File Nos. 333-06709
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. 1 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 29 (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, 1997 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed its Rule 24f-2 Notice for the most recent fiscal year on
or about February 24, 1997.
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
- -------- -----------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . Index of Terms
Item 3. Synopsis or Highlights. . . . . . . . . . . Profile
Item 4. Condensed Financial Information. . . . . . . Not Applicable
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . Other Information-
The Separate Account,
Allianz Life,
Investment Options
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . .The Valuemark IV
Variable Annuity
Contract
Item 8. Annuity Period. . .. . . . . . . . . . . . . . Annuity Payments
(The Payout Phase)
Item 9. Death Benefit. . . . . . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value. . . . . . . . . .Purchase
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . . . . . None
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>
<S> <C> <C>
Item No. Location
- -------- --------------------
PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . Insurance 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
Profile of the
Valuemark IV
Variable Annuity
Contract
May 1, 1997
This Profile is a summary of some of the more important points that you should
consider and know before purchasing the Valuemark IV Variable Annuity Contract
with a fixed account option. The Contract is more fully described in the
prospectus which accompanies this Profile. Please read the prospectus carefully.
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT
The variable annuity contract with a fixed account option offered by Allianz
Life is a contract between you, the owner, and Allianz Life Insurance Company of
North America, an insurance company. The Contract provides a means for investing
on a tax-deferred basis in 23 funds of Franklin Valuemark Funds, a series fund,
and a fixed account option of Allianz Life. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed annuity income options.
The Contract has 24 investment options. There are 23 funds which are managed by
Franklin Advisers, Inc. and its Templeton and Franklin affiliates. A list of the
available funds is contained in Section 4. Depending upon market conditions, you
can make or lose money in the funds based on the funds' investment performance.
The funds are designed to offer a better return than the fixed account option,
however, this is not guaranteed.
The fixed account offers an interest rate that is guaranteed by Allianz Life.
The interest rate is set monthly and is guaranteed for 12 months. While your
money is in the fixed account, the interest your money will earn as well as your
principal is guaranteed by Allianz Life.
Allianz Life reserves the right to limit the number of funds which you may
invest in at any one time (now or in the future). Currently, you can put your
money in 10 investment options (which includes any of the 23 funds listed in
Section 4 and the Allianz Life fixed account).
Like all deferred annuity contracts, your Contract has two phases: the
accumulation phase and the payout phase. During the accumulation phase, your
earnings accumulate on a tax-deferred basis and are based on the investment
performance of the fund(s) you selected and/or the interest rate earned on the
money you have in the fixed account. During the accumulation phase, the earnings
are taxed as income only when you make a surrender. The payout phase occurs when
you begin receiving regular payments from your Contract. The amount of the
payments you may receive during the payout phase depends in part upon the amount
of money you are able to accumulate in your Contract during the accumulation
phase.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
You can receive monthly annuity payments from your Contract by selecting one of
the following annuity options (all of these options assume you are the owner and
the annuitant): (1) payments for your life; (2) payments for your life, but if
you die before payments have been made for the guaranteed period you selected,
payments will continue for the remainder of the guaranteed period (5, 10, 15 or
20 years); (3) payments during the joint lifetime of you and the joint annuitant
- - when either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you or the joint annuitant die before payments have been made for the guaranteed
period you selected, payments will continue for the remainder of the guaranteed
period (5, 10, 15 or 20 years); and (5) payments during your life ending with
the last payment due prior to your death with a guarantee that at your death
Allianz Life will make a refund to your beneficiary. Once you begin receiving
regular payments, you cannot change your annuity option or surrender your
Contract.
During the payout phase, you have the same investment choices you had during the
accumulation phase. You can choose to have payments based on the performance of
the funds (variable payout), the fixed account (fixed payout), or both. If you
choose to have any part of your payments based on fund performance, the dollar
amount of your annuity payments may go up or down, depending on the investment
performance.
3. PURCHASE
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the accumulation phase. Contact your
registered representative to help you fill out the proper forms. You and the
annuitant cannot be older than 85 years old at the time you buy the Contract.
4. INVESTMENT OPTIONS
You may invest in the Allianz Life fixed account or the following funds of
Franklin Valuemark Funds:
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME:
Money Market Fund
FUNDS SEEKING CURRENT INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
FUNDS SEEKING GROWTH AND INCOME:
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Utility Equity Fund
FUNDS SEEKING CAPITAL GROWTH:
Capital Growth Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
(formerly, Precious Metals Fund)
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International
Smaller Companies Fund
Templeton Pacific Growth Fund
The funds are fully described in the attached prospectus for Franklin Valuemark
Funds. You can make or lose money based on the funds performance.
5. EXPENSES
The Contract has insurance features and investment features, and there are costs
related to each.
The annual insurance charges total 1.49% of the average daily value of your
Contract allocated to the funds during the accumulation period (1.40% during the
payout phase). Each year Allianz Life also deducts a $30 contract maintenance
charge from your Contract. Allianz Life currently waives this charge if the
cumulative value of all your Valuemark IV Contracts (registered with the same
social security number) are at least $50,000 (except in New Jersey). There are
also annual fund operating expenses, which vary depending upon the funds you
select. In 1996, these expenses ranged from .40% to 1.49% of the average daily
value of the funds.
You can transfer between accounts up to 12 times a year without charge. After 12
transfers, the charge is $25 or 2% of the amount transferred, whichever is less.
Market timing transfers may not be permitted.
If you make a surrender from the Contract, Allianz Life may assess a contingent
deferred sales charge (surrender charge). The amount of the charge depends upon
how long Allianz Life has had your payment. Each purchase payment you add to
your Contract has its own 7 year charge period. The charge is:
Number of Contingent deferred
complete years sales charge (as a percentage
from receipt of purchase payments)
------------- ------------------
0 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 or more 0%
Under certain circumstances, after the first year, Allianz Life will permit you
to access your money in the Contract without deducting a contingent deferred
sales charge: 1) if you become confined to a nursing home; 2) if you become
terminally ill; or 3) if you become disabled. Also, if you are unemployed for at
least 90 consecutive days, you can take up to 50% of your money out of the
Contract without incurring a contingent deferred sales charge. These options may
not be available in all states.
Allianz Life will assess a state premium tax charge which ranges from 0-3.5%
(depending upon the state) when you die, start receiving annuity payments or
make a complete surrender.
<PAGE>
<TABLE>
We have provided the following chart to help you understand the expenses in your Contract. The column "Total Annual Expenses"
shows the total of the $30 contract maintenance charge (which is represented as .10% below), the 1.49% insurance charges and the
total annual fund expenses for each fund. The next two columns show you two examples of the expenses, in dollars, you would pay
under a Contract. The examples assume that you invested $1,000 in a Contract which earns 5% annually and that you surrender your
Contract: (1) at the end of year 1, and (2) at the end of year 10. For year 1, the Total Annual Expenses are assessed as well as
the contingent deferred sales charge. For year 10, the Total Annual Expenses are assessed but no contingent deferred sales charge
is deducted. The premium tax is assumed to be 0% in both examples. These are just examples. They do not represent past or future
expenses or returns. Actual expenses may be higher or lower than those shown.
<CAPTION>
EXAMPLES:
Total
Annual Total Total Expenses Expenses
Insurance Annual Fund Annual at end of at end of
Fund Charges Expenses Expenses 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Money Market 1.59% .53% 2.12% $82 $245
Growth and Income 1.59% .50% 2.09% $81 $242
Natural Resources Securities* 1.59% .65% 2.24% $83 $257
Real Estate Securities 1.59% .57% 2.16% $82 $249
Utility Equity 1.59% .50% 2.09% $81 $242
High Income 1.59% .54% 2.13% $82 $246
Templeton Global Income Securities 1.59% .61% 2.20% $82 $253
Income Securities 1.59% .50% 2.09% $81 $242
U.S. Government Securities 1.59% .51% 2.10% $81 $243
Zero Coupon 2000 1.59% .40% 1.99% $80 $231
Zero Coupon 2005 1.59% .40% 1.99% $80 $231
Zero Coupon 2010 1.59% .40% 1.99% $80 $231
Rising Dividends 1.59% .76% 2.35% $84 $268
Templeton International Equity 1.59% .89% 2.48% $85 $282
Templeton Pacific Growth 1.59% .99% 2.58% $86 $292
Templeton Global Growth 1.59% .93% 2.52% $86 $286
Templeton Developing Markets Equity 1.59% 1.49% 3.08% $91 $340
Templeton Global Asset Allocation 1.59% .86% 2.45% $85 $279
Small Cap 1.59% .77% 2.36% $84 $270
Templeton International Smaller Companies 1.59% 1.16% 2.75% $88 $308
Capital Growth 1.59% .77% 2.36% $84 $270
Mutual Discovery Securities 1.59% 1.05% 2.64% $87 $298
Mutual Shares Securities 1.59% .85% 2.44% $85 $278
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Fund was known as the Precious Metals Fund.
</FN>
</TABLE>
<PAGE>
The expenses for the newly formed funds have been estimated. The expenses for
the Zero Coupon funds reflect current expense reimbursement and/or fee waiver
arrangements. For more detailed information, see the Fee Table in the prospectus
for the Contract.
6. TAXES
Any earnings are not taxed until you take them out. In most cases, if you take
money out, earnings come out first and are taxed as income.
If you are younger than 591/2 when you take money out, you may be charged a 10%
federal tax penalty on the taxable amounts surrendered. Payments during the
payout phase are considered partly a return of your original investment. That
part of each payment is not taxable as income. If the Contract is tax-qualified,
the entire payment may be taxable.
7. ACCESS TO YOUR MONEY
You may make a surrender at any time during the accumulation phase. Any partial
surrender must be for at least $500. You may request a surrender or elect the
Systematic Withdrawal Program or Minimum Distribution Program which are briefly
described in Section 10 of this Profile. After the first year, you can make
multiple surrenders up to a total of 15% of the value of your Contract each year
without charge from Allianz Life. Surrenders in excess of that amount will be
subject to a contingent deferred sales charge. If you do not surrender the full
15% in any one Contract year, you may not carry over the remaining percentage
amount to another year. Surrenders in excess of the 15% free withdrawal will be
charged a contingent deferred sales charge which declines from 6% to 0%
depending upon the number of complete years we have had your payment. After
Allianz Life has had a payment for 7 years, there is no charge for surrenders
related to that payment. Each purchase payment you add to your Contract has its
own 7 year charge period. Of course, you may also have to pay income tax and a
tax penalty on any money you take out of the Contract.
8. PERFORMANCE
OF THE FUNDS
The value of the Contract will vary up or down depending upon the performance of
the fund(s) you choose. From time to time, Allianz Life may advertise total
return figures based upon each fund's performance.
9. DEATH BENEFIT
If you die during the accumulation phase, the person you have selected as your
beneficiary will receive a death benefit. This death benefit will be the greater
of: 1) the current value of your Contract, less any taxes, on the day all claim
proofs and payment election forms are received by Allianz Life at the Valuemark
Service Center; or 2) (if applicable) the guaranteed minimum death benefit, less
any taxes, as of the day you die. During the first year, the guaranteed minimum
death benefit is equal to the payments you have made, less any money you have
taken out and any charges paid on the money you have taken out. After the first
year and before your 76th birthday, the guaranteed minimum death benefit as of
the date of death is the greater of: A) payments you have made, less any money
you have taken out and charges paid on the money you have taken out, increased
by 5% per year on each Contract anniversary; or B) the highest of the Contract
values for each six year Contract anniversary determined by the Contract value
on such six year anniversary plus any payments made, less any money taken out
since that Contract anniversary, and charges paid on the money you have taken
out. Different rules will apply after your 76th birthday.
10. OTHER INFORMATION
Free Look. If you cancel the Contract within 10 days after receiving it (or
whatever period is required in your state), we will send your money back without
assessing a contingent deferred sales charge. You will receive whatever your
Contract is worth on the day we receive your request. This may be more or less
than your original payment. (Some states require that we return your payment.)
No Probate. In most cases, when you die, your beneficiary will receive the death
benefit without going through probate.
Purchasing Considerations. The Valuemark IV Variable Annuity Contract is
designed for people seeking long-term tax-deferred accumulation of assets,
generally for retirement or other long-term purposes. The tax-deferred feature
is most attractive to people in high federal and state tax brackets. You should
not buy this Contract if you are looking for a short-term investment or if you
cannot accept the risk of getting back less money than you put in.
Additional Features
The Contract offers additional features which you might be interested in. These
include:
Automatic Investment Plan - You can automatically add to your Contract on a
monthly or quarterly basis for as little as $100 by electronic transfer of
monies from your savings or checking account.
Dollar Cost Averaging Program - You can arrange to have a regular amount of
money automatically transferred from selected funds to other funds each month.
Theoretically this can give you a lower average cost per unit over time than a
single one time purchase. However, there are no guarantees that this will take
place.
Flexible Rebalancing - Allianz Life will automatically readjust your Contract
value among the funds to maintain your specified allocation mix. This can be
done quarterly, semi-annually or annually.
Systematic Withdrawal Program - You can elect to receive monthly or quarterly
payments from Allianz Life while your Contract is in the accumulation phase. Of
course, you may have to pay contingent deferred sales charges, tax penalties,
and taxes on the money you receive.
Minimum Distribution Program - You can arrange to have money sent to you each
month or quarter to meet certain required distribution requirements imposed by
the Internal Revenue Code.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES
If you have any questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
<PAGE>
THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
This prospectus describes the Valuemark IV Variable Annuity Contract with a
Fixed Account option offered by Allianz Life Insurance Company of North America
(Allianz Life).
The annuity has 24 investment options - the 23 Funds of Franklin Valuemark Funds
which are listed below and a Fixed Account option of Allianz Life. You can
select up to 10 investment options (which includes any of the Funds listed below
and the Fixed Account). The Fixed Account may not be available in your state.
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
FUNDS SEEKING CURRENT INCOME
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
FUNDS SEEKING GROWTH AND INCOME
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Utility Equity Fund
FUNDS SEEKING CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
(formerly, Precious Metals Fund)
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark IV Variable Annuity
Contract with a Fixed Account option.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 1997. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is on Page 20 of this prospectus. For a free copy of the SAI, call us at (800)
342-3863 or write us at: 1750 Hennepin Avenue, Minneapolis, Minnesota
55403-2195.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. 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.
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 IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, COUNTRY, OR JURISDICTION IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES
REPRESENTATIVE, DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
Dated: May 1, 1997
TABLE OF CONTENTS
Page
INDEX OF TERMS ................................... 3
FEE TABLE ........................................ 4
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT .................... 8
Contract Owner ............................... 8
Joint Owner .................................. 8
Annuitant .................................... 8
Beneficiary................................... 8
Assignment ................................... 8
2. ANNUITY PAYMENTS
(THE PAYOUTPHASE) ............................ 9
Annuity Options .............................. 9
3. PURCHASE ..................................... 10
Purchase Payments ............................ 10
Automatic Investment Plan .................... 10
Allocation of Purchase Payments .............. 10
Free Look .................................... 10
Accumulation Units ........................... 10
4. INVESTMENT OPTIONS ........................... 11
Transfers .................................... 12
Dollar Cost Averaging Program ................ 12
Flexible Rebalancing ......................... 13
Voting Privileges ............................ 13
Substitution ................................. 13
5. EXPENSES ..................................... 13
Insurance Charges ............................ 13
Mortality and Expense Risk Charge ........... 13
Administrative Charge ....................... 13
Contract Maintenance Charge .................. 13
Contingent Deferred Sales Charge ............. 14
Waiver of Contingent
Deferred Sales Charge Benefits ............... 14
Reduction or Elimination of the
Contingent Deferred Sales Charge ............. 14
Transfer Fee ................................. 14
Premium Taxes ................................ 15
Income Taxes ................................. 15
Fund Expenses ................................ 15
6. TAXES ........................................ 15
Annuity Contracts in General ................. 15
Qualified and Non-Qualified Contracts ........ 15
Surrenders - Non-Qualified Contracts ......... 15
Surrenders - Qualified Contracts ............. 16
Surrenders - Tax-Sheltered Annuities ......... 16
Diversification .............................. 16
7. ACCESS TO YOUR MONEY ......................... 16
Systematic Withdrawal Program ................ 16
Minimum Distribution Program ................. 17
Suspension of Payments or Transfers .......... 17
8. PERFORMANCE .................................. 17
9. DEATH BENEFIT ................................ 17
Upon Your Death .............................. 17
Death of Annuitant ........................... 18
10. OTHER INFORMATION ............................ 18
Allianz Life ................................. 18
The Separate Account ......................... 18
Distribution ................................. 19
Administration ............................... 19
Financial Statements ......................... 19
APPENDIX ......................................... 19
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ........................... 20
INDEX OF TERMS
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase ............................... 8
Accumulation Unit ................................ 10
Annuitant ........................................ 8
Annuity Options .................................. 9
Annuity Payments ................................. 8
Annuity Unit ..................................... 10
Beneficiary ...................................... 8
Contract.......................................... 8
Contract Owner ................................... 8
Fixed Account .................................... 8
Funds ............................................ 11
Income Date ...................................... 9
Joint Owner ...................................... 8
Non-Qualified .................................... 15
Payout Phase ..................................... 8
Purchase Payment ................................. 10
Qualified ........................................ 15
Tax Deferral ..................................... 8
<PAGE>
<TABLE>
FEE TABLE
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
<CAPTION>
Number of Complete
Years From Receipt Charge
-------------- -----
<S> <C> <C>
0 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 years or more 0%
</TABLE>
Transfer Fee**..................... First 12 transfers in a Contract year
are free. Thereafter, the fee is $25
(or 2% of the amount transferred,if less).
Dollar Cost Averaging transfers and
Flexible Rebalancing transfers are not
counted.
Contract Maintenance Charge***...... $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge****.................... 1.34%
Administrative Charge.................................... .15%
------
Total Separate Account Annual Expenses................... 1.49%
*Each year after the first Contract year, you may make multiple partial
surrenders of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 - Access to
Your Money 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
will not exceed the lesser of $25 or 2% of the amount transferred. Market timing
transfers may not be permitted.
***During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Valuemark IV Contract
(registered with the same social security number), we will determine the total
value of all your Contracts. If the total value of all your Contracts is at
least $50,000, the charge is waived (except in New Jersey).
****The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Fund Administration Fees for each Fund are based on a percentage of that Fund's net assets. See the prospectus
for Franklin Valuemark Funds for more information.
The "Management and Fund Administration Fees" below are the amounts that were paid to the Managers and Fund Administrators for the
1996 calendar year except for Funds with fee waivers/expense reductions or newer Funds without a full year of operations as of
December 31, 1996.
Management
and Fund Total Annual
Administration Fees1 Other Expenses Expenses
------------- ---------- --------
<S> <C> <C> <C>
Money Market Fund2 ......................................................... .51% .02% .53%
Growth and Income Fund ..................................................... .48% .02% .50%
Natural Resources Securities Fund3 ......................................... .60% .05% .65%
Real Estate Securities Fund ................................................ .55% .02% .57%
Utility Equity Fund ........................................................ .47% .03% .50%
High Income Fund ........................................................... .52% .02% .54%
Templeton Global Income Securities Fund .................................... .56% .05% .61%
Income Securities Fund ..................................................... .47% .03% .50%
U.S. Government Securities Fund ............................................ .49% .02% .51%
Zero Coupon Fund-20004 ..................................................... .38% .02% .40%
Zero Coupon Fund-20054 ..................................................... .38% .02% .40%
Zero Coupon Fund-20104 ..................................................... .38% .02% .40%
Rising Dividends Fund ...................................................... .75% .01% .76%
Templeton International Equity Fund ........................................ .81% .08% .89%
Templeton Pacific Growth Fund .............................................. .89% .10% .99%
Templeton Global Growth Fund ............................................... .88% .05% .93%
Templeton Developing Markets Equity Fund ................................... 1.25% .24% 1.49%
Templeton Global Asset Allocation Fund ..................................... .80% .06% .86%
Small Cap Fund ............................................................. .75% .02% .77%
Templeton International Smaller Companies Fund5 ............................ 1.00% .16% 1.16%
Capital Growth Fund5 ....................................................... .75% .02% .77%
Mutual Discovery Securities Fund5 .......................................... .95% .10% 1.05%
Mutual Shares Securities Fund5 ............................................. .75% .10% .85%
<FN>
1The Fund Administration Fee is a direct expense for the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, the Mutual Shares Securities Fund and the Mutual Discovery Securities Fund; other Funds pay for similar
services indirectly through the Management Fee. See the Franklin Valuemark Funds prospectus for further information regarding
these fees.
2Franklin Advisers, Inc. agreed to waive a portion of its Management Fee and to pay certain expenses of the Money Market Fund
during 1996. It is currently continuing this arrangement in 1997. This arrangement may be terminated at any time. With this
reduction, the Fund's total annual expenses for 1996 were 0.43% of the average daily net assets of the Fund.
3Prior to May 1, 1997, the Natural Resources Securities Fund was known as the Precious Metals Fund.
4Although not obligated to, Franklin Advisers, Inc. has agreed to waive a portion of its Management Fees and to pay certain
expenses of the three Zero Coupon Funds through at least December 31, 1997 so that the total expenses of each Zero Coupon Fund
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, 1996, the Total Annual Expenses and the Management and Fund Administration Fees would have been as follows: Zero
Coupon Fund-2000, .62% and .60%; Zero Coupon Fund-2005, .65% and .63%; and Zero Coupon Fund- 2010, .65% and .63%.
5The Capital Growth and Templeton International Smaller Companies Funds began operations on May 1, 1996 and the Mutual Shares
Securities and Mutual Discovery Securities Funds began operations on November 8, 1996. The expenses shown above for these Funds
are therefore estimated for 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The purpose of this Fee Table is to help you understand the costs of investing, directly or indirectly, in the Contract. The Fee
Table reflects expenses of the Separate Account as well as the Funds. The examples below 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 is greater than $1,000, the contract
maintenance charge is reduced accordingly. Premium taxes are not reflected in the tables. Premium taxes may apply. For additional
information, see Section 5 - Expenses and the Franklin Valuemark Funds prospectus.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if you surrender
your Contract at the end of each time period:
1 Year 3 Years 5 Years 10 Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Money Market Fund .............................................................. $82 $117 $148 $245
Growth and Income Fund ......................................................... $81 $116 $146 $242
Natural Resources Securities Fund .............................................. $83 $121 $154 $257
Real Estate Securities Fund .................................................... $82 $119 $150 $249
Utility Equity Fund ............................................................ $81 $116 $146 $242
High Income Fund ............................................................... $82 $118 $148 $246
Templeton Global Income Securities Fund ........................................ $82 $120 $152 $253
Income Securities Fund ......................................................... $81 $116 $146 $242
U.S. Government Securities Fund ................................................ $81 $117 $147 $243
Zero Coupon Fund-2000++......................................................... $80 $113 $141 $231
Zero Coupon Fund-2005++......................................................... $80 $113 $141 $231
Zero Coupon Fund-2010++......................................................... $80 $113 $141 $231
Rising Dividends Fund .......................................................... $84 $124 $159 $268
Templeton International Equity Fund ............................................ $85 $128 $166 $282
Templeton Pacific Growth Fund .................................................. $86 $131 $171 $292
Templeton Global Growth Fund ................................................... $86 $129 $168 $286
Templeton Developing Markets Equity Fund ....................................... $91 $146 $196 $340
Templeton Global Asset Allocation Fund ......................................... $85 $127 $165 $279
Small Cap Fund ................................................................. $84 $125 $160 $270
Templeton International Smaller Companies Fund* ................................ $88 $136 $180 $308
Capital Growth Fund* ........................................................... $84 $125 $160 $270
Mutual Discovery Securities Fund* .............................................. $87 $133 $174 $298
Mutual Shares Securities Fund* ................................................. $85 $127 $164 $278
<FN>
*Estimated
++Calculated with waiver of fees and reimbursement of expenses
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if your Contract is not
surrendered or is annuitized:
1 Year 3 Years 5 Years 10 Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Money Market Fund ............................................................. $22 $66 $114 $245
Growth and Income Fund ........................................................ $21 $65 $112 $242
Natural Resources Securities Fund ............................................. $23 $70 $120 $257
Real Estate Securities Fund ................................................... $22 $68 $116 $249
Utility Equity Fund ........................................................... $21 $65 $112 $242
High Income Fund .............................................................. $22 $67 $114 $246
Templeton Global Income Securities Fund ....................................... $22 $69 $118 $253
Income Securities Fund ........................................................ $21 $65 $112 $242
U.S. Government Securities Fund ............................................... $21 $66 $113 $243
Zero Coupon Fund-2000++........................................................ $20 $62 $107 $231
Zero Coupon Fund-2005++........................................................ $20 $62 $107 $231
Zero Coupon Fund-2010++........................................................ $20 $62 $107 $231
Rising Dividends Fund ......................................................... $24 $73 $125 $268
Templeton International Equity Fund ........................................... $25 $77 $132 $282
Templeton Pacific Growth Fund ................................................. $26 $80 $137 $292
Templeton Global Growth Fund .................................................. $26 $78 $134 $286
Templeton Developing Markets Equity Fund ...................................... $31 $95 $162 $340
Templeton Global Asset Allocation Fund ........................................ $25 $76 $131 $279
Small Cap Fund ................................................................ $25 $74 $126 $270
Templeton International Smaller Companies Fund* ............................... $28 $85 $146 $308
Capital Growth Fund* .......................................................... $24 $74 $126 $270
Mutual Discovery Securities Fund* ............................................. $27 $82 $140 $298
Mutual Shares Securities Fund* ................................................ $25 $76 $130 $278
<FN>
*Estimated
++Calculated with waiver of fees and reimbursement of expenses
</FN>
</TABLE>
As of December 31, 1996, no Contracts had been sold. Therefore, Allianz Life has
not provided Condensed Financial Information.
<PAGE>
1. THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
- -------------------------------------------------------------------------------
This prospectus describes a variable annuity contract with a Fixed Account
option offered by Allianz Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Allianz Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase. The Contract benefits from Tax Deferral.
Tax Deferral means that you are not taxed on any earnings or appreciation on the
assets in your Contract until you take money out of your Contract.
The Contract is called a variable annuity because you can choose among 23 Funds
and depending upon market conditions, you can make or lose money in the Funds
based on the Funds' investment performance. The Funds are designed to offer a
better return than the fixed account option, however, this is not guaranteed. If
you select the variable annuity portion of the Contract, the amount of money you
are able to accumulate in your Contract during the Accumulation Phase depends in
large part upon the investment performance of the Fund(s) you select. The amount
of the Annuity Payments you receive during the Payout Phase from the variable
annuity portion of the Contract also depends in large part upon the investment
performance of the Funds you select for the Payout Phase.
The Contract also contains a Fixed Account option. The Fixed Account option
offers an interest rate that is guaranteed for all deposits made within the
twelve month period by Allianz Life. This interest rate is set monthly and is
guaranteed for 12 months. Allianz Life guarantees that the interest credited to
the Fixed Account will not be less than 3% per year. If you select the Fixed
Account, your money will be placed with the other general assets of Allianz
Life. If you select the Fixed Account, the amount of money you are able to
accumulate in your Contract during the Accumulation Phase depends upon the total
interest credited to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Any Joint Owner must be the spouse of
the other Contract Owner (except in Pennsylvania and Oregon). Upon the death of
either Joint Owner, the surviving spouse will be the designated Beneficiary. Any
other Beneficiary designation at the time the Contract was issued or as may have
been later changed will be treated as a contingent Beneficiary unless otherwise
indicated.
ANNUITANT
An Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can assign the Contract at any time during your lifetime. Allianz Life will
not be bound by the assignment until it receives the written notice of the
assignment. Allianz Life will not be liable for any payment or other action we
take in accordance with the Contract before we receive notice of the assignment.
Any assignment made after the death benefit has become payable can only be done
with our consent. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- -------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 years after you buy the Contract. You can also choose among income
plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the Annuitant's 85th birthday or 10 years from the date
the Contract was issued, whichever is later. This limitation may not apply when
the contract is issued to a charitable remainder trust. You (or someone you
designate) will receive the Annuity Payments. You will receive tax reporting on
those payments.
If you do not choose an Annuity Option prior to the Income Date, we will assume
that you selected Option 2 which provides a life annuity with 10 years of
guaranteed payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). Under a variable
payout, you have the same investment choices from the Funds that were available
during the Accumulation Phase. If you do not tell us otherwise, your Annuity
Payments will be based on the investment allocations that were in place on the
Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Fund(s), the dollar amount of your payments will
depend upon three things: 1) the value of your Contract in the Fund(s) on the
Income Date, 2) the 5% assumed investment rate used in the annuity table for the
Contract, and 3) the performance of the Fund(s) you selected. If the actual
performance exceeds the 5% assumed rate, your Annuity Payments will increase.
Similarly, if the actual rate is less than 5%, your Annuity Payments will
decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Allianz Life agrees to provide. After Annuity Payments begin,
you cannot change the Annuity Option.
OPTION 1. LIFE ANNUITY. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 or 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if, when the Annuitant dies, we have made Annuity Payments for less
than the selected guaranteed period, we will continue to make Annuity Payments
to you for the rest of the guaranteed period. If you do not want to receive
Annuity Payments, you can ask us for a single lump sum.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments, so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to the
survivor can be equal to 100%, 75% or 50% of the amount that we would have paid
if they both were alive.
The monthly Annuity Payments will end when the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 or 20 YEAR PAYMENTS
GUARANTEED. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that would have been paid if they were both alive. If, when the last
death occurs, we have made Annuity Payments for less than the selected
guaranteed period, we will continue to make Annuity Payments to you or any
person you designate for the rest of the guaranteed period. If you do not want
to receive Annuity Payments, you can ask us for a single lump sum.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies with a guarantee that Allianz Life will pay you a
refund as set forth in the contract.
3. PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. The minimum payment
Allianz Life will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If you enroll in the Automatic Investment Plan (which is
described below), your Purchase Payment can be $2,000. If you are buying the
Contract as part of an IRA (Individual Retirement Annuity), 401(k) or other
Qualified plan, the minimum amount we will accept is $2,000. The maximum we will
accept without our prior approval is $1 million. You can make additional
Purchase Payments of $250 (or as low as $100 if you have selected the Automatic
Investment Plan) or more to either type of Contract. Allianz Life may, at its
sole discretion, waive the minimum payment requirements. At the time you buy the
Contract, you and the Annuitant cannot be older than 85 years old.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Account and/or one or more of the Funds you have selected. We ask that you
allocate your money in either whole percentages or round dollars. The Fixed
Account may not be available in your state (check with your registered
representative). You can instruct us how to allocate additional Purchase
Payments you make. If you do not instruct us, we will allocate them in the same
way as your previous instructions to us. Allianz Life reserves the right to
limit the number of Funds that you may invest in at one time. Currently, you may
invest in 10 investment options at one time (which includes any of the 23 Funds
of Franklin Valuemark Funds listed in Section 4 and the Allianz Life Fixed
Account option). We may change this in the future. However, we will always allow
you to invest in at least five Funds.
Once we receive your Purchase Payment, the necessary information and federal
funds (federal funds means monies credited to a bank's account with its regional
federal reserve bank), we will issue your Contract and allocate your first
Purchase Payment within 2 business days. If you do not give us all of the
information we need, we will contact you to get it. If for some reason we are
unable to complete this process within 5 business days, we will either send back
your money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it (or the period required in your state). When you cancel
the Contract within this time period, Allianz Life will not assess a contingent
deferred sales charge. You will receive back whatever your Contract is worth on
the day we receive your request. In certain states or if you have purchased the
Contract as an IRA, we may be required to give you back your Purchase Payment if
you decide to cancel your Contract within 10 days after receiving it (or
whatever period is required in your state). If that is the case, we reserve the
right to put your initial Purchase Payment in the Money Market Fund for 15 days
after we issue your Contract. (In some states, the period may be longer.) At the
end of that period, we will re-allocate your money as you selected. Currently,
however, we will directly allocate your money to the Funds and/or the Fixed
Account as you have selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Funds will go up or
down based upon the investment performance of the Fund(s) you choose. The value
of your Contract will also depend on the expenses of the Contract. In order to
keep track of the value of your Contract, we use a measurement called an
Accumulation Unit (which is like a share of a mutual fund). During the Payout
Phase of the Contract we call it an Annuity Unit. Every business day we
determine the value of an Accumulation Unit by multiplying the Accumulation Unit
value for the previous period by a factor for the current period. The factor is
determined by:
1. dividing the value of a Fund share at the end of the current period by the
value of a Fund share for the previous period; and
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Fund. The number
of Accumulation Units credited is determined by dividing the amount of the
Purchase Payment allocated to a Fund by the value of the corresponding
Accumulation Unit.
We calculate the value of each Accumulation Unit after the New York Stock
Exchange closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Growth and Income Fund. When the New
York Stock Exchange closes on that Wednesday, we determine that the value of an
Accumulation Unit based on an investment in the Growth and Income Fund is
$12.50. We then divide $3,000 by $12.50 and credit your Contract on Wednesday
night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
The Contract offers 23 Funds of Franklin Valuemark Funds and a Fixed Account
option of Allianz Life. Additional Funds may be available in the future.
YOU SHOULD READ THE FRANKLIN VALUEMARK FUNDS PROSPECTUS (WHICH IS ATTACHED TO
THIS PROSPECTUS) CAREFULLY BEFORE INVESTING.
Franklin Valuemark Funds is the mutual fund underlying your Contract. Each Fund
has its own investment objective. Franklin Advisers, Inc. serves as each Fund's
investment manager (except the Templeton Global Growth Fund, the Templeton
Developing Markets Equity Fund, the Templeton Global Asset Allocation Fund, the
Templeton International Smaller Companies Fund, the Rising Dividends Fund, the
Mutual Shares Securities Fund and the Mutual Discovery Securities Fund). The
investment manager for the Templeton Global Growth and the Templeton Global
Asset Allocation Funds is Templeton Global Advisors Limited. The investment
manager for the Templeton Developing Markets Equity Fund is Templeton Asset
Management Ltd. The investment manager for the Templeton International Smaller
Companies Fund is Templeton Investment Counsel, Inc. The investment manager for
the Rising Dividends Fund is Franklin Advisory Services, Inc. The investment
manager for the Mutual Shares Securities and the Mutual Discovery Securities
Funds is Franklin Mutual Advisers, Inc. Certain managers have retained one or
more sub-advisers to help them manage the Funds.
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Allianz Life and other variable annuity contracts
offered by Allianz Life and its affiliates. Franklin Valuemark Funds does not
believe that offering its shares in this manner will be disadvantageous to you.
The following is a list of the Funds which are available under the Contract:
FUND SEEKING STABILITY
OF PRINCIPAL AND INCOME:
Money Market Fund
FUNDS SEEKING CURRENT INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
FUNDS SEEKING GROWTH AND INCOME:
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Utility Equity Fund
FUNDS SEEKING CAPITAL GROWTH:
Capital Growth Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
(formerly, Precious Metals Fund)
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
TRANSFERS
You can transfer money among the 23 Funds and/or the Fixed Account. Allianz Life
currently allows you to make as many transfers as you want to each year. Allianz
Life may change this practice in the future. However, this product is not
designed for professional market timing organizations or other persons using
programmed, large, or frequent transfers. Such activity may be disruptive to a
Fund. We reserve the right to reject any specific Purchase Payment allocation or
transfer request from a professional market timer or registered representative
or to prohibit these types of transfers if we determine that they could harm a
Fund.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Allianz Life permits you to make 12 transfers every year
without charge. We measure a year from the anniversary of the day we issued your
Contract. You can make a transfer to or from the Fixed Account and to or from
any Fund. If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is $25 per transfer or, if less, 2% of the amount transferred.
The following applies to any transfer:
1. The minimum amount which you can transfer is $1,000 ($500 in New Jersey) or
your entire value in the Fund or Fixed Account. This requirement is waived if
the transfer is in connection with the Dollar Cost Averaging Program or Flexible
Rebalancing (which are described below).
2. We may not allow you to make transfers during the free look period.
3. Your request for a transfer must clearly state which Fund(s) or the Fixed
Account is involved in the transfer.
4. Your request for a transfer must clearly state how much the transfer is for.
5. You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6. During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7. During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Allianz Life has reserved the right to modify the transfer provisions subject to
the guarantees described above.
You can make transfers by telephone. We may allow you to authorize someone else
to make transfers by telephone on your behalf. If you own the Contract with a
Joint Owner, unless Allianz Life is instructed otherwise, Allianz Life will
accept instructions from either one of you. Allianz Life will use reasonable
procedures to confirm that instructions given to us by telephone are genuine. If
we do not use such procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions. Allianz Life tape records all telephone
instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Fund or the Fixed Account to
up to eight of the other Funds. By allocating amounts on a regularly scheduled
basis, as opposed to allocating the total amount at one particular time, you may
be less susceptible to the impact of market fluctuations. You may only
participate in this program during the Accumulation Phase.
You must participate in the program for at least six months (or two quarters)
and must transfer at least $500 each time (or $1,500 each quarter). Your
allocations can be in whole percentages or dollar amounts. The Fund(s) you
transfer from may not be the Fund(s) you transfer to in this program. You may
elect this program by properly completing the Dollar Cost Averaging forms
provided by Allianz Life. All Dollar Cost Averaging transfers will be made on
the 10th day of the month unless that day is not a business day. If it is not,
then the transfer will be made the next business day.
Your participation in the program will end when any of the following occurs: (1)
the number of desired transfers have been made; (2) you do not have enough money
in the Fund(s) or Fixed Account to make the transfer (if less money is
available, that amount will be dollar cost averaged and the program will end);
(3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); (4) the Contract is terminated;
or (5) we receive proof of the Contract Owner's death.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the Funds may cause your
chosen allocation to shift. Flexible Rebalancing is designed to help you
maintain your specified allocation mix among the different Funds. You can direct
us to readjust your Contract value on a quarterly, semi-annual or annual basis
to return to your original Fund allocations. Flexible Rebalancing transfers will
be made on the 20th day of the month unless that day is not a business day. If
it is not, then the transfer will be made on the previous day. If you
participate in Flexible Rebalancing, the transfers made under the program are
not taken into account in determining any transfer fee. The Fixed Account is not
permitted to be part of Flexible Rebalancing.
VOTING PRIVILEGES
Allianz Life is the legal owner of the Fund shares. However, when a Fund
solicits proxies in conjunction with a shareholder vote, Allianz Life will
obtain from you and other Contract Owners instructions as to how to vote those
shares. When we receive those instructions, we will vote all of the shares we
own in proportion to those instructions. This will also include any shares that
Allianz Life owns on its own behalf. Should Allianz Life determine that it is no
longer required to comply with the above, we will vote the shares in our own
right.
SUBSTITUTION
Allianz Life may substitute one of the Funds you have selected with another
Fund. We would not do this without the prior approval of the Securities and
Exchange Commission. We will give you notice of our intention to do this.
5. EXPENSES
- -------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Allianz Life makes a deduction for its insurance charges. Allianz Life
does this as part of its calculation of the value of the Accumulation Units and
the Annuity Units. The insurance charge has two parts: 1) the mortality and
expense risk charge and 2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Fund, after the deduction of expenses. During the Payout Phase,
the charge is equal, on an annual basis, to 1.25% of the average daily value of
the Contract invested in a Fund, after the deduction of expenses. This charge
compensates us for all the insurance benefits provided by your Contract (for
example, the guarantee of annuity rates, the death benefits, certain expenses
related to the Contract, and for assuming the risk (expense risk) that the
current charges will be insufficient in the future to cover the cost of
administering the Contract). The amount of the mortality and expense risk charge
is less during the Payout Phase because Allianz Life does not pay a death
benefit if you die during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Fund, after the deduction of
expenses. This charge, together with the contract maintenance charge (which is
explained below), is for all the expenses associated with the administration of
the Contract. Some of these expenses include: preparation of the Contract,
confirmations, annual reports and statements, maintenance of contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
CONTRACT MAINTENANCE CHARGE
Every year on the anniversary of the date when your Contract was issued, Allianz
Life deducts $30 from your Contract as a contract maintenance charge. This
charge is for administrative expenses (see above). This charge can not be
increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $50,000 when the deduction for the charge is to be made, Allianz Life will
not deduct this charge. If you own more than one Valuemark IV Contract, Allianz
Life will determine the total value of all your Valuemark IV Contracts. If the
total value of all Valuemark IV Contracts registered under the same social
security number is at least $50,000, Allianz Life will not assess the contract
maintenance charge (except in New Jersey). If the Contract is owned by a
non-natural person (e.g., a corporation), Allianz Life will look to the
Annuitant to determine if it will assess the charge.
If you make a complete surrender from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, the charge will be
collected monthly out of each Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
Surrenders may be subject to a contingent deferred sales charge. During the
Accumulation Phase, you can make surrenders from your Contract. Allianz Life
keeps track of each Purchase Payment you make. The amount of the contingent
deferred sales charge depends upon how long Allianz Life has had your payment.
The charge is:
Number of Complete Contingent
Years from Receipt Deferred
of Purchase Payment: Sales Charge
-------------- --------
0 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 or more 0%
However, after Allianz Life has had a Purchase Payment for 7 years, there is no
charge when you surrender that Purchase Payment. For purposes of the contingent
deferred sales charge, Allianz Life treats surrenders as coming from the oldest
Purchase Payments first. Allianz Life does not assess the contingent deferred
sales charge on any payments paid out as Annuity Payments or as death benefits.
NOTE: For tax purposes, surrenders are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
Free Surrender Amount - Each year after the first Contract year, you can make
multiple surrenders up to 15% of the value of your Contract and no contingent
deferred sales charge will be deducted from the 15% you take out. (This amount
may be increased when the Contract is issued to a charitable remainder trust.)
Surrenders in excess of that free amount will be subject to the contingent
deferred sales charge. If you do not surrender the full 15% in any one Contract
year, you may not carry over the remaining percentage amount to another year.
You may also select to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program which allow you to make surrenders without the
deduction of the contingent deferred sales charge under certain circumstances.
See Section 7 - Access to Your Money for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
WAIVER OF CONTINGENT DEFERRED
SALES CHARGE BENEFITS
Under certain circumstances, after the first year, Allianz Life will permit you
to take your money out of the Contract without deducting a contingent deferred
sales charge: 1) if you become confined to a nursing home; 2) if you become
terminally ill, which is defined as life expectancy of 12 months or less (a full
surrender of the Contract will be required); or 3) if you become totally
disabled for at least 90 consecutive days.
Also, after the first year, if you become unemployed for at least 90 consecutive
days, you can take up to 50% of your money out of the Contract without incurring
a contingent deferred sales charge. This benefit is available only once during
the life of the Contract and you may not use both this benefit and the 15% free
surrender amount in the same Contract year. These benefits may not be available
in your state.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
Allianz Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Allianz Life. Allianz Life will not deduct a contingent
deferred sales charge under a Contract issued to an officer, director or
employee of Allianz Life or any of its affiliates. Also, Allianz Life will not
deduct a contingent deferred sales charge when a Contract is sold by an agent of
Allianz Life to any members of his or her immediate family and the commission is
reduced. Any circumstances resulting in reduction or elimination of the
contingent deferred sales charge requires prior approval of Allianz Life.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer.
If the transfer is part of the Dollar Cost Averaging Program or Flexible
Rebalancing, it will not count in determining the transfer fee.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Allianz Life is responsible for the payment of
these taxes and will make a deduction from the value of the Contract for them.
Some of these taxes are due when the Contract is issued, others are due when
Annuity Payments begin. It is Allianz Life's current practice to not charge you
for these taxes until you die, Annuity Payments begin or a complete surrender is
made. Allianz Life may some time in the future discontinue this practice and
assess the charge when the tax is due. Premium taxes generally range from 0% to
3.5% of the Purchase Payment, depending on the state.
INCOME TAXES
Allianz Life will deduct from the Contract for any income taxes which it may
incur because of the Contract. Currently, Allianz Life is not making any such
deductions.
FUND EXPENSES
There are deductions from the assets of the various Funds for operating expenses
(including management fees), which are described in the attached prospectus for
Franklin Valuemark Funds.
6. TAXES
- -------------------------------------------------------------------------------
NOTE: ALLIANZ LIFE HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU SHOULD CONSULT
YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. ALLIANZ LIFE HAS INCLUDED
ADDITIONAL INFORMATION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL
INFORMATION.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs - either as a surrender or as Annuity
Payments. When you make a surrender you are taxed on the amount of the surrender
that is earnings. For Annuity Payments, different rules apply. A portion of each
Annuity Payment you receive will be treated as a partial return of your Purchase
Payments and will not be taxed. The remaining portion of the Annuity Payment
will be treated as ordinary income. How the Annuity Payment is divided between
taxable and non-taxable portions depends upon the period over which the Annuity
Payments are expected to be made. Annuity Payments received after you have
received all of your Purchase Payments are fully includible in income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than tax-qualified trusts), the
Contract will generally not be treated as an annuity for tax purposes. This
means that the Contract may not receive the benefits of Tax-Deferral. Income may
be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), H.R. 10 Plans (sometimes referred to as Keogh Plans), and
pension and profit-sharing plans, which include 401(k) plans.
If you do not purchase the Contract under a Qualified plan, your Contract is
referred to as a Non-Qualified Contract.
SURRENDERS - NON-QUALIFIED CONTRACTS
If you make a surrender from your Contract, the Code treats such a surrender as
first coming from earnings and then from your Purchase Payments. In most cases,
such surrendered earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some surrenders will
be exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 591/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) for
the life or life expectancy of the taxpayer; (5) paid under an immediate
annuity; or (6) which come from purchase payments made prior to August 14, 1982.
SURRENDERS - QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of surrenders from Qualified Contracts is
contained in the Statement of Additional Information.
SURRENDERS - TAX-SHELTERED ANNUITIES
The Code limits the surrender of purchase payments made by owners from certain
Tax-Sheltered Annuities. Surrenders can only be made when a Contract Owner: (1)
reaches age 591/2; (2) leaves his/her job; (3) dies; (4) becomes disabled (as
that term is defined in the Code); or (5) in the case of hardship. However, in
the case of hardship, the Contract Owner can only surrender the Purchase
Payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Allianz Life believes that the Funds are being managed so as
to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Allianz Life,
would be considered the owner of the shares of the Funds. If this occurs, it
will result in the loss of the favorable tax treatment for the Contract. It is
unknown to what extent under federal tax law Contract Owners are permitted to
select Funds, to make transfers among the Funds or the number and type of Funds
Contract Owners may select from. If any guidance is provided which is considered
a new position, then the guidance would generally be applied prospectively.
However, if such guidance is considered not to be a new position, it may be
applied retroactively. This would mean that you, as the owner of the Contract,
could be treated as the owner of the Funds.
Due to the uncertainty in this area, Allianz Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- -------------------------------------------------------------------------------
You can have access to the money in your Contract:
(1) by making a surrender (either a partial or a total surrender); (2) by
receiving Annuity Payments; or (3) when a death benefit is paid to your
Beneficiary. Surrenders can only be made during the Accumulation Phase.
When you make a complete surrender you will receive the value of the Contract on
the day you made the surrender less any applicable contingent deferred sales
charge, less any premium tax and less any contract maintenance charge. (See
Section 5 - Expenses for a discussion of the charges.)
Any partial surrender must be for at least $500 and, unless you instruct Allianz
Life otherwise, will be made pro-rata from all the Funds and the Fixed Account
you selected. Allianz Life requires that after you make a partial surrender the
value of your Contract must be at least $2,000.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY SURRENDER
YOU MAKE.
There are limits to the amount you can surrender from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6 - Taxes and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Allianz Life offers a program
which provides automatic monthly or quarterly payments to you each year. The
total systematic withdrawals which you can make each year without Allianz Life
deducting a contingent deferred sales charge is limited to 15% of the value of
your Contract determined on the last valuation date prior to the day your
request is received. You may surrender any amount you want under this program if
your payments are no longer subject to the contingent deferred sales charge. You
may not participate in this program if you own a Non-Qualified Contract and are
under age 591/2. If you make surrenders under this program, you may not also use
the 15% free surrender amount that year. For a discussion of the contingent
deferred sales charge and the 15% free surrender amount, see Section 5 -
Expenses. All systematic withdrawals will be made on the 9th day of the month
unless that day is not a business day. If it is not, then the surrender will be
made the previous business day.
INCOME TAXES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Allianz Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Internal Revenue Code for IRAs.
If the value of your Contract is at least $25,000, Allianz Life will make
payments to you on a monthly or quarterly basis. The payments will not be
subject to the contingent deferred sales charge and will be instead of the 15%
free surrender amount.
SUSPENSION OF PAYMENTS OR TRANSFERS
Allianz Life may be required to suspend or postpone payments for surrenders or
transfers 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 the Fund shares is not
reasonably practicable or Allianz Life cannot reasonably value the Fund shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Allianz Life has reserved the right to defer payment for a surrender or transfer
from the Fixed Account for the period permitted by law but not for more than six
months.
8. PERFORMANCE
- -------------------------------------------------------------------------------
Allianz Life periodically advertises performance of the various Funds. Allianz
Life will calculate performance by determining the percentage change in the
value of an Accumulation Unit by dividing the increase (decrease) for that unit
by the value of the Accumulation Unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges. It may not
reflect the deduction of any applicable contingent deferred sales charge and
contract maintenance charge. The deduction of any applicable contract
maintenance charge and contingent deferred sales charges would reduce the
percentage increase or make greater any percentage decrease. Any advertisement
will also typically include average annual total return figures which reflect
the deduction of the insurance charges, contract maintenance charge, contingent
deferred sales charges and the expenses of the Funds. Allianz Life may also
advertise cumulative total return information. Cumulative total return is
determined the same way except that the results are not annualized.
Certain Funds have been in existence for some time and have investment
performance history. However, the Contracts have been available only since
February 3, 1997. In order to demonstrate how the actual investment experience
of the Funds may affect your Accumulation Unit values, Allianz Life has prepared
hypothetical performance information which can be found in the SAI. The
performance is based on the historical performance of the Funds, modified to
reflect the current charges and expenses of your Contract as if it had been in
existence for the time periods shown. The information is based upon the
historical experience of the Funds and does not represent past or predict future
performance.
The Appendix to this Prospectus contains additional and hypothetical performance
information relating to the two new Franklin Valuemark Funds, the Mutual Shares
Securities Fund and the Mutual Discovery Securities Fund, which you may find
informative. Please review it in the context of the other information about
these Funds presented in the Franklin Valuemark Funds prospectus. The Company
will not present this information in sales literature or advertisements unless
current NASD positions are changed to permit such use.
Allianz Life may in the future also advertise yield information. If it does, it
will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data and does not
guarantee future results of the Funds.
9. DEATH BENEFIT
- ------------------------------------------------------------------------------
UPON YOUR DEATH
If you die during the Accumulation Phase, Allianz Life will pay a death benefit
to your Beneficiary (see below). No death benefit is paid during the Payout
Phase. If you have a Joint Owner, and the Joint Owner dies, the surviving owner
will be considered the Beneficiary. Joint Owners must be spouses (except in
Pennsylvania and Oregon).
The death benefit will be the greater of: 1) the current value of your Contract,
less any taxes on the day all claim proofs and payment election forms are
received by Allianz Life at the Valuemark Service Center; or 2) as set forth in
the enhanced death benefit endorsement to the Contract, the guaranteed minimum
death benefit, less any taxes, as of the day you die. Certain Contract Owners
will not receive an enhanced death benefit endorsement. For these Contract
Owners, the death benefit is as set forth in Item No. 1 above. During the first
year, the guaranteed minimum death benefit is equal to the payments you have
made, less any money you have taken out and any charges paid on the money you
have taken out. After the first year and before your 76th birthday, the
guaranteed minimum death benefit is the greater of: A) payments you have made,
less any money you have taken out and charges paid on the money you have taken
out, increased by 5% per year on each Contract anniversary; or B) the highest of
the Contract values for each six year Contract anniversary determined by the
Contract value on such six year anniversary plus any payments made, less any
money taken out since that Contract anniversary, and charges paid on the money
you have taken out. After your 76th birthday, the guaranteed minimum death
benefit will only be increased by any payments you have made since the last
Contract anniversary before your 76th birthday less any money you have taken out
and any charges paid on the money you have taken out since such Contract
anniversary. If you have a Joint Owner, the age of the oldest owner will be used
to determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts surrendered after the date of death. If
the Contract is owned by a non-natural person, then all references to you mean
the Annuitant.
The death benefit provision described above may not be available in your state.
If it is not available, the death benefit will be equal to the value of your
Contract (less any premium taxes) on the business day that Allianz Life receives
proof of the death and payment instructions.
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or(2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. If the Beneficiary is
the spouse of the Contract Owner, he/she can choose to continue the Contract in
his/her own name at the then current value, or if greater, the death benefit
value. If a lump sum payment is elected and all the necessary requirements are
met, the payment will be made within 7 days.
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If a new Annuitant is not
named within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named. If the Annuitant dies
after Annuity Payments have begun, the remaining amounts payable, if any, will
be as provided for in the Annuity Option selected. The remaining amounts payable
will be paid to the Contract Owner at least as rapidly as they were being paid
at the Annuitant's death.
10. OTHER INFORMATION
- -------------------------------------------------------------------------------
ALLIANZ LIFE
Allianz Life Insurance Company of North America (Allianz Life), 1750 Hennepin
Avenue, Minneapolis, Minnesota 55403, was organized under the laws of the state
of Minnesota in 1896. Allianz Life offers fixed and variable life insurance and
annuities and group life, accident and health insurance. Allianz Life is
licensed to do business in 49 states and the District of Columbia. Allianz Life
is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
THE SEPARATE ACCOUNT
Allianz Life established a separate account, Allianz Life Variable Account B
(Separate Account), to hold the assets that underlie the Contracts. The Board of
Directors of Allianz Life adopted a resolution to establish the Separate Account
under Minnesota insurance law on May 31, 1985. Allianz Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into sub-accounts. Each sub-account invests in a Fund.
The assets of the Separate Account are held in Allianz Life's name on behalf of
the Separate Account and legally belong to Allianz Life. However, those assets
that underlie the variable Contracts are not chargeable with liabilities arising
out of any other business Allianz Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Allianz Life
may issue.
DISTRIBUTION
NALAC Financial Plans, LLC (NFP) 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is a wholly-owned subsidiary of
Allianz Life. 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 6.0% of Purchase Payments.
Sometimes, Allianz Life enters into an agreement with the broker-dealer to pay
the broker-dealer commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which when totaled could
exceed 6% of Purchase Payments). In addition, Allianz Life and Franklin
Advisers, Inc. and/or its affiliates may pay certain sellers for other services
not directly related to the sale of the Contracts (such as special marketing
support allowances). To the extent that the contingent deferred sales charge is
insufficient to cover the actual cost of distribution, Allianz Life may use any
of its corporate assets, including any profit from the mortality and expense
risk charge, to make up any difference. Commissions may be recovered from a
broker-dealer if a surrender occurs within 12 months of a Purchase Payment.
ADMINISTRATION
Allianz Life has hired Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, to perform certain administrative services
regarding the Contracts. The administrative services include issuance of the
Contracts and maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The consolidated financial statements of Allianz Life and the Separate Account
have been included in the Statement of Additional Information.
APPENDIX
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
OF SELECTED PUBLIC FUNDS
The Mutual Shares Securities Fund and Mutual Discovery Securities Fund ("New
Valuemark Funds") are newly created (November 8, 1996) series of Franklin
Valuemark Funds and do not yet have any meaningful performance history. The New
Valuemark Funds do, however, have the same investment objective and portfolio
managers,1 and substantially the same investment policies, as Class Z shares of
two corresponding series of Franklin Mutual Series Fund Inc. (formerly "Mutual
Series Fund Inc.") which have been sold directly to the public ("Public Funds").
Thus, the performance of the Public Funds may be considered relevant by
investors.
Chart 1 below shows the past performance of the Public Funds, in terms of
average annual total return over the periods indicated. Average annual total
return represents the average annual change in value of an investment over the
stated periods, assuming reinvestment of dividends and capital gains at net
asset value. These figures reflect the deduction of the historical fees and
expenses paid by the Public Funds, which have been sold without sales charges.
Chart 2 below shows hypothetical performance of Accumulation Units of the New
Valuemark Funds, based on the past average annual total return of the Public
Funds and the deduction of all current recurring expenses of the Separate
Account. These figures do not reflect any contingent deferred sales charge or
contract maintenance charge and have not been restated to reflect the higher
expenses of the New Valuemark Funds; all of which would lower the hypothetical
performance shown.
Chart 3 below shows hypothetical performance of Accumulation Units of the New
Valuemark Funds, based on the past average annual total return of the Public
Funds and the deduction of all current recurring expenses of the Separate
Account, as well as deduction of the contract maintenance charge and the
applicable contingent deferred sales charge. These figures have not been
restated to reflect the higher expenses of the New Valuemark Funds which would
lower the hypothetical performance shown.
Important Note: Past performance cannot predict or guarantee future results of
the New Valuemark Funds. In addition, the investment performance of the New
Valuemark Funds will differ from the performance of the Public Funds because of
product and portfolio differences, including differences in portfolio size, the
investments held, the timing of purchases of similar investments, cash flows,
minor differences in certain investment policies, insurance product related tax
diversification requirements, state insurance regulations, and additional
administrative and insurance costs associated with insurance company separate
accounts. These figures are not adjusted for tax consequences.
1In November 1996, Franklin Mutual Advisers, Inc., a wholly owned subsidiary of
Franklin Resources, Inc., parent company of the investment managers of the
Franklin Valuemark Funds, acquired the assets of Heine Securities Corporation,
the investment manager of Mutual Series Fund Inc. This transaction did not,
however, change the individual portfolio managers responsible for the day-to-day
operations of Franklin Mutual Series Fund Inc., who are also responsible for the
day-to-day operations of the New Valuemark Funds. Franklin Mutual Series Fund
Inc. is distributed by Franklin Templeton Distributors, Inc.
<PAGE>
<TABLE>
<CAPTION>
1. Public Funds' Historical Performance
Since Inception
Periods Ended 12/31/96: One-Year Five-Years Ten-Years Inception Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mutual Discovery Fund - Class Z................. 24.93% -- -- 22.62% 12/31/92
Mutual Shares Fund - Class Z.................... 20.76% 19.06% 15.36% -- 7/1/49
2. Hypothetical Accumulation Unit Performance (includes all current recurring expenses of the Separate Account)
Since Inception
Periods Ended 12/31/96: One-Year Five-Years Ten-Years Inception Date
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities
Sub-Account ................................... 23.09% -- -- 20.76% 12/31/92
Mutual Shares Securities
Sub-Account ................................... 19.02% 17.22% 13.58% -- 7/1/49
3. Hypothetical Accumulation Unit Performance (includes all current recurring expenses of the Separate Account and deduction of
the contingent deferred sales charge and contract maintenance charge)
Since Inception
Periods Ended 12/31/96: One-Year Five-Years Ten-Years Inception Date
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities
Sub-Account.................................... 16.99% -- -- 20.07% 12/31/92
Mutual Shares Securities
Sub-Account.................................... 12.92% 16.78% 13.51% -- 7/1/49
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
<S> <C>
Insurance Company................................. 2
Experts........................................... 2
Legal Opinions.................................... 2
Distributor....................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge................. 2
Calculation of Performance Data................... 2
Tax Status........................................ 5
Annuity Provisions................................ 9
Mortality and Expense Risk Guarantee.............. 10
Financial Statements.............................. 10
</TABLE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
May 1, 1997
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS 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
INSURANCE COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800)
542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1997 , AND AS MAY BE AMENDED FROM TIME TO TIME.
<TABLE>
<CAPTION>
Table of Contents
- ------------------------------------------------------
<S> <C>
Contents Page
Insurance Company............................... 2
Experts......................................... 2
Legal Opinions.................................. 2
Distributor..................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge............... 2
Calculation of Performance Data................. 2
Tax Status...................................... 5
Annuity Provisions.............................. 9
Mortality and Expense Risk Guarantee............ 10
Financial Statements............................ 10
</TABLE>
V4 SAI 05/97
<PAGE>
Insurance Company
- --------------------------------------------------------------------------------
Allianz Life Insurance Company of North America (the "Insurance Company") is a
stock life insurance company organized under the laws of the state of Minnesota
in 1896. The Insurance 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. The Insurance Company
offers fixed and variable life insurance and annuities, and group life, accident
and health insurance. On April 1, 1993, the Insurance Company changed its name
from North American Life and Casualty Company to its present name.
The Insurance 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 the Insurance Company as of and for the year ended
December 31, 1996 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, LLC, a subsidiary of the Insurance Company, acts as the
distributor. The offering is on a continuous basis.
Reduction or Elimination of the
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 Insurance 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 Insurance
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 will be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. The Contingent Deferred Sales Charge will also be eliminated
when the Contract is sold by an agent of the Insurance Company to any members of
his or her immediate family and the commission is reduced. In no event will any
reduction or elimination of the Contingent Deferred Sales Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
<PAGE>
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Insurance Company may advertise the performance data for
the Funds in sales literature, advertisements, personalized hypothetical
illustrations, and Contract Owner communications. Such data will show the
percentage change in the value of an accumulation unit based on the performance
of a Fund over a stated period of time which is determined by dividing the
increase (or decrease) in value for that unit by the accumulation unit value at
the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.34% Mortality and Expense Risk Charge,
a 0.15% Administrative Charge, the operating expenses of the underlying Funds
and any applicable Contingent Deferred Sales Charge and Contract Maintenance
Charge ("Standardized Total Return"). The Contingent Deferred Sales Charge and
Contract Maintenance Charge deductions are calculated assuming a Contract is
surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contract Maintenance
Charges and any applicable Contingent Deferred Sales Charge to arrive at the
ending hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
P (1 + T)n = 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 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the Contingent Deferred Sales Charge and the Contract Maintenance
Charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Company may also present
performance information computed on a different basis ("Non-Standardized Total
Return").
Cumulative 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 payment at the time it is allocated to the
Funds and assumes that the income earned by the investment in the Fund is
reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of 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 may be in any future period.
Yield
The Money Market Fund. The Insurance Company may advertise yield information for
the Money Market Fund. The Money Market Fund'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
Charge and the Contract Maintenance Charge and, in certain instances, the value
<PAGE>
of the underlying Fund's investment securities. The fact that the Fund's current
yield will fluctuate and that the principal is not guaranteed should be taken
into consideration when using the Fund's current yield as a basis for comparison
with savings accounts or other fixed-yield investments. The yield at any
particular time is not indicative of what the yield may be at any other time.
The Money Market Fund'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 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.)
For the seven-day period ending on 12/31/96, the Money Market Sub-Account had a
current yield of 3.64% and an effective yield of 3.70%. The yield information
assumes that the Sub-Account was invested in the Money Market Fund for the time
period shown.
Other Funds. The Insurance Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications for the other Funds. Each Fund (other than the Money Market Fund)
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 Charge and 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:
Yield = 2 [((a-b) + 1)6 - 1]
-----
cd
where:
a = net investment income earned during the period by the Fund attributable to
shares owned by the Fund;
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 (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume no sales load. The
Insurance Company does not currently advertise yield information for any Fund
(other than the Money Market Fund).
Performance Ranking
Total return may be compared to relevant indices, including U.S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS.
From time to time, evaluation of performance by independent sources may also be
used.
<PAGE>
Performance Information
Franklin Valuemark Funds - Existing Funds. The Funds of Franklin Valuemark Funds
have been in existence for some time and have investment performance history
(except the Capital Growth, Templeton International Smaller Companies, Mutual
Shares Securities, and Mutual Discovery Securities Funds). In order to show how
investment performance of the Funds affects accumulation unit values, the
following hypothetical performance information was developed.
The chart below shows hypothetical accumulation unit performance which assumes
that the accumulation units were invested in each of the Funds for the same
periods. The performance figures in Column I represent hypothetical performance
figures for the accumulation units which reflects the deduction of the Mortality
and Expense Risk Charge, Administrative Charge, and the operating expenses of
the Funds. Column II represents hypothetical performance figures for the
accumulation units which reflects the the Mortality and Expense Risk Charge,
Administrative Charge, the Contract Maintenance Charge, the operating expenses
of the Funds and assumes that you make a withdrawal at the end of the period
(therefore the Contingent Deferred Sales Charge is reflected). Past performance
does not guarantee future results.
<TABLE>
<CAPTION>
Franklin Valuemark IV
Total Return for the periods ended December 31, 1996
Column I Column II
---------------------------------------- ---------------------------------------
Inception One Three Five Since One Three Five Since
Fund Date Year Years Years Inception Year Years Years Inception
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 NA NA NA NA NA NA NA NA
Growth and Income 1/24/89 12.49% 12.43% 10.18% 8.67% 6.39% 10.97% 9.62% 8.58%
High Income 1/24/89 12.20% 8.43% 10.74% 8.59% 6.10% 6.87% 10.20% 8.50%
Income Securities 1/24/89 9.62% 6.88% 9.74% 10.16% 3.52% 5.26% 9.18% 10.07%
Money Market# 1/24/89 4.33% 3.60% 2.67% 3.72% -1.77% 1.89% 1.95% 3.63%
Mutual Discovery
Securities 11/8/96 NA NA NA NA NA NA NA NA
Mutual Shares
Securities 11/8/96 NA NA NA NA NA NA NA NA
Natural Resources
Securities* 1/24/89 2.45% -0.08% 6.25% 4.67% -3.65% -1.92% 5.62% 4.58%
Real Estate Securities 1/24/89 30.84% 15.38% 14.74% 11.36% 24.74% 13.99% 14.26% 11.28%
Rising Dividends 1/27/92 22.33% 13.90% NA 8.91% 16.23% 12.48% NA 8.32%
Small Cap 11/1/95 27.15% NA NA 24.37% 21.05% NA NA 19.98%
Templeton Developing
Markets Equity 3/15/94 19.78% NA NA 4.98% 13.68% NA NA 3.17%
Templeton Global
Asset Allocation 5/1/95 18.05% NA NA 14.26% 11.95% NA NA 11.33%
Templeton Global
Growth 3/15/94 19.48% NA NA 11.39% 13.38% NA NA 9.76%
Templeton Global
Income Securities 1/24/89 8.01% 4.54% 5.20% 6.64% 1.91% 2.85% 4.55% 6.56%
Templeton
International Equity 1/27/92 21.14% 9.47% NA 10.01% 15.04% 7.93% NA 9.44%
Templeton International
Smaller Companies 5/1/96 NA NA NA NA NA NA NA NA
Templeton Pacific Growth 1/27/92 9.45% 1.52% NA 8.37% 3.35% -0.27% NA 7.78%
U.S. Government
Securities 3/14/89 2.07% 4.15% 5.31% 6.65% -4.03% 2.46% 4.66% 6.57%
Utility Equity 1/24/89 5.57% 5.98% 6.79% 9.48% 0.53% 4.34% 6.17% 9.41%
Zero Coupon - 2000# 3/14/89 0.90% 3.29% 6.27% 8.08% -5.20% 1.57% 5.64% 8.01%
Zero Coupon - 2005# 3/14/89 -1.99% 4.27% 8.31% 9.55% -8.09% 2.58% 7.72% 9.47%
Zero Coupon - 2010# 3/14/89 -4.14% 5.76% 9.71% 10.22% -10.24% 4.12% 9.15% 10.14%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Fund was known as the Precious Metals Fund.
#Calculated with waiver of fees and reimbursement of expenses.
</FN>
</TABLE>
<PAGE>
Tax Status
- --------------------------------------------------------------------------------
Note: The following description is based upon the Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance 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 Insurance 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 herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For 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 includable 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 Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance 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 Insurance Company intends that all Funds of Franklin Valuemark Funds
underlying the Contracts will be managed by the Managers for Franklin Valuemark
Funds 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 Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate 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 Separate 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 Separate Account.
Due to the uncertainty in this area, the Insurance 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 purchase payments
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 or
pledge 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 591/2; (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 Insurance 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 Insurance 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 Statement of Additional Information. 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 includible 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 591/2 ; (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; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; and (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at
least 12 weeks. This exception no longer applies after the Contract Owner or
Annuitant (as applicable) has been re-employed for at least 60 days. The
exceptions stated in items (d) 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 later of: (a) the year in which the
employee attains age 701/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. 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.
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 591/2;
(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.
Annuity Provisions
- --------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Fund. The Fixed Account value on the day immediately preceding the Income
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.
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 Fund(s).
Annuity Unit Value
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Fund the fixed number
of Annuity Units is determined by dividing the amount of the initial Annuity
Payment determined for each Fund by the Annuity Unit value on the Income Date.
Thereafter, the number of Annuity Units in each Fund remains unchanged unless
the Contract Owner elects to transfer between Funds. All calculations will
appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Fund. The Annuity Payment in each Fund is
determined by multiplying the number of Annuity Units then allocated to such
Fund by the Annuity Unit value for that Fund.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
Mortality and Expense Risk Guarantee
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Insurance Company as of and
for the year ended December 31, 1996, included herein should be considered only
as bearing upon the ability of the Insurance 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, 1996 are also included herein.
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, 1996, 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, 1996, 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 24, 1997
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements
Statements of Assets and Liabilities
December 31, 1996
(In thousands except per unit data)
U.S.
Money Growth and Precious High Real 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, 375,683 shares, cost $375,683........ $375,683 - - - - -
Growth and Income Fund, 55,678 shares, cost $793,252.... - 977,147 - - - -
Precious Metals Fund, 7,086 shares, cost $103,815....... - - 101,257 - - -
High Income Fund, 28,418 shares, cost $367,146.......... - - - 402,400 - -
Real Estate Securities Fund, 13,634 shares,
cost $217,032.......................................... - - - - 301,991 -
U.S. Government Securities Fund, 55,160 shares,
cost $719,883......................................... - - - - - 743,008
------- ------- ------- ------- ------- -------
Total assets......................................... 375,683 977,147 101,257 402,400 301,991 743,008
------- ------- ------- ------- ------- -------
Liabilities:
Accrued mortality and expense risk charges............... 48 33 8 19 15 31
Accrued administrative charges........................... 6 4 1 2 2 4
------- ------- ------- ------- ------- -------
Total liabilities.................................... 54 37 9 21 17 35
------- ------- ------- ------- ------- -------
Net assets........................................... $375,629 977,110 101,248 402,379 301,974 742,973
======= ======= ======= ======= ======= =======
Contract owners' equity:
Contracts in accumulation period (note 6)................ $374,865 975,004 101,248 401,759 301,930 742,567
Contracts in annuity payment period (note 2)............. 764 2,106 - 620 44 406
------- ------- ------- ------- ------- -------
Total contract owners' equity........................ $375,629 977,110 101,248 402,379 301,974 742,973
======= ======= ======= ======= ======= =======
Accumulation units outstanding........................... 28,060 50,027 6,998 20,736 12,757 44,598
======= ======= ======= ======= ======= =======
Accumulation unit value per unit......................... $13.359 19.490 14.467 19.375 23.668 16.650
======= ======= ======= ======= ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
December 31, 1996
(In thousands except per unit data)
Templeton
Utility Zero Zero Zero Global Income Income
Equity Coupon Coupon Coupon Securities Securities
Fund Fund - 2000 Fund - 2005 Fund - 2010 Fund Fund
-------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Utility Equity Fund, 60,392 shares, cost $948,947 $1,097,920 - - - - -
Zero Coupon Fund - 2000, 6,855 shares,
cost $95,941.................................... - 104,135 - - - -
Zero Coupon Fund - 2005, 4,492 shares,
cost $66,082.................................... - - 73,443 - - -
Zero Coupon Fund - 2010, 4,357 shares,
cost $66,131.................................... - - - 70,977 - -
Templeton Global Income Securities Fund,
14,609 shares, cost $185,728.................... - - - - 198,981 -
Income Securities Fund,
72,742 shares, cost $1,082,408.................. - - - - - 1,251,888
--------- ------- ------- ------- ------- ---------
Total assets................................... 1,097,920 104,135 73,443 70,977 198,981 1,251,888
--------- ------- ------- ------- ------- ---------
Liabilities:
Accrued mortality and expense risk charges........ 42 9 8 7 12 39
Accrued administrative charges.................... 5 1 1 1 1 5
--------- ------- ------- ------- ------- --------
Total liabilities.............................. 47 10 9 8 13 44
--------- ------- ------- ------- ------- ---------
Net assets..................................... $1,097,873 104,125 73,434 70,969 198,968 1,251,844
========= ======= ======= ======= ======= =========
Contract owners' equity:
Contracts in accumulation period (note 6)......... $1,096,456 104,125 73,434 70,969 198,968 1,248,321
Contracts in annuity payment period (note 2)...... 1,417 - - - - 3,523
--------- ------- ------- ------- ------- ---------
Total contract owners' equity.................. $1,097,873 104,125 73,434 70,969 198,968 1,251,844
========= ======= ======= ======= ======= =========
Accumulation units outstanding.................... 53,086 5,636 3,579 3,297 11,857 57,504
========= ======= ======= ======= ======== ========
Accumulation unit value per unit.................. $20.654 18.475 20.517 21.522 16.781 21.708
========= ======= ======= ======= ======== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
December 31, 1996
(In thousands except per unit data)
Templeton Templeton Templeton Templeton Templeton
Pacific Rising International Developing Global Global Asset
Growth Dividends Equity Markets Equity Growth Allocation
Fund Fund Fund Fund Fund Fund
------- ------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Pacific Growth Fund,
22,370 shares, cost $307,615.................... $330,175 - - - - -
Rising Dividends Fund,
35,399 shares, cost $393,224.................... - 545,147 - - - -
Templeton International Equity Fund,
67,098 shares, cost $853,455.................... - - 1,036,664 - - -
Templeton Developing Markets Equity Fund,
22,377 shares, cost $231,910.................... - - - 259,352 - -
Templeton Global Growth Fund,
39,862 shares, cost $454,602.................... - - - - 550,097 -
Templeton Global Asset Allocation Fund,
4,140 shares, cost $45,904...................... - - - - - 52,122
------- ------- --------- ------- ------- ------
Total assets................................. 330,175 545,147 1,036,664 259,352 550,097 52,122
------- ------- --------- ------- ------- ------
Liabilities:
Accrued mortality and expense risk charges........ 14 18 72 5 28 4
Accrued administrative charges.................... 2 2 9 1 3 1
------- ------- --------- ------- ------- -------
Total liabilities............................ 16 20 81 6 31 5
------- ------- --------- ------- ------- -------
Net assets................................... $330,159 545,127 1,036,583 259,346 550,066 52,117
======= ======= ========= ======= ======= =======
Contract owners' equity:
Contracts in accumulation period (note 6)......... $329,409 544,315 1,035,240 257,584 546,814 51,362
Contracts in annuity payment period (note 2)...... 750 812 1,343 1,762 3,252 755
------- ------- --------- ------- ------- -------
Total contract owners' equity................ $330,159 545,127 1,036,583 259,346 550,066 52,117
======= ======= ========= ======= ======= =======
Accumulation units outstanding.................... 22,061 35,569 64,375 22,423 40,327 4,104
======= ======= ========= ======= ======= =======
Accumulation unit value per unit.................. $14.932 15.303 16.081 11.487 13.560 12.514
======= ======= ========= ======= ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Assets and Liabilities (cont.)
December 31, 1996
(In thousands except per unit data)
Templeton
International Mutual Mutual
Small Capital Smaller Discovery Shares Total
Cap Growth Companies Securities Securities All
Fund Fund Fund Fund Fund Funds
------- ----- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Small Cap Fund, 12,545 shares, cost $148,931............ $165,591 - - - -
Capital Growth Fund, 3,708 shares, cost $40,307......... - 42,118 - - -
Templeton International Smaller Companies Fund,
1,381 shares, cost $14,403............................. - - 15,534 - -
Mutual Discovery Securities Fund,
1,478 shares, cost $14,879............................. - - - 15,079 -
Mutual Shares Securities Fund,
2,623 shares, cost $26,543............................. - - - - 27,147
------- ------ ------ ------ ------
Total assets........................................ 165,591 42,118 15,534 15,079 27,147 8,737,856
------- ------ ------ ------ ------ ---------
Liabilities:
Accrued mortality and expense risk charges............... 12 7 6 4 5 446
Accrued administrative charges........................... 1 1 1 1 1 56
------- ------ ------ ------ ------ ---------
Total liabilities................................... 13 8 7 5 6 502
------- ------ ------ ------ ------ ---------
Net assets.......................................... $165,578 42,110 15,527 15,074 27,141 8,737,354
======= ====== ====== ====== ====== =========
Contract owners' equity:
Contracts in accumulation period (note 6)................ $165,073 41,883 15,467 14,976 26,991 8,718,760
Contracts in annuity payment period (note 2)............. 505 227 60 98 150 18,594
------- ------ ------ ------ ------ ---------
Total contract owners' equity....................... $165,578 42,110 15,527 15,074 27,141 8,737,354
======= ====== ====== ====== ====== =========
Accumulation units outstanding.......................... 12,784 3,722 1,388 1,471 2,613 508,972
======= ====== ====== ====== ====== =========
Accumulation unit value per unit......................... $12.913 11.254 11.145 10.180 10.330
======= ====== ====== ====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
===================================================================================================================================
Financial Statements (cont.)
Statements of Operations
For the year ended December 31, 1996
(In thousands)
U.S.
Money Growth and Precious High Real 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..................... $ 20,371 20,139 1,477 27,936 9,054 36,122
-------- ------- ------ ------- ------ -------
Expenses:
Mortality and expense risk charges...................... 5,107 11,169 1,463 4,365 2,832 7,067
Administrative charges.................................. 613 1,340 176 524 340 848
-------- ------- ------ ------- ------ -------
Total expenses..................................... 5,720 12,509 1,639 4,889 3,172 7,915
-------- ------- ------ ------- ------ -------
Investment income (loss), net...................... 14,651 7,630 (162) 23,047 5,882 28,207
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds.... - 71,329 1,354 1,483 - -
-------- ------- ------ ------- ------ -------
Realized gains (losses) on sales of investments:
Proceeds from sales................................... 451,939 87,838 70,163 101,305 16,530 114,831
Cost of investments sold.............................. (451,939) (72,627) (66,041) (93,324) (13,792) (111,215)
-------- ------- ------ ------- ------ -------
Total realized gains (losses) on sales of
investments, net.................................. - 15,211 4,122 7,981 2,738 3,616
-------- ------- ------ ------- ------ -------
Realized gains (losses) on investments, net........ - 86,540 5,476 9,464 2,738 3,616
Net change in unrealized appreciation (depreciation)
on investments.......................................... - 13,214 (5,135) 8,973 58,128 (18,709)
-------- ------- ------ ------- ------ -------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net... - 99,754 341 18,437 60,866 (15,093)
-------- ------- ------ ------- ------ -------
Net increase (decrease) in net assets from operations.... $ 14,651 107,384 179 41,484 66,748 13,114
======== ======= ====== ======= ====== =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Templeton Investment
Utility Zero Zero Zero Global Income Grade
Equity Coupon Coupon Coupon Securities Intermediate
Fund Fund - 2000 Fund - 2005 Fund - 2010 Fund Bond Fund
-------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares.............. $ 59,963 5,915 3,734 3,687 15,325 7,793
-------- ------ ------- ------ ------ -----
Expenses:
Mortality and expense risk charges............... 14,961 1,350 898 890 2,579 1,516
Administrative charges........................... 1,795 162 108 107 310 182
-------- ------ ------- ------ ------ -----
Total expenses.............................. 16,756 1,512 1,006 997 2,889 1,698
-------- ------ ------- ------ ------ -----
Investment income (loss), net............... 43,207 4,403 2,728 2,690 12,436 6,095
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on
mutual funds................................... - 58 - 999 - -
-------- ------ ------- ------ ------ -------
Realized gains (losses) on sales of investments:
Proceeds from sales............................ 298,295 19,016 9,028 33,589 45,486 161,712
Cost of investments sold....................... (264,853) (17,510) (8,221) (31,159) (43,916) (156,449)
-------- ------ ------- ------ ------ -------
Total realized gains (losses) on sales of
investments, net........................... 33,442 1,506 807 2,430 1,570 5,263
-------- ------ ------- ------ ------ --------
Realized gains (losses) on investments, net. 33,442 1,564 807 3,429 1,570 5,263
Net change in unrealized appreciation (depreciation)
on investments.................................. (17,145) (4,982) (4,814) (9,041) 1,397 (8,886)
-------- ------ ------- ------ ------ --------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net........................ 16,297 (3,418) (4,007) (5,612) 2,967 (3,623)
-------- ------ ------- ------ ------ --------
Net increase (decrease) in net assets
from operations.................................. $ 59,504 985 (1,279) (2,922) 15,403 2,472
======== ====== ======= ====== ====== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Adjustable Templeton Templeton Templeton
Income U.S. Pacific Rising International Developing
Securities Government Growth Dividends Equity Markets Equity
Fund Fund Fund Fund Fund Fund
-------- ---------- -------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares.............. $ 62,078 12,299 10,182 9,452 23,741 2,088
-------- -------- ------- ------ ------- ------
Expenses:
Mortality and expense risk charges............... 15,271 1,678 4,369 5,805 11,564 2,769
Administrative charges........................... 1,833 201 524 697 1,388 332
-------- -------- ------- ------ ------- ------
Total expenses............................... 17,104 1,879 4,893 6,502 12,952 3,101
-------- -------- ------- ------ ------- ------
Investment income (loss), net................ 44,974 10,420 5,289 2,950 10,789 (1,013)
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on
mutual funds.................................. 10,324 - 5,901 - 29,052 3,862
-------- -------- ------- ------ ------- ------
Realized gains (losses) on sales of investments:
Proceeds from sales........................... 116,053 195,626 125,924 48,263 65,043 29,440
Cost of investments sold...................... (103,909) (201,593) (115,808) (39,102) (57,533) (28,163)
-------- -------- ------- ------ ------- ------
Total realized gains (losses) on sales of
investments, net........................... 12,144 (5,967) 10,116 9,161 7,510 1,277
-------- -------- ------- ------ ------- ------
Realized gains (losses) on investments, net 22,468 (5,967) 16,017 9,161 36,562 5,139
Net change in unrealized appreciation (depreciation)
on investments................................... 45,516 1,206 8,976 84,727 129,022 30,681
-------- -------- ------- ------ ------- ------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net...................... 67,984 (4,761) 24,993 93,888 165,584 35,820
-------- -------- ------- ------ ------- ------
Net increase (decrease) in net assets
from operations.................................. $112,958 5,659 30,282 96,838 176,373 34,807
======== ======== ======= ====== ======= ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Templeton Templeton
Templeton Global International Mutual
Global Asset Small Capital Smaller Discovery
Growth Allocation Cap Growth Companies Securities
Fund Fund Fund Fund Fund Fund
------- ---------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares......................... $ 6,984 14 34 - - -
------- ------ ------ ----- ----- ----
Expenses:
Mortality and expense risk charges.......................... 5,483 397 1,212 167 85 16
Administrative charges...................................... 658 48 145 20 10 2
------- ------ ------ ----- ----- ----
Total expenses......................................... 6,141 445 1,357 187 95 18
------- ------ ------ ----- ----- ----
Investment income (loss), net.......................... 843 (431) (1,323) (187) (95) (18)
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds........ 6,984 27 3 - - -
------- ------ ------ ----- ----- ----
Realized gains (losses) on sales of investments:
Proceeds from sales....................................... 16,063 2,629 50,761 3,099 3,111 -
Cost of investments sold.................................. (14,521) (2,488) (49,958) (3,075) (3,051) -
------- ------ ------ ----- ----- ----
Total realized gains (losses) on sales of
investments, net...................................... 1,542 141 803 24 60 -
------- ------ ------ ----- ----- ----
Realized gains (losses) on investments, net............ 8,526 168 806 24 60 -
Net change in unrealized appreciation (depreciation)
on investments.............................................. 68,710 5,895 16,477 1,811 1,131 200
------- ------ ------ ----- ----- ----
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net...... 77,236 6,063 17,283 1,835 1,191 200
------- ------ ------ ----- ----- ----
Net increase (decrease) in net assets from operations........ $78,079 5,632 15,960 1,648 1,096 182
======= ====== ====== ===== ===== ====
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Operations (cont.)
For the year ended December 31, 1996
(In thousands)
Mutual
Shares Total
Securities All
Fund Funds
---------- --------
<S> <C> <C>
Investment income:
Dividends reinvested in fund shares................................................................... $ - 338,388
------ ---------
Expenses:
Mortality and expense risk charges.................................................................... 30 103,043
Administrative charges................................................................................ 4 12,367
------ ---------
Total expenses.................................................................................. 34 115,410
------ ---------
Investment income (loss), net................................................................... (34) 222,978
Realized gains (losses) and unrealized appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds................................................... - 131,376
------ ---------
Realized gains (losses) on sales of investments:
Proceeds from sales.................................................................................. - 2,065,744
Cost of investments sold............................................................................. - (1,950,247)
------ ---------
Total realized gains (losses) on sales of investments, net...................................... - 115,497
------ ---------
Realized gains (losses) on investments, net..................................................... - 246,873
Net change in unrealized appreciation (depreciation) on investments.................................... 604 407,956
------ ---------
Total realized gains (losses) and unrealized appreciation (depreciation) on investments, net.... 604 654,829
------ ---------
Net increase (decrease) in net assets from operations.................................................. $570 877,807
====== =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets
For the years ended December 31, 1996 and 1995
(In thousands)
Money Market Fund Growth and Income Fund Precious Metals Fund High Income Fund
---------------- ---------------------- -------------------- ----------------
1996 1995 1996 1995 1996 1995 1996 1995
------- ------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net...... $ 14,651 17,718 7,630 (1,279) (162) 52 23,047 15,167
Realized gains (losses) on
investments, net.................. - - 86,540 21,076 5,476 2,150 9,464 3,298
Net change in unrealized
appreciation (depreciation)
on investments.................... - - 13,214 147,406 (5,135) (2,147) 8,973 27,669
------- ------- ------- ------- ------- ------- ------ ------
Net increase (decrease) in
net assets from operations.... 14,651 17,718 107,384 167,203 179 55 41,484 46,134
------- ------- ------- ------- ------- ------- ------ ------
Contract transactions (note 6):
Purchase payments................... 175,341 190,018 134,960 98,725 20,879 11,049 51,687 47,086
Transfers between funds............. (91,126) (169,358) 35,764 150,088 (5,980) (17,212) 30,106 46,491
Surrenders and terminations......... (120,353) (120,722) (111,266) (73,514) (11,177) (11,728) (43,860) (43,591)
Rescissions......................... (2,971) (5,198) (2,911) (1,783) (321) (326) (691) (1,643)
Other transactions (note 2)......... 152 238 447 240 38 (36) 73 77
------- ------- ------- ------- ------- ------- ------ ------
Net increase (decrease) in
net assets resulting from
contract transactions......... (38,957) (105,022) 56,994 173,756 3,439 (18,253) 37,315 48,420
------- ------- ------- ------- ------- ------- ------ ------
Increase (decrease) in net assets.... (24,306) (87,304) 164,378 340,959 3,618 (18,198) 78,799 94,554
Net assets at beginning of year...... 399,935 487,239 812,732 471,773 97,630 115,828 323,580 229,026
------- ------- ------- ------- ------- ------- ------- ------
Net assets at end of year............ $375,629 399,935 977,110 812,732 101,248 97,630 402,379 323,580
======= ======= ======= ======= ======= ======= ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Real Estate U.S. Government Zero Coupon Fund -
Securities Fund Securities Fund Utility Equity Fund 1995
---------------- --------------- ------------------- -----------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net....... $ 5,882 3,361 28,207 30,379 43,207 48,876 - 2,395
Realized gains (losses) on
investments, net................... 2,738 1,477 3,616 2,695 33,442 1,589 - 600
Net change in unrealized
appreciation (depreciation)
on investments..................... 58,128 22,517 (18,709) 54,968 (17,145) 255,500 - (597)
------- ------- ------- ------ ------ ------- ---- -------
Net increase (decrease) in
net assets from operations.... 66,748 27,355 13,114 88,042 59,504 305,965 - 2,398
------- ------- ------- ------ ------ ------- ---- -------
Contract transactions (note 6):
Purchase payments.................... 30,999 19,829 42,193 47,766 56,194 73,558 - 1,557
Transfers between funds.............. 27,778 (12,435) 211,454 (5,307) (148,616) 10,721 - (36,522)
Surrenders and terminations.......... (22,133) (17,397) (82,684) (74,423) (174,285) (141,926) - (13,413)
Rescissions.......................... (204) (277) (717) (1,813) (734) (1,891) - (49)
Other transactions (note 2).......... 13 99 379 132 315 537 - 88
------- ------- ------- ------ ------- ------- ---- -------
Net increase (decrease) in
net assets resulting from
contract transactions......... 36,453 (10,181) 170,625 (33,645) (267,126) (59,001) - (48,339)
------- ------- ------- ------ --------- ------- ---- -------
Increase (decrease) in net assets..... 103,201 17,174 183,739 54,397 (207,622) 246,964 - (45,941)
Net assets at beginning of year....... 198,773 181,599 559,234 504,837 1,305,495 1,058,531 - 45,941
------- ------- ------- ------- --------- --------- ---- -------
Net assets at end of year............. $301,974 198,773 742,973 559,234 1,097,873 1,305,495 - -
======= ======= ======= ======= ========= ========= ==== =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Zero Coupon Fund - Zero Coupon Fund - Zero Coupon Fund - Templeton Global
2000 2005 2010 Income Securities Fund
---------------- ----------------- ----------------- ----------------------
1996 1995 1996 1995 1996 1995 1996 1995
------- ------ ----- ----- ----- ----- ------- ------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net............. $ 4,403 2,895 2,728 1,752 2,690 1,068 12,436 5,291
Realized gains (losses) on
investments, net......................... 1,564 1,081 807 753 3,429 2,987 1,570 (206)
Net change in unrealized appreciation
(depreciation) on investments............ (4,982) 12,514 (4,814) 13,063 (9,041) 15,696 1,397 22,286
------- ------- ----- ------ ----- ------ ------- ------
Net increase (decrease) in net assets
from operations...................... 985 16,490 (1,279) 15,568 (2,922) 19,751 15,403 27,371
------- ------- ------ ------ ----- ------ ------- ------
Contract transactions (note 6):
Purchase payments.......................... 12,076 16,203 10,095 13,119 12,642 12,239 11,615 13,098
Transfers between funds.................... (5,558) 13,339 (2,776) 4,711 (8,596) 9,807 (19,697) (21,421)
Surrenders and terminations................ (14,126) (10,927) (5,726) (4,654) (7,034) (5,624) (28,371) (29,898)
Rescissions................................ (214) (263) (158) (185) (244) (469) (174) (400)
Other transactions (note 2)................ (3) (17) (14) (23) (13) 177 49 25
------- ------- ------ ------ ----- ------ ------- ------
Net increase (decrease) in net assets
resulting from contract transactions. (7,825) 18,335 1,421 12,968 (3,245) 16,130 (36,578) (38,596)
------- ------- ------ ------ ----- ------ ------- ------
Increase (decrease) in net assets........... (6,840) 34,825 142 28,536 (6,167) 35,881 (21,175) (11,225)
Net assets at beginning of year............. 110,965 76,140 73,292 44,756 77,136 41,255 220,143 231,368
------- ------- ------ ------ ------ ------ ------- -------
Net assets at end of year................... $104,125 110,965 73,434 73,292 70,969 77,136 198,968 220,143
======= ======= ====== ====== ====== ====== ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Investment Grade Adjustable U.S. Templeton
Intermediate Bond Fund Income Securities Fund Government Fund Pacific Growth Fund
---------------------- ---------------------- --------------- -------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- ------ ------- -------- ------- ------ ------- ------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net.... $ 6,095 3,922 44,974 44,301 10,420 9,723 5,289 1,633
Realized gains (losses) on
investments, net................ 5,263 624 22,468 7,100 (5,967) (1,327) 16,017 3,150
Net change in unrealized
appreciation (depreciation)
on investments.................. (8,886) 7,237 45,516 145,457 1,206 6,258 8,976 14,929
-------- ------ -------- ------- ------- ------- ------- ------
Net increase (decrease) in
net assets from operations.. 2,472 11,783 112,958 196,858 5,659 14,654 30,282 19,712
-------- ------ -------- ------- ------- ------- ------- ------
Contract transactions (note 6):
Purchase payments................. 11,116 15,136 152,823 145,910 26,642 43,555 32,634 27,022
Transfers between funds........... (149,196) 364 (37,286) 33,034 (185,683) (75,287) (1,902) (52,319)
Surrenders and terminations....... (14,036) (16,323) (149,073) (125,202) (20,600) (27,666) (37,424) (35,125)
Rescissions....................... (275) (379) (3,237) (3,470) (559) (1,087) (382) (1,057)
Other transactions (note 2)....... 37 (24) 516 670 34 296 108 (45)
-------- ------ -------- -------- ------- ------- ------- ------
Net increase (decrease) in
net assets resulting from
contract transactions....... (152,354) (1,226) (36,257) 50,942 (180,166) (60,189) (6,966) (61,524)
-------- ------ --------- --------- ------- ------- ------- ------
Increase (decrease) in net assets.. (149,882) 10,557 76,701 247,800 (174,507) (45,535) 23,316 (41,812)
Net assets at beginning of year.... 149,882 139,325 1,175,143 927,343 174,507 220,042 306,843 348,655
-------- ------- --------- --------- ------- ------- ------- -------
Net assets at end of year.......... $ - 149,882 1,251,844 1,175,143 - 174,507 330,159 306,843
======== ======= ========= ========= ======= ======= ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Templeton Templeton Developing Templeton
Rising Dividends Fund International Equity Fund Markets Equity Fund Global Growth Fund
--------------------- ------------------------- -------------------- ------------------
1996 1995 1996 1995 1996 1995 1996 1995
------- ------ ------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net........ $ 2,950 2,452 10,789 1,998 (1,013) (1,241) 843 (2,008)
Realized gains (losses) on
investments, net.................... 9,161 1,323 36,562 20,155 5,139 (277) 8,526 303
Net change in unrealized
appreciation (depreciation)
on investments...................... 84,727 81,539 129,022 42,587 30,681 3,149 68,710 26,429
------- ------ ------- ------ ------- ------ ------- ------
Net increase (decrease) in
net assets from operations...... 96,838 85,314 176,373 64,740 34,807 1,631 78,079 24,724
------- ------ ------- ------ ------- ------ ------- ------
Contract transactions (note 6):
Purchase payments..................... 51,514 42,756 106,669 99,403 54,987 42,027 139,155 119,490
Transfers between funds............... 24,084 50,303 50,892 (30,418) 36,529 22,865 46,194 46,237
Surrenders and terminations........... (49,247) (35,907) (90,832) (72,338) (16,917) (7,387) (33,945) (15,658)
Rescissions........................... (1,165) (750) (1,605) (2,115) (568) (1,069) (1,728) (1,966)
Other transactions (note 2)........... 111 131 416 59 27 (55) 27 64
------- ------ ------- ------ ------- ------ ------- -------
Net increase (decrease) in
net assets resulting from
contract transactions........... 25,297 56,533 65,540 (5,409) 74,058 56,381 149,703 148,167
------- ------- ------- ------ ------- ------- ------- -------
Increase (decrease) in net assets...... 122,135 141,847 241,913 59,331 108,865 58,012 227,782 172,891
Net assets at beginning of year........ 422,992 281,145 794,670 735,339 150,481 92,469 322,284 149,393
------- ------- --------- ------- ------- ------- ------- -------
Net assets at end of year.............. $545,127 422,992 1,036,583 794,670 259,346 150,481 550,066 322,284
======= ======= ========= ======= ======= ======= ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Templeton Global Templeton International
Asset Allocation Fund Small Cap Fund Capital Growth Fund Smaller Companies Fund
--------------------- -------------- ------------------- -----------------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ----- ------ ---- --------- ------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net........... $ (431) 127 (1,323) (25) (187) - (95) -
Realized gains (losses) on
investments, net....................... 168 71 806 - 24 - 60 -
Net change in unrealized appreciation
(depreciation) on investments.......... 5,895 323 16,477 183 1,811 - 1,131 -
------ ------ ------ ----- ------ ---- ------ ---
Net increase (decrease) in
net assets from operations.......... 5,632 521 15,960 158 1,648 - 1,096 -
------ ------ ------ ----- ------ ---- ------ ---
Contract transactions (note 6):
Purchase payments........................ 19,536 5,580 51,827 2,140 13,726 - 5,995 -
Transfers between funds.................. 14,964 9,316 93,997 11,013 28,227 - 9,255 -
Surrenders and terminations.............. (2,138) (1,163) (9,173) (36) (1,326) - (763) -
Rescissions.............................. (139) (27) (459) (19) (185) - (46) -
Other transactions (note 2).............. 28 7 166 4 20 - (10) -
------ ------ ------ ----- ------ ---- ------ ---
Net increase (decrease) in net assets
resulting from contract transactions 32,251 13,713 136,358 13,102 40,462 - 14,431 -
------ ------ ------ ------ ------ ---- ------ ---
Increase (decrease) in net assets......... 37,883 14,234 152,318 13,260 42,110 - 15,527 -
Net assets at beginning of year........... 14,234 - 13,260 - - - - -
------ ------ ------- ------ ------ ---- ------ ---
Net assets at end of year................. $52,117 14,234 165,578 13,260 42,110 - 15,527 -
====== ====== ======= ====== ====== ==== ====== ====
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
====================================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1996 and 1995
(In thousands)
Mutual Discovery Mutual Shares
Securities Fund Securities Fund Total All Funds
---------------- --------------- ---------------
1996 1995 1996 1995 1996 1995
------ ---- ---- ---- ------ ------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net.................................... $ (18) - (34) - 222,978 188,557
Realized gains (losses) on investments, net...................... - - - - 246,873 68,622
Net change in unrealized appreciation (depreciation)
on investments.................................................. 200 - 604 - 407,956 896,966
------- --- ---- --- --------- ---------
Net increase (decrease) in net assets from operations........ 182 - 570 - 877,807 1,154,145
------- --- ---- --- --------- ---------
Contract transactions (note 6):
Purchase payments................................................. 3,317 - 8,157 - 1,236,779 1,087,266
Transfers between funds........................................... 12,081 - 18,952 - (16,139) (11,990)
Surrenders and terminations....................................... (506) - (537) - (1,047,532) (884,622)
Rescissions....................................................... - - - - (19,687) (26,236)
Other transactions (note 2)....................................... - - (1) - 2,915 2,644
------- --- ---- --- --------- ---------
Net increase (decrease) in net assets resulting
from contract transactions.................................. 14,892 - 26,571 - 156,336 167,062
------- --- ------ --- --------- ---------
Increase (decrease) in net assets.................................. 15,074 - 27,141 - 1,034,143 1,321,207
Net assets at beginning of year.................................... - - - - 7,703,211 6,382,004
------- --- ------ --- --------- ---------
Net assets at end of year.......................................... $15,074 - 27,141 - 8,737,354 7,703,211
======= === ====== === ========= =========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements
December 31, 1996
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. or other of its affiliated adviser entities, 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 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. The Capital Growth Fund and Templeton International
Smaller Companies Fund were added as available investment options on May 1,
1996. The Mutual Discovery Securities Fund and Mutual Shares Securities Fund
were added as available investment options on November 8, 1996.
The Investment Grade Intermediate Bond Fund and Adjustable U.S. Government Fund
were closed on October 25, 1996 when shares of the U.S. Government Securities
Fund were substituted for all shares of both funds.
On May 1, 1995, the Equity Growth Fund name was changed to Growth and Income
Fund. The Global Income Fund name was changed to Templeton Global Income
Securities Fund on May 1, 1996.
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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
2. Significant Accounting Policies (cont.)
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, 1996 and 1995 were $4,491,487 and $4,294,361,
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>
Valuemark II Valuemark III
--------------------------- ----------------------------
Years Since Payment Charge Years Since Payment Charge
------------------- ------ ------------------- ------
<S> <C> <C>
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, 1996 and 1995 were $10,529,337 and $12,373,225,
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, 1996 and 1995 were $93,255 and $119,180, respectively. Transfer
charges are reflected in the Statements of Changes in Net Assets as other
transactions. Net transfers to the Fixed Account for the years ended December
31, 1996 and 1995 were $16,138,672 and $11,989,631, respectively.
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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
3. Capitalization
Allianz Life provides capital for the establishment of new funds as investment
options of the Variable Account. The capitalization transactions were as follows
during the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Capitalization Date of Market Value Date of
Fund Amount Capitalization at Withdrawal Withdrawal
- ------------------------------------------------- -------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Templeton Global Asset Allocation Fund........... $500,000 4/18/95 $525,500 12/21/95
Small Cap Fund................................... $250,000 9/18/95 $313,250 5/29/96
Capital Growth Fund.............................. $250,000 4/30/96 $281,250 11/7/96
Templeton International Smaller Companies Fund... $250,000 4/30/96 $269,250 11/7/96
Mutual Discovery Securities Fund................. $250,000 11/8/96 $252,250 12/23/96
Mutual Shares Securities Fund.................... $250,000 11/8/96 $255,750 12/23/96
</TABLE>
4. Investment Transactions
The sub-account purchases of fund shares, including reinvestment of dividend
distributions, were as follows during the year ended December 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Money Market Fund................................. $ 427,380
Growth and Income Fund............................ 223,414
Precious Metals Fund.............................. 74,746
High Income Fund.................................. 162,983
Real Estate Securities Fund....................... 58,740
U.S. Government Securities Fund................... 313,392
Utility Equity Fund............................... 73,703
Zero Coupon Fund - 2000........................... 15,596
Zero Coupon Fund - 2005........................... 13,140
Zero Coupon Fund - 2010........................... 33,995
Templeton Global Income Securities Fund........... 21,233
Investment Grade Intermediate Bond Fund........... 15,348
Income Securities Fund............................ 134,521
Adjustable U.S. Government Fund................... 25,745
Templeton Pacific Growth Fund..................... 130,000
Rising Dividends Fund............................. 76,266
Templeton International Equity Fund............... 169,986
Templeton Developing Markets Equity Fund.......... 106,281
Templeton Global Growth Fund...................... 173,466
Templeton Global Asset Allocation Fund............ 34,368
Small Cap Fund.................................... 185,786
Capital Growth Fund............................... 43,381
Templeton International Smaller Companies Fund.... 17,454
Mutual Discovery Securities Fund.................. 14,879
Mutual Shares Securities Fund..................... 26,453
</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>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Contract Transactions - Accumulation Unit Activity (In thousands)
Transactions in units for each fund for the years ended December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
Growth U.S. Zero Zero
Money and Precious High Real Estate Government Utility Coupon Coupon
Market Income Metals Income Securities Securities Equity Fund - Fund -
Fund Fund Fund Fund Fund Fund Fund 1995 2000
------ ------ ----- ----- ----------- ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1994............ 39,437 35,695 8,285 15,679 11,645 36,490 70,082 3,195 4,953
Contract transactions:
Purchase payments................ 15,069 6,403 796 2,877 1,233 3,115 4,303 106 966
Transfers between funds.......... (13,495) 9,757 (1,290) 2,959 (792) (266) 736 (2,398) 800
Surrenders and terminations...... (9,580) (4,859) (846) (2,661) (1,077) (4,916) (8,372) (905) (636)
Rescissions...................... (410) (118) (24) (102) (17) (118) (113) (3) (16)
Other transactions............... 19 15 (2) 4 6 8 33 5 (1)
------ ------ ------ ----- ------ ------ ------ ----- -----
Net increase (decrease)
in accumulation units
resulting from contract
transactions.............. (8,397) 11,198 (1,366) 3,077 (647) (2,177) (3,413) (3,195) 1,113
------ ------ ----- ----- ------ ------ ------ ----- -----
Accumulation units outstanding
at December 31, 1995............. 31,040 46,893 6,919 18,756 10,998 34,313 66,669 - 6,066
====== ====== ===== ====== ====== ====== ====== ===== =====
Contract transactions:
Purchase payments................ 13,261 7,454 1,298 2,862 1,562 2,609 2,847 - 672
Transfers between funds.......... (6,879) 1,961 (484) 1,598 1,332 12,819 (7,585) - (308)
Surrenders and terminations...... (9,147) (6,143) (717) (2,446) (1,125) (5,122) (8,824) - (782)
Rescissions...................... (226) (163) (20) (38) (11) (44) (37) - (12)
Other transactions............... 11 25 2 4 1 23 16 - -
------ ------ ----- ----- ----- ------ ------ ----- -----
Net increase (decrease)
in accumulation units
resulting from contract
transactions.............. (2,980) 3,134 79 1,980 1,759 10,285 (13,583) - (430)
------ ------ ----- ----- ----- ------ ------- ----- -----
Accumulation units outstanding
at December 31, 1996............. 28,060 50,027 6,998 20,736 12,757 44,598 53,086 - 5,636
====== ====== ===== ====== ====== ====== ====== ===== =====
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Contract Transactions - Accumulation Unit Activity (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
Zero Zero Global Investment Adjustable Templeton Templeton
Coupon Coupon Income Grade Income U.S. Pacific Rising International
Fund - Fund - Securities Intermediate Securities Government Growth Dividends Equity
2005 2010 Fund Bond Fund Fund Fund Fund Fund Fund
------ ------ ---------- ------------ -------- --------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1994.......... 2,780 2,589 16,855 9,772 56,569 19,865 27,231 28,778 60,464
Contract transactions:
Purchase payments............. 715 652 904 1,016 7,979 3,753 2,065 3,782 7,774
Transfers between funds....... 269 511 (1,494) 30 1,879 (6,551) (4,013) 4,493 (2,530)
Surrenders and terminations... (249) (297) (2,058) (1,099) (6,965) (2,397) (2,714) (3,208) (5,662)
Rescissions................... (10) (27) (28) (25) (192) (95) (82) (68) (168)
Other transactions............ (1) 9 2 (2) 39 25 (4) 12 5
----- ----- ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in accumulation units
resulting from contract
transactions........... 724 848 (2,674) (80) 2,740 (5,265) (4,748) 5,011 (581)
----- ----- ------ ------ ------ ------ ------ ------ ------
Accumulation units outstanding
at December 31, 1995.......... 3,504 3,437 14,181 9,692 59,309 14,600 22,483 33,789 59,883
===== ===== ====== ====== ====== ====== ====== ====== ======
Contract transactions:
Purchase payments............. 513 618 740 719 7,457 2,202 2,196 3,849 7,288
Transfers between funds....... (139) (403) (1,254) (9,490) (1,819) (15,066) (62) 1,653 3,483
Surrenders and terminations... (290) (342) (1,802) (905) (7,308) (1,693) (2,537) (3,644) (6,198)
Rescissions................... (8) (12) (11) (18) (159) (46) (26) (87) (110)
Other transactions............ (1) (1) 3 2 24 3 7 9 29
----- ----- ------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in accumulation units
resulting from contract
transactions........... 75 (140) (2,324) (9,692) (1,805) (14,600) (422) 1,780 4,492
----- ----- ------ ------ ------ ------ ------ ------ ------
Accumulation units outstanding
at December 31, 1996.......... 3,579 3,297 11,857 - 57,504 - 22,061 35,569 64,375
===== ===== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
6. Contract Transactions - Accumulation Unit Activity (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton Templeton Templeton
Developing Templeton Global International Mutual Mutual
Markets Global Asset Small Capital Smaller Discovery Shares Total
Equity Growth Allocation Cap Growth Companies Securities Securities All
Fund Fund Fund Fund Fund Fund Fund Fund Funds
--------- --------- ---------- ----- ------ ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation units outstanding
at December 31, 1994.............. 9,774 14,637 - - - - - - 474,775
Contract transactions:
Purchase payments................. 4,364 10,991 538 212 - - - - 79,613
Transfers between funds........... 2,372 4,306 916 1,096 - - - - (2,705)
Surrenders and terminations....... (773) (1,448) (114) (4) - - - - (60,840)
Rescissions....................... (112) (183) (3) (2) - - - - (1,916)
Other transactions................ (7) 6 1 - - - - - 172
----- ------ ----- ----- ---- ---- ---- ---- -------
Net increase (decrease)
in accumulation units
resulting from contract
transactions............... 5,844 13,672 1,338 1,302 - - - - 14,324
----- ------ ----- ----- ---- ---- ---- ---- -------
Accumulation units outstanding
at December 31, 1995.............. 15,618 28,309 1,338 1,302 - - - - 489,099
====== ====== ===== ===== ==== ==== ==== ==== =======
Contract transactions:
Purchase payments................. 5,057 11,183 1,657 4,358 1,261 568 327 797 83,355
Transfers between funds........... 3,367 3,694 1,303 7,933 2,597 897 1,194 1,869 2,211
Surrenders and terminations....... (1,569) (2,720) (184) (786) (121) (72) (50) (53) (64,580)
Rescissions....................... (53) (141) (12) (38) (17) (4) - - (1,293)
Other transactions................ 3 2 2 15 2 (1) - - 180
------ ------ ----- ----- ----- ---- ----- ----- -------
Net increase (decrease)
in accumulation units
resulting from contract
transactions................ 6,805 12,018 2,766 11,482 3,722 1,388 1,471 2,613 19,873
------ ------ ----- ------ ----- ----- ----- ----- -------
Accumulation units outstanding
at December 31, 1996.............. 22,423 40,327 4,104 12,784 3,722 1,388 1,471 2,613 508,972
====== ====== ===== ====== ===== ===== ===== ===== =======
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
7. Unit Values
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1996 follows.
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Money Market Fund
December 31,
1996........................................................... 28,060 $13.359 $ 375,629 1.83%
1995........................................................... 31,040 12.883 399,935 1.80
1994........................................................... 39,437 12.354 487,239 1.86
1993........................................................... 10,247 12.066 123,639 2.06
1992........................................................... 6,951 11.932 82,944 2.09
Growth and Income Fund
December 31,
1996........................................................... 50,027 19.490 977,110 1.90
1995........................................................... 46,893 17.310 812,732 1.92
1994........................................................... 35,695 13.215 471,773 1.94
1993........................................................... 24,719 13.677 338,082 1.98
1992........................................................... 17,144 12.574 215,559 2.02
Precious Metals Fund
December 31,
1996........................................................... 6,998 14.467 101,248 2.05
1995........................................................... 6,919 14.109 97,630 2.06
1994........................................................... 8,285 13.979 115,828 2.08
1993........................................................... 4,685 14.464 67,770 2.08
1992........................................................... 1,419 9.424 13,374 2.09
High Income Fund
December 31,
1996........................................................... 20,736 19.375 402,379 1.94
1995........................................................... 18,756 17.252 323,580 1.96
1994........................................................... 15,679 14.608 229,026 2.00
1993........................................................... 11,787 15.155 178,627 2.04
1992........................................................... 4,780 13.278 63,462 2.08
Real Estate Securities Fund
December 31,
1996........................................................... 12,757 23.668 301,974 1.97
1995........................................................... 10,998 18.073 198,773 1.99
1994........................................................... 11,645 15.594 181,599 2.02
1993........................................................... 5,589 15.369 85,896 2.07
1992........................................................... 1,052 13.095 13,782 2.09
U.S. Government Securities Fund
December 31,
1996........................................................... 44,598 16.650 742,973 1.91
1995........................................................... 34,313 16.298 559,234 1.92
1994........................................................... 36,490 13.835 504,837 1.93
1993........................................................... 40,402 14.698 593,842 1.94
1992........................................................... 25,054 13.586 340,391 1.99
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
7. Unit Values (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Utility Equity Fund
December 31,
1996........................................................... 53,086 $20.654 $1,097,873 1.90%
1995........................................................... 66,669 19.565 1,305,495 1.90
1994........................................................... 70,082 15.104 1,058,531 1.92
1993........................................................... 84,217 17.319 1,458,533 1.91
1992........................................................... 39,387 15.889 625,803 1.95
Zero Coupon Fund - 1995
December 31,
1995 1......................................................... 1,670 15.200 25,382 1.80+
1994........................................................... 3,195 14.380 45,941 1.80
1993........................................................... 3,092 14.480 44,771 1.76
1992........................................................... 2,871 13.665 39,236 1.65
Zero Coupon Fund - 2000
December 31,
1996........................................................... 5,636 18.475 104,125 1.80
1995........................................................... 6,066 18.294 110,965 1.80
1994........................................................... 4,953 15.373 76,140 1.80
1993........................................................... 3,787 16.717 63,301 1.77
1992........................................................... 2,886 14.595 42,124 1.65
Zero Coupon Fund - 2005
December 31,
1996........................................................... 3,579 20.517 73,434 1.80
1995........................................................... 3,504 20.914 73,292 1.80
1994........................................................... 2,780 16.096 44,756 1.80
1993........................................................... 2,020 18.050 36,469 1.77
1992........................................................... 1,090 14.975 16,321 1.65
Zero Coupon Fund - 2010
December 31,
1996........................................................... 3,297 21.522 70,969 1.80
1995........................................................... 3,437 22.431 77,136 1.80
1994........................................................... 2,589 15.930 41,255 1.80
1993........................................................... 1,405 18.144 25,489 1.65
1992........................................................... 849 14.670 12,456 1.65
Templeton Global Income Securities Fund
December 31,
1996........................................................... 11,857 16.781 198,968 2.01
1995........................................................... 14,181 15.522 220,143 2.04
1994........................................................... 16,855 13.726 231,368 2.11
1993........................................................... 13,054 14.650 191,246 2.13
1992........................................................... 5,487 12.733 69,860 2.07
Investment Grade Intermediate Bond Fund
December 31,
1996 2......................................................... 8,323 15.740 131,012 2.00+
1995........................................................... 9,692 15.463 149,882 2.01
1994........................................................... 9,772 14.257 139,325 2.03
1993........................................................... 7,677 14.389 110,466 2.06
1992........................................................... 3,333 13.442 44,807 2.08
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
7. Unit Values (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Income Securities Fund
December 31,
1996........................................................... 57,504 $21.708 $1,251,844 1.90%
1995........................................................... 59,309 19.785 1,175,143 1.91
1994........................................................... 56,569 16.392 927,343 1.94
1993........................................................... 38,967 17.734 691,056 1.96
1992........................................................... 11,397 15.163 172,807 2.07
Adjustable U.S. Government Fund
December 31,
1996 2......................................................... 10,926 12.389 135,355 1.99+
1995........................................................... 14,600 11.951 174,507 1.99
1994........................................................... 19,865 11.077 220,042 1.97
1993........................................................... 24,975 11.254 281,061 1.98
1992........................................................... 21,858 11.020 240,875 2.00
Templeton Pacific Growth Fund
December 31,
1996........................................................... 22,061 14.932 330,159 2.39
1995........................................................... 22,483 13.630 306,843 2.41
1994........................................................... 27,231 12.802 348,655 2.47
1993........................................................... 14,240 14.233 202,676 2.54
1992 3......................................................... 534 9.761 5,209 2.71+
Rising Dividends Fund
December 31,
1996........................................................... 35,569 15.303 545,127 2.16
1995........................................................... 33,789 12.498 422,992 2.18
1994........................................................... 28,778 9.769 281,145 2.20
1993........................................................... 26,256 10.327 271,147 2.19
1992 3......................................................... 8,388 10.848 90,995 2.07+
Templeton International Equity Fund
December 31,
1996........................................................... 64,375 16.081 1,036,583 2.29
1995........................................................... 59,883 13.263 794,670 2.32
1994........................................................... 60,464 12.161 735,339 2.39
1993........................................................... 24,026 12.226 293,740 2.52
1992 3......................................................... 1,329 9.642 12,812 3.17+
Templeton Developing Markets Equity Fund
December 31,
1996........................................................... 22,423 11.487 259,346 2.89
1995........................................................... 15,618 9.582 150,481 2.81
1994 4......................................................... 9,774 9.454 92,469 2.93+
Templeton Global Growth Fund
December 31,
1996........................................................... 40,327 13.560 550,066 2.33
1995........................................................... 28,309 11.339 322,284 2.37
1994 4......................................................... 14,637 10.201 149,393 2.54+
Templeton Global Asset Allocation Fund
December 31,
1996........................................................... 4,104 12.514 52,117 2.26
1995 5......................................................... 1,338 10.591 14,234 2.30+
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
================================================================================
Notes to Financial Statements (cont.)
December 31, 1996
7. Unit Values (cont.)
<TABLE>
<CAPTION>
Accumulation Ratio of Expenses
Units Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets*
----------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Small Cap Fund
December 31,
1996........................................................... 12,784 $12.913 $ 165,578 2.17%
1995 6......................................................... 1,302 10.146 13,260 2.30+
Capital Growth Fund
December 31,
1996 7......................................................... 3,722 11.254 42,110 2.17+
Templeton International Smaller Companies Fund
December 31,
1996 7......................................................... 1,388 11.145 15,527 2.18+
Mutual Discovery Securities Fund
December 31,
1996 8......................................................... 1,471 10.180 15,074 2.77+
Mutual Shares Securities Fund
December 31,
1996 8......................................................... 2,613 10.330 27,141 2.40+
<FN>
*For the year ended December 31, including the effect of the expenses of the
underlying funds.
+Annualized.
1Period from January 1, 1995 to December 15, 1995 (fund closure).
2Period from January 1, 1996 to October 25, 1996 (fund closure).
3Period from January 27, 1992 (fund commencement) to December 31, 1992.
4Period from March 15, 1994 (fund commencement) to December 31, 1994.
5Period from May 1, 1995 (fund commencement) to December 31, 1995.
6Period from November 1, 1995 (fund commencement) to December 31, 1995.
7Period from May 1, 1996 (fund commencement) to December 31, 1996.
8Period from November 8, 1996 (fund commencement) to December 31, 1996.
</FN>
</TABLE>
ALLIANZ LIFE INSURANCE
COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
<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, 1996 and 1995, 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, 1996. 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, 1996
and 1995, and the results of their operations, changes in stockholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1996, 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.
KPMG Peat Marwick LLP
February 4, 1997
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands)
Assets 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Fixed maturities, at market $ 2,768,306 2,549,598
Equity securities, at market 327,834 254,458
Mortgage loans on real estate 245,559 203,128
Real estate, at cost 34,129 8,806
Investment in real estate partnerships, at equity 10,695 11,975
Certificates of deposit and short-term securities 204,972 31,501
Policy loans 103,708 104,184
Other long-term investments 124 650
- ---------------------------------------------------------------------------------------------------------------------
Total investments 3,695,327 3,164,300
Cash 37,992 36,449
Accrued investment income 36,130 36,858
Receivables (net of allowance for uncollectible
accounts of $4,630 in 1996 and $7,697 in 1995) 155,278 124,700
Reinsurance receivable:
Funds held on deposit 1,101,716 1,060,566
Recoverable on future policy benefit reserves 48,909 43,248
Recoverable on unpaid claims 142,199 109,075
Receivable on paid claims 18,240 22,172
Prepaid insurance premiums 4,840 4,078
Home office property and equipment (net of accumulated
depreciation of $20,090 in 1996 and $21,256 in 1995) 9,590 8,790
Deferred acquisition costs 863,338 826,994
Federal income tax recoverable 12,455 3,947
Other assets 11,622 11,048
- ---------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 6,137,636 5,452,225
Separate account assets 9,520,561 8,402,003
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 15,658,197 13,854,228
=====================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1996 and 1995
(in thousands)
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Future policy benefit reserves:
Life $ 1,204,633 1,088,964
Annuity 2,879,221 2,601,943
Policy and contract claims 438,824 371,898
Unearned premiums 32,176 34,181
Reinsurance payable 96,857 72,838
Deferred income taxes 150,760 140,174
Accrued expenses 84,254 66,779
Commissions due and accrued 37,103 22,979
Other policyholder funds 52,267 82,138
Other liabilities 147,364 19,137
- ---------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 5,123,459 4,501,031
Separate account liabilities 9,520,561 8,402,003
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 14,644,020 12,903,034
- ---------------------------------------------------------------------------------------------------------------------
Stockholder's equity:
Common stock, $1 par value, 20 million 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 25,000 25,000
Additional paid-in capital 407,088 407,088
Net unrealized gain on investments
net of deferred federal income taxes 102,637 139,204
Net unrealized Canadian currency loss (3,473) (3,455)
Retained earnings 462,925 363,357
- ---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,014,177 951,194
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 15,658,197 13,854,228
=====================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 284,084 257,647 234,295
Other life policy considerations 85,747 93,158 92,254
Annuity considerations 170,656 147,112 120,240
Accident and health premiums 603,230 527,059 547,508
- ----------------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 1,143,717 1,024,976 994,297
Premiums ceded 277,163 223,226 244,208
- ----------------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 866,554 801,750 750,089
Investment income, net 222,622 201,158 181,291
Realized investment gains, net 28,561 29,202 829
Other 6,193 10,140 12,703
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenue 1,123,930 1,042,250 944,912
- ----------------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 281,441 268,163 254,326
Annuity benefits 153,238 145,636 131,793
Accident and health insurance benefits 434,793 374,743 379,122
- ----------------------------------------------------------------------------------------------------------------------------------
Total benefits 869,472 788,542 765,241
Benefit recoveries 249,552 210,702 212,144
- ----------------------------------------------------------------------------------------------------------------------------------
Net benefits 619,920 577,840 553,097
Commissions and other agent compensation 267,714 233,939 313,715
General and administrative expenses 99,018 115,419 111,116
Taxes, licenses and fees 19,959 17,672 22,514
Increase in deferred acquisition costs, net (36,344) (28,552) (132,090)
Minority interest in income of consolidated
subsidiary 0 (30) (66)
- ----------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 970,267 916,288 868,286
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 153,663 125,962 76,626
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense:
Current 21,936 12,993 5,098
Deferred 30,559 25,772 16,053
- ----------------------------------------------------------------------------------------------------------------------------------
Total income tax expense 52,495 38,765 21,151
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 101,168 87,197 55,475
==================================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<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 25,000 40,000 0
Issuance of stock during the year 0 0 40,000
Redemption of stock during the year 0 (15,000) 0
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 25,000 25,000 40,000
- ----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 407,088 406,494 401,304
Additional contribution from parent 0 594 5,190
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 407,088 407,088 406,494
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments:
Balance at beginning of year 139,204 (62,073) 9,071
Cumulative effect of implementation of Statement
No. 115, net of deferred federal income taxes 0 0 74,866
Net unrealized gain on securities transferred
from held-to-maturity to available-for-sale
classification, net of deferred federal income taxes 0 1,789 0
Net unrealized gain (loss) during the year,
net of deferred federal income taxes (36,567) 199,488 (146,010)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 102,637 139,204 (62,073)
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized Canadian currency loss:
Balance at beginning of year (3,455) (3,787) (2,708)
Net unrealized gain (loss) during the year,
net of deferred federal income taxes (18) 332 (1,079)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (3,473) (3,455) (3,787)
- ----------------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 363,357 278,811 223,749
Net income 101,168 87,197 55,475
Cash dividend to stockholder (1,600) (2,651) (413)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 462,925 363,357 278,811
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $ 1,014,177 951,194 679,445
==================================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income $ 101,168 87,197 55,475
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash used in operating activities:
Realized gains on investments (28,561) (29,202) (829)
Deferred federal income tax expense 30,559 25,772 16,053
Charges to policy account balances (84,069) (120,254) (125,488)
Interest credited to policy account balances 166,766 169,151 150,490
Change in:
Accrued investment income 728 (2,072) (764)
Receivables (30,578) (13,300) 12,040
Reinsurance receivables (119,384) (190,953) (93,453)
Deferred acquisition costs (36,344) (28,552) (132,090)
Future policy benefit reserves 76,478 66,932 20,791
Policy and contract claims
and other policyholder funds 37,055 25,116 25,072
Unearned premiums (2,005) (6,195) (1,194)
Reinsurance payable 24,019 (8,669) 19,779
Current tax recoverable (8,508) (153) (6,255)
Accrued expenses and other liabilities 15,506 17,365 7,556
Commissions due and accrued 14,124 (1,211) 3,316
Depreciation and amortization (25,874) (23,391) (11,498)
Other, net (1,568) 916 (86)
- -----------------------------------------------------------------------------------------------------------
Total adjustments 28,344 (118,700) (116,560)
- -----------------------------------------------------------------------------------------------------------
Net cash used in operating activities 129,512 (31,503) (61,085)
- -----------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows used in operating activities 129,512 (31,503) (61,085)
Cash flows used in investing activities:
Purchase of fixed maturities, at market $ (1,324,676) (1,533,290) (928,532)
Purchase of equity securities (137,304) (166,701) (145,267)
Purchase of real estate (26,980) 0 0
Funding of mortgage loans (70,265) (66,301) (64,808)
Sale of fixed maturities, at market 1,043,748 1,242,988 791,659
Matured or redeemed fixed maturities, at amortized cost 0 7,022 4,342
Matured fixed maturities, at market 2,711 38,991 32,508
Sale of equity securities 122,788 97,619 150,347
Sale of real estate 4,324 0 0
Repayment of mortgage loans 23,317 25,563 28,206
Purchase of minority interest's shares in subsidiary 0 (7,903) 0
Net change in certificates of deposit and
short-term securities (173,471) 123,806 (96,344)
Change in liability related to
reverse repurchase transactions 130,196 (58,150) 58,150
Other 2,090 (2,851) (6,699)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (403,522) (299,207) (176,438)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used in financing activities:
Policyholders' deposits to account balances $ 592,670 553,699 526,918
Policyholders' withdrawals from account balances (368,490) (291,102) (235,309)
Change in assets held under reinsurance agreements 52,973 36,354 (59,349)
Net change in mortgage notes payable 0 (1,049) (39)
Additional paid-in capital from parent 0 594 5,190
Preferred stock transactions 0 (15,000) 40,000
Cash dividends paid (1,600) (2,651) (413)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities 275,553 280,845 276,998
- ------------------------------------------------------------------------------------------------------------------------
Net change in cash 1,543 (49,865) 39,475
Cash at beginning of year 36,449 86,314 46,839
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 37,992 36,449 86,314
========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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 1996 gross premium volume, 14%,
64% and 22% 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 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 subsidiary, Preferred Life
Insurance Company of New York and other less significant subsidiaries have been
consolidated. All significant intercompany balances and transactions have been
eliminated in consolidation.
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>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
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 ACQUISTION 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 1996,
1995 and 1994 were $137,618, $117,782 and $108,676, 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, 1996 and 1995.
POLICY AND CONTRACT CLAIMS
Policy and contract claims represent an estimate of claims and claim adjustment
expenses 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>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
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. At January 1, 1994, 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 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, 1996 and 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, 1996 and 1995, investments with a carrying value of $102,361
and $37,879, respectively, were held on deposit with various insurance
departments and in other trusts 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 may
cause estimates of fair values to differ from the amounts presented herein.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
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 account assets were determined using the market value of
the investments held in segregated fund accounts. Fair values of separate
account 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
In 1996, the Company adopted 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. No adjustments were made to the consolidated
financial statements upon adoption of this pronouncement.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. In December 1996, the FASB issued
SFAS No. 127, Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125, which defers the effective date of certain paragraphs of SFAS
No. 125 that are applicable to the Company. The Statements which address
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, is to be applied prospectively. Earlier or
retroactive application is not permitted. As a result of SFAS No. 127, the
Company will adopt SFAS No. 125 at January 1, 1998. Adoption of these
pronouncements is not expected to have a significant impact on the consolidated
financial statements.
RECLASSIFICATIONS
Certain 1995 balances have been reclassified to conform to the 1996
presentation.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(2) INVESTMENTS
<TABLE>
<CAPTION>
Investments at December 31, 1996 consist of:
Amount
Amortized Estimated shown on
cost fair balance
or cost value sheet
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government $ 620,236 645,264 645,264
States and political subdivisions 419 424 424
Foreign government 304,589 309,394 309,394
Public utilities 6,466 7,041 7,041
Corporate securities 1,025,189 1,040,322 1,040,322
Mortgage backed securities 669,181 687,054 687,054
Collateralized mortgage obligations 78,331 78,807 78,807
- --------------------------------------------------------------------------------------------------------
Total fixed maturities $ 2,704,411 2,768,306 2,768,306
- --------------------------------------------------------------------------------------------------------
Equity securities:
Common stocks:
Public utilities 4,941 5,087 5,087
Banks, trusts and insurance
companies 8,132 10,528 10,528
Industrial and miscellaneous 211,520 301,691 301,691
Nonredeemable preferred stocks 9,496 10,528 10,528
- --------------------------------------------------------------------------------------------------------
Total equity securities $ 234,089 327,834 327,834
- --------------------------------------------------------------------------------------------------------
Other investments:
Mortgage loans on real estate 245,559 XXXXXXXXX 245,559
Real estate:
Investment properties 34,129 XXXXXXXXX 34,129
Partnerships 10,695 XXXXXXXXX 10,695
Certificates of deposit and
short term securities 204,972 XXXXXXXXX 204,972
Policy loans 103,708 XXXXXXXXX 103,708
Other long term investments 124 XXXXXXXXX 124
- --------------------------------------------------------------------------------------------------------
Total other investments $ 599,187 XXXXXXXXX 599,187
- --------------------------------------------------------------------------------------------------------
Total investments $ 3,537,687 XXXXXXXXX 3,695,327
========================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
At December 31, 1996 and 1995, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of available-for-sale securities are
as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
U.S. Government 620,236 25,954 926 645,264
States and political subdivisions 419 5 0 424
Foreign government 304,589 6,090 1,285 309,394
Public utilities 6,466 575 0 7,041
Corporate securities 1,025,189 24,137 9,004 1,040,322
Mortgage backed securities 669,181 18,444 571 687,054
Collateralized mortgage obligations 78,331 995 519 78,807
- ---------------------------------------------------------------------------------------------------
Total fixed maturities 2,704,411 76,200 12,305 2,768,306
Equity securities 234,089 98,711 4,966 327,834
- ---------------------------------------------------------------------------------------------------
Total $ 2,938,500 174,911 17,271 3,096,140
===================================================================================================
1995:
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
===================================================================================================
</TABLE>
The changes in unrealized gains (losses) on fixed maturities available-for-sale
securities were $(97,973), $261,471 and $(214,245) in each of the years ended
December 31, 1996, 1995, 1994 and the change in unrealized losses on
held-to-maturity securities was $(8,783) for the year ended December 31, 1994.
The changes in unrealized gains (losses) in equity investments, which include
common stocks and nonredeemable preferred stocks, and other investments were
$40,895, $48,186 and $(9,587) for the years ended December 31, 1996, 1995 and
1994, respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of fixed maturities at December 31,
1996, 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>
Due in one year or less $ 4,523 4,689
Due after one year through five years 337,770 347,854
Due after five years through ten years 1,261,874 1,287,172
Due after ten years 352,732 362,730
Mortgage backed securities 747,512 765,861
- --------------------------------------------------------------------------------
Totals $ 2,704,411 2,768,306
================================================================================
</TABLE>
Gross gains of $43,696, $41,962 and $26,848 and gross losses of $16,834, $14,607
and $26,805 were realized on sales of available-for-sale securities in 1996,
1995 and 1994, respectively; related taxes were $9,402, $9,574 and $715 in 1996,
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.
<TABLE>
<CAPTION>
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $ 8,897 21,877 (2,712)
Equity securities 17,964 5,478 2,745
Mortgage loans (1,129) (687) (1,667)
Real estate 3,104 2,530 2,067
Other (275) 4 396
- --------------------------------------------------------------------------------
Net gains before taxes 28,561 29,202 829
Tax expense on net realized gains 9,996 10,218 352
- --------------------------------------------------------------------------------
Net gains after taxes $ 18,565 18,984 477
================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
In 1995, in conjunction with an expanded marketing agreement, the Company
provided an unrelated insurance company with $30,000 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 an approximate 10% equity ownership in the
unrelated company. The Company has no intention of converting the debenture in
the near term.
During 1996 and 1995, 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, 1996, mortgage backed securities underlying the agreements were
carried at a market value of $124,281 and other liabilities included $130,196
for funds received under these agreements. As of December 31, 1995 there were no
outstanding amounts under the Company's dollar roll program. Average balances
outstanding were $83,602 and $67,735 and weighted average interest rates were
7.5% and 7.4% during 1996 and 1995, respectively. The maximum balance
outstanding during 1996 was $130,196.
During 1996 and 1995, the Company participated in a securities lending program
administered by AZOA's investment division. 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, 1996 and 1995.
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. There were no impaired loans held by the Company as of December 31,
1996. Below is a summary of impaired mortgage loans as of December 31, 1995.
<TABLE>
<CAPTION>
Impaired Impaired Total
mortgage loans mortgage loans impaired
with a related without a related mortgage
allowance allowance loans
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995:
Balance $ 9,210 8,541 17,751
Related allowance 3,580 3,580
- ----------------------------------------------------------------------------------------
Balance, net of allowance $ 5,630 8,541 14,171
========================================================================================
Below is a summary of interest income on impaired mortgage loans.
1996 1995
- -----------------------------------------------------------------------------------------------
Average principal balance of impaired mortgage loans $ 9,835 19,671
Total interest income on impaired mortgage loans 557 1,100
Interest income on impaired mortgage loans recorded on a cash basis 557 1,100
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
The valuation allowances at December 31, 1996, 1995 and 1994 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, 1996:
Mortgage loans $ 10,487 0 0 3,208 7,279
- ----------------------------------------------------------------------------------------------------------
Total valuation allowance $ 10,487 0 0 3,208 7,279
==========================================================================================================
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
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Major categories of net investment income for the respective years ended
December 31 are:
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 0 6,284 6,966
Fixed maturities, at market 178,664 158,421 141,611
Mortgage loans 19,267 16,125 13,706
Policy loans 7,013 6,688 6,329
Short-term investments 10,688 7,182 3,012
Dividends:
Preferred stock 818 581 495
Common stock 4,527 3,204 2,673
Rental income on real estate 3,161 2,781 3,135
Interest on assets held by reinsurers 9,709 10,445 10,470
Other 2,183 833 577
- --------------------------------------------------------------------------------
Total investment income 236,030 212,544 188,974
Investment expenses 13,408 11,386 7,683
- --------------------------------------------------------------------------------
Net investment income $ 222,622 201,158 181,291
================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(3) SUMMARY TABLE OF FAIR VALUE DISCLOSURES
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Financial assets
- ----------------
Fixed maturities, at market:
U.S. Government $ 645,264 645,264 867,793 867,793
States and political subdivisions 424 424 481 481
Foreign governments 309,394 309,394 265,797 265,797
Public utilities 7,041 7,041 36,728 36,728
Corporate securities 1,040,322 1,040,322 747,609 747,609
Mortgage backed securities 687,054 687,054 548,182 548,182
Collateralized mortgage obligations 78,807 78,807 83,008 83,008
Equity securities 327,834 327,834 254,458 254,458
Mortgage loans 245,559 252,825 203,128 212,766
Short term investments 204,972 204,972 31,501 31,501
Policy loans 103,708 103,708 104,184 104,184
Other long term investments 124 124 650 650
Receivables 155,278 155,278 124,700 124,700
Separate accounts assets 9,520,561 9,520,561 8,402,003 8,402,003
Financial liabilities
- ---------------------
Investment contracts 3,297,973 2,747,914 3,063,100 2,542,260
Separate account liabilities 9,520,561 9,324,358 8,402,003 8,181,725
- --------------------------------------------------------------------------------------------------------------------
<FN>
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
</FN>
</TABLE>
(4) RECEIVABLES
<TABLE>
<CAPTION>
Receivables at December 31 consist of the following:
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Premiums due $ 125,216 83,695
Agents balances 5,523 7,236
Related party receivables 2,099 922
Reinsurance commission receivable 7,515 16,693
Scholarship enrollment fees 8,025 6,822
Due from administrators 3,244 6,149
Other 3,656 3,183
- -------------------------------------------------------------------------
Total receivables $ 155,278 124,700
=========================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(5) 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, 1996 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 $14,348, $18,858 and $11,149 in
1996, 1995 and 1994, respectively, is summarized as follows:
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance
recoverables of $99,292, $96,090 and $86,551 $ 191,804 185,028 170,123
Incurred related to:
Current year 271,308 242,024 230,995
Prior years (11,642) (9,163) (7,290)
- --------------------------------------------------------------------------------------------------------
Total incurred 259,666 232,861 223,705
- --------------------------------------------------------------------------------------------------------
Paid related to:
Current year 107,842 100,165 82,338
Prior years 127,032 125,920 126,462
- --------------------------------------------------------------------------------------------------------
Total paid 234,874 226,085 208,800
- --------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance
recoverables of $114,230, $99,292 and $96,090 $ 216,596 191,804 185,028
========================================================================================================
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
(6) 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, 1996 are $53,036, $799,499
and $248,389 recoverable from three insurers who, as of December 31, 1996, 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.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
<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, 1996:
Life insurance In force $ 37,527,994 44,073,247 6,126,541 75,474,700 58.4%
- -----------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 235,837 133,994 37,986 331,845 40.4%
Annuities 169,503 1,153 12,769 157,887 0.7%
Accident and health insurance 396,051 207,179 226,408 376,822 55.0%
- -----------------------------------------------------------------------------------------------------------------
Total premiums 801,391 342,326 277,163 866,554 39.5%
=================================================================================================================
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%
=================================================================================================================
</TABLE>
Of the amounts ceded to others, the Company ceded life insurance inforce of
$381,381, $182,638 and $86,055 in 1996, 1995 and 1994, respectively, and life
insurance premiums earned of $1,293, $641 and $203 in 1996, 1995 and 1994,
respectively, to its ultimate parent Allianz Aktiengesellshaft. The Company also
ceded accident and health premiums earned to Allianz Aktiengesellshaft of
$1,922, $(7,520) and $12,256 in 1996, 1995 and 1994.
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 $1,279 and $930 as of December 31, 1996 and 1995, respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(7) INCOME TAXES
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Total income tax expense (benefit) for the years ended December 31 are as
follows:
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $ 21,936 12,993 5,098
Deferred tax (benefit) expense 30,559 25,772 16,053
- ------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $ 52,495 38,765 21,151
Income tax effect on equity:
Income tax allocated to stockholder's equity:
Adoption of SFAS No. 115 0 0 40,312
Attributable to unrealized gains and losses
for the year (19,967) 108,559 (79,201)
- ------------------------------------------------------------------------------------------------------
Total income tax effect on equity $ 32,528 147,324 (17,738)
======================================================================================================
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Income tax expense computed at the statutory rate of 35% in 1996, 1995 and 1994,
varies from tax expense reported in the Consolidated Statements of Income for
the respective years ended December 31 as follows:
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $ 53,782 44,087 26,819
Dividends received deductions and tax-exempt interest (650) (5,430) (3,967)
Foreign tax (2,723) (464) (79)
Interest on tax deficiency 261 408 (716)
Other 1,824 164 (906)
- ---------------------------------------------------------------------------------------------------
Income tax expense as reported $ 52,494 38,765 21,151
===================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
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:
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for post retirement benefits $ 2,024 1,936
Allowance for uncollectible accounts 1,256 2,283
Policy reserves 158,131 175,963
- ----------------------------------------------------------------------
Total deferred tax assets 161,411 180,182
- ----------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 240,906 234,393
Net unrealized gain 53,008 72,975
Other 18,257 12,988
- ----------------------------------------------------------------------
Total deferred tax liabilities 312,171 320,356
- ----------------------------------------------------------------------
Net deferred tax liability $ 150,760 140,174
======================================================================
</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, 1996 and 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 post-1990 separate return taxable
income or tax. Income taxes paid by the Company were $30,946, $14,865 and
$15,162 in 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995 the
Company had a tax recoverable from AZOA of $11,599 and $3,257, respectively and
a recoverable from Revenue Canada Taxation of $856 and $690, respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(8) 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, 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.
Included in the mortgage loans are properties originally foreclosed upon by the
Company of which the balances at December 31, 1995 was $1,650.
The Company reimbursed AZOA $86, $738 and $817 in 1996, 1995 and 1994,
respectively, for certain administrative services performed. The Company's
liability to AZOA was $0 and $528 at December 31, 1996 and 1995, respectively.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $1,657, $1,024 and $1,285 in 1996, 1995 and 1994,
respectively, for investment advisory fees. The Company's liability to AZOA was
$543 and $377 at December 31, 1996 and 1995, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $3,275, $3,752 and $4,228 in
1996, 1995 and 1994, respectively. The Company's liability for data center
charges was $58 and $337 at December 31, 1996 and 1995, respectively.
The Company has 200 million authorized 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 1994, the Company issued 25 millions shares of Series A preferred stock with
a dividend rate of 6.4% to AZOA for $25,000 and 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.
As of December 31, 1996, the Company sold to AZOA, without recourse, two
receivables due from third parties amounting to $6,600. The Company recognized a
loss of $416 resulting from these sales.
In 1995 and 1994, AZOA contributed additional capital to the Company of $594 and
$5,190, respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(9) 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 $808, $860 and $918 in 1996, 1995 and 1994,
respectively.
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 1996, 1995 and 1994 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
$1,105, $1,188 and $1,266 in 1996, 1995 and 1994, respectively, toward planned
contributions.
In 1995, the Company discontinued support of its individual agency field force
and suspended contributions to the agents' asset accumulation plan as of January
1, 1996. Prior to this event, the Company matched 100% of eligible agents'
contributions up to a maximum of 3% of a participant's compensation and accepted
participant's pretax or after tax contributions up to 10% of participant's
compensation. 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 $0, $118 and $386 in 1996, 1995 and 1994, respectively.
The Company provides certain postretirement benefits to employees who retired on
or before December 31, 1988 or who were hired before December 31, 1988 and who
have at least ten years of service when they reach age 55. The Company's plan
obligation at December 31, 1996 and 1995 was $5,783 and $5,532, respectively,
and the liability is included in "Other liabilities" in the accompanying balance
sheet.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(10) 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 or vary in determining statutory policyholders'
surplus and net gain from operations. These items include, among others,
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 equity Net income
-------------------------- -------------------------------------
1996 1995 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 384,989 299,186 67,995 11,565 6,895
Adjustments:
Change in reserve basis (199,566) (211,678) 13,324 (43,642) (109,473)
Deferred acquisition costs 863,338 826,994 36,344 28,552 132,090
Net deferred taxes (150,760) (140,174) (30,559) (25,772) (16,053)
Statutory asset valuation reserve 133,564 100,462 0 0 0
Statutory interest maintenance reserve 26,342 25,061 1,183 8,756 (4,768)
Modified coinsurance reinsurance (113,743) (119,178) 5,435 104,222 44,920
Unrealized gains on investments 64,928 163,237 0 0 0
Nonadmitted assets 7,121 1,471 0 0 0
Other (2,036) 5,813 7,446 3,516 1,864
- -------------------------------------------------------------------------------------------------------------------
As reported in the accompanying
consolidated financial statements $ 1,014,177 951,194 101,168 87,197 55,475
===================================================================================================================
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1996 and 1995 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 1996 and 1995, respectively, the Company paid
to AZOA dividends, on preferred stock only, in the amount of $1,600 and $2,651,
respectively. Dividends of $61,439 could be paid in 1997 without prior approval
of the Commissioner of Commerce.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
REGULATORY RISK BASED CAPITAL
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)
------------------------- -------------------------------------
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
The Company met the minimum risk-based capital requirements as of December 31,
1996 and 1995.
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.
STATE EXAMINATION
Preferred Life is currently under routine examination by the New York State
Department of Insurance. No matters of significance or adjustments to Preferred
Life's statutory financial statements have been brought to management's
attention as a result of this examination.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(11) 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
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.
(12) 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:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $ (3,455) (3,787) (2,708)
- -------------------------------------------------------------------------------------------------------
Aggregate adjustment for the period resulting from
translation adjustments (28) 511 (1,659)
Amount of income tax benefit (expense)
for period related to aggregate adjustment 10 (179) 580
- -------------------------------------------------------------------------------------------------------
Net aggregate translation included in equity (18) 332 (1,079)
- -------------------------------------------------------------------------------------------------------
Ending amount of cumulative translation adjustments $ (3,473) (3,455) (3,787)
=======================================================================================================
Canadian foreign exchange rate at end of year 0.7297 0.7329 0.7129
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
December 31, 1996, 1995 and 1994
(in thousands)
(13) SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
The following table summarizes certain financial information by line of business
for 1996, 1995 and 1994:
As of December 31 For the year ended December 31
------------------------------------------ -------------------------------------------------------------------
Future Benefits, Net
policy Other Premium claims change
benefits, policy revenue losses, in
Deferred losses, claims and other Net and policy
policy claims and contract invest- settle- acquisi- Other Premiums
acquistion and loss Unearned benefits consider- ment ment tion operating written
costs expense premiums payable ations income expenses costs (a) expenses (b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Life $ 175,608 1,204,633 5,502 62,369 331,845 89,049 258,221 4,308 103,352
Annuities 672,797 2,879,221 0 1,859 157,887 113,537 105,335 (43,283) 161,002
Accident and health 14,933 0 26,674 374,596 376,822 20,036 256,364 2,631 122,337
- -----------------------------------------------------------------------------------------------------------------------------------
$ 863,338 4,083,854 32,176 438,824 866,554 222,622 619,920 (36,344) 386,691
===================================================================================================================================
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
===================================================================================================================================
<FN>
(a) See note 1 for total gross amortization.
(b) Premiums written are not applicable for life insurance companies.
</FN>
</TABLE>
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, 1996 and 1995.
3. Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1996, 1995 and 1994.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.
6. Notes to Consolidated Financial Statements - December 31, 1996,
1995 and 1994.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities as of December 31, 1996.
3. Statements of Operations for the year ended December 31, 1996.
4. Statements of Changes in Net Assets for the years ended
December 31, 1996 and 1995.
5. Notes to Financial Statements - December 31, 1996.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. Principal Underwriter's Agreement**
4. Individual Variable Annuity Contract*
4.a. Waiver of Contingent Deferred Sales Charge Endorsement*
4.b. Enhanced Death Benefit Endorsement*
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 Data
14. Company Organizational Chart**
27. Not Applicable
* Incorporated by reference to Registrant's Form N-4 electronically filed on
June 24, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
form N-4 electronically filed on December 13, 1996.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Insurance Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ---------------------------- ---------------------------------
Lowell C. Anderson Chairman, President, Chief
1750 Hennepin Avenue Executive 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. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Edward J. Bonach Senior Vice President, Chief
1750 Hennepin Avenue Financial Officer and Treasurer
Minneapolis, MN 55403
Alan A. Grove Vice President-Law & Secretary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James President - Individual
1750 Hennepin Avenue Division
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis Dease Director
c/o University of St. Thomas
215 Summit Avenue
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Corp.
Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0116
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is incorporated by reference to Pre-Effective
Amendment No. 1 (File No. 811-05618)
Item 27. Number of Contract Owners
As of February 14, 1997, there were 12 qualified Contract Owners and 37
non-qualified Contract Owners with Contracts in the separate account
Item 28. Indemnification
The Bylaws of the Insurance 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
Insurance Company pursuant to the foregoing, or otherwise, the Insurance 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 Insurance Company of expenses
incurred or paid by a director, officer or controlling person of the Insurance
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, LLC 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,
LLC:
<TABLE>
<CAPTION>
<S> <C>
Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
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
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
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.
d. Allianz Life Insurance Company of North America ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Insurance 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 24th day of April, 1997.
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
(Depositor)
By:/s/ ALAN A. GROVE
------------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board,
Lowell C. Anderson* President 4-24-97
Lowell C. Anderson and Chief Executive Officer
Herbert F. Hansmeyer* Director 4-24-97
Herbert F. Hansmeyer
Michael P. Sullivan* Director 4-24-97
Michael P. Sullivan
Dr. Jerry E. Robertson* Director 4-24-97
Dr. Jerry E. Robertson
Dr. Gerhard Rupprecht* Director 4-24-97
Dr. Gerhard Rupprecht
Edward J. Bonach* Chief Financial Officer 4-24-97
Edward J. Bonach
Rev. Dennis Dease* Director 4-24-97
Rev. Dennis Dease
James R. Campbell* Director 4-24-97
James R. Campbell
</TABLE>
*By Power of Attorney
By: /s/ ALAN A. GROVE
--------------------------------
Alan A. Grove
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
EXHIBIT PAGE
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Data
April 18, 1997
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 Flexible
Payment 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 Variable Account B is a unit investment trust as that term
is defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner
pursuant to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a Contract
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 of Allianz Life Insurance Company of North America
and Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 24, 1997, on the financial
statements of Allianz Life Variable Account B and our report dated February 4,
1997, 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 24, 1997
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
ALLIANZ LIFE VARIABLE ACCOUNT B
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1995
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME
12-31-95 Purchase $1,000.00 $17.20200155 58.133 58.133 $1,000.00
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 58.081 1,123.92
12-31-96 Value before Surr Chg 19.35081369 0.000 58.081 1,123.92
12-31-96 Surrender Charge (60.00) 19.35081369 (3.101) 54.980 1,063.92
Cumulative and Average Annual Total Returns
without/with charges 12.49% A 6.39% B
HIGH INCOME
12-31-95 Purchase $1,000.00 $17.14451419 58.328 58.328 $1,000.00
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 58.276 1,121.04
12-31-96 Value before Surr Chg 19.23682686 0.000 58.276 1,121.04
12-31-96 Surrender Charge (60.00) 19.23682686 (3.119) 55.157 1,061.04
Cumulative and Average Annual Total Returns
without/with charges 12.20% A 6.10% B
INCOME SECURITIES
12-31-95 Purchase $1,000.00 $19.66228575 50.859 50.859 $1,000.00
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 50.812 1,095.19
12-31-96 Value before Surr Chg 21.55369456 0.000 50.812 1,095.19
12-31-96 Surrender Charge (60.00) 21.55369456 (2.784) 48.029 1,035.19
Cumulative and Average Annual Total Returns
without/with charges 9.62% A 3.52% B
MONEY MARKET
12-31-95 Purchase $1,000.00 $12.80529257 78.093 78.093 $1,000.00
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 78.018 1,042.26
12-31-96 Value before Surr Chg 13.35923111 0.000 78.018 1,042.26
12-31-96 Surrender Charge (60.00) 13.35923111 (4.491) 73.527 982.26
Cumulative and Average Annual Total Returns
without/with charges 4.33% A -1.77% B
NATURAL RESOURCES SECURITIES
12-31-95 Purchase $1,000.00 $14.02092182 71.322 71.322 $1,000.00
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 71.252 1,023.50
12-31-96 Value before Surr Chg 14.36439436 0.000 71.252 1,023.50
12-31-96 Surrender Charge (60.00) 14.36439436 (4.177) 67.075 963.50
Cumulative and Average Annual Total Returns
without/with charges 2.45% A -3.65% B
REAL ESTATE SECURITIES
12-31-95 Purchase $1,000.00 $17.96041830 55.678 55.678 $1,000.00
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 55.635 1,307.39
12-31-96 Value before Surr Chg 23.49916899 0.000 55.635 1,307.39
12-31-96 Surrender Charge (60.00) 23.49916899 (2.553) 53.082 1,247.39
Cumulative and Average Annual Total Returns
without/with charges 30.84% A 24.74% B
RISING DIVIDENDS
12-31-95 Purchase $1,000.00 $12.45442887 80.293 80.293 $1,000.00
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 80.227 1,222.29
12-31-96 Value before Surr Chg 15.23536682 0.000 80.227 1,222.29
12-31-96 Surrender Charge (60.00) 15.23536682 (3.938) 76.289 1,162.29
Cumulative and Average Annual Total Returns
without/with charges 22.33% A 16.23% B
SMALL CAP
12-31-95 Purchase $1,000.00 $10.14493678 98.571 98.571 $1,000.00
12-31-96 Contract Fee (1.00) 12.89918829 (0.078) 98.494 1,270.49
12-31-96 Value before Surr Chg 12.89918829 0.000 98.494 1,270.49
12-31-96 Surrender Charge (60.00) 12.89918829 (4.651) 93.842 1,210.49
Cumulative and Average Annual Total Returns
without/with charges 27.15% A 21.05% B
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-95 Purchase $1,000.00 $9.56626187 104.534 104.534 $1,000.00
12-31-96 Contract Fee (1.00) 11.45833113 (0.087) 104.447 1,196.79
12-31-96 Value before Surr Chg 11.45833113 0.000 104.447 1,196.79
12-31-96 Surrender Charge (60.00) 11.45833113 (5.236) 99.210 1,136.79
Cumulative and Average Annual Total Returns
without/with charges 19.78% A 13.68% B
TEMPLETON GLOBAL ASSET ALLOCATION
12-31-95 Purchase $1,000.00 $10.58454194 94.477 94.477 $1,000.00
12-31-96 Contract Fee (1.00) 12.49492743 (0.080) 94.397 1,179.49
12-31-96 Value before Surr Chg 12.49492743 0.000 94.397 1,179.49
12-31-96 Surrender Charge (60.00) 12.49492743 (4.802) 89.595 1,119.49
Cumulative and Average Annual Total Returns
without/with charges 18.05% A 11.95% B
TEMPLETON GLOBAL GROWTH
12-31-95 Purchase $1,000.00 $11.32067650 88.334 88.334 $1,000.00
12-31-96 Contract Fee (1.00) 13.52541005 (0.074) 88.260 1,193.75
12-31-96 Value before Surr Chg 13.52541005 0.000 88.260 1,193.75
12-31-96 Surrender Charge (60.00) 13.52541005 (4.436) 83.824 1,133.75
Cumulative and Average Annual Total Returns
without/with charges 19.48% A 13.38% B
TEMPLETON GLOBAL INCOME SECURITIES
12-31-95 Purchase $1,000.00 $15.42592706 64.826 64.826 $1,000.00
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 64.766 1,079.07
12-31-96 Value before Surr Chg 16.66103106 0.000 64.766 1,079.07
12-31-96 Surrender Charge (60.00) 16.66103106 (3.601) 61.165 1,019.07
Cumulative and Average Annual Total Returns
without/with charges 8.01% A 1.91% B
TEMPLETON INTERNATIONAL EQUITY
12-31-95 Purchase $1,000.00 $13.21605786 75.666 75.666 $1,000.00
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 75.603 1,210.43
12-31-96 Value before Surr Chg 16.01035857 0.000 75.603 1,210.43
12-31-96 Surrender Charge (60.00) 16.01035857 (3.748) 71.855 1,150.43
Cumulative and Average Annual Total Returns
without/with charges 21.14% A 15.04% B
TEMPLETON PACIFIC GROWTH
12-31-95 Purchase $1,000.00 $13.58246157 73.624 73.624 $1,000.00
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 73.557 1,093.47
12-31-96 Value before Surr Chg 14.86560901 0.000 73.557 1,093.47
12-31-96 Surrender Charge (60.00) 14.86560901 (4.036) 69.521 1,033.47
Cumulative and Average Annual Total Returns
without/with charges 9.45% A 3.35% B
U.S. GOVERNMENT SECURITIES
12-31-95 Purchase $1,000.00 $16.19773372 61.737 61.737 $1,000.00
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 61.677 1,019.70
12-31-96 Value before Surr Chg 16.53304452 0.000 61.677 1,019.70
12-31-96 Surrender Charge (60.00) 16.53304452 (3.629) 58.047 959.70
Cumulative and Average Annual Total Returns
without/with charges 2.07% A -4.03% B
UTILITY EQUITY
12-31-95 Purchase $1,000.00 $19.44283491 51.433 51.433 $1,000.00
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 51.384 1,054.74
12-31-96 Value before Surr Chg 20.52658248 0.000 51.384 1,054.74
12-31-96 Surrender Charge (60.00) 20.52658248 (2.923) 48.461 994.74
Cumulative and Average Annual Total Returns
without/with charges 5.57% A -0.53% B
ZERO COUPON - 2000
12-31-95 Purchase $1,000.00 $18.18141100 55.001 55.001 $1,000.00
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 54.947 1,007.99
12-31-96 Value before Surr Chg 18.34477774 0.000 54.947 1,007.99
12-31-96 Surrender Charge (60.00) 18.34477774 (3.271) 51.676 947.99
Cumulative and Average Annual Total Returns
without/with charges 0.90% A -5.20% B
ZERO COUPON - 2005
12-31-95 Purchase $1,000.00 $20.78832859 48.104 48.104 $1,000.00
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 48.055 979.13
12-31-96 Value before Surr Chg 20.37523353 0.000 48.055 979.13
12-31-96 Surrender Charge (60.00) 20.37523353 (2.945) 45.110 919.13
Cumulative and Average Annual Total Returns
without/with charges -1.99% A -8.09% B
ZERO COUPON - 2010
12-31-95 Purchase $1,000.00 $22.29375904 44.856 44.856 $1,000.00
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 44.809 957.61
12-31-96 Value before Surr Chg 21.37105221 0.000 44.809 957.61
12-31-96 Surrender Charge (60.00) 21.37105221 (2.808) 42.001 897.61
Cumulative and Average Annual Total Returns
without/with charges -4.14% A -10.24% B
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch..
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1993
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME
12-31-93 Purchase $1,000.00 $13.61630571 73.441 73.441 $1,000.00
12-31-94 Contract Fee (1.00) 13.14423327 (0.076) 73.365 964.33
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 73.307 1,261.03
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 73.255 1,417.55
12-31-96 Value before Surr Chg 19.35081369 0.000 73.255 1,417.55
12-31-96 Surrender Charge (51.00) 19.35081369 (2.636) 70.620 1,366.55
Cumulative Total Returns without/with chrgs. 42.12% A 36.66% C
Avg. Annual Total Returns without/with chrgs. 12.43% B 10.97% D
HIGH INCOME
12-31-93 Purchase $1,000.00 $15.08792342 66.278 66.278 $1,000.00
12-31-94 Contract Fee (1.00) 14.52977464 (0.069) 66.209 962.01
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 66.151 1,134.13
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 66.099 1,271.54
12-31-96 Value before Surr Chg 19.23682686 0.000 66.099 1,271.54
12-31-96 Surrender Charge (51.00) 19.23682686 (2.651) 63.448 1,220.54
Cumulative Total Returns without/with chrgs. 27.50% A 22.05% C
Avg. Annual Total Returns without/with chrgs. 8.43% B 6.87% D
INCOME SECURITIES
12-31-93 Purchase $1,000.00 $17.65574049 56.639 56.639 $1,000.00
12-31-94 Contract Fee (1.00) 16.30439562 (0.061) 56.577 922.46
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 56.527 1,111.44
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 56.480 1,217.36
12-31-96 Value before Surr Chg 21.55369456 0.000 56.480 1,217.36
12-31-96 Surrender Charge (51.00) 21.55369456 (2.366) 54.114 1,166.36
Cumulative Total Returns without/with chrgs. 22.08% A 16.64% C
Avg. Annual Total Returns without/with chrgs. 6.88% B 5.26% D
MONEY MARKET
12-31-93 Purchase $1,000.00 $12.01410752 83.235 83.235 $1,000.00
12-31-94 Contract Fee (1.00) 12.29002320 (0.081) 83.154 1,021.97
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 83.076 1,063.81
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 83.001 1,108.83
12-31-96 Value before Surr Chg 13.35923111 0.000 83.001 1,108.83
12-31-96 Surrender Charge (51.00) 13.35923111 (3.818) 79.184 1,057.83
Cumulative Total Returns without/with chrgs. 11.20% A 5.78% C
Avg. Annual Total Returns without/with chrgs. 3.60% B 1.89% D
NATURAL RESOURCES SECURITIES
12-31-93 Purchase $1,000.00 $14.39941891 69.447 69.447 $1,000.00
12-31-94 Contract Fee (1.00) 13.90432727 (0.072) 69.375 964.62
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 69.304 971.71
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 69.234 994.51
12-31-96 Value before Surr Chg 14.36439436 0.000 69.234 994.51
12-31-96 Surrender Charge (51.00) 14.36439436 (3.550) 65.684 943.51
Cumulative Total Returns without/with chrgs. -0.24% A -5.65% C
Avg. Annual Total Returns without/with chrgs. -0.08% B -1.92% D
REAL ESTATE SECURITIES
12-31-93 Purchase $1,000.00 $15.30083761 65.356 65.356 $1,000.00
12-31-94 Contract Fee (1.00) 15.51100005 (0.064) 65.291 1,012.74
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 65.236 1,171.66
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 65.193 1,531.99
12-31-96 Value before Surr Chg 23.49916899 0.000 65.193 1,531.99
12-31-96 Surrender Charge (51.00) 23.49916899 (2.170) 63.023 1,480.99
Cumulative Total Returns without/with chrgs. 53.58% A 48.10% C
Avg. Annual Total Returns without/with chrgs. 15.38% B 13.99% D
RISING DIVIDENDS
12-31-93 Purchase $1,000.00 $10.30939159 96.999 96.999 $1,000.00
12-31-94 Contract Fee (1.00) 9.74313966 (0.103) 96.896 944.07
12-31-95 Contract Fee (1.00) 12.45442887 (0.080) 96.816 1,205.79
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 96.750 1,474.03
12-31-96 Value before Surr Chg 15.23536682 0.000 96.750 1,474.03
12-31-96 Surrender Charge (51.00) 15.23536682 (3.347) 93.403 1,423.03
Cumulative Total Returns without/with chrgs. 47.78% A 42.30% C
Avg. Annual Total Returns without/with chrgs. 13.90% B 12.48% D
TEMPLETON GLOBAL INCOME SECURITIES
12-31-93 Purchase $1,000.00 $14.58489254 68.564 68.564 $1,000.00
12-31-94 Contract Fee (1.00) 13.65317533 (0.073) 68.491 935.12
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 68.426 1,055.53
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 68.366 1,139.05
12-31-96 Value before Surr Chg 16.66103106 0.000 68.366 1,139.05
12-31-96 Surrender Charge (51.00) 16.66103106 (3.061) 65.305 1,088.05
Cumulative Total Returns without/with chrgs. 14.23% A 8.80% C
Avg. Annual Total Returns without/with chrgs. 4.54% B 2.85% D
TEMPLETON INTERNATIONAL EQUITY
12-31-93 Purchase $1,000.00 $12.20456639 81.937 81.937 $1,000.00
12-31-94 Contract Fee (1.00) 12.12945216 (0.082) 81.854 992.85
12-31-95 Contract Fee (1.00) 13.21605786 (0.076) 81.778 1,080.79
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 81.716 1,308.30
12-31-96 Value before Surr Chg 16.01035857 0.000 81.716 1,308.30
12-31-96 Surrender Charge (51.00) 16.01035857 (3.185) 78.531 1,257.30
Cumulative Total Returns without/with chrgs. 31.18% A 25.73% C
Avg. Annual Total Returns without/with chrgs. 9.47% B 7.93% D
TEMPLETON PACIFIC GROWTH
12-31-93 Purchase $1,000.00 $14.20875721 70.379 70.379 $1,000.00
12-31-94 Contract Fee (1.00) 12.76818771 (0.078) 70.301 897.61
12-31-95 Contract Fee (1.00) 13.58246157 (0.074) 70.227 953.86
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 70.160 1,042.97
12-31-96 Value before Surr Chg 14.86560901 0.000 70.160 1,042.97
12-31-96 Surrender Charge (51.00) 14.86560901 (3.431) 66.729 991.97
Cumulative Total Returns without/with chrgs. 4.62% A -0.80% C
Avg. Annual Total Returns without/with chrgs. 1.52% B -0.27% D
U.S. GOVERNMENT SECURITIES
12-31-93 Purchase $1,000.00 $14.63435517 68.332 68.332 $1,000.00
12-31-94 Contract Fee (1.00) 13.76239537 (0.073) 68.260 939.42
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 68.198 1,104.65
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 68.137 1,126.52
12-31-96 Value before Surr Chg 16.53304452 0.000 68.137 1,126.52
12-31-96 Surrender Charge (51.00) 16.53304452 (3.085) 65.053 1,075.52
Cumulative Total Returns without/with chrgs. 12.97% A 7.55% C
Avg. Annual Total Returns without/with chrgs. 4.15% B 2.46% D
UTILITY EQUITY
12-31-93 Purchase $1,000.00 $17.24200577 57.998 57.998 $1,000.00
12-31-94 Contract Fee (1.00) 15.02348951 (0.067) 57.931 870.33
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 57.880 1,125.35
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 57.831 1,187.08
12-31-96 Value before Surr Chg 20.52658248 0.000 57.831 1,187.08
12-31-96 Surrender Charge (51.00) 20.52658248 (2.485) 55.347 1,136.08
Cumulative Total Returns without/with chrgs. 19.05% A 13.61% C
Avg. Annual Total Returns without/with chrgs. 5.98% B 4.34% D
ZERO COUPON - 2000
12-31-93 Purchase $1,000.00 $16.64474050 60.079 60.079 $1,000.00
12-31-94 Contract Fee (1.00) 15.29260574 (0.065) 60.014 917.77
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 59.959 1,090.13
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 59.904 1,098.93
12-31-96 Value before Surr Chg 18.34477774 0.000 59.904 1,098.93
12-31-96 Surrender Charge (51.00) 18.34477774 (2.780) 57.124 1,047.93
Cumulative Total Returns without/with chrgs. 10.21% A 4.79% C
Avg. Annual Total Returns without/with chrgs. 3.29% B 1.57% D
ZERO COUPON - 2005
12-31-93 Purchase $1,000.00 $17.97404729 55.636 55.636 $1,000.00
12-31-94 Contract Fee (1.00) 16.01393970 (0.062) 55.573 889.95
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 55.525 1,154.28
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 55.476 1,130.34
12-31-96 Value before Surr Chg 20.37523353 0.000 55.476 1,130.34
12-31-96 Surrender Charge (51.00) 20.37523353 (2.503) 52.973 1,079.34
Cumulative Total Returns without/with chrgs. 13.36% A 7.93% C
Avg. Annual Total Returns without/with chrgs. 4.27% B 2.58% D
ZERO COUPON - 2010
12-31-93 Purchase $1,000.00 $18.06559695 55.354 55.354 $1,000.00
12-31-94 Contract Fee (1.00) 15.84633119 (0.063) 55.291 876.16
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 55.246 1,231.64
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 55.199 1,179.66
12-31-96 Value before Surr Chg 21.37105221 0.000 55.199 1,179.66
12-31-96 Surrender Charge (51.00) 21.37105221 (2.386) 52.813 1,128.66
Cumulative Total Returns without/with chrgs. 18.30% A 12.87% C
Avg. Annual Total Returns without/with chrgs. 5.76% B 4.12% D
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1991
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME
12-31-91 Purchase $1,000.00 $11.91776810 83.908 83.908 $1,000.00
12-31-92 Contract Fee (1.00) 12.52913900 (0.080) 83.829 1,050.30
12-31-93 Contract Fee (1.00) 13.61630571 (0.073) 83.755 1,140.43
12-31-94 Contract Fee (1.00) 13.14423327 (0.076) 83.679 1,099.90
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 83.621 1,438.45
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 83.569 1,617.13
12-31-96 Value before Surr Chg 19.35081369 0.000 83.569 1,617.13
12-31-96 Surrender Charge (34.00) 19.35081369 (1.757) 81.812 1,583.13
Cumulative Total Returns without/with chrgs. 62.37% A 58.31% C
Avg. Annual Total Returns without/with chrgs. 10.18% B 9.62% D
HIGH INCOME
12-31-91 Purchase $1,000.00 $11.55232338 86.563 86.563 $1,000.00
12-31-92 Contract Fee (1.00) 13.23092335 (0.076) 86.487 1,144.30
12-31-93 Contract Fee (1.00) 15.08792342 (0.066) 86.421 1,303.91
12-31-94 Contract Fee (1.00) 14.52977464 (0.069) 86.352 1,254.67
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 86.294 1,479.46
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 86.242 1,659.02
12-31-96 Value before Surr Chg 19.23682686 0.000 86.242 1,659.02
12-31-96 Surrender Charge (34.00) 19.23682686 (1.767) 84.474 1,625.02
Cumulative Total Returns without/with chrgs. 66.52% A 62.50% C
Avg. Annual Total Returns without/with chrgs. 10.74% B 10.20% D
INCOME SECURITIES
12-31-91 Purchase $1,000.00 $13.54447496 73.831 73.831 $1,000.00
12-31-92 Contract Fee (1.00) 15.10888772 (0.066) 73.765 1,114.50
12-31-93 Contract Fee (1.00) 17.65574049 (0.057) 73.708 1,301.37
12-31-94 Contract Fee (1.00) 16.30439562 (0.061) 73.647 1,200.76
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 73.596 1,447.06
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 73.549 1,585.26
12-31-96 Value before Surr Chg 21.55369456 0.000 73.549 1,585.26
12-31-96 Surrender Charge (34.00) 21.55369456 (1.577) 71.972 1,551.26
Cumulative Total Returns without/with chrgs. 59.13% A 55.13% C
Avg. Annual Total Returns without/with chrgs. 9.74% B 9.18% D
MONEY MARKET
12-31-91 Purchase $1,000.00 $11.71257195 85.378 85.378 $1,000.00
12-31-92 Contract Fee (1.00) 11.89167887 (0.084) 85.294 1,014.29
12-31-93 Contract Fee (1.00) 12.01410752 (0.083) 85.211 1,023.73
12-31-94 Contract Fee (1.00) 12.29002320 (0.081) 85.130 1,046.25
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 85.052 1,089.11
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 84.977 1,135.22
12-31-96 Value before Surr Chg 13.35923111 0.000 84.977 1,135.22
12-31-96 Surrender Charge (34.00) 13.35923111 (2.545) 82.432 1,101.22
Cumulative Total Returns without/with chrgs. 14.06% A 10.12% C
Avg. Annual Total Returns without/with chrgs. 2.67% B 1.95% D
NATURAL RESOURCES SECURITIES
12-31-91 Purchase $1,000.00 $10.60671167 94.280 94.280 $1,000.00
12-31-92 Contract Fee (1.00) 9.39103298 (0.106) 94.173 884.39
12-31-93 Contract Fee (1.00) 14.39941891 (0.069) 94.104 1,355.04
12-31-94 Contract Fee (1.00) 13.90432727 (0.072) 94.032 1,307.45
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 93.961 1,317.42
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 93.891 1,348.69
12-31-96 Value before Surr Chg 14.36439436 0.000 93.891 1,348.69
12-31-96 Surrender Charge (34.00) 14.36439436 (2.367) 91.524 1,314.69
Cumulative Total Returns without/with chrgs. 35.43% A 31.47% C
Avg. Annual Total Returns without/with chrgs. 6.25% B 5.62% D
REAL ESTATE SECURITIES
12-31-91 Purchase $1,000.00 $11.81685548 84.625 84.625 $1,000.00
12-31-92 Contract Fee (1.00) 13.04914908 (0.077) 84.548 1,103.28
12-31-93 Contract Fee (1.00) 15.30083761 (0.065) 84.483 1,292.66
12-31-94 Contract Fee (1.00) 15.51100005 (0.064) 84.418 1,309.41
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 84.363 1,515.19
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 84.320 1,981.45
12-31-96 Value before Surr Chg 23.49916899 0.000 84.320 1,981.45
12-31-96 Surrender Charge (34.00) 23.49916899 (1.447) 82.873 1,947.45
Cumulative Total Returns without/with chrgs. 98.86% A 94.75% C
Avg. Annual Total Returns without/with chrgs. 14.74% B 14.26% D
TEMPLETON GLOBAL INCOME SECURITIES
12-31-91 Purchase $1,000.00 $12.92781355 77.353 77.353 $1,000.00
12-31-92 Contract Fee (1.00) 12.68746730 (0.079) 77.274 980.41
12-31-93 Contract Fee (1.00) 14.58489254 (0.069) 77.205 1,126.03
12-31-94 Contract Fee (1.00) 13.65317533 (0.073) 77.132 1,053.10
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 77.067 1,188.83
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 77.007 1,283.02
12-31-96 Value before Surr Chg 16.66103106 0.000 77.007 1,283.02
12-31-96 Surrender Charge (34.00) 16.66103106 (2.041) 74.966 1,249.02
Cumulative Total Returns without/with chrgs. 28.88% A 24.90% C
Avg. Annual Total Returns without/with chrgs. 5.20% B 4.55% D
U.S. GOVERNMENT SECURITIES
12-31-91 Purchase $1,000.00 $12.76496129 78.339 78.339 $1,000.00
12-31-92 Contract Fee (1.00) 13.53931957 (0.074) 78.266 1,059.66
12-31-93 Contract Fee (1.00) 14.63435517 (0.068) 78.197 1,144.37
12-31-94 Contract Fee (1.00) 13.76239537 (0.073) 78.125 1,075.18
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 78.063 1,264.44
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 78.002 1,289.62
12-31-96 Value before Surr Chg 16.53304452 0.000 78.002 1,289.62
12-31-96 Surrender Charge (34.00) 16.53304452 (2.056) 75.946 1,255.62
Cumulative Total Returns without/with chrgs. 29.52% A 25.56% C
Avg. Annual Total Returns without/with chrgs. 5.31% B 4.66% D
UTILITY EQUITY
12-31-91 Purchase $1,000.00 $14.78233584 67.648 67.648 $1,000.00
12-31-92 Contract Fee (1.00) 15.83244652 (0.063) 67.585 1,070.04
12-31-93 Contract Fee (1.00) 17.24200577 (0.058) 67.527 1,164.30
12-31-94 Contract Fee (1.00) 15.02348951 (0.067) 67.461 1,013.49
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 67.409 1,310.63
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 67.360 1,382.68
12-31-96 Value before Surr Chg 20.52658248 0.000 67.360 1,382.68
12-31-96 Surrender Charge (34.00) 20.52658248 (1.656) 65.704 1,348.68
Cumulative Total Returns without/with chrgs. 38.86% A 34.87% C
Avg. Annual Total Returns without/with chrgs. 6.79% B 6.17% D
ZERO COUPON - 2000
12-31-91 Purchase $1,000.00 $13.53555410 73.880 73.880 $1,000.00
12-31-92 Contract Fee (1.00) 14.54452031 (0.069) 73.811 1,073.54
12-31-93 Contract Fee (1.00) 16.64474050 (0.060) 73.751 1,227.56
12-31-94 Contract Fee (1.00) 15.29260574 (0.065) 73.685 1,126.84
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 73.630 1,338.70
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 73.576 1,349.73
12-31-96 Value before Surr Chg 18.34477774 0.000 73.576 1,349.73
12-31-96 Surrender Charge (34.00) 18.34477774 (1.853) 71.722 1,315.73
Cumulative Total Returns without/with chrgs. 35.53% A 31.57% C
Avg. Annual Total Returns without/with chrgs. 6.27% B 5.64% D
ZERO COUPON - 2005
12-31-91 Purchase $1,000.00 $13.67194917 73.142 73.142 $1,000.00
12-31-92 Contract Fee (1.00) 14.92512949 (0.067) 73.075 1,090.66
12-31-93 Contract Fee (1.00) 17.97404729 (0.056) 73.020 1,312.46
12-31-94 Contract Fee (1.00) 16.01393970 (0.062) 72.957 1,168.34
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 72.909 1,515.66
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 72.860 1,484.54
12-31-96 Value before Surr Chg 20.37523353 0.000 72.860 1,484.54
12-31-96 Surrender Charge (34.00) 20.37523353 (1.669) 71.192 1,450.54
Cumulative Total Returns without/with chrgs. 49.03% A 45.05% C
Avg. Annual Total Returns without/with chrgs. 8.31% B 7.72% D
ZERO COUPON - 2010
12-31-91 Purchase $1,000.00 $13.44790271 74.361 74.361 $1,000.00
12-31-92 Contract Fee (1.00) 14.61898218 (0.068) 74.293 1,086.08
12-31-93 Contract Fee (1.00) 18.06559695 (0.055) 74.237 1,341.14
12-31-94 Contract Fee (1.00) 15.84633119 (0.063) 74.174 1,175.39
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 74.129 1,652.62
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 74.083 1,583.22
12-31-96 Value before Surr Chg 21.37105221 0.000 74.083 1,583.22
12-31-96 Surrender Charge (34.00) 21.37105221 (1.591) 72.492 1,549.22
Cumulative Total Returns without/with chrgs. 58.92% A 54.92% C
Avg. Annual Total Returns without/with chrgs. 9.71% B 9.15% D
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF SUB-ACCOUNT INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Contract Fee (1.00) 11.24740541 (0.089) 99.911 1,123.74
12-31-96 Value before Surr Chg 11.24740541 0.000 99.911 1,123.74
12-31-96 Surrender Charge (60.00) 11.24740541 (5.335) 94.577 1,063.74
Cumulative Total Returns without/with chgs. 12.47% A 6.37% C
Avg. Annual Total Returns without/with chgs. NA B NA D
GROWTH AND INCOME
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) 10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) 12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) 12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) 14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) 13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) 17.25393143 (0.058) 99.430 1,715.56
12-31-96 Value before Surr Chg 19.35081369 0.000 99.430 1,924.05
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 99.379 1,923.05
12-31-96 Surrender Charge 0.00 19.35081369 0.000 99.379 1,923.05
Cumulative Total Returns without/with chgs. 93.51% A 92.31% C
Avg. Annual Total Returns without/with chgs. 8.67% B 8.58% D
HIGH INCOME
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) 8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) 11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) 13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) 15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) 14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) 17.40215300 (0.057) 99.438 1,730.44
12-31-96 Value before Surr Chg 19.23682686 0.000 99.438 1,912.88
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 99.386 1,911.88
12-31-96 Surrender Charge 0.00 19.23682686 0.000 99.386 1,911.88
Cumulative Total Returns without/with chgs. 92.37% A 91.19% C
Avg. Annual Total Returns without/with chgs. 8.59% B 8.50% D
INCOME SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) 9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) 13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) 15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) 17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) 16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) 20.08267334 (0.050) 99.501 1,998.25
12-31-96 Value before Surr Chg 21.55369456 0.000 99.501 2,144.62
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 99.455 2,143.62
12-31-96 Surrender Charge 0.00 21.55369456 0.000 99.455 2,143.62
Cumulative Total Returns without/with chgs. 115.54% A 114.36% C
Avg. Annual Total Returns without/with chgs. 10.16% B 10.07% D
MONEY MARKET
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67178511 (0.094) 99.906 1,066.18
1-24-91 Contract Fee (1.00) 11.31010498 (0.088) 99.818 1,128.95
1-24-92 Contract Fee (1.00) 11.72881708 (0.085) 99.733 1,169.75
1-24-93 Contract Fee (1.00) 11.90009827 (0.084) 99.649 1,185.83
1-24-94 Contract Fee (1.00) 12.02348344 (0.083) 99.565 1,197.12
1-24-95 Contract Fee (1.00) 12.32338409 (0.081) 99.484 1,225.98
1-24-96 Contract Fee (1.00) 12.84105599 (0.078) 99.406 1,276.48
12-31-96 Value before Surr Chg 13.35923111 0.000 99.406 1,327.99
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 99.332 1,326.99
12-31-96 Surrender Charge 0.00 13.35923111 0.000 99.332 1,326.99
Cumulative Total Returns without/with chgs. 33.59% A 32.70% C
Avg. Annual Total Returns without/with chgs. 3.72% B 3.63% D
MUTUAL DISCOVERY SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Contract Fee (1.00) 10.17920124 (0.098) 99.902 1,016.92
12-31-96 Value before Surr Chg 10.17920124 0.000 99.902 1,016.92
12-31-96 Surrender Charge (60.00) 10.17920124 (5.894) 94.007 956.92
Cumulative Total Returns without/with chgs. 1.79% A -4.31% C
Avg. Annual Total Returns without/with chgs. NA B NA D
MUTUAL SHARES SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Contract Fee (1.00) 10.32889538 (0.097) 99.903 1,031.89
12-31-96 Value before Surr Chg 10.32889538 0.000 99.903 1,031.89
12-31-96 Surrender Charge (60.00) 10.32889538 (5.809) 94.094 971.89
Cumulative Total Returns without/with chgs. 3.29% A -2.81% C
Avg. Annual Total Returns without/with chgs. NA B NA D
NATURAL RESOURCES SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) 9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) 10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) 9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) 14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) 12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) 15.88612084 (0.063) 99.409 1,579.23
12-31-96 Value before Surr Chg 14.36439436 0.000 99.409 1,427.95
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 99.340 1,426.95
12-31-96 Surrender Charge 0.00 14.36439436 0.000 99.340 1,426.95
Cumulative Total Returns without/with chgs. 43.64% A 42.70% C
Avg. Annual Total Returns without/with chgs. 4.67% B 4.58% D
REAL ESTATE SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13076509 (0.099) 99.901 1,012.08
1-24-91 Contract Fee (1.00) 9.36020172 (0.107) 99.794 934.10
1-24-92 Contract Fee (1.00) 12.25114822 (0.082) 99.713 1,221.60
1-24-93 Contract Fee (1.00) 13.49614031 (0.074) 99.639 1,344.74
1-24-94 Contract Fee (1.00) 15.30618064 (0.065) 99.573 1,524.09
1-24-95 Contract Fee (1.00) 14.92840438 (0.067) 99.506 1,485.47
1-24-96 Contract Fee (1.00) 18.04447622 (0.055) 99.451 1,794.54
12-31-96 Value before Surr Chg 23.49916899 0.000 99.451 2,337.02
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 99.408 2,336.02
12-31-96 Surrender Charge 0.00 23.49916899 0.000 99.408 2,336.02
Cumulative Total Returns without/with chgs. 134.99% A 133.60% C
Avg. Annual Total Returns without/with chgs. 11.36% B 11.28% D
RISING DIVIDENDS
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) 10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) 9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) 12.48933274 (0.080) 99.629 1,244.30
12-31-96 Value before Surr Chg 15.23536682 0.000 99.629 1,517.89
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 99.564 1,516.89
12-31-96 Surrender Charge (34.00) 15.23536682 (2.232) 97.332 1,482.89
Cumulative Total Returns without/with chgs. 52.35% A 48.29% C
Avg. Annual Total Returns without/with chgs. 8.91% B 8.32% D
SMALL CAP
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.14713625 (0.082) 99.918 1,213.71
12-31-96 Value before Surr Chg 12.89918829 0.000 99.918 1,288.86
12-31-96 Contract Fee (1.00) 12.89918829 (0.078) 99.840 1,287.86
12-31-96 Surrender Charge (51.00) 12.89918829 (3.954) 95.886 1,236.86
Cumulative Total Returns without/with chgs. 28.99% A 23.69% C
Avg. Annual Total Returns without/with chgs. 24.37% B 19.98% D
TEMPLETON DEVELOPING MARKETS EQUITY
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) 10.27729571 (0.097) 99.787 1,025.54
12-31-96 Value before Surr Chg 11.45833113 0.000 99.787 1,143.39
12-31-96 Contract Fee (1.00) 11.45833113 (0.087) 99.699 1,142.39
12-31-96 Surrender Charge (51.00) 11.45833113 (4.451) 95.249 1,091.39
Cumulative Total Returns without/with chgs. 14.58% A 9.14% C
Avg. Annual Total Returns without/with chgs. 4.98% B 3.17% D
TEMPLETON GLOBAL ASSET ALLOCATION
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.24184599 (0.089) 99.911 1,123.18
12-31-96 Value before Surr Chg 12.49492743 0.000 99.911 1,248.38
12-31-96 Contract Fee (1.00) 12.49492743 (0.080) 99.831 1,247.38
12-31-96 Surrender Charge (51.00) 12.49492743 (4.082) 95.749 1,196.38
Cumulative Total Returns without/with chgs. 24.95% A 19.64% C
Avg. Annual Total Returns without/with chgs. 14.26% B 11.33% D
TEMPLETON GLOBAL GROWTH
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) 11.79417892 (0.085) 99.816 1,177.25
12-31-96 Value before Surr Chg 13.52541005 0.000 99.816 1,350.05
12-31-96 Contract Fee (1.00) 13.52541005 (0.074) 99.742 1,349.05
12-31-96 Surrender Charge (51.00) 13.52541005 (3.771) 95.972 1,298.05
Cumulative Total Returns without/with chgs. 35.25% A 29.81% C
Avg. Annual Total Returns without/with chgs. 11.39% B 9.76% D
TEMPLETON GLOBAL INCOME SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.85157001 (0.092) 99.908 1,084.16
1-24-91 Contract Fee (1.00) 11.76337661 (0.085) 99.823 1,174.25
1-24-92 Contract Fee (1.00) 12.92541183 (0.077) 99.745 1,289.25
1-24-93 Contract Fee (1.00) 12.75002133 (0.078) 99.667 1,270.76
1-24-94 Contract Fee (1.00) 14.76765782 (0.068) 99.599 1,470.85
1-24-95 Contract Fee (1.00) 13.50498150 (0.074) 99.525 1,344.09
1-24-96 Contract Fee (1.00) 15.35232035 (0.065) 99.460 1,526.94
12-31-96 Value before Surr Chg 16.66103106 0.000 99.460 1,657.11
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 99.400 1,656.11
12-31-96 Surrender Charge 0.00 16.66103106 0.000 99.400 1,656.11
Cumulative Total Returns without/with chgs. 66.61% A 65.61% C
Avg. Annual Total Returns without/with chgs. 6.64% B 6.56% D
TEMPLETON INTERNATIONAL EQUITY
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) 12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) 11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) 13.52801052 (0.074) 99.659 1,348.19
12-31-96 Value before Surr Chg 16.01035857 0.000 99.659 1,595.58
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 99.597 1,594.58
12-31-96 Surrender Charge (34.00) 16.01035857 (2.124) 97.473 1,560.58
Cumulative Total Returns without/with chgs. 60.10% A 56.06% C
Avg. Annual Total Returns without/with chgs. 10.01% B 9.44% D
TEMPLETON INTERNATIONAL SMALLER COMPANIES
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-96 Value before Surr Chg 11.13849568 0.000 100.000 1,113.85
12-31-96 Contract Fee (1.00) 11.13849568 (0.090) 99.910 1,112.85
12-31-96 Surrender Charge (60.00) 11.13849568 (5.387) 94.523 1,052.85
Cumulative Total Returns without/with chgs. 11.38% A 5.28% C
Avg. Annual Total Returns without/with chgs. NA B NA D
TEMPLETON PACIFIC GROWTH
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) 14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) 11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) 14.44474860 (0.069) 99.675 1,439.78
12-31-96 Value before Surr Chg 14.86560901 0.000 99.675 1,481.73
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 99.608 1,480.73
12-31-96 Surrender Charge (34.00) 14.86560901 (2.287) 97.321 1,446.73
Cumulative Total Returns without/with chgs. 48.66% A 44.67% C
Avg. Annual Total Returns without/with chgs. 8.37% B 7.78% D
U.S. GOVERNMENT SECURITIES
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) 11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) 12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) 14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) 14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) 14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) 15.82460547 (0.063) 99.461 1,573.94
12-31-96 Value before Surr Chg 16.53304452 0.000 99.461 1,644.40
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 99.401 1,643.40
12-31-96 Surrender Charge 0.00 16.53304452 0.000 99.401 1,643.40
Cumulative Total Returns without/with chgs. 65.33% A 64.34% C
Avg. Annual Total Returns without/with chgs. 6.65% B 6.57% D
UTILITY EQUITY
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) 11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) 14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) 15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) 16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) 15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) 19.69346882 (0.051) 99.520 1,959.89
12-31-96 Value before Surr Chg 20.52658248 0.000 99.520 2,042.80
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 99.471 2,041.80
12-31-96 Surrender Charge 0.00 20.52658248 0.000 99.471 2,041.80
Cumulative Total Returns without/with chgs. 105.27% A 104.18% C
Avg. Annual Total Returns without/with chgs. 9.48% B 9.41% D
ZERO COUPON - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.37748201 (0.096) 99.904 1,036.75
3-14-91 Contract Fee (1.00) 11.49325260 (0.087) 99.817 1,147.22
3-14-92 Contract Fee (1.00) 12.63019476 (0.079) 99.737 1,259.70
3-14-93 Contract Fee (1.00) 15.48457708 (0.065) 99.673 1,543.39
3-14-94 Contract Fee (1.00) 15.97181577 (0.063) 99.610 1,590.96
3-14-95 Contract Fee (1.00) 16.16440029 (0.062) 99.548 1,609.14
3-14-96 Contract Fee (1.00) 17.74484226 (0.056) 99.492 1,765.47
12-31-96 Value before Surr Chg 18.34477774 0.000 99.492 1,825.16
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 99.438 1,824.16
12-31-96 Surrender Charge 0.00 18.34477774 0.000 99.438 1,824.16
Cumulative Total Returns without/with chgs. 83.45% A 82.42% C
Avg. Annual Total Returns without/with chgs. 8.08% B 8.01% D
ZERO COUPON - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38882453 (0.096) 99.904 1,037.88
3-14-91 Contract Fee (1.00) 11.53456820 (0.087) 99.817 1,151.35
3-14-92 Contract Fee (1.00) 12.62819047 (0.079) 99.738 1,259.51
3-14-93 Contract Fee (1.00) 16.36793990 (0.061) 99.677 1,631.50
3-14-94 Contract Fee (1.00) 16.86182251 (0.059) 99.617 1,679.73
3-14-95 Contract Fee (1.00) 17.12592868 (0.058) 99.559 1,705.04
3-14-96 Contract Fee (1.00) 19.37651757 (0.052) 99.507 1,928.11
12-31-96 Value before Surr Chg 20.37523353 0.000 99.507 2,027.49
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 99.458 2,026.49
12-31-96 Surrender Charge 0.00 20.37523353 0.000 99.458 2,026.49
Cumulative Total Returns without/with chgs. 103.75% A 102.65% C
Avg. Annual Total Returns without/with chgs. 9.55% B 9.47% D
ZERO COUPON - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.25922011 (0.097) 99.903 1,024.92
3-14-91 Contract Fee (1.00) 11.34740047 (0.088) 99.814 1,132.63
3-14-92 Contract Fee (1.00) 12.25923536 (0.082) 99.733 1,222.65
3-14-93 Contract Fee (1.00) 16.12714811 (0.062) 99.671 1,607.41
3-14-94 Contract Fee (1.00) 16.82866376 (0.059) 99.611 1,676.33
3-14-95 Contract Fee (1.00) 17.03620553 (0.059) 99.553 1,696.00
3-14-96 Contract Fee (1.00) 19.87163939 (0.050) 99.502 1,977.28
12-31-96 Value before Surr Chg 21.37105221 0.000 99.502 2,126.47
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 99.456 2,125.47
12-31-96 Surrender Charge 0.00 21.37105221 0.000 99.456 2,125.47
Cumulative Total Returns without/with chgs. 113.71% A 112.55% C
Avg. Annual Total Returns without/with chgs. 10.22% B 10.14% D
<FN>
A = (Unit Value as of December 31, 1996 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE INFORMATION OF SELECTED PUBLIC FUNDS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1995
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY FUND
12-31-95 Purchase $1,000.00 $15.16 65.963 65.963 $1,000.00
6-14-96 Dividend Distribution ($.35/shr) 23.09 16.89 1.367 67.330 1,137.20
12-23-96 Dividend Distribution ($1.36/shr) 91.57 17.00 5.386 72.716 1,236.18
12-31-96 Current Value 17.18 0.000 72.716 1,249.27
Average Annual Total Return 24.93% A
MUTUAL SHARES FUND
12-31-95 Purchase $1,000.00 $86.45 11.567 11.567 $1,000.00
6-14-96 Dividend Distribution ($3.00/shr) 34.70 91.93 0.377 11.945 1,098.09
12-23-96 Dividend Distribution ($8.17/shr) 97.59 92.01 1.061 13.006 1,196.64
12-31-96 Current Value 92.85 0.000 13.006 1,207.56
Average Annual Total Return 20.76% A
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES SUB-ACCOUNT
12-31-95 Purchase $1,000.00 $17.28544840 57.852 57.852 $1,000.00
12-31-96 Contract Fee (1.00) 21.27706553 (0.047) 57.805 1,229.92
12-31-96 Value before Surr Chg 21.27706553 0.000 57.805 1,229.92
12-31-96 Surrender Charge (60.00) 21.27706553 (2.820) 54.985 1,169.92
Average Annual Total Returns without/with charges 23.09% B 16.99% C
MUTUAL SHARES SECURITIES SUB-ACCOUNT
12-31-95 Purchase $1,000.00 $486.02304917 2.058 2.058 $1,000.00
12-31-96 Contract Fee (1.00) 578.46604221 (0.002) 2.056 1,189.20
12-31-96 Value before Surr Chg 578.46604221 0.000 2.056 1,189.20
12-31-96 Surrender Charge (60.00) 578.46604221 (0.104) 1.952 1,129.20
Average Annual Total Returns without/with charges 19.02% B 12.92% C
<FN>
B = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
C = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1991
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
MUTUAL SHARES FUND
12-31-91 Purchase $1,000.00 $64.49 15.506 15.506 $1,000.00
7-6-92 Dividend Distribution ($1.00/shr) 15.51 70.18 0.221 15.727 1,103.74
12-31-92 Dividend Distribution ($3.75/shr) 58.98 72.71 0.811 16.538 1,202.50
7-12-93 Dividend Distribution ($.70/shr) 11.58 79.65 0.145 16.684 1,328.86
12-31-93 Dividend Distribution ($6.99/shr) 116.62 80.56 1.448 18.131 1,460.66
7-11-94 Dividend Distribution ($.60/shr) 10.88 80.60 0.135 18.266 1,472.26
12-29-94 Dividend Distribution ($5.30/shr) 96.81 78.31 1.236 19.503 1,527.24
7-10-95 Dividend Distribution ($2.60/shr) 50.71 88.78 0.571 20.074 1,782.14
12-29-95 Dividend Distribution ($12.14/shr) 243.69 85.63 2.846 22.920 1,962.60
6-14-96 Dividend Distribution ($3.00/shr) 68.76 91.93 0.748 23.668 2,175.76
12-23-96 Dividend Distribution ($8.17/shr) 193.36 92.01 2.102 25.769 2,371.01
12-31-96 Current Value 92.85 0.000 25.769 2,392.66
Cumulative Total Return 139.27% A
Average Annual Total Return 19.06% B
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
B = [(A+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
MUTUAL SHARES SECURITIES SUB-ACCOUNT
12-31-91 Purchase $1,000.00 $261.41203753 3.825 3.825 $1,000.00
12-31-92 Contract Fee (1.00) 312.29223600 (0.003) 3.822 1,193.64
12-31-93 Contract Fee (1.00) 372.01016088 (0.003) 3.819 1,420.89
12-31-94 Contract Fee (1.00) 382.98324271 (0.003) 3.817 1,461.80
12-31-95 Contract Fee (1.00) 486.02304917 (0.002) 3.815 1,854.09
12-31-96 Contract Fee (1.00) 578.46604221 (0.002) 3.813 2,205.74
12-31-96 Value before Surr Chg 578.46604221 0.000 3.813 2,205.74
12-31-96 Surrender Charge (34.00) 578.46604221 (0.059) 3.754 2,171.74
Cumulative Total Rtns. without/with chrgs. 121.29% C 117.17% E
Avg. Annual Total Rtns. without/with chrgs. 17.22% D 16.78% F
<FN>
C = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
D = [(C+1)^(1/5 Years)]-1
E = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
F = [(E+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1986
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ----- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
MUTUAL SHARES FUND
12-31-86 Purchase $1,000.00 $66.04 15.142 15.142 $1,000.00
1-9-87 Dividend Distribution ($5.65/shr) 85.55 60.08 1.424 16.566 995.31
7-17-87 Dividend Distribution ($1.35/shr) 22.36 71.24 0.314 16.880 1,202.55
12-31-87 Dividend Distribution ($5.26/shr) 88.79 58.12 1.528 18.408 1,069.87
7-15-88 Dividend Distribution ($1.75/shr) 32.21 70.00 0.460 18.868 1,320.77
12-29-88 Dividend Distribution ($5.93/shr) 111.89 67.38 1.661 20.529 1,383.23
6-23-89 Dividend Distribution ($1.85/shr) 37.98 74.45 0.510 21.039 1,566.34
12-29-89 Dividend Distribution ($8.79/shr) 184.93 66.80 2.768 23.807 1,590.33
6-18-90 Dividend Distribution ($.75/shr) 17.86 66.20 0.270 24.077 1,593.90
12-31-90 Dividend Distribution ($3.48/shr) 83.79 56.16 1.492 25.569 1,435.95
7-8-91 Dividend Distribution ($.90/shr) 23.01 63.59 0.362 25.931 1,648.94
12-31-91 Dividend Distribution ($2.73/shr) 70.79 63.27 1.119 27.050 1,711.44
7-6-92 Dividend Distribution ($1.00/shr) 27.05 70.18 0.385 27.435 1,925.40
12-31-92 Dividend Distribution ($3.75/shr) 102.88 72.71 1.415 28.850 2,097.69
7-12-93 Dividend Distribution ($.70/shr) 20.20 79.65 0.254 29.104 2,318.11
12-31-93 Dividend Distribution ($6.99/shr) 203.43 80.56 2.525 31.629 2,548.03
7-11-94 Dividend Distribution ($.60/shr) 18.98 80.60 0.235 31.864 2,568.27
12-29-94 Dividend Distribution ($5.30/shr) 168.88 78.31 2.157 34.021 2,664.18
7-10-95 Dividend Distribution ($2.60/shr) 88.45 88.78 0.996 35.017 3,108.83
12-29-95 Dividend Distribution ($12.14/shr) 425.11 85.63 4.964 39.982 3,423.64
6-14-96 Dividend Distribution ($3.00/shr) 119.95 91.93 1.305 41.287 3,795.47
12-23-96 Dividend Distribution ($8.17/shr) 337.31 92.01 3.666 44.953 4,136.08
12-31-96 Current Value 92.85 0.000 44.953 4,173.84
Cumulative Total Return 317.38% A
Average Annual Total Return 15.36% B
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
B = [(A+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
MUTUAL SHARES SECURITIES SUB-ACCOUNT
12-31-86 Purchase $1,000.00 $161.96953367 6.174 6.174 $1,000.00
12-31-87 Contract Fee (1.00) 169.74909138 (0.006) 6.168 1,047.03
12-31-88 Contract Fee (1.00) 218.42389921 (0.005) 6.164 1,346.26
12-31-89 Contract Fee (1.00) 247.18339867 (0.004) 6.159 1,522.52
12-31-90 Contract Fee (1.00) 219.57313256 (0.005) 6.155 1,351.46
12-31-91 Contract Fee (1.00) 261.41203753 (0.004) 6.151 1,607.97
12-31-92 Contract Fee (1.00) 312.29223600 (0.003) 6.148 1,919.94
12-31-93 Contract Fee (1.00) 372.01016088 (0.003) 6.145 2,286.08
12-31-94 Contract Fee (1.00) 382.98324271 (0.003) 6.143 2,352.51
12-31-95 Contract Fee (1.00) 486.02304917 (0.002) 6.141 2,984.45
12-31-96 Contract Fee (1.00) 578.46604221 (0.002) 6.139 3,551.10
12-31-96 Value before Surr Chg 578.46604221 0.000 6.139 3,551.10
12-31-96 Surrender Charge 0.00 578.46604221 0.000 6.139 3,551.10
Cumulative Total Rtns. without/with chrgs. 257.14% C 255.11% E
Avg. Annual Total Rtns. without/with chrgs. 13.58% D 13.51% F
<FN>
C = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
D = [(C+1)^(1/10 Years)]-1
E = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
F = [(E+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF INCEPTION
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar NAV Per Shrs. This Accum. Net Asset
Date Transaction Amount Share Trans. Shrs. Value
---- ----------- ------ ------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY FUND
12-31-92 Purchase $1,000.00 $10.00 100.000 100.000 $1,000.00
12-31-93 Dividend Distribution ($.53/shr) 53.00 12.93 4.099 104.099 1,346.00
7-11-94 Dividend Distribution ($.20/shr) 20.82 13.28 1.568 105.667 1,403.25
12-29-94 Dividend Distribution ($.77/shr) 81.36 12.52 6.499 112.165 1,404.31
7-10-95 Dividend Distribution ($.13/shr) 14.58 14.49 1.006 113.172 1,639.86
12-29-95 Dividend Distribution ($.83/shr) 93.93 14.99 6.266 119.438 1,790.38
6-14-96 Dividend Distribution ($.35/shr) 41.80 16.89 2.475 121.913 2,059.11
12-23-96 Dividend Distribution ($1.36/shr) 165.80 17.00 9.753 131.666 2,238.32
12-31-96 Current Value 17.18 0.000 131.666 2,262.02
Cumulative Total Return 126.20% A
Average Annual Total Return 22.62% B
<FN>
A = (Net Asset Value as of December 31, 1996 - Net Asset Value at Purch.)/Net Asset Value at Purch.
B = [(A+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
MUTUAL DISCOVERY SECURITIES SUB-ACCOUNT
12-31-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-93 Contract Fee (1.00) 13.37903402 (0.075) 99.925 1,336.90
12-31-94 Contract Fee (1.00) 13.65174819 (0.073) 99.852 1,363.15
12-31-95 Contract Fee (1.00) 17.28544840 (0.058) 99.794 1,724.99
12-31-96 Contract Fee (1.00) 21.27706553 (0.047) 99.747 2,122.33
12-31-96 Value before Surr Chg 21.27706553 0.000 99.747 2,122.33
12-31-96 Surrender Charge (42.50) 21.27706553 (1.997) 97.750 2,079.83
Cumulative Total Rtns. without/with chgs. 112.77% C 107.98% E
Avg. Annual Total Rtns. without/with chgs. 20.76% D 20.07% F
<FN>
C = (Unit Value as of December 31, 1996 - Unit Value at Purch.)/Unit Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
E = (Accumulated Value as of December 31, 1996 - Accum. Value at Purch.)/Accum. Value at Purch.
F = [(E+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
