE ACKNOWLEDGMENT AND NOTICE.
__ Please send Statements of Additional Information
<TABLE>
<CAPTION>
Signed at ____________________________________on________________________
City State Date
<S> <C> <C>
X_____________________ X_____________________ X_____________________
Owner Joint Owner Witness and
(if applicable) Registered Rep/Agent
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
__________________________________ ___________________________________
Broker-Dealer Print Name of Registered Rep/Agent
__________________________________ ___________________________________
Branch Office Registered Rep/Agent Teleph Number
</TABLE>
________________________________________________________________________
REGISTERED REP/AGENT CERTIFICATION:
BY SIGNING ABOVE, THE REGISTERED REP/AGENT CERTIFIES THAT:
a) The questions contained in this application were asked of the Owner
and the answers duly recorded; that this application is complete and
true to the best of my knowledge and belief; and
b) I am NASD registered and state licensed for variable annuity
contracts where this application is written and delivered; and
c) To the best of my knowledge and belief, this application __does
__ does not involve replacement of existing life insurance or
annuities. If replacement is involved, attach a copy of each
disclosure statement and a list of companies involved and indicate
cost basis:
pre TEFRA $ ____________; post TEFRA $ ____________; and
d) I received $ _________________ as the purchase payment.
________________________________________________________________________
<TABLE>
<CAPTION>
MAIL FOR OVERNIGHT
APPLICATION DELIVERIES,
TO: MAIL TO:
<S> <C>
Allianz Life c/o PNC Bank Allianz Life c/o PNC Bank
PO Box 824240 Attention: Box 4240
Philadelphia, PA 19182-4240 Route 38 & East Gate Drive
Moorestown, NJ 08057-4240
</TABLE>
PARTICIPATION AGREEMENT
Between
FRANKLIN VALUEMARK FUNDS
and
NORTH AMERICAN LIFE AND CASUALTY COMPANY
THIS AGREEMENT, effective the 1st day of January, 1990 by and between North
American Life and Casualty Company, a Minnesota corporation (hereinafter the
"Company") on its own behalf and on behalf of one or more segregated asset
accounts of the Company or its affiliates (hereinafter the "Account"), and
Franklin Valuemark Funds, a Massachusetts business trust (hereinafter the
"Trust").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by the Company
and its affiliates (hereinafter the "Company"); and
WHEREAS, the beneficial Interest in the Trust is divided into several series of
shares, each designated a "Fund" and each representing the interests in a
particular managed pool of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission, dated September 7, 1989 (File No. 812-7303), granting the Company
and variable annuity and variable life insurance separate accounts exemptions
from certain provisions of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and certain Rules thereunder, to the extent
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of the Company
(hereinafter the "Mixed Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the company has registered or will register certain variable annuity
and/or life insurance contracts under the 1933 Act (hereinafter "Contracts");
and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable contracts
(the Contract(s) and the Account(s) covered by this Agreement, and the
corresponding Funds covered by this Agreement in which the Account(s) invest,
are specified in Schedule A attached hereto as may be modified from time to
time); and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Fund on behalf of the Account to
fund the Contracts;
NOW, THEREFORE, in consideration or their mutual promises, the Trust and the
Company agree as follows:
ARTICLE 1. SALE OF TRUST SHARES
1.1 The Trust agrees to sell to the company those shares of the Trust which the
Account orders, executing such orders on a daily basis at the net value next
computed after receipt by the Trust or its designee of the order for the shares
of the Trust. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders and receipt by such designee
shall constitute receipt by the Trust; provided that the Trust received notice
of such order by 9:30 a.m. New York time on the next following business day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Securities and Exchange Commission.
1.2. The Trust agrees to make Trust shares available for the duration or this
Agreement for purchase at the applicable net asset value per share by the
Company and its Account on those days on which the Trust calculates its net
asset value pursuant to rules of the Securities and Exchange Commission and the
Trust shall use reasonable efforts to calculate such net asset value on each day
on which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (hereinafter the "Trustees") may
refuse to sell shares of any Funds to any person, or suspend or terminate the
offering of shares of any Fund if such action is required by law or regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to the Company
and their separate accounts. No shares of any Fund will be sold to the general
public.
1.4. The Trust agrees to redeem for cash, on the Company's request, any full or
fractional shares of the Trust held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Trust for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Trust
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5. The company shall pay for the Trust shares on the next Business Day after
an order to purchase shares is made in accordance with the provisions of Section
1.1 hereof. Payment shall be in federal funds transmitted by wire or by a credit
for any shares redeemed.
1.6. Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
1.7. The Trust shall furnish same day notice (by wire or telephone followed by
written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Trust's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Fund shares
in additional shares of that Fund. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Trust
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:30 p.m. New York time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act (or exempt therefrom), that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Minnesota law and
has registered or, prior to any issuance or sale of the Contracts, will register
the Account as a unit investment trust in accordance with the provisions of the
1940 Act (unless exempt therefrom) to serve as a segregated investment account
for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws or Massachusetts and all applicable federal
and state securities laws and that the Trust is and shall remain registered
under the 1940 Act. The Trust shall amend the Registration Statement for its
shares under the 1933 Act and the 1940 Act from time to time as required in
order to affect the continuous offering of its shares. The Trust shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
2.3. The Trust represents that the Trust is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, (the
"Code") and that every effort will be made to maintain such qualifications
(under Subchapter M or any successor or similar provision) and that the Trust
will notify the Company immediately upon having a reasonable basis for believing
that the Trust has ceased to so qualify or that the Trust might not so qualify
in the future.
2.4. The Trust undertakes to have a Board of Trustees, a majority of whom are
not interested persons of the Trust, formulate and approve of any plan under
Rule 12b-1 to finance distribution expenses.
2.5. The Trust represents that it will sell and distribute the Trust shares in
accordance with all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly existing
under the laws of the State of Massachusetts and that it does and will comply
with the 1940 Act.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. The Trust shall provide the Company (at the Trust's expense) with as many
copies of the Trust's current prospectus as the Company may reasonably request.
If requested by the Company in lieu thereof, the Trust shall provide such
documentation (including a final "camera ready" copy of the new prospectus as
set in type at the Trust's expense) and other assistance as is reasonably
necessary in order for the Company once a year (or more frequently if the
prospectus for the Trust is supplemented or amended) to have the prospectus for
the Contracts and the Trust's prospectus printed together in one document (such
printing to be at the Trust's expense).
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust is available from the Trust. The Trust, at its
expense, shall print and provide such Statement free of charge to the Company
and to any owner of a contract or prospective owner who requests such Statement.
3.3. The Trust, at its expense, shall provide the Company with copies of its
proxy material, reports to stockholders and other communications to stockholders
in such quantity as the Company shall reasonably require for distributing to
Contract owners.
3.4. If and to the extent required by law (or the Mixed Funding Exemptive Order)
the Company shall:
1. solicit voting instructions from contract owners;
2. vote the Trust shares in accordance with instructions received from Contract
owners; and
3. vote Trust shares for which no instructions have been received in the same
proportion as Trust shares of such Fund for which instructions have been
received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges or
variable contract owners. The Company reserves the right to vote Trust shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company shall be responsible, with the guidance and assistance of
the Trust, assuring that each of their separate account participating in the
Trust calculates voting privileges in a manner consistent with the standards set
forth on Schedule B attached hereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Trust or
its designee, each piece of sales literature or other promotional material in
which the Trust, its investment adviser or underwriter is named, a reasonable
time prior to its use. No such material shall be used if the Trust or its
designee object to such use within 15 Business Days after receipt of such
material.
4.2. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement or prospectus for the Trust shares, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports or proxy statements for the Trust, or in sales literature
or other promotional material approved by the Trust or its designee except with
the permission of the Trust.
4.3. The Trust shall furnish, or shall cause to be furnished, to the Company or
its designee, each piece of sales literature or other promotional material in
which the Company and/or its separate account(s), is named a reasonable time
prior to its use. No such material shall be used if the Company or its designee
object to such use within 15 Business Days after receipt or such material.
4.4. The Trust shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account, or the Contracts
other than information or representations contained in a registration statement
or prospectus for the Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports for the Account
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all amendments
to any of the above, that relate to the Trust or its shares, prior to or
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities. The Trust shall also
promptly inform the Company of the results or any examination by the Securities
and Exchange Commission (or other regulatory authorities), and shall provide the
Company with a copy of any "deficiency letter" or other correspondence or
written report regarding any such examination.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" means advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboard),
and sales literature (such as brochures, circulars, market letters and form
letters), distributed or made generally available to customers or the public.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no Fee or other compensation to the Company under this
Agreement, and the Company shall pay no fee or other compensation to the Trust.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Trust, in accordance with
applicable state laws prior to their sale. The Trust shall bear the expenses for
the cost of registration and qualification of the Trust's shares, preparation
and filing of the Trust's prospectus and registration statement, proxy materials
and reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by federal or state law, and all taxes on the issuance or
transfer of the Trust's shares.
5.3. The Trust shall bear the expenses of printing and distributing the Trust's
prospectus to owners of Contracts issued by the Company and or distributing the
Trust's proxy materials and reports to such Contract owners.
5.4. In the event the Trust adds one or more additional Funds and the Company
desires to make such Funds available to its Contract owners as an underlying
investment medium, a new Schedule A or an amendment to this Agreement shall be
executed by the parties authorizing the issuance of shares or the new Funds to
the Account.
ARTICLE VI. DIVERSIFICATION
6.1. The Trust represents, and warrants that the Trust will at all times invest
its assets in such a manner as to ensure that the Contracts will be treated as
annuity, endowment, or life insurance contracts under the code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Trust will at all times comply with Section 817(h) of the Code and the
Regulations Section 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulation.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Trust (the "Board") will monitor the Trust for
the existence of any material irreconcilable conflict between the interest of
the Contract owners of all separate accounts investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
Action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no action or interpretive letter or any similar
action by insurance, tax or securities regulatory authorities (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Fund are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions or Contract owners. The Board shall promptly inform the
Company to determine that a material irreconcilable conflict exists and the
implications thereof.
7.2. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense, and to the extent reasonably practicable (as
determined by a majority or the disinterested Trustees) take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets, allocable to some or all of the separate
accounts from the Trust or any Fund and reinvesting such assets in a different
investment medium, including (but not limited to) another Fund of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity Contract owners or life insurance Contract
owners) that votes in favor of such Segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.3. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six months after the
Board informs the Company in writing that it has determined that such decision
has created an irreconcilable material conflict, provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
7.4. For purposes of Section 7.2 though 7.4 of this Agreement, a majority of the
disinterested members of the Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.2 to establish a new funding
medium for the Contracts, if an offer to do so has been declined by vote of a
majority or Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
ARTICLE VIII.INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Trust and each of
its Trustees and officers and each person, if any, who controls the Trust within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
1. arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Trust for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
2. arise out of or as a result of statements or representations (other than
statements or representations contained in the Registration Statement,
prospectus or sales literature of the Trust not supplied by the Company, or
persons under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Trust Shares; or
3. arise out of any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, prospectus, or sales literature
of the Trust or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to
the Trust by or on behalf of the company; or
4. arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company,
except to the extent provided in Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Trust,
whichever is applicable.
8.1(c) The Company shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will be not
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.l(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust Shares or the Contracts or the operation of
the Trust and the Indemnified Parties will provide the Company with all relevant
information and documents requested by the Company. For purposes of this Section
8.1(d), the "commencement" of proceedings shall include any informal or formal
communications from the Securities and Exchange Commission or its staff (or the
receipt of information from any other persons or entities) indicating that
enforcement action by said Commission or staff may be contemplated or
forthcoming.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws or Minnesota.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Mixed Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate with respect to one, some, or all Funds for
one, some, or all Contracts or Accounts:
1. at the option of any party upon six month's advance written notice to the
other parties;
2. at the option of the Company to the extent that shares of Funds are not
reasonably available to meet the requirements of the Contracts or are not
appropriate funding vehicles for the Contracts, as determined by the
Company reasonably and in good faith. Prompt notice of the election to
terminate for such cause and an explanation or such cause shall be
furnished by the Company; or
3. as provided in Article VII.
10.2. The notice shall specify the Fund(s) and Contract(s) or Account(s) as to
which the Agreement is to be terminated.
10.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 1O.1 (a) may be exercised for cause
or for no cause.
10.4. Effect of Termination. Notwithstanding any termination of this Agreement,
the Trust shall at the option of the Company, continue to make available
additional shares of the Trust pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the existing contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Trust: Deborah Gatzek, Vice President
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
If to the Company: Mr. Robert S. James, President-Financial Markets
North American Life and Casualty Company 1750 Hennepin
Avenue
Minneapolis, Minnesota 55403
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain.
12.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.4. If any provision or this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. The Schedules attached hereto, as modified from time to time, are
incorporated herein by reference and are part of this Agreement.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitations the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
IN WITNESS WHEREOF, each of the parties has cause this Agreement to be executed
in its name and on its behalf by its duly authorized representative and its seal
to be hereunder affixed hereto as or the date specified below.
Company:
By two authorized officers,
By: /s/Robert S. James
Title: President, Financial Markets Division
Date: 5/24/92
By: /s/Michael T. Westermeyer
Title: Second Vice President and Senior Counsel
Date: 5/20/92
Trust:
By its authorized officers,
By: /s/Deborah Gatzek
Title: Secretary
Date: 3/31/92
SCHEDULE A
Franklin Valuemark Funds (Trust) is a diversified, open-end management
investment company consisting of the following separate Funds:
Adjustable U.S. Government Fund Equity Growth Fund Global Income Fund High
Income Fund Income Securities Fund Investment Grade Intermediate Bond Fund
Money Market Fund Precious Metals Funds Real Estate Securities Fund U.S.
Government Securities Fund Utility Equity Fund Zero Coupon Fund - 1995
Zero Coupon Fund - 2000 Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Effective March 1, 1992:
Rising Dividend Fund
International Equity Fund
Pacific Growth Fund
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective March 15, 1994:
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund"
"Effective May 1, 1995:
Templeton Global Asset Allocation Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed
in its name and on its behalf by its duly authorized representatives as of the
date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Date: 6/30/95
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Date: 6/16/95
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective November 1, 1995:
Small Cap Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representatives
as of the date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Amendment to Participation Agreement
Effective as of the dates specified below, Allianz Life Insurance Company of
North America, formerly known as North American Life and Casualty Company, a
Minnesota corporation, and Franklin Valuemark Funds, a Massachussetts business
trust, hereby amend Schedule A of their Participation Agreement effective
January 1, 1990, by adding the following language to the bottom of the list of
the Funds which make up the Franklin Valuemark Funds:
"Effective May 1, 1996:
Capital Growth Fund
Templeton International Smaller Companies Fund"
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representatives
as of the date specified below.
Allianz Life Insurance Company of North America
By: /s/James P. Kelso
James P. Kelso
Title: Vice President,
Variable Products
Franklin Valuemark Funds
By: /s/Karen L. Skidmore
Karen L. Skidmore
Title: Assistant Vice President
& Assistant Secretary
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 19, 1996
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Re: Opinion and Consent of Counsel
Allianz Life Variable Account B
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, of a Registration Statement on Form N-4 for the Individual Deferred
Variable Annuity Contracts to be issued by Allianz Life Insurance Company of
North America and its separate account, Allianz Life Variable Account B.
We are of the following opinions:
1. Allianz Life Insurance Company of North America is a valid and existing
stock life insurance company of the state of Minnesota.
2. Allianz Life Variable Account B is a separate investment account of
Allianz Life Insurance Company of North America created and validly
existing pursuant to the Minnesota Insurance Laws and the Regulations
thereunder.
3. Under the acceptance of purchase payments made by an Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
__________________________________
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors
Allianz Life Insurance Company of North America:
We consent to the use of our report, dated January 22, 1996, on the financial
statements of Allianz Life Variable Account B and our report dated February 6,
1996, on the consolidated financial statements of Allianz Life Insurance
Company of North America and subsidiaries included herein and to the reference
to our Firm under the heading "EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 17, 1996
EXHIBIT 13
CALCULATION OF PERFORMANCE INFORMATION
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK II
ALLIANZ LIFE VARIABLE ACCOUNT B
AVERAGE ANNUAL TOTAL RETURN
VALUATION DATE DECEMBER 31, 1995
PURCHASE YEARS TOTAL 1995 AVERAGE TOTAL
FUND AMOUNT INVESTED VALUE ANNUAL RETURN RETURN
- ---------------------------------------- --------- -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
Money Market Fund $1,000.00 6 $1,204.79 4.20% 20.48%
Growth and Income Fund $1,000.00 6 $1,692.23 30.91% 69.22%
Precious Metals Fund $1,000.00 6 $1,144.82 0.84% 14.48%
High Income Fund $1,000.00 6 $1,713.48 18.03% 71.35%
Real Estate Securities Fund $1,000.00 6 $1,734.97 15.83% 73.50%
U.S. Government Securities Fund $1,000.00 6 $1,555.83 17.73% 55.58%
Utility Equity Fund $1,000.00 6 $1,621.45 29.45% 62.14%
Zero Coupon - 2000 Fund $1,000.00 6 $1,661.44 18.92% 66.14%
Zero Coupon - 2005 Fund $1,000.00 6 $1,825.30 29.86% 82.53%
Zero Coupon - 2010 Fund $1,000.00 6 $1,944.19 40.74% 94.42%
Global Income Fund $1,000.00 6 $1,428.64 13.01% 42.86%
Investment Grade Intermediate Bond Fund $1,000.00 6 $1,447.16 8.39% 44.72%
Income Securities Fund $1,000.00 6 $1,826.72 20.64% 82.67%
Adjustable U.S. Government Fund $1,000.00 5 $1,189.88 7.81% 18.99%
Templeton Pacific Growth Fund $1,000.00 3 $1,393.41 6.40% 39.34%
Rising Dividends Fund $1,000.00 3 $1,148.67 27.83% 14.87%
Templeton International Equity Fund $1,000.00 3 $1,372.28 8.98% 37.23%
Templeton Developing Markets Equity Fund $1,000.00 1 $1,012.49 1.25% 1.25%
Templeton Global Growth Fund $1,000.00 1 $1,110.57 11.06% 11.06%
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK II
ALLIANZ LIFE VARIABLE ACCOUNT B
AVERAGE ANNUAL TOTAL RETURN
ORIGINAL PURCHASE DECEMBER 31, 1989
VALUATION DATE DECEMBER 31, 1995
DOLLAR UNITS THIS ACCUMULATED ACCUMULATED
DATE TRANSACTION AMOUNT UNIT VALUE TRANSACTION UNITS VALUE
- -------- ------------ ------------ --------------- ------------ ----------- ------------
<C> <S> <C> <C> <C> <C> <C>
Money Market Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.63670089 94.014 94.014 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.28816298 (0.089) 93.925 $ 1,060.24
12-31-91 Contract Fee ($1.00) 11.74177967 (0.085) 93.840 $ 1,101.85
12-31-92 Contract Fee ($1.00) 11.93209752 (0.084) 93.756 $ 1,118.71
12-31-93 Contract Fee ($1.00) 12.06579747 (0.083) 93.673 $ 1,130.24
12-31-94 Contract Fee ($1.00) 12.35398427 (0.081) 93.592 $ 1,156.23
12-31-95 Contract Fee ($1.00) 12.88349436 (0.078) 93.514 $ 1,204.79
Growth and Income Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.17968496 98.235 98.235 $ 1,000.00
12-31-90 Contract Fee ($1.00) 9.80273477 (0.102) 98.133 $ 961.97
12-31-91 Contract Fee ($1.00) 11.94928651 (0.084) 98.049 $ 1,171.62
12-31-92 Contract Fee ($1.00) 12.57361730 (0.080) 97.969 $ 1,231.82
12-31-93 Contract Fee ($1.00) 13.67694811 (0.073) 97.896 $ 1,338.92
12-31-94 Contract Fee ($1.00) 13.21462941 (0.076) 97.820 $ 1,292.66
12-31-95 Contract Fee ($1.00) 17.30965999 (0.058) 97.762 $ 1,692.23
Precious Metals Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 12.24727889 81.651 81.651 $ 1,000.00
12-31-90 Contract Fee ($1.00) 10.38739461 (0.096) 81.555 $ 847.14
12-31-91 Contract Fee ($1.00) 10.63476279 (0.094) 81.461 $ 866.32
12-31-92 Contract Fee ($1.00) 9.42437104 (0.106) 81.355 $ 766.72
12-31-93 Contract Fee ($1.00) 14.46354903 (0.069) 81.286 $ 1,175.68
12-31-94 Contract Fee ($1.00) 13.97879422 (0.072) 81.214 $ 1,135.27
12-31-95 Contract Fee ($1.00) 14.10867153 (0.071) 81.143 $ 1,144.82
High Income Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.02140026 99.786 99.786 $ 1,000.00
12-31-90 Contract Fee ($1.00) 9.02570091 (0.111) 99.675 $ 899.64
12-31-91 Contract Fee ($1.00) 11.58287531 (0.086) 99.589 $ 1,153.53
12-31-92 Contract Fee ($1.00) 13.27789297 (0.075) 99.514 $ 1,321.34
12-31-93 Contract Fee ($1.00) 15.15511991 (0.066) 99.448 $ 1,507.15
12-31-94 Contract Fee ($1.00) 14.60759128 (0.068) 99.380 $ 1,451.70
12-31-95 Contract Fee ($1.00) 17.25181285 (0.058) 99.322 $ 1,713.48
Real Estate Securities Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.36764805 96.454 96.454 $ 1,000.00
12-31-90 Contract Fee ($1.00) 8.99958346 (0.111) 96.343 $ 867.05
12-31-91 Contract Fee ($1.00) 11.84810701 (0.084) 96.259 $ 1,140.49
12-31-92 Contract Fee ($1.00) 13.09547341 (0.076) 96.183 $ 1,259.56
12-31-93 Contract Fee ($1.00) 15.36898235 (0.065) 96.118 $ 1,477.24
12-31-94 Contract Fee ($1.00) 15.59407180 (0.064) 96.054 $ 1,497.87
12-31-95 Contract Fee ($1.00) 18.07282328 (0.055) 95.999 $ 1,734.97
U.S. Government Securities Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.42700481 95.905 95.905 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.19888952 (0.089) 95.816 $ 1,073.03
12-31-91 Contract Fee ($1.00) 12.79761583 (0.078) 95.738 $ 1,225.22
12-31-92 Contract Fee ($1.00) 13.58621153 (0.074) 95.664 $ 1,299.71
12-31-93 Contract Fee ($1.00) 14.69826319 (0.068) 95.596 $ 1,405.10
12-31-94 Contract Fee ($1.00) 13.83490825 (0.072) 95.524 $ 1,321.57
12-31-95 Contract Fee ($1.00) 16.29770051 (0.061) 95.463 $ 1,555.83
Utility Equity Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 12.00985184 83.265 83.265 $ 1,000.00
12-31-90 Contract Fee ($1.00) 12.06229784 (0.083) 83.182 $ 1,003.37
12-31-91 Contract Fee ($1.00) 14.82143005 (0.067) 83.115 $ 1,231.88
12-31-92 Contract Fee ($1.00) 15.88865152 (0.063) 83.052 $ 1,319.58
12-31-93 Contract Fee ($1.00) 17.31879581 (0.058) 82.994 $ 1,437.36
12-31-94 Contract Fee ($1.00) 15.10395032 (0.066) 82.928 $ 1,252.54
12-31-95 Contract Fee ($1.00) 19.56451758 (0.051) 82.877 $ 1,621.45
Zero Coupon - 2000 Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.96121568 91.231 91.231 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.44624093 (0.087) 91.144 $ 1,043.26
12-31-91 Contract Fee ($1.00) 13.57017992 (0.074) 91.070 $ 1,235.84
12-31-92 Contract Fee ($1.00) 14.59489368 (0.069) 91.001 $ 1,328.15
12-31-93 Contract Fee ($1.00) 16.71742785 (0.060) 90.941 $ 1,520.30
12-31-94 Contract Fee ($1.00) 15.37318118 (0.065) 90.876 $ 1,397.05
12-31-95 Contract Fee ($1.00) 18.29362036 (0.055) 90.821 $ 1,661.44
Zero Coupon - 2005 Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 11.40639141 87.670 87.670 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.54507771 (0.087) 87.583 $ 1,011.15
12-31-91 Contract Fee ($1.00) 13.70496151 (0.073) 87.510 $ 1,199.32
12-31-92 Contract Fee ($1.00) 14.97467685 (0.067) 87.443 $ 1,309.43
12-31-93 Contract Fee ($1.00) 18.04995514 (0.055) 87.388 $ 1,577.35
12-31-94 Contract Fee ($1.00) 16.09601101 (0.062) 87.326 $ 1,405.60
12-31-95 Contract Fee ($1.00) 20.91363234 (0.048) 87.278 $ 1,825.30
Zero Coupon - 2010 Fund
------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 11.48553376 87.066 87.066 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.38999240 (0.088) 86.978 $ 990.68
12-31-91 Contract Fee ($1.00) 13.48230431 (0.074) 86.904 $ 1,171.67
12-31-92 Contract Fee ($1.00) 14.66961344 (0.068) 86.836 $ 1,273.85
12-31-93 Contract Fee ($1.00) 18.14448916 (0.055) 86.781 $ 1,574.60
12-31-94 Contract Fee ($1.00) 15.92982416 (0.063) 86.718 $ 1,381.40
12-31-95 Contract Fee ($1.00) 22.43134838 (0.045) 86.673 $ 1,944.19
Global Income Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.81282377 92.483 92.483 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.70599212 (0.085) 92.398 $ 1,081.61
12-31-91 Contract Fee ($1.00) 12.96200318 (0.077) 92.321 $ 1,196.67
12-31-92 Contract Fee ($1.00) 12.73250766 (0.079) 92.242 $ 1,174.47
12-31-93 Contract Fee ($1.00) 14.64984870 (0.068) 92.174 $ 1,350.34
12-31-94 Contract Fee ($1.00) 13.72629720 (0.073) 92.101 $ 1,264.21
12-31-95 Contract Fee ($1.00) 15.52246997 (0.064) 92.037 $ 1,428.64
Investment Grade Intermediate Bond Fund
------------ ------------ --------------- ------------ -----------
12-31-89 Purchase $ 1,000.00 10.63475348 94.031 94.031 $ 1,000.00
12-31-90 Contract Fee ($1.00) 11.28106339 (0.089) 93.942 $ 1,059.77
12-31-91 Contract Fee ($1.00) 12.87857355 (0.078) 93.864 $ 1,208.83
12-31-92 Contract Fee ($1.00) 13.44210000 (0.074) 93.790 $ 1,260.73
12-31-93 Contract Fee ($1.00) 14.38929401 (0.069) 93.721 $ 1,348.58
12-31-94 Contract Fee ($1.00) 14.25707517 (0.070) 93.651 $ 1,335.19
12-31-95 Contract Fee ($1.00) 15.46342330 (0.065) 93.586 $ 1,447.16
Income Securities Fund
------------ --------------- ------------
12-31-89 Purchase $ 1,000.00 10.78314539 92.737 92.737 $ 1,000.00
12-31-90 Contract Fee ($1.00) 9.84219360 (0.102) 92.635 $ 911.73
12-31-91 Contract Fee ($1.00) 13.58029545 (0.074) 92.561 $ 1,257.01
12-31-92 Contract Fee ($1.00) 15.16252410 (0.066) 92.495 $ 1,402.46
12-31-93 Contract Fee ($1.00) 17.73437317 (0.056) 92.439 $ 1,639.35
12-31-94 Contract Fee ($1.00) 16.39171653 (0.061) 92.378 $ 1,514.23
12-31-95 Contract Fee ($1.00) 19.78534185 (0.051) 92.327 $ 1,826.72
Adjustable U.S. Government Fund
------------ --------------- ------------
12-31-90 Purchase $ 1,000.00 9.99925491 100.007 100.007 $ 1,000.00
12-31-91 Contract Fee ($1.00) 10.69751831 (0.093) 99.914 $ 1,068.83
12-31-92 Contract Fee ($1.00) 11.01976506 (0.091) 99.823 $ 1,100.03
12-31-93 Contract Fee ($1.00) 11.25360475 (0.089) 99.734 $ 1,122.37
12-31-94 Contract Fee ($1.00) 11.07653376 (0.090) 99.644 $ 1,103.71
12-31-95 Contract Fee ($1.00) 11.95134157 (0.084) 99.560 $ 1,189.88
Templeton Pacific Growth Fund
------------ --------------- ------------ -----------
12-31-92 Purchase $ 1,000.00 9.76096735 102.449 102.449 $ 1,000.00
12-31-93 Contract Fee ($1.00) 14.23330574 (0.070) 102.379 $ 1,457.19
12-31-94 Contract Fee ($1.00) 12.80173310 (0.078) 102.301 $ 1,309.63
12-31-95 Contract Fee ($1.00) 13.63037545 (0.073) 102.228 $ 1,393.41
Rising Dividends Fund
------------ --------------- ------------
12-31-92 Purchase $ 1,000.00 10.84771473 92.185 92.185 $ 1,000.00
12-31-93 Contract Fee ($1.00) 10.32720317 (0.097) 92.088 $ 951.01
12-31-94 Contract Fee ($1.00) 9.76873744 (0.102) 91.986 $ 898.59
12-31-95 Contract Fee ($1.00) 12.49836348 (0.080) 91.906 $ 1,148.67
Templeton International Equity Fund
------------ --------------- ------------ -----------
12-31-92 Purchase $ 1,000.00 9.64241309 103.708 103.708 $ 1,000.00
12-31-93 Contract Fee ($1.00) 12.22565227 (0.082) 103.626 $ 1,266.90
12-31-94 Contract Fee ($1.00) 12.16131942 (0.082) 103.544 $ 1,259.23
12-31-95 Contract Fee ($1.00) 13.26267921 (0.075) 103.469 $ 1,372.28
Templeton Developing Markets Equity Fund
------------ ------------ --------------- ------------ -----------
12-31-94 Purchase $ 1,000.00 9.45424664 105.773 105.773 $ 1,000.00
12-31-95 Contract Fee ($1.00) 9.58170209 (0.104) 105.669 $ 1,012.49
Templeton Global Growth Fund
------------ --------------- ------------ -----------
12-31-94 Purchase $ 1,000.00 10.20085584 98.031 98.031 $ 1,000.00
12-31-95 Contract Fee ($1.00) 11.33894840 (0.088) 97.943 $ 1,110.57
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