File Nos. 33-72046
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. 5 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 30 (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>
Item No. Location
- -------- --------
<S> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights. . . . . . . . . . . . Highlights
Item 4. Condensed Financial Information. . . . . . . . Condensed Financial
Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . The Company; The
Variable Account;
Franklin Valuemark
Funds
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Charges and
Deductions
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . The Contracts
Item 8. Annuity Period. . .. . . . . . . . . . . . . . Annuity Provisions
Item 9. Death Benefit. . . . . . . . . . . . . . . . . The Contracts;
Annuity Provisions
Item 10. Purchases and Contract Value. . . . . . . . . Purchase Payments
and Contract Value
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Surrenders
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Tax Status
Item 13. Legal Proceedings. . . . . . . . . . . . . . . Legal Proceedings
Item 14. Table of Contents of the Statement of Table of Contents of
Additional Information. . . . . . . . . . . . the Statement of
Additional Informa-
tion
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . The Company
Item 18. Services. . . . . . . . . . . . .. . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
Part A
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
ALLIANZ LIFE VARIABLE ACCOUNT B
Supplement Dated _______________, 1997 to
Prospectus Dated May 1, 1997
The following information replaces the section entitled "Annuity
Provisions - Annuity Options" contained in the Prospectus:
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may
select an Annuity Option. The Annuity Options are available on a fixed or
variable basis or a combination fixed and variable basis. If the Contract Owner
does not choose an Annuity Option, Option 2 with 60 monthly annuity payments
guaranteed will automatically be applied. The following Annuity Options are
available or any other Annuity Option acceptable to the Company:
OPTION 1. LIFE ANNUITY. The Company will make monthly annuity payments
during the life of the Annuitant, ceasing with the last annuity payment
due prior to the Annuitant's death.
OPTION 2. LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY ANNUITY
PAYMENTS GUARANTEED. The Company will make monthly annuity payments
during the life of the Annuitant with a guarantee that if at the
Annuitant's death, payments have been made for less than the guaranteed
period selected, monthly annuity payments will continue for the
remainder of the guaranteed period. The Contract Owner may elect to
have the present value of the guaranteed monthly annuity payments
remaining, as of the date of the Company receives proof of the claim,
commuted and paid in a lump sum as set forth in the Contract.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. The Company 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
then living, annuity payments will continue to be paid during the
remaining lifetime of the joint Annuitant at a level of 100%, 75% or
50% of the previous level, as selected. Monthly annuity payments will
cease with the final annuity payment due prior to the last survivor's
death.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 60, 120, 180 OR 240
MONTHLY ANNUITY PAYMENTS GUARANTEED. The Company 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
then living, annuity payments will continue to be paid during the
remaining lifetime of the joint Annuitant at 100% of the previous
level. If, when the last surviving Annuitant dies, annuity payments
have been made for less than the selected guaranteed period, monthly
annuity payments will continue to be made for the remainder of the
guaranteed period. The Contract Owner may elect to have the present
value of the guaranteed monthly annuity payments remaining, as of the
date the Company receives proof of the claim, commuted and paid in a
lump sum as set forth in the Contract.
OPTION 5. REFUND LIFE ANNUITY. The Company will make monthly annuity
payments during the lifetime of the Annuitant ceasing with the last
annuity payment due prior to the Annuitant's death with a guarantee
that at the Annuitant's death, the Contract Owner will receive a
refund. For a fixed annuity, the amount of the refund will be any
excess of the amount of the adjusted Contract Value applied under this
annuity option over the total of all annuity payments made under this
option. For a variable annuity, the amount of the refund will be the
then dollar value of the number of annuity units equal to the adjusted
Contract Value applied to this annuity option divided by the annuity
unit value used to determine the first annuity payment, minus the
product of the number of the annuity units represented by each monthly
annuity payment and the number of payments made.
The Prospectus is revised so that the Contract Owner remains the
Contract Owner after the Income Date.
The "Death of the Contract Owner Before the Income Date" section is
revised regarding the determination of the amount of the death benefit as
follows:
The guaranteed death benefit is the value of the death benefit at the
time the elected option is processed which is guaranteed to be at least
the larger of the Surrender Value or the Guaranteed Minimum Death
Benefit. The Guaranteed Minimum Death Benefit will be the greater of
(a) or (b) below:
(a) the sum of all purchase payments made less any surrenders and any
Contingent Deferred Sales Charge paid on such surrenders, accumulated
at 5% each Contract Anniversary prior to the earlier of the Contract
Owner's 81st birthday or the date of death.
(b) the greatest sixth Contract anniversary value for Contract
anniversaries prior to the earlier of the Contract Owner's 81st
birthday or the date of death. The sixth Contract anniversary value is
equal to the Contract Value on the sixth Contract anniversary (i.e.,
6th, 12th, 18th, etc.) increased by the dollar amount of any purchase
payments made since that anniversary, and decreased by the dollar
amount of any surrenders and Contingent Deferred Sales Charges paid on
such surrenders since that anniversary.
Upon the earlier of the Owner's 81st birthday or the date of death, and
thereafter, the Minimum Guaranteed Death Benefit will only be increased
by subsequent purchase payments and decreased by subsequent surrenders
and any Contingent Deferred Sales Charge paid on such surrenders. If
there are multiple Contract Owners, the age of the oldest Joint Owner
will be used in determining the Guaranteed Death Benefit.
The following provision is added to the Prospectus after "Death of the
Contract Owner Before the Income Date" :
Death of Contract Owner after the Income Date.
If the Contract Owner or any Joint Owner die after the Income Date, any
remaining payments under the Annuity Option elected will continue at least as
rapidly as under the method of distribution in effect at such Contract Owner's
death. Upon the death of the Contract Owner after the Income Date, the
Beneficiary becomes the Contract Owner.
The "Death of the Annuitant Prior to the Income Date" and the "Death of
the Annuitant After the Income Date" sections are deleted and replaced with the
following section.
Death of the Annuitant.
If the Annuitant who is not the Contract Owner dies before the Income
Date, the Contract Owner will become the Annuitant unless the Contract Owner
designates a new Annuitant (subject to the Company's underwriting rules then in
effect). If the Contract Owner is a non-natural person, the death of the
Annuitant will be treated as the death of the Contract Owner and a new Annuitant
may not be designated. If the Annuitant dies after the Income Date, the death
benefit, if any, will be specified in the Annuity Option selected. Death
benefits will be paid at least as rapidly as under the method of distribution in
effect at the Annuitant's death.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Home Office: Valuemark Service Center:
1750 Hennepin Avenue 300 Berwyn Park
Minneapolis, MN 55403-2195 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
May 1, 1997
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to aid
individuals in long-term planning for retirement or other long-term purposes.
This is not appropriate as a trading vehicle.
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Tax Status - Qualified Plans.") However, because of the minimum
purchase payment requirements, these Contracts may not be appropriate for some
periodic payment retirement plans.
Purchase payments for the Contracts will be allocated to a segregated investment
account of Allianz Life Insurance Company of North America (the "Company") which
account has been designated Allianz Life Variable Account B (the "Variable
Account") or to the Company's Fixed Account. IN WASHINGTON, THE FIXED ACCOUNT IS
NOT AVAILABLE UNTIL APPROVED BY THE WASHINGTON INSURANCE DEPARTMENT.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-three Funds: the Money Market
Fund, the High Income Fund, the Templeton Global Income Securities Fund, the
U.S. Government Securities Fund, the Zero Coupon Funds-2000, 2005 and 2010, the
Growth and Income Fund, the Income Securities Fund, the Mutual Shares Securities
Fund, the Real Estate Securities Fund, the Rising Dividends Fund, the Templeton
Global Asset Allocation Fund, the Utility Equity Fund, the Capital Growth Fund,
the Mutual Discovery Securities Fund, the Natural Resources Securities Fund, the
Small Cap Fund, the Templeton Developing Markets Equity Fund, the Templeton
Global Growth Fund, the Templeton International Equity Fund, the Templeton
International Smaller Companies Fund and the Templeton Pacific Growth Fund.
Prior to May 1, 1997 the Natural Resources Securities Fund was known as the
Precious Metals Fund. See "Highlights" and "Tax Status" for a discussion of
owner control of the underlying investments in a variable annuity contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents of the Statement of Additional Information can be found on the
last page of this Prospectus. For the Statement of Additional Information, call
or write the Home Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Home Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS 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.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the Statement of Additional Information are dated May 1,
1997 and may be amended from time to time.
This Prospectus should be kept for future reference.
In the State of Oregon, all references to Franklin Valuemark III refer to
Valuemark III.
Contents Page
DEFINITIONS ..................................... 3
HIGHLIGHTS ...................................... 4
FEE TABLE ....................................... 6
CONDENSED FINANCIAL
INFORMATION .................................... 10
THE COMPANY ..................................... 12
THE VARIABLE ACCOUNT ............................ 12
FRANKLIN VALUEMARK FUNDS ........................ 12
General ........................................ 13
Substitution of Securities ..................... 13
Voting Privileges .............................. 13
CHARGES AND DEDUCTIONS .......................... 14
Deduction for Contingent Deferred
Sales Charge (Sales Load) ..................... 14
Reduction or Elimination of Contingent
Deferred Sales Charge ......................... 14
Deduction for Mortality and
Expense Risk Charge ........................... 15
Deduction for Administrative
Expense Charge ................................ 15
Deduction for Contract
Maintenance Charge ............................ 15
Deduction for Premium Taxes .................... 15
Deduction for Income Taxes ..................... 16
Deduction for Trust Expenses ................... 16
Deduction for Transfer Fee ..................... 16
THE CONTRACTS ................................... 16
Ownership ...................................... 16
Assignment ..................................... 16
Beneficiary .................................... 17
Change of Beneficiary .......................... 17
Annuitant ...................................... 17
Death of the Contract Owner
Before the Income Date ........................ 17
Death of the Annuitant Prior
to the Income Date ............................ 18
Death of the Annuitant After
the Income Date ............................... 18
ANNUITY PROVISIONS .............................. 18
Income Date .................................... 18
Change in Income Date and
Annuity Option ................................ 18
Annuity Options ................................ 18
Annuity Units .................................. 19
PURCHASE PAYMENTS AND
CONTRACT VALUE ................................. 19
Purchase Payments .............................. 19
Automatic Investment Plan ...................... 20
Allocation of Purchase Payments ................ 20
Transfer of Contract Values .................... 21
Dollar Cost Averaging .......................... 22
Flexible Rebalancing ........................... 22
Contract Value ................................. 22
Accumulation Unit .............................. 22
DISTRIBUTOR ..................................... 23
SURRENDERS ...................................... 23
Systematic Withdrawal .......................... 23
Minimum Distribution Program ................... 24
Delay of Payments .............................. 24
ADMINISTRATION OF THE CONTRACTS ................. 24
PERFORMANCE DATA ................................ 24
Money Market Sub-Account ....................... 24
Other Sub-Accounts ............................. 25
Performance Ranking ............................ 25
TAX STATUS ...................................... 25
General ........................................ 26
Diversification ................................ 26
Multiple Contracts ............................. 27
Contracts Owned by Other than
Natural Persons ............................... 27
Tax Treatment of Assignments ................... 27
Income Tax Withholding ......................... 27
Tax Treatment of Surrenders -
Non-Qualified Contracts ....................... 28
Qualified Plans ................................ 28
Tax Treatment of Surrenders -
Qualified Contracts ........................... 29
Tax-Sheltered Annuities -
Surrender Limitations ......................... 30
FINANCIAL STATEMENTS ............................ 30
LEGAL PROCEEDINGS ............................... 30
APPENDIX - PERFORMANCE
INFORMATION OF SELECTED
PUBLIC FUNDS ................................... 30
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ......................... 32
Definitions
- --------------------------------------------------------------------------------
Accumulation Unit - An accounting unit of measure used to calculate the Contract
Value prior to the Income Date.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any time
prior to the Income Date unless the Contract Owner is not a natural person.
Annuity Option - An arrangement under which annuity payments are made under the
Contract.
Annuity Period - The period starting on the Income Date.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Income Date.
Company - Allianz Life Insurance Company of North America at its Valuemark
Service Center shown on the cover page of this Prospectus.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The person(s) or entity who own the Contract as named in the
Company's records as the owner or Joint Owner. If Joint Owners are named, all
references to Contract Owner shall mean the Joint Owners.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
Contract Year - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
Effective Date - The date on which the first Contract Year begins.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fixed Account - The Company's general investment account which contains all the
assets of the Company with the exception of the Variable Account and other
segregated asset accounts.
Fund - A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
Income Date - The date on which annuity payments are to commence.
Joint Owner - If there is more than one Contract Owner, each Contract Owner
shall be a Joint Owner of the Contract. Joint Owners have equal ownership rights
and must both authorize any exercising of those ownership rights unless
otherwise allowed by the Company. Any Joint Owner must be the spouse of the
other Joint Owner (except in Pennsylvania).
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) or 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
Qualified Contracts - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Code.
Sub-Account - A segment of the Variable Account. Each Sub-Account is invested in
shares of a Fund of an Eligible Investment.
Surrender Value - The Contract Value for the Valuation Period next following the
Valuation Period during which the written request to the Company for surrender
is received, reduced by the sum of: (i) any applicable premium taxes not
previously deducted; (ii) any applicable Contract Maintenance Charge; and (iii)
any applicable Contingent Deferred Sales Charge.
Valuation Date - The Variable Account will be valued each day that the New York
Stock Exchange is open for trading, which is Monday through Friday, except for
normal business holidays.
Valuation Period - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
Variable Account - A separate investment account of the Company, designated as
Allianz Life Variable Account B, into which purchase payments may be allocated.
Highlights
- --------------------------------------------------------------------------------
Purchase payments for the Contracts will be allocated to a segregated investment
account of Allianz Life Insurance Company of North America (the "Company") which
has been designated Allianz Life Variable Account B (the "Variable Account") or
to the Company's Fixed Account. IN WASHINGTON, THE FIXED ACCOUNT IS NOT
AVAILABLE UNTIL APPROVED BY THE WASHINGTON INSURANCE DEPARTMENT.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). (See "Franklin Valuemark Funds.") CONTRACT OWNERS BEAR THE INVESTMENT
RISK FOR ALL AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNT.
The Contract may be returned within 10 days (or for a longer period in states
where required) after it is received ("Free-Look Period"). It can be mailed or
delivered to either the Company or the agent who sold it. Return of the Contract
by mail is effective on being postmarked, properly addressed and postage
prepaid. The returned Contract will be treated as if the Company had never
issued it. The Company will promptly refund the Contract Value in states where
permitted. This may be more or less than the purchase payments. In states where
required and where the Contract is purchased pursuant to an Individual
Retirement Annuity, the Company will promptly refund the purchase payments, less
any surrenders. The Company has reserved the right to allocate initial purchase
payments to the Money Market Sub-Account (except those allocated to the Fixed
Account) until the expiration of the Free-Look Period. If the Company does so
allocate the initial purchase payment to the Money Market Sub-Account, it will
refund the greater of the purchase payments, less any surrenders, or the
Contract Value. It is the Company's current practice to directly allocate the
initial purchase payment to the Sub-Accounts and/or to the Fixed Account as
selected by the Contract Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event of
a surrender. The Contingent Deferred Sales Charge is imposed on surrenders of
purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a Contingent
Deferred Sales Charge. If no surrender is made during a Contract Year, the 15%
is cumulative into future years. If less than 15% is surrendered in a Contract
Year, the remaining percentage is not available in future years. The Contingent
Deferred Sales Charge will vary in amount, depending upon the Contract Year in
which the purchase payment being surrendered was made. The Company currently
makes available a systematic withdrawal plan which allows for additional options
in some instances. (See "Surrenders - Systematic Withdrawal.") The Contingent
Deferred Sales Charge is found in the Fee Table. See also "Charges and
Deductions - Deduction for Contingent Deferred Sales Charge (Sales Load)." The
maximum Contingent Deferred Sales Charge is 6% of purchase payments. For
purposes of determining the applicability of the Contingent Deferred Sales
Charge, surrenders are deemed to be on a first-in, first-out basis.
There is a Mortality and Expense Risk Charge which is equal, on an annual basis,
to 1.25% of the average daily net assets of the Variable Account. This charge
compensates the Company for assuming the mortality and expense risks under the
Contracts. (See "Charges and Deductions - Deduction for Mortality and Expense
Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis, to
0.15% of the average daily net assets of the Variable Account. This charge
compensates the Company for costs associated with the administration of the
Contract and the Variable Account. (See "Charges and Deductions - Deduction for
Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.")
Under certain circumstances there may be assessed a transfer fee when a Contract
Owner transfers Contract Values. (See "Charges and Deductions - Deduction for
Transfer Fee.")
There is a ten percent (10%) federal income tax penalty that may be applied to
the income portion of any distribution from the Contracts. However, the penalty
is not imposed under certain circumstances. (See "Tax Status - Tax Treatment of
Surrenders - Non-Qualified Contracts" and "Tax Treatment of Surrenders -
Qualified Contracts.") For a further discussion of the taxation of the
Contracts, see "Tax Status."
For contracts purchased in connection with 403(b) plans, surrenders of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) are limited to circumstances only
when the Contract Owner: (1) attains age 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, surrenders for hardship are restricted
to the portion of the Contract Owner's Contract Value which represents
contributions made by the Contract Owner and does not include any investment
results. The limitations on surrenders became effective on January 1, 1989 and
only apply to (i) salary reduction contributions made after December 31, 1988;
(ii) to income attributable to such contributions; and (iii) to amounts held as
of December 31, 1988. The limitations on surrenders do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult their
own tax counsel or other tax adviser regarding distributions. (See "Tax Status -
Tax Sheltered Annuities - Surrender Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investment underlying the contract. The issuance of such guidelines may require
the Company to impose limitations on a Contract Owner's right to control the
investment. It is not known whether any such guidelines would have a retroactive
effect (see "Tax Status - Diversification").
The Company offers other deferred variable annuity contracts but does not permit
exchange of those contracts for the Contracts offered by this Prospectus.
Because of certain exemptive and exclusionary provisions, interests in the Fixed
Account are not registered under the Securities Act of 1933 and the Fixed
Account is not registered as an investment company under the Investment Company
Act of 1940, as amended. Accordingly, neither the Fixed Account nor any
interests therein are subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in the Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
<PAGE>
<TABLE>
Allianz Life Variable Account B Fee Table
Contract Owner Transaction Fees
Contingent Deferred Sales Charge*
(as a percentage of purchase payments)
Years Since
Payment Charge
------- -----
<S> <C> <C>
0-1 6%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
</TABLE>
Current Transfer Fee**................................... First 12 transfers in
a Contract Year are free. Thereafter, the fee is $25 (or 2% of the amount
transferred, if less). Prescheduled automatic dollar cost averaging and flexible
rebalancing transfers are not counted.
Contract Maintenance Charge.............................. $30 per Contract per
year (Prior to the Income Date the charge is waived for Contracts having
Contract Values or purchase payments less withdrawals of $100,000 or more.)
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge........................ 1.25%
Administrative Expense Charge............................ .15%
------
Total Variable Account Annual Expenses................... 1.40%
*Once each Contract Year, a Contract Owner may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no surrender is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is surrendered
in a Contract Year, the remaining percentage is not available in future years.
See also "Surrenders - Systematic Withdrawal" and "Surrenders-Minimum
Distribution Program" for additional options.
**The Contract provides that if more than three transfers have been made in a
Contract Year, the Company reserves the right to deduct a transfer fee which
shall not exceed the lesser of $25 or 2% of the amount transferred. Market
timing transfers may not be permitted.
<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 "Franklin
Valuemark Funds" in this Prospectus and "Management" in the Trust prospectus.
The "Management and Fund Administration Fees" below include investment advisory and other management and administrative fees not
included as "Other Expenses" that were paid to the Managers and Fund Administrators to the Trust 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 (see
explanatory footnotes below). The purpose of the Table is to assist the Contract Owner in understanding the costs of investing,
directly or indirectly, in the Contract.
Management
and Fund Other Total Annual
Administration Fees1 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 Fund6........................................... .95% .10% 1.05%
Mutual Shares Securities Fund6.............................................. .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 Discovery Securities Fund and the Mutual Shares Securities Fund; other Funds pay for similar
services indirectly through the Management Fee. See "Management" in the Trust Prospectus for further information regarding
Management and Fund Administration Fees.
2Franklin Advisers, Inc. agreed in advance to waive a portion of its Management Fee and to make certain payments to reduce
expenses of the Money Market Fund during 1996 and is currently continuing this arrangement in 1997. This arrangement may be
terminated at any time. With this reduction, actual Management Fees and Total Annual Expenses of the Money Market Fund for 1996
were 0.41% and 0.43%, respectively 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.
4Net of management fees waived and/or expense reimbursements. Although not obligated to, Franklin Advisers, Inc. has agreed in
advance to waive a portion of its management fees and to make certain payments to reduce expenses of the three Zero Coupon Funds
through at least December 31, 1997 such that the aggregate 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 Management and Fund Administration Fees respectively 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 Templeton International Smaller Companies Fund and the Capital Growth Fund commenced operations May 1, 1996. The expenses
shown are estimated expenses for the Funds for 1997.
6The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund commenced operations November 8, 1996. The expenses
shown are estimated expenses for the Funds for 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following Tables reflect expenses of the Variable Account as well as of the Trust. The dollar figures should not be considered
a representation of past or future expenses. Actual expenses may be greater or less than those shown. The $30 Contract Maintenance
Charge is included in the Examples as a prorated charge of $1 based on a Contract account size of $30,000. For additional
information, see "Charges and Deductions" in this Prospectus and "Management" in the Trust Prospectus.
Premium taxes are not reflected in the Tables. Premium taxes may apply.
Examples
If the Contract is fully surrendered at the end of the applicable time period and no prior surrenders have occurred, the Contract
Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on assets compounded
annually:
1 Year 3 Years 5 Years 10 Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Money Market Fund.............................................................. $72 $ 86 $113 $235
Growth and Income Fund......................................................... $71 $ 85 $111 $232
Natural Resources Securities Fund.............................................. $73 $ 89 $119 $248
Real Estate Securities Fund.................................................... $72 $ 87 $115 $240
Utility Equity Fund............................................................ $71 $ 85 $111 $232
High Income Fund............................................................... $72 $ 86 $113 $236
Templeton Global Income Securities Fund........................................ $72 $ 88 $117 $244
Income Securities Fund......................................................... $71 $ 85 $111 $232
U.S. Government Securities Fund................................................ $71 $ 85 $112 $233
Zero Coupon Fund-2000+......................................................... $70 $ 82 $106 $222
Zero Coupon Fund-2005+......................................................... $70 $ 82 $106 $222
Zero Coupon Fund-2010+......................................................... $70 $ 82 $106 $222
Rising Dividends Fund.......................................................... $74 $ 93 $125 $259
Templeton International Equity Fund............................................ $75 $ 97 $131 $273
Templeton Pacific Growth Fund.................................................. $76 $100 $136 $283
Templeton Global Growth Fund................................................... $76 $ 98 $133 $277
Templeton Developing Markets Equity Fund....................................... $81 $114 $161 $331
Templeton Global Asset Allocation Fund......................................... $75 $ 96 $130 $270
Small Cap Fund................................................................. $74 $ 93 $125 $260
Templeton International Smaller Companies Fund*................................ $78 $105 $145 $300
Capital Growth Fund*........................................................... $74 $ 93 $125 $260
Mutual Discovery Securities Fund*.............................................. $77 $101 $139 $289
Mutual Shares Securities Fund*................................................. $75 $95 $129 $268
<FN>
*Estimated
+Calculated with waiver of fees and reimbursement of expenses
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If the Contract is not surrendered at the end of the applicable time period and no prior surrenders have occurred or is
annuitized, the Contract Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded annually:
1 Year 3 Years 5 Years 10 Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Money Market Fund.............................................................. $21 $64 $109 $235
Growth and Income Fund......................................................... $20 $63 $108 $232
Natural Resources Securities Fund.............................................. $22 $67 $115 $248
Real Estate Securities Fund.................................................... $21 $65 $111 $240
Utility Equity Fund............................................................ $20 $63 $108 $232
High Income Fund............................................................... $21 $64 $110 $236
Templeton Global Income Securities Fund........................................ $21 $66 $113 $244
Income Securities Fund......................................................... $20 $63 $108 $232
U.S. Government Securities Fund................................................ $20 $63 $108 $233
Zero Coupon Fund-2000+......................................................... $19 $60 $102 $222
Zero Coupon Fund-2005+......................................................... $19 $60 $102 $222
Zero Coupon Fund-2010+......................................................... $19 $60 $102 $222
Rising Dividends Fund.......................................................... $23 $71 $121 $259
Templeton International Equity Fund............................................ $24 $75 $128 $273
Templeton Pacific Growth Fund.................................................. $25 $78 $133 $283
Templeton Global Growth Fund................................................... $25 $76 $130 $277
Templeton Developing Markets Equity Fund....................................... $30 $92 $157 $331
Templeton Global Asset Allocation Fund......................................... $24 $74 $126 $270
Small Cap Fund................................................................. $23 $71 $121 $260
Templeton International Smaller Companies Fund*................................ $27 $83 $141 $300
Capital Growth Fund*........................................................... $23 $71 $121 $260
Mutual Discovery Securities Fund*.............................................. $26 $79 $136 $289
Mutual Shares Securities Fund*................................................. $24 $73 $125 $268
<FN>
*Estimated
+Calculated with waiver of fees and reimbursement of other expenses
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Financial Information
The consolidated financial statements of Allianz Life Insurance Company of North America and the financial statements of Allianz
Life Variable Account B may be found in the Statement of Additional Information.
The table below gives per accumulation unit information about the financial history of each Sub-Account from the inception of each
to December 31, 1996.
This information should be read in conjunction with the financial statements and related notes to the Variable Account included in
the Statement of Additional Information.
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD FROM
(NUMBER OF UNITS IN THOUSANDS) ENDED ENDED ENDED ENDED ENDED ENDED ENDED INCEPTION**
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, TO DEC. 31,
SUB-ACCOUNTS: 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET
Unit value at beginning of period........ $12.883 $12.354 $12.066 $11.932 $11.742 $11.288 $10.637 $10.000
Unit value at end of period.............. $13.359 $12.883 $12.354 $12.066 $11.932 $11.742 $11.288 $10.637
Number of units outstanding at end of period 28,060 31,040 39,437 10,247 6,951 5,682 5,768 1,199
GROWTH AND INCOME
Unit value at beginning of period........ $17.310 $13.215 $13.677 $12.574 $11.949 $9.803 $10.180 $10.000
Unit value at end of period.............. $19.490 $17.310 $13.215 $13.677 $12.574 $11.949 $9.803 $10.180
Number of units outstanding at end of period 50,027 46,893 35,695 24,719 17,144 9,671 5,356 1,662
NATURAL RESOURCES SECURITIES*
Unit value at beginning of period........ $14.109 $13.979 $14.464 $9.424 $10.635 $10.387 $12.247 $10.000
Unit value at end of period.............. $14.467 $14.109 $13.979 $14.464 $9.424 $10.635 $10.387 $12.247
Number of units outstanding at end of period 6,998 6,919 8,285 4,685 1,419 833 1,015 167
HIGH INCOME
Unit value at beginning of period........ $17.252 $14.608 $15.155 $13.278 $11.583 $9.026 $10.021 $10.000
Unit value at end of period.............. $19.375 $17.252 $14.608 $15.155 $13.278 $11.583 $9.026 $10.021
Number of units outstanding at end of period 20,736 18,756 15,679 11,787 4,780 1,923 1,056 612
REAL ESTATE SECURITIES
Unit value at beginning of period........ $18.073 $15.594 $15.369 $13.095 $11.848 $9.000 $10.368 $10.000
Unit value at end of period.............. $23.668 $18.073 $15.594 $15.369 $13.095 $11.848 $9.000 $10.368
Number of units outstanding at end of period 12,757 10,998 11,645 5,589 1,052 394 200 57
U.S. GOVERNMENT SECURITIES
Unit value at beginning of period........ $16.298 $13.835 $14.698 $13.586 $12.798 $11.199 $10.427 $10.000
Unit value at end of period.............. $16.650 $16.298 $13.835 $14.698 $13.586 $12.798 $11.199 $10.427
Number of units outstanding at end of period 44,598 34,313 36,490 40,402 25,054 14,426 5,450 1,102
UTILITY EQUITY
Unit value at beginning of period........ $19.565 $15.104 $17.319 $15.889 $14.821 $12.062 $12.010 $10.000
Unit value at end of period.............. $20.654 $19.565 $15.104 $17.319 $15.889 $14.821 $12.062 $12.010
Number of units outstanding at end of period 53,086 66,669 70,082 84,217 39,387 16,188 6,300 1,173
ZERO COUPON - 2000
Unit value at beginning of period........ $18.294 $15.373 $16.717 $14.595 $13.570 $11.446 $10.961 $10.000
Unit value at end of period.............. $18.475 $18.294 $15.373 $16.717 $14.595 $13.570 $11.446 $10.961
Number of units outstanding at end of period 5,636 6,066 4,953 3,787 2,886 2,012 1,041 162
ZERO COUPON - 2005
Unit value at beginning of period........ $20.914 $16.096 $18.050 $14.975 $13.705 $11.545 $11.406 $10.000
Unit value at end of period.............. $20.517 $20.914 $16.096 $18.050 $14.975 $13.705 $11.545 $11.406
Number of units outstanding at end of period 3,579 3,504 2,780 2,020 1,090 795 406 86
ZERO COUPON - 2010
Unit value at beginning of period........ $22.431 $15.930 $18.144 $14.670 $13.482 $11.390 $11.486 $10.000
Unit value at end of period.............. $21.522 $22.431 $15.930 $18.144 $14.670 $13.482 $11.390 $11.486
Number of units outstanding at end of period 3,297 3,437 2,589 1,405 849 1,150 581 194
TEMPLETON GLOBAL INCOME SECURITIES
Unit value at beginning of period........ $15.522 $13.726 $14.650 $12.733 $12.962 $11.706 $10.813 $10.000
Unit value at end of period.............. $16.781 $15.522 $13.726 $14.650 $12.733 $12.962 $11.706 $10.813
Number of units outstanding at end of period 11,857 14,181 16,855 13,054 5,487 2,979 1,322 278
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD FROM
(NUMBER OF UNITS IN THOUSANDS) ENDED ENDED ENDED ENDED ENDED ENDED ENDED INCEPTION**
DEC.31, DEC.31, DEC.31, DEC.31, DEC.31, DEC.31, DEC.31, TO DEC. 31,
SUB-ACCOUNTS: 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME SECURITIES
Unit value at beginning of period........ $19.785 $16.392 $17.734 $15.163 $13.580 $9.842 $10.783 $10.000
Unit value at end of period.............. $21.708 $19.785 $16.392 $17.734 $15.163 $13.580 $9.842 $10.783
Number of units outstanding at end of period 57,504 59,309 56,569 38,967 11,397 4,472 3,011 1,508
TEMPLETON PACIFIC GROWTH
Unit value at beginning of period........ $13.630 $12.802 $14.233 $9.761 $10.000** NA NA NA
Unit value at end of period.............. $14.932 $13.630 $12.802 $14.233 $9.761 NA NA NA
Number of units outstanding at end of period 22,061 22,483 27,231 14,240 534 NA NA NA
RISING DIVIDENDS
Unit value at beginning of period........ $12.498 $9.769 $10.327 $10.848 $10.000** NA NA NA
Unit value at end of period.............. $15.303 $12.498 $9.769 $10.327 $10.848 NA NA NA
Number of units outstanding at end of period 35,569 33,789 28,778 26,256 8,388 NA NA NA
TEMPLETON INTERNATIONAL EQUITY
Unit value at beginning of period........ $13.263 $12.161 $12.226 $9.642 $10.000** NA NA NA
Unit value at end of period.............. $16.081 $13.263 $12.161 $12.226 $9.642 NA NA NA
Number of units outstanding at end of period 64,375 59,883 60,464 24,026 1,329 NA NA
NA
TEMPLETON DEVELOPING MARKETS EQUITY
Unit value at beginning of period........ $9.582 $9.454 $10.000** NA NA NA NA NA
Unit value at end of period.............. $11.487 $9.582 $9.454 NA NA NA NA NA
Number of units outstanding at end of period 22,423 15,618 9,774 NA NA NA NA NA
TEMPLETON GLOBAL GROWTH
Unit value at beginning of period........ $11.339 $10.201 $10.000** NA NA NA NA NA
Unit value at end of period.............. $13.560 $11.339 $10.201 NA NA NA NA NA
Number of units outstanding at end of period 40,327 28,309 14,637 NA NA NA NA NA
TEMPLETON GLOBAL ASSET ALLOCATION
Unit value at beginning of period........ $10.591 $10.000** NA NA NA NA NA NA
Unit value at end of period.............. $12.514 $10.591 NA NA NA NA NA NA
Number of units outstanding at end of period 4,104 1,338 NA NA NA NA NA NA
SMALL CAP
Unit value at beginning of period........ $10.146 $10.000** NA NA NA NA NA NA
Unit value at end of period.............. $12.913 $10.146 NA NA NA NA NA NA
Number of units outstanding at end of period 12,784 1,302 NA NA NA NA NA NA
TEMPLETON INTERNATIONAL SMALLER COMPANIES
Unit value at beginning of period........ $10.000** NA NA NA NA NA NA NA
Unit value at end of period.............. $11.145 NA NA NA NA NA NA NA
Number of units outstanding at end of period 1,388 NA NA NA NA NA NA NA
CAPITAL GROWTH
Unit value at beginning of period........ $10.000** NA NA NA NA NA NA NA
Unit value at end of period.............. $11.254 NA NA NA NA NA NA NA
Number of units outstanding at end of period 3,722 NA NA NA NA NA NA NA
MUTUAL DISCOVERY SECURITIES
Unit value at beginning of period........ $10.000** NA NA NA NA NA NA NA
Unit value at end of period.............. $10.180 NA NA NA NA NA NA NA
Number of units outstanding at end of period 1,471 NA NA NA NA NA NA NA
MUTUAL SHARES SECURITIES
Unit value at beginning of period........ $10.000** NA NA NA NA NA NA NA
Unit value at end of period.............. $10.330 NA NA NA NA NA NA NA
Number of units outstanding at end of period 2,613 NA NA NA NA NA NA NA
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as the Precious Metals Sub-Account.
**Unit Value at inception was $10.00.
</FN>
</TABLE>
Accumulation Unit Value at the inception was $10.00 for each Sub-Account.
Inception was 1/24/89 for the Growth and Income, Templeton Global Income
Securities, High Income, Income Securities, Natural Resources Securities, Real
Estate Securities, Utility Equity and Money Market Sub-Accounts; 3/14/89 for the
U.S. Government Securities and the three Zero Coupon Sub-Accounts; 1/27/92 for
the Rising Dividends, Templeton International Equity and Templeton Pacific
Growth Sub-Accounts; 3/15/94 for the Templeton Global Growth and Templeton
Developing Markets Equity Sub-Accounts; 5/1/95 for the Templeton Global Asset
Allocation Sub-Account; 11/1/95 for the Small Cap Sub-Account; 5/1/96 for the
the Templeton International Smaller Companies and Capital Growth Sub-Accounts;
and 11/8/96 for the Mutual Shares Securities and Mutual Discovery Securities
Sub-Accounts.
The Company
- --------------------------------------------------------------------------------
Allianz Life Insurance Company of North America (the "Company") is a stock life
insurance company organized under the laws of the state of Minnesota in 1896.
The Company is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding
("Allianz"). Allianz is headquartered in Munich, Germany, and has sales outlets
throughout the world. The Company offers fixed and variable life insurance and
annuities, and group life, accident and health insurance.
NALAC Financial Plans, LLC is a wholly-owned subsidiary of the Company. It
provides marketing services for the Company and is the principal underwriter of
the Contracts. NALAC Financial Plans, LLC is reimbursed for expenses incurred in
the distribution of the Contracts.
Administration for the Contracts is provided at the Company's Valuemark Service
Center: 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania 19312-0031, (800)
624-0197.
The Variable Account
- -------------------------------------------------------------------------------
The Variable Account was established pursuant to a resolution of the Board of
Directors on May 31, 1985. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However, the
assets of the Variable Account equal to the reserves, and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Sub-Accounts with the assets of each
Sub-Account invested in one of the Funds of Franklin Valuemark Funds. Currently,
there are twenty-three Funds available under Franklin Valuemark Funds.
Franklin Valuemark Funds
- --------------------------------------------------------------------------------
Each of the twenty-three Sub-Accounts of the Variable Account is invested solely
in the shares of one of the Funds of Franklin Valuemark Funds ("Trust"). The
Trust is an open-end management investment company registered under the 1940
Act. The investment objectives of each Fund and a discussion of potential risks
are found in the accompanying prospectus for the Trust, which is included with
this Prospectus.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
Franklin Advisers, Inc. serves as each Fund's (except the Rising Dividends Fund,
the Templeton Global Growth Fund, the Templeton Developing Markets Equity Fund,
the Templeton Global Asset Allocation Fund, the Templeton International Smaller
Companies Fund, the Mutual Shares Securities Fund and the Mutual Discovery
Securities Fund) investment manager. The investment manager for the Templeton
Global Growth Fund and the Templeton Global Asset Allocation Fund 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 Mutual Shares Securities Fund and
the Mutual Discovery Securities Fund is Franklin Mutual Advisers, Inc. Franklin
Advisory Services, Inc. is the investment manager for the Rising Dividends Fund.
All investment managers and subadvisers are referred to collectively as
"Managers."
The Managers are direct or indirect wholly-owned subsidiaries of Franklin
Resources, Inc., a publicly-owned holding company. The Managers, subject to the
overall policies, control, direction, and review of the Board of Trustees of the
Trust, are responsible for recommending and providing advice with respect to
each Fund's investments, and for determining which securities will be purchased,
retained or sold as well as for execution of portfolio transactions. Certain
Managers have retained one or more sub-advisers.
Franklin Templeton Services, Inc. ("Fund Administrator") provides certain
administrative facilities and services for the Funds.
Franklin Templeton Investor Services, Inc., also a wholly-owned subsidiary of
Franklin Resources, Inc., maintains the records of the Trust's shareholder
accounts, processes purchases and redemptions of shares, and serves as each
Fund's dividend paying agent.
The following Funds are available:
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, 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
General
There is no assurance that the investment objectives of any of the Funds will be
met. Contract Owners bear the complete investment risk for Contract Values
allocated to a Sub-Account.
Additional Funds and/or additional Eligible Investments may, from time to time,
be made available as investments to underlie the Contract. However, the right to
make such selections will be limited by the terms and conditions imposed on such
transactions by the Company. (See "Purchase Payments and Contract Value -
Allocation of Purchase Payments.")
Substitution of Securities
If the shares of any Fund of the Trust should no longer be available for
investment by the Variable Account or if, in the judgment of the Company, the
substitution of shares of any Fund for another would be in the best interests of
Contract Owners in view of the purpose of the Contract, the Company may
substitute shares of another Eligible Investment (or Fund within the Trust). No
substitution of securities in any Sub-Account may take place without prior
approval of the Securities and Exchange Commission and under such requirements
as it may impose.
Voting Privileges
In accordance with its view of present applicable law, the Company will vote the
shares of the Trust held in the Variable Account at special meetings of the
shareholders of the Trust in accordance with instructions received from persons
having the voting interest in the Variable Account. The Company will vote shares
for which it has not received instructions, as well as shares attributable to
it, in the same proportion as it votes shares for which it has received
instructions. The Trust does not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to the
meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate accounts
of the Company and its affiliates. The Trust does not foresee any disadvantage
to Contract Owners arising out of the fact that the Trust may be made available
to separate accounts which are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Trust's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in the Trust. This might force
the Trust to sell portfolio securities at disadvantageous prices.
Charges and Deductions
- -------------------------------------------------------------------------------
Various charges and deductions are made from Contract Values and the Variable
Account. These charges and deductions are:
Deduction for Contingent Deferred
Sales Charge (Sales Load)
If all or a portion of the Surrender Value (see "Surrenders") is surrendered, a
Contingent Deferred Sales Charge (sales load) will be calculated at the time of
each surrender and will be deducted from the Contract Value. This charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Contingent Deferred Sales Charge
applies only to those purchase payments received within five (5) years of the
date of surrender. In calculating the Contingent Deferred Sales Charge, purchase
payments are allocated to the amount surrendered on a first-in, first-out basis.
The amount of the Contingent Deferred Sales Charge is calculated by: (a)
allocating purchase payments to the amount surrendered; (b) multiplying each
such allocated purchase payment that has been held under the Contract for the
period by the charge shown below:
Years Since
Payment Charge
--------------------
0-1 6%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
and (c) adding the products of each multiplication in (b) above. The charge will
not exceed 6% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge ("free surrender amount"). If no surrender is
made during a Contract Year, the 15% is cumulative into future years. If less
than 15% is surrendered in a Contract Year, the remaining percentage is not
available in future years. No Contingent Deferred Sales Charge will be deducted
from purchase payments which have been held under the Contract for more than
five (5) Contract Years or as annuity payments. See also "Surrenders -
Systematic Withdrawal." The Company may also eliminate or reduce the Contingent
Deferred Sales Charge under the Company procedures then in effect. (See "Charges
and Deductions - Reduction or Elimination of Contingent Deferred Sales Charge.")
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be deducted
from the amount surrendered. The amount deducted from the Contract Value will be
determined by canceling Accumulation Units from each applicable Sub-Account
and/or subtracting values from the Fixed Account in the ratio that the value of
each Sub-Account and/or the Fixed Account bears to the total Contract Value. The
Contract Owner must specify in writing in advance which units are to be canceled
or values are to be reduced if other than the above method of cancellation is
desired.
Reduction or Elimination of
Contingent Deferred Sales Charge
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Company after examination of the following factors: (1) the
size of the group; (2) the total amount of purchase payments expected to be
received from the group; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The Contingent Deferred Sales Charge may also be eliminated when the
Contract is sold by an agent of the Company to any members of his or her family
and the commission is reduced. In no event will reductions or elimination of the
Contingent Deferred Sales Charge be permitted where reductions or elimination
will unfairly discriminate against any person.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets of
the Variable Account. The mortality risk borne by the Company arises from its
contractual obligation to make annuity payments (determined in accordance with
the Annuity Options and other provisions contained in the Contracts) regardless
of how long all Annuitants may live. This undertaking assures that neither an
Annuitant's own longevity, nor an improvement in life expectancy greater than
expected, will have any adverse effect on the annuity payments the Annuitant
will receive under the Contract. Furthermore, the Company bears a mortality
risk, regardless of the Annuity Option selected, in that it guarantees the
purchase rates for the annuity income options available under the Contract
whether for fixed payment options or variable payment options. In addition, the
Company assumes a mortality risk for the guaranteed death benefit provided under
the Contract. The expense risk assumed by the Company is that all actual
expenses involved in administering the Contracts, including Contract maintenance
costs, administrative costs, mailing costs, data processing costs, legal fees,
accounting fees, filing fees, and the costs of other services may exceed the
amount recovered from the Contract Maintenance Charge and the Administrative
Expense Charge. The Mortality and Expense Risk Charge is guaranteed by the
Company and cannot be increased.
Deduction for Administrative Expense Charge
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets of
the Variable Account. This charge, together with the Contract Maintenance Charge
(see below), is to reimburse the Company for the expenses it incurs in the
establishment and maintenance of the Contracts and the Variable Account. These
expenses include, but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Contract Owner
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Contract Owner servicing, and
all accounting, valuation, regulatory and reporting requirements.
Deduction for Contract Maintenance Charge
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. Prior to the Income Date, the
charge is waived for Contracts having Contract Values or purchase payments less
surrenders of $100,000 or more. This charge is to reimburse the Company for its
administrative expenses (see above). Prior to the Income Date, this charge is
deducted by canceling Accumulation Units from each applicable Sub-Account and/or
by subtracting values from the Fixed Account in the ratio that the value of each
Sub-Account or the Fixed Account bears to the total Contract Value. When the
Contract is surrendered for its full Surrender Value on other than a Contract
Anniversary, the entire Contract Maintenance Charge will be deducted at the time
of surrender. On and after the Income Date, the Contract Maintenance Charge will
be collected pro rata on a monthly basis ($2.50 per month) and will result in a
reduction of the monthly annuity payments.
Deduction for Premium Taxes
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium taxes
currently imposed by certain states on the Contracts range from 0% to 3.5% of
premiums paid. Some states assess premium taxes at the time purchase payments
are made; others assess premium taxes at the time annuity payments begin. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Variable Account; receipt by the Company of the
purchase payment(s); or commencement of annuity payments. The Company may, at
its sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date.
Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for any
income taxes incurred by it as a result of the operation of the Variable Account
whether or not there was a provision for taxes and whether or not it was
sufficient. Currently, no federal income taxes are assessed against the Variable
Account. However, if the tax laws should change, the Company reserves the right
to deduct the amount of such taxes from the Variable Account. The Company will
deduct any withholding taxes required by applicable law.
Deduction for Trust Expenses
There are other deductions from the assets of Franklin Valuemark Funds for
operating expenses (including management fees), which are described in the
accompanying Trust prospectus.
Deduction for Transfer Fee
Prior to the Income Date, a Contract Owner may transfer all or a part of the
Contract Owner's interest in a Sub-Account to another Sub-Account or to or from
the Fixed Account without the imposition of any fee or charge if there have been
no more than three transfers made in the Contract Year. The Contract provides
that if more than three transfers have been made in the Contract Year, the
Company reserves the right to deduct a transfer fee. The maximum transfer fee
that the Company may deduct, per transfer, is the lesser of $25 or 2% of the
amount transferred. Currently, twelve transfers may be made in a Contract Year
without a charge. Thereafter, the charge is $25 (or 2% of the amount
transferred, if less). Currently, prescheduled automatic dollar cost averaging
and flexible rebalancing transfers are not counted. The Company reserves the
right to charge a fee for all transfers after the Income Date, which fee, per
transfer, will not exceed the lesser of $25 or 2% of the amount transferred. The
transfer fee at any given time will not be set at a level greater than its cost
and will contain no element of profit.
The Contracts
- --------------------------------------------------------------------------------
Ownership
The Contract Owner and any Joint Owner as named on the Contract Schedule, have
all rights and may receive all benefits under the Contract. The Contract Owner
may change the Contract Owner at any time. Any Joint Owner must be the spouse of
the other Joint Owner (except in Pennsylvania). Upon the death of the Contract
Owner, the surviving Joint Owner may elect to keep the Contract in force and
become the new Contract Owner when the Joint Owner is the spouse of the Contract
Owner. In those states where a non-spousal Joint Owner is permitted, the death
benefit must be paid in accordance with the Code and the surviving Joint Owner
cannot continue the Contract in force. A change of Contract Owner will
automatically revoke any prior designation of Contract Owner. A request for
change must be: (1) made in writing; and (2) received by the Company at its
Valuemark Service Center. After the transfer is recorded, the change will become
effective as of the date the written request is signed. A new designation of
Contract Owner or Joint Owner will not apply to any payment made or action taken
by the Company prior to the time it was received. The Annuitant becomes the
Owner on and after the Income Date.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the taxable
year. However, for purposes of Code Section 72(u), an annuity contract held by a
trust or other entity as agent for a natural person is considered held by a
natural person and treated as an annuity contract for tax purposes. Tax advice
should be sought prior to purchasing a Contract which is to be owned by a trust
or other non-natural person.
Assignment
The Contract Owner may assign the Contract at any time during his or her
lifetime. The Company will not be bound by any assignment until written notice
is received by the Company at its Valuemark Service Center. The Company is not
responsible for the validity of any assignment. The Contract Owner's rights and
those of any revocably-named person will be subject to the assignment. An
assignment will not affect any payments the Company may make or actions the
Company may take before such assignment has been recorded at its Valuemark
Service Center.
If the Contract is issued pursuant to a Qualified Plan, it may not be assigned,
pledged or otherwise transferred except as may be allowed under applicable law.
Beneficiary
One or more Beneficiaries and/or Contingent Beneficiaries are named by the
Contract Owner and, unless changed, are entitled to receive any death benefits
to be paid. Upon the death of either Joint Owner prior to the Income Date, the
surviving Joint Owner, if any, will be the designated Beneficiary and any other
Beneficiary named will be treated as a Contingent Beneficiary, unless otherwise
indicated.
Change of Beneficiary
The Contract Owner may change a Beneficiary or Contingent Beneficiary by filing
a written request with the Company at its Valuemark Service Center unless an
irrevocable Beneficiary designation was previously filed. After the change is
recorded, it will take effect as of the date the request was signed. If the
request reaches the Valuemark Service Center after the Contract Owner dies but
before any payment is made, the change will be valid. The Company will not be
liable for any payment made or action taken before it records the change.
If all of the Beneficiaries and Contingent Beneficiaries die prior to the
Contract Owner's death, the Company will pay the death benefit in one sum to the
Contract Owner's estate.
Annuitant
The Annuitant must be a natural person. The maximum age of the Annuitant on the
Effective Date is 80 years old. The Annuitant may be changed at any time prior
to the Income Date unless the Contract is owned by a non-natural person. (See
"Death of the Annuitant Prior to the Income Date".) Joint Annuitants are allowed
at the time of annuitization only. The Annuitant has no rights or privileges
prior to the Income Date. When an Annuity Option is elected, the amount payable
as of the Income Date is based on the age (and sex, where permissible) of the
Annuitant, as well as the Option selected and the Contract Value. The Annuitant
becomes the Contract Owner on or after the Income Date.
Death of the Contract Owner
Before the Income Date
In those Contracts where Joint Owners have been named, upon the death of either
Joint Owner prior to the Income Date, the surviving Joint Owner, if any, becomes
the designated Beneficiary and any other Beneficiary named will be treated as a
Contingent Beneficiary, unless otherwise indicated. Only the Contract Owner's
spouse may be a Joint Owner (except in Pennsylvania). If there is no surviving
Joint Owner, a death benefit is payable to the Beneficiary designated by the
Contract Owner. The value of the death benefit will be determined as of the
Valuation Period next following the date both due proof of death and a payment
election are received by the Company. The guaranteed death benefit is:
1. On the date of issue, the guaranteed death benefit is equal to the purchase
payment.
2. On each Contract Anniversary, but not beyond the Contract Anniversary
following the Contract Owner's 80th birthday, the guaranteed death benefit will
be determined as follows:
a. the guaranteed death benefit as of the previous Contract Anniversary;
b. plus any purchase payments made during the previous Contract Year;
c. minus any amounts surrendered during the previous Contract Year;
d. the sum of a, b and c multiplied by 1.05.
3. On dates other than a Contract Anniversary and on Contract Anniversaries
following the Contract Owner's 81st birthday, the guaranteed death benefit
equals the guaranteed death benefit on the previous Contract Anniversary, plus
purchase payments made since the previous Contract Anniversary, less amounts
surrendered since the previous Contract Anniversary.
For purposes of the guaranteed death benefit calculation, reference to the
Contract Owner's age shall be the age of the oldest Joint Owner when applicable.
The guaranteed death benefit will always be calculated as in point (3) above
after the date of death of the Contract Owner.
The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit (The value of the death benefit is
equal to the greater of the guaranteed death benefit or the Surrender Value as
of the Valuation Period next following the date due proof of death and a payment
election are received by the Company.);
B. The payment of the entire death benefit within 5 years of the date of the
Contract Owner's death (The value of the death benefit under Option B is
determined by comparing the guaranteed death benefit to the Contract Value as of
the Valuation Period next following the date both due proof of death and a
payment election are received by the Company. If the Contract Value is the
greater, it will be the death benefit. Any distribution of such death benefit
will be reduced by the sum of any applicable premium taxes, Contract Maintenance
Charges and Contingent Deferred Sales Charges. If the guaranteed death benefit
is the greater, it will be the death benefit. After the death benefit is
calculated, it will be subject to market risk. No additional purchase payments
will be accepted after the death of the Contract Owner.);
C. Payment over the lifetime of the designated Beneficiary or over a period not
extending beyond the life expectancy of the designated Beneficiary with
distribution beginning within one year of the date of death of the Contract
Owner (See "Annuity Provisions - Annuity Options"). (The value of the death
benefit under Option C is determined by comparing the guaranteed death benefit
to the Contract Value as of the Valuation Period next following the date both
due proof of death and a payment election are received by the Company. If the
Contract Value is greater, it will be treated as the death benefit. If the
guaranteed death benefit is the greater, it will be the death benefit.); or
D. If the Beneficiary is the Contract Owner's spouse, he/she can continue the
Contract in his/her own name. (The value of the death benefit under Option D is
determined by comparing the guaranteed death benefit to the Contract Value as of
the Valuation Period next following the date both due proof of death and a
payment election are received by the Company. If the Contract Value is greater,
it will remain the Contract Value. If the guaranteed death benefit is greater,
it will become the new Contract Value. Any distribution by the new Contract
Owner will be reduced by the sum of any applicable premium taxes, Contract
Maintenance Charges and Contingent Deferred Sales Charges.)
If no payment option is elected, a single sum settlement will be made at the end
of the sixty (60) day period following receipt of proof of death.
Death of the Annuitant Prior to the Income Date
If the Annuitant dies on or before the Income Date and the Annuitant is
different from the Contract Owner, the Contract Owner may designate a new
Annuitant. If one is not designated, the Contract Owner will be the Annuitant,
provided the Contract Owner is a natural person. If the Contract Owner is a
non-natural person, then for the purposes of the death benefit, the Annuitant
shall be treated as the Contract Owner and the death of the Annuitant shall be
treated as a death of the Contract Owner.
Death of the Annuitant After the Income Date
If the Annuitant dies after the Income Date, the death benefit, if any, will be
payable to the Beneficiary as specified in the Annuity Option elected. The
Company will require proof of the Annuitant's death. Death benefits will be paid
at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
Annuity Provisions
- --------------------------------------------------------------------------------
Income Date
The Contract Owner selects an Income Date at the time of issue. The Income Date
must always be the first day of a calendar month. The earliest Income Date is
one month after the Effective Date. The Income Date may not be later than the
month following the Annuitant's 85th birthday or 10 years (8 years in
Pennsylvania) from the Effective Date, if later.
Change in Income Date and Annuity Option
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calendar month. The Income Date
may not be later than the month following the Annuitant's 85th birthday or 10
years (8 years in Pennsylvania) from the Effective Date, if later. The Contract
Owner may, upon at least thirty (30) days prior written notice to the Company,
at any time prior to the Income Date, select and/or change the Annuity Option.
Annuity Options
Instead of having the proceeds paid in one sum, the Contract Owner may select
one of the Annuity Options. The Annuity Options are available on a fixed or
variable basis or a combination of fixed and variable (not available in all
states), except the LIFE ANNUITY WITH CASH REFUND Option which is only available
on a fixed basis.
The amount of the initial annuity payment is dependent on (i) the Contract Value
at the time of annuitization, (ii) the Annuity Option selected, (iii) the Age of
the Annuitant and any joint Annuitant, and (iv) the sex of the Annuitant and any
joint Annuitant where allowed (see "Tax Status - Qualified Plans"). Under a
fixed option, the dollar value of subsequent annuity payments will not vary.
Under a variable option, subsequent annuity payments will vary based on the
investment performance of the Sub-Accounts selected. Current purchase rates
available may be more favorable than those guaranteed in the Contract.
The following Annuity Options are available:
LIFE ANNUITY. Monthly annuity payments are paid during the life of the
Annuitant, ceasing with the last annuity payment due prior to the Annuitant's
death.
LIFE ANNUITY WITH GUARANTEE FOR A MINIMUM PERIOD. The Company will make monthly
payments during the life of the Annuitant, but at least for the minimum period
shown in the annuity tables contained in the Contract. The amount of each
monthly payment per $1,000 of proceeds is based on the age (and sex, where
permissible) of the Annuitant when the first payment is made and on the
guaranteed period chosen. If the Annuitant dies within the guaranteed period,
the discounted value of the unpaid guaranteed payments will be paid by the
Company as a final payment.
JOINT AND LAST SURVIVOR ANNUITY. Monthly annuity payments are paid during the
joint lifetime of the Annuitant and a designated second person and are paid
thereafter during the remaining lifetime of the survivor, ceasing with the last
annuity payment due prior to the survivor's death.
LIFE ANNUITY WITH CASH REFUND. The Company will pay equal monthly payments
during the life of the Annuitant. Upon the death of the Annuitant, after
payments have started, the Company will pay in one sum any excess of the amount
of the proceeds applied under this Option over the total of all payments made
under this Option. The amount of each monthly payment per $1,000 of proceeds is
based on the age (and sex, where permissible) of the Annuitant when the first
payment is made.
Annuity Units
The dollar amount of the first monthly variable annuity payment is determined by
applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible) of
the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Sub-Account of the Variable Account. The number of Annuity Units is determined
for each Sub-Account and is based upon the available value in each Sub-Account
as of the date annuity payments are to begin. The dollar amount determined for
each Sub-Account will then be aggregated for purposes of making payments. The
pro-rata portion of the Contract Maintenance Charge is deducted.
The dollar amount of the second and later variable annuity payments is equal to
the number of Annuity Units determined for each Sub-Account times the Annuity
Unit value for that Sub-Account as of the due date of the payment. This amount
may increase or decrease from month to month. The pro- rata portion of the
Contract Maintenance Charge is deducted each month.
The annuity tables contained in the Contract are based on a five percent (5%)
assumed investment rate. If the actual net investment rate exceeds five percent
(5%), payments will increase. Conversely, if the actual rate is less than five
percent (5%), annuity payments will decrease. If a higher assumed investment
rate were used, the initial payment would be higher, but the actual net
investment rate would have to be higher in order for annuity payments to
increase.
The Annuitant receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the Sub-Account selected and the amount of each annuity payment
will vary accordingly.
Purchase Payments and Contract Value
- -------------------------------------------------------------------------------
Purchase Payments
The Contracts may be purchased under a flexible purchase payment plan. Purchase
payments are payable in the frequency and in the amount selected by the Contract
Owner. The initial purchase payment is due on the Effective Date. The initial
purchase payment must be at least $2,000. Subsequent purchase payments must be
at least $250 (or $100 if the Automatic Investment Plan has been selected).
These minimum amounts are not waived for Qualified Plans. The Company reserves
the right to decline any application (except in New Jersey) or purchase payment.
Amounts in excess of $1 million require preapproval by the Company. The Company
may, at its sole discretion, waive the minimum payment requirements. The
Contract Owner may elect to increase, decrease or change the frequency of
purchase payments.
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program by which a Contract Owner may
make monthly or quarterly investments by electronic funds transfer from their
checking or savings account if their bank is a member of an Automatic Clearing
House. Election of this program may occur at the time a Contract is issued, or
at any time thereafter by completing and signing the appropriate form and
returning it to the Company. The form must be received in good order by the
first of the month in order for AIP to begin that same month. Investments take
place on the 20th of the month, or the next business day. AIP may not be used
for the initial purchase payment.
The minimum investment that may be made by AIP is $100.
AIP is subject to any regulations that may govern the bank account, the
Automatic Clearing House, or the Contract. The Company may correct any error by
a debit or credit to the Contract Owner's bank account and/or Contract.
Participation in AIP may be stopped at any time at the request of the Contract
Owner. When the Company is advised to stop AIP, no automatic investments will be
processed until signed authorization is received to initiate the plan again. The
Company will need to be notified by the first of the month in order to stop or
change AIP within that month. If a transaction is rejected or returned to the
Company for any reason, including stop payment, insufficient funds, or account
closed, the respective number of units will be removed from the Contract Owner's
account, and AIP will be discontinued.
If AIP is used for a Qualified Contract, the Contract Owner should contact his
or her tax adviser for maximum contributions.
Allocation of Purchase Payments
Purchase payments are allocated to one or more of the Sub-Accounts within the
Variable Account or to the Fixed Account as selected by the Contract Owner. IN
WASHINGTON, THE FIXED ACCOUNT IS NOT AVAILABLE UNTIL APPROVED BY THE WASHINGTON
INSURANCE DEPARTMENT. For each Sub-Account, the purchase payments are converted
into Accumulation Units. The number of Accumulation Units credited to the
Contract is determined by dividing the purchase payment allocated to the
Sub-Account by the value of the Accumulation Unit for the Sub-Account. Purchase
payments allocated to the Fixed Account are credited in dollars.
The Company has reserved the right to allocate initial purchase payments to the
Money Market Sub-Account (except those allocated to the Fixed Account) until the
expiration of the Free-Look Period. In the event that the Company does so
allocate initial purchase payments to the Money Market Sub-Account, at the end
of the Free-Look Period the Contract Value will be allocated to the
Sub-Account(s) selected by the Contract Owner. Currently, however, the Company
will allocate the initial purchase payment directly to the Sub-Account(s) and/or
the Fixed Account as selected by the Contract Owner.
Transfers do not change the allocation instructions for payments. Subsequent
payments will be allocated as directed by the Contract Owner in instructions
accompanying a payment; if no direction is given, the allocation will be that
which has been most recently directed for payments by the Contract Owner. The
Contract Owner may change the allocation of future payments without fee, penalty
or other charge upon written notice or telephone instructions to the Valuemark
Service Center. A change will be effective for payments received on or after
receipt of the written notice or telephone instructions.
The Company reserves the right to limit the number of investment options
(twenty-three Funds and the Allianz Life Fixed Account) that a Contract Owner
may invest in at any one time. Currently, the Contract Owner may initially
select up to nine investment options and may only be invested in a maximum of
ten investment options at any one time throughout the life of the Contract. The
Company reserves the right to change the maximum number of investment options in
the future.
For initial purchase payments, if the forms required to issue a Contract are
received in good order, the Company will apply the purchase payment to the
Variable Account and credit the Contract with Accumulation Units and/or to the
Fixed Account and credit the Contract with dollars within two business days of
receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). If the forms required to issue a
Contract are not in good order, the Company will attempt to get them in good
order or the Company will return the forms and the purchase payment within five
business days. The Company will not retain purchase payments for more than five
business days while processing incomplete forms unless it has been so authorized
by the purchaser.
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units and/or to
the Fixed Account and credit the Contract with dollars during the Valuation
Period next following the Valuation Period during which the purchase payment was
received in good order.
Transfer of Contract Values
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Sub-Account to another Sub-Account or to or from
the Fixed Account without the imposition of any fee or charge if there have been
no more than three transfers made in the Contract Year. If more than three
transfers have been made in the Contract Year, the Company reserves the right to
deduct a transfer fee. Currently, 12 transfers may be made in a Contract Year
without a charge. (See "Charges and Deductions - Deduction for Transfer Fee.")
Neither the Variable Account nor the Trust is designed for professional market
timing organizations, other entities, or persons using programmed, large or
frequent transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Fund and may be refused. Accounts under common
ownership or control may be aggregated for purposes of transfer limits. In
coordination with the Trust, the Company reserves the right to restrict the
transfer privilege or reject any specific purchase payment allocation request
for any person whose transactions seem to follow a timing pattern.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company reserves the right to charge for
all transfers after the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer fee will
be deducted from the amount which is transferred if the entire amount in the
Sub-Account or the Fixed Account is being transferred; otherwise from the
remaining amount in the Sub-Account or the Fixed Account from which the transfer
is made.
b. The minimum amount which may be transferred is the lesser of (i) $1,000 from
each Sub-Account or the Fixed Account; or (ii) the Contract Owner's entire
interest in the Sub-Account or the Fixed Account.
c. No partial transfer will be made if the Contract Owner's remaining Contract
Value in the Sub-Account or the Fixed Account will be less than $1,000.
d. Transfers will be effected during the Valuation Period next following receipt
by the Company of a written transfer request (or by telephone, if authorized)
containing all required information. However, no transfer may be made effective
within seven calendar days of the date on which the first annuity payment is
due. No transfers may occur until the end of the Free-Look Period. (See
"Highlights.")
e. On or after the Income Date, the Contract Owner may not make a transfer from
the Fixed Account to the Variable Account. Currently, on or after the Income
Date, one transfer to the Fixed Account will be allowed.
f. After the Income Date, no transfer may be made if it would result in any
selected Sub-Account or the Fixed Account providing less than 10% of the annuity
benefits under the Contract.
g. Any transfer direction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
h. The Company reserves the right at any time and without prior notice to any
party to terminate, suspend or modify the transfer privileges described above,
subject to applicable state law and regulation.
A Contract Owner may elect to make transfers by telephone. To elect this option
the Contract Owner must do so in writing to the Company. If there are Joint
Owners, unless the Company is informed to the contrary, instructions will be
accepted from either one of the Joint Owners. The Company will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If it does not, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The Company tape records all telephone instructions.
Transfers do not change the allocation instructions for future payments. (See
"Purchase Payments and Contract Value - Allocation of Purchase Payments.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from any one Sub-Account
("source Sub-Account") or the Fixed Account to the Contract's other Sub-Accounts
(maximum of eight) at regular intervals. By allocating amounts on a regularly
scheduled basis as opposed to allocating the total amount at one particular
time, a Contract Owner may be less susceptible to the impact of market
fluctuations.
If the Dollar Cost Averaging program is selected, the Contract Owner must
participate in it for at least six months (or two quarters) and must transfer at
least $500 each month (or $1,500 each quarter). All Dollar Cost Averaging
transfers will be made effective the tenth of the month (or the next Valuation
Date if the tenth of the month is not a Valuation Date). Election into this
program may occur at any time by properly completing the Dollar Cost Averaging
election form, returning it to the Company by the first of the month, to be
effective that month, and insuring that sufficient value is in the source
Sub-Account or the Fixed Account.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the value of the source
Sub-Account or the Fixed Account (as applicable) is insufficient to complete the
next transfer; (3) the Contract Owner requests termination in writing and such
writing is received by the first of the month in order to cancel the transfer
scheduled to take effect that month; or (4) the Contract is terminated. The
Dollar Cost Averaging program may not be active following the Income Date. There
is no current charge for Dollar Cost Averaging but the Company reserves the
right to charge for this program. The Company does not intend to profit from any
such charge. In the event there are additional transfers, the transfer fee may
be charged. Transfers made pursuant to the Dollar Cost Averaging program are not
counted in determining the applicability of the transfer fee. The Contract Owner
may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
Flexible Rebalancing
Once the Contract Owner's money has been invested, the performance of the Funds
may cause his or her allocation to shift. Flexible Rebalancing is designed to
help Contract Owners maintain their specified allocation mix among the different
Funds. Contract Owners may select which Funds to rebalance (maximum of ten
Funds). The Contract Owner can instruct the Company to readjust his or her
Contract Value quarterly, semi-annually or annually. Rebalancing is done on
calendar quarters only (e.g., March 20, June 20, September 20 and December 20).
Flexible Rebalancing transfers will be made on the 20th of the month unless that
day is not a Valuation Date, in which case the transfer will be made on the
previous Valuation Date. Requests to participate in the program must be received
by the Company by the 8th of the month for Flexible Rebalancing to begin that
month. Transfers made pursuant to Flexible Rebalancing are not counted in
determining the applicability of the transfer fee. The Contract Owner may not
participate in Flexible Rebalancing and the Dollar Cost Averaging Program at the
same time.
Contract Value
The value of the Contract is the sum of the values attributable to the Contract
for each Sub-Account and the Fixed Account. The value of each Sub-Account is
determined by multiplying the number of Accumulation Units attributable to the
Contract in the Sub-Account by the value of an Accumulation Unit for the
Sub-Account.
Accumulation Unit
For each Sub-Account, purchase payments are converted into Accumulation Units.
This is done by dividing each purchase payment by the value of an Accumulation
Unit for the Valuation Period during which the purchase payment is allocated to
the Sub-Account. The Accumulation Unit value for each Sub-Account was
arbitrarily set initially at $10. The Accumulation Unit value for any later
Valuation Period is determined by subtracting (b) from (a) and dividing the
result by (c) where:
a. is the net result of
1) the assets of the Sub-Account attributable to Accumulation Units (i.e.,
the aggregate value of the underlying Eligible Investments held at the end
of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation of the Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge (See "Charges and Deductions"); and
c. is the number of Accumulation Units outstanding at the end of such Valuation
Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
Distributor
- -------------------------------------------------------------------------------
NALAC Financial Plans, LLC ("NFP"), 1750 Hennepin Avenue, Minneapolis,
Minnesota, acts as the distributor of the Contracts. NFP is a wholly-owned
subsidiary of the Company. The Contracts are offered on a continuous basis. NFP
has subcontracted with Franklin Advisers, Inc. ("Advisers") for it and/or
certain of its affiliates to provide certain marketing support services and NFP
compensates these entities for their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions, up to an amount currently equal to 6.0%
of purchase payments, for promotional or distribution expenses associated with
the marketing of the Contracts. The Company, by agreement with the
broker-dealer, pays commissions as a combination of a certain percentage amount
at the time of sale and a trail commission (which when combined could exceed
6.0% of purchase payments). In addition, under certain circumstances, the
Company and/or Advisers, or certain of its affiliates, under a marketing support
agreement with NFP, may pay certain sellers for other services not directly
related to the sale of the Contracts such as special marketing support
allowances. Commissions may be recovered from broker-dealers if a full or
partial surrender occurs within 12 months of a purchase payment.
Surrenders
- --------------------------------------------------------------------------------
While the Contract is in force and before the Income Date, the Company will,
upon request to the Company by the Contract Owner, allow the surrender of all or
a portion of the Contract for its Surrender Value. Surrenders will result in the
cancellation of Accumulation Units from each applicable Sub-Account and/or a
reduction in the Fixed Account value in the ratio that the value of each
Sub-Account and/or the Fixed Account value bears to the total Contract Value.
The Contract Owner must specify which units are to be canceled or values are to
be reduced if other than the above mentioned method of cancellation is desired.
The Company will pay the amount of any surrender from the Variable Account
within seven (7) days of receipt of a valid request, unless the "Delay of
Payments" provision is in effect. (See "Surrenders - Delay of Payments.")
Certain tax surrender penalties and restrictions may apply to surrenders from
the Contracts. (See "Tax Status.") For Contracts purchased in connection with
403(b) plans, the Code limits the surrenders 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, surrenders for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract Owner
and does not include any investment results. The limitations on surrenders
became effective on January 1, 1989 and apply only to salary reduction
contributions made after December 31, 1988, to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations on surrenders do not affect rollovers or transfers between
certain Qualified Plans. Contract Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
The Surrender Value is the Contract Value for the Valuation Period next
following the Valuation Period during which the written request to the Company
for surrender is received, reduced by the sum of:
a: any applicable premium taxes not previously deducted;
b: any applicable Contract Maintenance Charge; and
c: any applicable Contingent Deferred Sales Charge.
Systematic Withdrawal
The Company permits a systematic withdrawal plan which enables a Contract Owner
to pre-authorize a periodic exercise of the contractual surrender rights
described above. Systematic withdrawal is not available for Non-Qualified
Contracts where the Contract Owner is under age 591/2. Certain tax penalties and
restrictions may apply to systematic withdrawals from the Contracts. (See "Tax
Status - Tax Treatment of Surrenders - Qualified Contracts.") Contract Owners
entering into such a plan instruct the Company to surrender a level dollar
amount from the Contract on a monthly or quarterly basis. Currently, systematic
withdrawal is available to Contract Owners who have a Contract Value of $25,000
or more. The amount deducted will result in the cancellation of Accumulation
Units from each applicable Sub-Account and/or the reduction of values in the
Fixed Account in the ratio that the value of each Sub-Account and/or the Fixed
Account bears to the total Contract Value. The Contract Owner must specify in
writing in advance which units are to be canceled or values are to be reduced if
other than the above mentioned method of cancellation is desired. The Company
reserves the right to modify the eligibility rules at any time, without notice.
The total systematic withdrawal in a Contract Year which can be made without
incurring a Contingent Deferred Sales Charge is limited to not more than 9% of
the Contract Value. However, the 9% limit may be increased to allow systematic
withdrawals to meet the applicable minimum distribution requirements for
Qualified Contracts. The exercise of the systematic withdrawal plan in any
Contract Year replaces the 15% free surrender amount which is allowable each
year. Any other surrender in a year when the systematic withdrawal plan has been
utilized will be subject to the Contingent Deferred Sales Charge.
Minimum Distribution Program
The Company currently makes available a Minimum Distribution Program to Contract
Owners who own Contracts that are individual retirement annuities. Under the
program, the Company will make payments to the Contract Owner from his or her
Contract that are designed to meet the applicable minimum distribution
requirements imposed by the Code for individual retirement annuities. If the
Contract Value is less than $25,000 at the time the Contract Owner elects to
participate in the program, the Company will make payments to the Contract Owner
on an annual basis. If the Contract Value is $25,000 or more at the time the
Contract Owner elects to participate in the program, the payments can be made
either monthly or quarterly. Payments under the Minimum Distribution Program
will not be subject to the Contingent Deferred Sales Charge and will be instead
of the 15% free surrender amount which is allowable each year.
Delay of Payments
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2. and 3. exist.
The Company reserves the right to defer payment for a surrender or transfer from
the Fixed Account for the period permitted by law but not for more than six
months after written election is received by the Company.
Administration of the Contracts
- -------------------------------------------------------------------------------
While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") pursuant to an Administration
Agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. The Company pays all fees and charges
of DVFS. DVFS serves as the administrator to various insurance companies
offering variable and fixed annuity and variable life insurance contracts. The
Company's ability to administer the Contracts could be adversely affected should
DVFS elect to terminate the Agreement.
Performance Data
- -------------------------------------------------------------------------------
Money Market Sub-Account
From time to time, the Company or NFP may advertise the "yield" and "effective
yield" of the Money Market Sub-Account. Both yield figures will be based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Sub-Account refers to the income generated by
Contract Values in the Money Market Sub-Account over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the Contract Values in the Money Market Sub-Account. The
"effective yield" is calculated similarly but, when annualized, the income
earned by Contract Values in the Money Market Sub-Account is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The computation
of the yield calculation includes a deduction for the Mortality and Expense Risk
Charge, the Administrative Expense Charge and the Contract Maintenance Charge.
Other Sub-Accounts
From time to time, the Company or NFP may publish the current yields and total
returns of the other Sub-Accounts in sales literature, advertisements and
communications to Contract Owners. The current yield for each Sub-Account will
be calculated by dividing the annualization of the interest income earned by the
underlying Fund during a recent 30-day period by the maximum Accumulation Unit
value at the end of such period. Total return information will include the
Sub-Account's average annual total return over the most recent four calendar
quarters, the period from the Sub-Account's inception of operations, and, for
Sub-Accounts in existence for five years or more, for five years. The average
annual total return is based upon the value of the Accumulation Units acquired
through a hypothetical $1,000 investment of the Accumulation Unit value at the
beginning of the specified period and the value of the Accumulation Unit at the
end of such period, assuming reinvestment of all distributions and the deduction
of the Mortality and Expense Risk Charge, Administrative Expense Charge,
Contingent Deferred Sales Charge, and Contract Maintenance Charge. Each
Sub-Account may also advertise cumulative and total return information over
different periods of time without the Contingent Deferred Sales Charge and
Contract Maintenance Charge.
The Company or NFP may, in addition, advertise or present yield or total return
performance information computed on a different basis, or for the Funds.
Contract Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of a Sub-Account's current yield or
total return for any prior period should not be considered as a representation
of what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations, for a
hypothetical contract, may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the Statement of Additional
Information.
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 a Contract Owner
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.
Performance Ranking
The performance of each or all of the Sub-Accounts of the Variable Account may
be compared in its advertisements and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual funds
with investment objectives similar to each of the Sub-Accounts of the Variable
Account or indices. Lipper Analytical Services, Inc. ("Lipper") and the Variable
Annuity Research and Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS rank such issuers on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level into
consideration. In addition, VARDS prepares risk adjusted rankings, which
consider the effects of market risk on total return performance. This type of
ranking may address the question as to which funds provide the highest total
return with the least amount of risk. Other ranking services may be used as
sources of performance comparison, such as CDA/Weisenberger and Morningstar.
Tax Status
- --------------------------------------------------------------------------------
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
General
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Funds of the Trust underlying the Contracts will be
managed by the Managers for the Trust in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Variable Account will cause the Contract Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Variable Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. Contract Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year
period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign their
Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions). Participants should consult their own tax counsel
or other tax adviser regarding withholding requirements.
Tax Treatment of Surrenders -
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 surrendered will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Surrendered 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 surrender penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Surrenders - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan.
Contract Owners, Annuitants and Beneficiaries are cautioned that benefits under
a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Contract
Owners, participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain surrender penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Surrenders - 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 and
surrenders. (See "Tax Treatment of Surrenders 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 includible 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
surrenders. (See "Tax Treatment of Surrenders - Qualified Contracts" and
"Tax-Sheltered Annuities - Surrender 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 Surrenders - 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
includible 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 and surrenders.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Surrenders - 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 Surrenders -
Qualified Contracts
In the case of a surrender 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 will no longer apply 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 year in which the employee attains age
701/2 and in some cases the later of age 701/2 or the date of retirement.
Required distributions must be over a period not exceeding the life or 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 - Surrender Limitations
The Code limits the surrender 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,
surrenders 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 surrenders 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
surrenders do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Financial Statements
- -------------------------------------------------------------------------------
Audited consolidated financial statements of the Company and audited financial
statements of the Variable Account as of and for the year ended December 31,
1996 are included in the Statement of Additional Information.
Legal Proceedings
- -------------------------------------------------------------------------------
There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. The
Company is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Variable Account.
Appendix
- -------------------------------------------------------------------------------
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 have no meaningful performance record. 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.
Part 1 of the chart 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.
Part 2 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
described above in this Prospectus. 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, which are also
described in this Prospectus; all of which would lower the hypothetical
performance shown.
Part 3 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 applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge, as described above in this Prospectus. These figures have
not been restated to reflect the higher expenses of the New Valuemark funds,
which are also described in this Prospectus and 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 ..................................... 23.20% -- -- 20.87% 12/31/92
Mutual Shares Securities
Sub-Account ..................................... 19.13% 17.32% 13.68% -- 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...................................... 18.00% -- -- 20.62% 12/31/92
Mutual Shares Securities
Sub-Account...................................... 13.93% 17.21% 13.61% -- 7/1/49
</TABLE>
<TABLE>
<CAPTION>
Table of Contents of the
Statement of Additional Information
- -------------------------------------------------------------------------------
Item Page
<S> <C>
Company ......................................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Calculation of Performance Data ................. 2
Total Return ................................... 2
Yield .......................................... 2
Performance Ranking ............................ 3
Performance Information ........................ 3
Annuity Provisions .............................. 8
Variable Annuity Payout ........................ 8
Annuity Unit Value ............................. 8
Fixed Annuity Payout ........................... 8
Financial Statements ............................ 8
</TABLE>
<PAGE>
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
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
Company......................................... 2
Experts......................................... 2
Legal Opinions.................................. 2
Distributor..................................... 2
Calculation of Performance Data................. 2
Total Return................................... 2
Yield.......................................... 2
Performance Ranking............................ 3
Performance Information........................ 3
Annuity Provisions.............................. 8
Variable Annuity Payout........................ 8
Annuity Unit Value............................. 8
Fixed Annuity Payout........................... 8
Financial Statements............................ 8
</TABLE>
VMB SAI 05/97
<PAGE>
Company
- --------------------------------------------------------------------------------
Information regarding Allianz Life Insurance Company of North America (the
"Company") and its ownership is contained in the Prospectus. On April 1, 1993,
the Company changed its name from North American Life and Casualty Company to
its present name. The Company is rated A+ (Superior) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
Experts
- --------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the 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 Company, acts as the
distributor. The offering is on a continuous basis.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Company may advertise the performance data for the
Sub-Accounts 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 Sub-Account 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 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense 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.
<PAGE>
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 Contingent Deferred Sales
Charge and Contract Maintenance 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 purchase payment made at
the beginning of the period at the end of the period.
The 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. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
Yield
The Money Market Sub-Account. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Fund's investment securities and changes in interest rates, operating
expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge and, in
certain instances, the value of the underlying Fund's investment securities. The
fact that the Sub-Account's current yield will fluctuate and that the principal
is not guaranteed should be taken into consideration when using the
Sub-Account's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one 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, Administrative Expense
Charge and Contract Maintenance Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7]-1.)
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%.
Other Sub-Accounts. The Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications for the other Sub-Accounts. Each Sub-Account (other than the
Money Market Sub-Account) will publish standardized total return information
with any quotation of current yield.
<PAGE>
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and 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 Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any Sub-Account (other than the Money Market
Sub-Account).
Performance Ranking
Total return information for the Sub-Accounts and the Funds 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.
Performance Information
Total returns reflect all aspects of a Sub-Account's return, including the
automatic reinvestment by Allianz Life Variable Account B of all distributions
and any change in a Sub-Account's value over the period. The returns reflect the
deduction of the Mortality and Expense Risk Charge, Administrative Expense
Charge and the operating expenses of each Fund and are shown both with and
without the deduction of the Contingent Deferred Sales Charge and Contract
Maintenance Charge. Past performance does not guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Standardized Total Return
Franklin Valuemark II/III
Average Annual Total Return for the periods ended December 31, 1996:
With Contingent Deferred Sales Charge and Other Charges
Franklin Valuemark II Franklin Valuemark III
-------------------------------- ---------------------------------
Inception One Five Since One Five Since
Sub-Account Date Year Years Inception Year Years Inception
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth....................... 5/1/96 NA NA NA NA NA NA
Growth and Income.................... 1/24/89 8.24% 10.14% 8.68% 7.39% 10.14% 8.68%
High Income.......................... 1/24/89 7.96% 10.70% 8.60% 7.11% 10.70% 8.60%
Income Securities.................... 1/24/89 5.37% 9.70% 10.18% 4.52% 9.70% 10.18%
Money Market+........................ 1/24/89 -0.66% 2.45% 3.63% -1.51% 2.45% 3.63%
Mutual Discovery Securities.......... 11/8/96 NA NA NA NA NA NA
Mutual Shares Securities............. 11/8/96 NA NA NA NA NA NA
Natural Resources Securities*........ 1/24/89 -1.81% 6.20% 4.67% -2.66% 6.20% 4.67%
Real Estate Securities............... 1/24/89 26.61% 14.72% 11.38% 25.76% 14.72% 11.38%
Rising Dividends..................... 1/27/92 18.09% NA 8.86% 17.24% NA 8.86%
Small Cap............................ 11/1/95 22.91% NA 21.42% 22.06% NA 21.42%
Templeton Developing
Markets Equity...................... 3/15/94 15.54% NA 4.24% 14.69% NA 4.24%
Templeton Global
Asset Allocation.................... 5/1/95 13.81% NA 12.32% 12.96% NA 12.32%
Templeton Global Growth.............. 3/15/94 15.23% NA 10.74% 14.38% NA 10.74%
Templeton Global
Income Securities................... 1/24/89 3.75% 5.14% 6.66% 2.90% 5.14% 6.66%
Templeton International
Equity.............................. 1/27/92 16.90% NA 9.97% 16.05% NA 9.97%
Templeton International
Smaller Companies................... 5/1/96 NA NA NA NA NA NA
Templeton Pacific Growth............. 1/27/92 5.20% NA 8.33% 4.35% NA 8.33%
U.S. Government Securities........... 3/14/89 -2.19% 5.25% 6.67% -3.04% 5.25% 6.67%
Utility Equity....................... 1/24/89 1.22% 6.71% 9.49% 0.37% 6.71% 9.49%
Zero Coupon - 2000+.................. 3/14/89 -3.36% 6.22% 8.10% -4.21% 6.22% 8.10%
Zero Coupon - 2005+.................. 3/14/89 -6.25% 8.27% 9.57% -7.10% 8.27% 9.57%
Zero Coupon - 2010+.................. 3/14/89 -8.40% 9.67% 10.24% -9.25% 9.67% 10.24%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as the Precious Metals Sub-Account.
+Calculated with waiver of fees and reimbursement of expenses.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Franklin Valuemark II/III
Total Return for the periods ended December 31, 1996:
Without Contingent Deferred Sales Charge or Contract Maintenance Charge
Annual Total Return Cumulative Total Return
--------------------------------------- -------------------------------
Inception One Three Five Since Three Five Since
Sub-Account Date Year Years Years Inception Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth............... 5/1/96 NA NA NA NA NA NA 12.54%
Growth and Income............ 1/24/89 12.59% 12.53% 10.28% 8.77% 42.50% 63.10% 94.90%
High Income.................. 1/24/89 12.31% 8.53% 10.84% 8.69% 27.84% 67.27% 93.75%
Income Securities............ 1/24/89 9.72% 6.97% 9.84% 10.25% 22.41% 59.85% 117.08%
Money Market+................ 1/24/89 3.69% 3.45% 2.61% 3.72% 10.72% 13.78% 33.59%
Mutual Discovery
Securities.................. 11/8/96 NA NA NA NA NA NA 1.80%
Mutual Shares
Securities.................. 11/8/96 NA NA NA NA NA NA 3.30%
Natural Resources
Securities*................. 1/24/89 2.54% 0.01% 6.35% 4.76% 0.03% 36.04% 44.67%
Real Estate Securities....... 1/24/89 30.96% 15.48% 14.84% 11.46% 54.00% 99.76% 136.68%
Rising Dividends............. 1/27/92 22.44% 14.01% NA 9.01% 48.18% NA 53.03%
Small Cap.................... 11/1/95 27.26% NA NA 24.49% NA NA 29.13%
Templeton Developing
Markets Equity.............. 3/15/94 19.89% NA NA 5.08% NA NA 14.87%
Templeton Global Asset
Allocation.................. 5/1/95 18.16% NA NA 14.36% NA NA 25.14%
Templeton Global
Growth...................... 3/15/94 19.58% NA NA 11.49% NA NA 35.60%
Templeton Global Income
Securities.................. 1/24/89 8.10% 4.63% 5.30% 6.74% 14.54% 29.46% 67.81%
Templeton International
Equity...................... 1/27/92 21.25% 9.57% NA 10.11% 31.54% NA 60.81%
Templeton International
Smaller Companies........... 5/1/96 NA NA NA NA NA NA 11.45%
Templeton Pacific
Growth...................... 1/27/92 9.55% 1.61% NA 8.47% 4.91% NA 49.32%
U.S. Government
Securities.................. 3/14/89 2.16% 4.24% 5.40% 6.75% 13.28% 30.10% 66.50%
Utility Equity............... 1/24/89 5.57% 6.05% 6.86% 9.57% 19.26% 39.35% 106.54%
Zero Coupon - 2000+.......... 3/14/89 0.99% 3.39% 6.36% 8.18% 10.51% 36.14% 84.75%
Zero Coupon - 2005+.......... 3/14/89 -1.90% 4.36% 8.40% 9.64% 13.67% 49.70% 105.17%
Zero Coupon - 2010+.......... 3/14/89 -4.05% 5.86% 9.81% 10.32% 18.62% 59.63% 115.22%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as the Precious Metals Sub-Account.
+Calculated with waiver of fees and reimbursement of expenses.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Franklin Valuemark III
Total Return for the periods ended December 31, 1996:
With Contingent Deferred Sales Charge and Other Charges
Cumulative
Annual Total Return Total Return
------------------------------ ---------------------
Inception One Three Since Three Since
Sub-Account Date Year Years Inception Years Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth.................................. 5/1/96 NA NA NA NA 7.34%
Growth and Income............................... 1/24/89 7.39% 11.85% 8.68% 39.94% 93.69%
High Income..................................... 1/24/89 7.11% 7.81% 8.60% 25.30% 92.56%
Income Securities............................... 1/24/89 4.52% 6.23% 10.18% 19.87% 115.90%
Money Market+................................... 1/24/89 -1.51% 2.66% 3.63% 8.21% 32.70%
Mutual Discovery Securities..................... 11/8/96 NA NA NA NA -3.40%
Mutual Shares Securities........................ 11/8/96 NA NA NA NA -1.90%
Natural Resources Securities*................... 1/24/89 -2.66% -0.83% 4.67% -2.48% 43.72%
Real Estate Securities.......................... 1/24/89 25.76% 14.83% 11.38% 51.41% 135.28%
Rising Dividends................................ 1/27/92 17.24% 13.34% 8.86% 45.60% 51.99%
Small Cap....................................... 11/1/95 22.06% NA 21.42% NA 25.42%
Templeton Developing Markets Equity............. 3/15/94 14.69% NA 4.24% NA 12.33%
Templeton Global Asset Allocation............... 5/1/95 12.96% NA 12.32% NA 21.43%
Templeton Global Growth......................... 3/15/94 14.38% NA 10.74% NA 33.05%
Templeton Global Income Securities.............. 1/24/89 2.90% 3.85% 6.66% 12.01% 66.80%
Templeton International Equity.................. 1/27/92 16.05% 8.85% 9.97% 28.98% 59.79%
Templeton International Smaller
Companies...................................... 5/1/96 NA NA NA NA 6.25%
Templeton Pacific Growth........................ 1/27/92 4.35% 0.79% 8.33% 2.38% 48.36%
U.S. Government Securities...................... 3/14/89 -3.04% 3.46% 6.67% 10.76% 65.51%
Utility Equity.................................. 1/24/89 0.37% 5.29% 9.49% 16.72% 105.46%
Zero Coupon - 2000+............................. 3/14/89 -4.21% 2.60% 8.10% 7.99% 83.71%
Zero Coupon - 2005+............................. 3/14/89 -7.10% 3.58% 9.57% 11.14% 104.06%
Zero Coupon - 2010+............................. 3/14/89 -9.25% 5.10% 10.24% 16.09% 114.06%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as the Precious Metals Sub-Account.
+Calculated with waiver of fees and reimbursement of expenses.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Total Return
Franklin Valuemark II
Total Return for the periods ended December 31, 1996:
With Contingent Deferred Sales Charge and Other Charges
Cumulative
Annual Total Return Total Return
----------------------------- ---------------------
Inception One Three Since Three Since
Sub-Account Date Year Years Inception Years Inception
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth.................................. 5/1/96 NA NA NA NA 8.19%
Growth and Income............................... 1/24/89 8.24% 11.85% 8.68% 39.94% 93.69%
High Income..................................... 1/24/89 7.96% 7.81% 8.60% 25.30% 92.56%
Income Securities............................... 1/24/89 5.37% 6.23% 10.18% 19.87% 115.90%
Money Market+................................... 1/24/89 -0.66% 2.66% 3.63% 8.21% 32.70%
Mutual Discovery Securities..................... 11/8/96 NA NA NA NA -2.55%
Mutual Shares Securities........................ 11/8/96 NA NA NA NA -1.05%
Natural Resources Securities*................... 1/24/89 -1.81% -0.83% 4.67% -2.48% 43.72%
Real Estate Securities.......................... 1/24/89 26.61% 14.83% 11.38% 51.41% 135.28%
Rising Dividends................................ 1/27/92 18.09% 13.34% 8.86% 45.60% 51.99%
Small Cap....................................... 11/1/95 22.91% NA 21.42% NA 25.42%
Templeton Developing Markets Equity............. 3/15/94 15.54% NA 4.24% NA 12.33%
Templeton Global Asset Allocation............... 5/1/95 13.81% NA 12.32% NA 21.43%
Templeton Global Growth......................... 3/15/94 15.23% NA 10.74% NA 33.05%
Templeton Global Income Securities.............. 1/24/89 3.75% 3.85% 6.66% 12.01% 66.80%
Templeton International Equity.................. 1/27/92 16.90% 8.85% 9.97% 28.98% 59.79%
Templeton International Smaller
Companies...................................... 5/1/96 NA NA NA NA 7.10%
Templeton Pacific Growth........................ 1/27/92 5.20% 0.79% 8.33% 2.38% 48.36%
U.S. Government Securities...................... 3/14/89 -2.19% 3.46% 6.67% 10.76% 65.51%
Utility Equity.................................. 1/24/89 1.22% 5.29% 9.49% 16.72% 105.46%
Zero Coupon - 2000+............................. 3/14/89 -3.36% 2.60% 8.10% 7.99% 83.71%
Zero Coupon - 2005+............................. 3/14/89 -6.25% 3.58% 9.57% 11.14% 104.06%
Zero Coupon - 2010+............................. 3/14/89 -8.40% 5.10% 10.24% 16.09% 114.06%
<FN>
*Prior to May 1, 1997, the Natural Resources Securities Sub-Account was known as the Precious Metals Sub-Account.
+Calculated with waiver of fees and reimbursement of expenses.
</FN>
</TABLE>
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.
<PAGE>
Annuity Provisions
- --------------------------------------------------------------------------------
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Sub-Account(s) of the Variable Account. At the Income Date,
the Contract Value in each Sub-Account will be applied to the applicable Annuity
Tables. The Annuity Table used will depend upon the Annuity Option chosen. Both
sex distinct and unisex Annuity Tables are utilized by the Company, depending on
the state and type of Contract. If, as of the Income Date, the then current
Annuity Option rates applicable to this class of Contracts provide a larger
income than that guaranteed for the same form of annuity under the Contract, the
larger amount will be paid. The dollar amount of annuity payments after the
first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of
an Annuity Unit as of the Income Date. This establishes the number of Annuity
Units for each monthly payment. The number of Annuity Units remains fixed
during the annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit value
for the last Valuation Period of the month preceding the month for which the
payment is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the
sum of all Sub-Account Variable Annuity payments, reduced by the Contract
Maintenance Charge.
Annuity Unit Value
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1), dividing the result by (3) and multiplying the result
by .999866337248 (.999866337248 is the daily factor to neutralize the assumed
net investment rate of 5% per annum which is built into the annuity rate table)
where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units; plus or
minus
b. the cumulative charge or credit for taxes reserved which is determined by
the Company to have resulted from the operation of the Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge
and for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Account value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Company as of and for the
year ended December 31, 1996, included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts. The audited financial statements of the Variable Account as of and
for the year ended December 31, 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>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 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 Agreement
4. Individual Variable Annuity Contract**
5. Application for Individual Variable Annuity Contract**
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Form of Fund Participation Agreement**
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart
27. Not Applicable
*Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Form N-4 electronically filed on October 24, 1995.
**Incorporated by reference to Post-Effective Amendment No.3 to Registrant's
Form N-4 electronically filed on April 18, 1996
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
<S> <C>
Lowell C. Anderson Chairman, President, Chief
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive 777 San Marin Drive
Novato, CA 94998 Novato, CA 94998
Michael P. Sullivan Director
7505 Metro 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 J. Dease Director
c/o Univer of St.Thomas
Box AQU100
2115 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 Insurance Company organizational chart is included as Exhibit 14
Item 27. Number of Contract Owners
As of February 14, 1997, there were 16,897 qualified Contract Owners and 38,200
non-qualified Contract Owners with Contracts in the separate account
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, 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>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------- ---------------------
<S> <C>
James P. Kelso Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
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 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
Lowell C. Anderson and Chief Executive Officer 4-24-97
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 J. Dease* Director 4-24-97
Rev. Dennis J. Dease
James R. Campbell* Director 4-24-97
James R. Campbell
</TABLE>
*By Power of Attorney
By:/s/Alan A. Grove
-----------------
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO.5
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
INDEX TO EXHIBITS
Exhibit Page
EX-99.B3 Principal Underwriter Agreement
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditor's Consent
EX-99.B13 Calculation of Performance Information
EX-99.B14 Company Organizational Chart
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between NORTH AMERICAN LIFE AND CASUALTY
COMPANY ("INSURANCE COMPANY") on behalf of NALAC VARIABLE ACCOUNT B (the
"Variable Account") and NALAC FINANCIAL PLANS, INC. ("PRINCIPAL UNDERWRITER") as
follows:
I
INSURANCE COMPANY proposes to issue and sell Individual Flexible Payment
Variable Annuity Contracts (the "Contracts") to the public through PRINCIPAL
UNDERWRITER. The PRINCIPAL UNDERWRITER agrees to provide sales service subject
to the terms and conditions hereof. The Contracts to be sold are more fully
described in the registration statement and the prospectuses hereinafter
mentioned. Such Contracts will be issued by INSURANCE COMPANY through the
Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right,
during the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of the Securities Exchange Act of 1934, to be the distributor of the Contracts
issued through the Variable Account. PRINCIPAL UNDERWRITER will sell the
Contracts under such terms as set by INSURANCE COMPANY and will make such sales
to purchasers permitted to buy such Contracts as specified in the prospectus.
III
PRINCIPAL UNDERWRITER agrees that it shall undertake at its own
expense, to perform all duties and functions which are necessary and proper for
the distribution of the Contracts.
IV
PRINCIPAL UNDERWRITER shall be compensated for its distribution
services with respect to the Contracts covered hereby to the extent necessary
for PRINCIPAL UNDERWRITER to meet its obligations pursuant to selling agreements
with approved broker/dealers.
V
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements and
other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Contracts. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectus as PRINCIPAL UNDERWRITER shall request.
VI
PRINCIPAL UNDERWRITER is not authorized to give any information, or to
make any representations concerning the Contracts or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statement or prospectus filed with the Securities and Exchange Commission or
such sales literature as may be authorized by INSURANCE COMPANY.
VII
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VIII
This Agreement shall be effective upon the execution hereof and will
remain in effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto
upon 60 days written notice to the other party.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on the date
of service if served personally on the party to whom notice is to be given, or
on the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be signed on their behalf by their respective officers thereunto duly
authorized.
EXECUTED this 14 day of September, 1988.
INSURANCE COMPANY
NORTH AMERICAN LIFE AND
CASUALTY COMPANY
/s/ Lowell C. Anderson
BY: _____________________________
Lowell C. Anderson, President
/s/Michael Westermeyer
ATTEST: _______________________
Secretary
PRINCIPAL UNDERWRITER
NALAC FINANCIAL PLANS, INC.
/s/ Thomas B. Clifford
BY: _________________________________
Thomas B. Clifford, Exec. Vice Pres.
/s/Michael Westermeyer
ATTEST: ____________________
Secretary
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
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 Deferred
Variable Annuity Contracts to be issued by Allianz Life Insurance Company of
North America and its separate account, Allianz Life Variable Account B.
We are of the following opinions:
1. Allianz Life 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 III
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 $17.30965999 57.771 57.771 $1,000.00
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 57.720 1,124.94
12-31-96 Value before Surr Chg 19.48959860 0.000 57.720 1,124.94
12-31-96 Surrender Charge (51.00) 19.48959860 (2.617) 55.103 1,073.94
Cumulative and Average Annual Total Returns
without/with charges 12.59% A 7.39% B
HIGH INCOME
12-31-95 Purchase $1,000.00 $17.25181285 57.965 57.965 $1,000.00
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 57.913 1,122.06
12-31-96 Value before Surr Chg 19.37479425 0.000 57.913 1,122.06
12-31-96 Surrender Charge (51.00) 19.37479425 (2.632) 55.281 1,071.06
Cumulative and Average Annual Total Returns
without/with charges 12.31% A 7.11% B
INCOME SECURITIES
12-31-95 Purchase $1,000.00 $19.78534185 50.542 50.542 $1,000.00
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 50.496 1,096.19
12-31-96 Value before Surr Chg 21.70827863 0.000 50.496 1,096.19
12-31-96 Surrender Charge (51.00) 21.70827863 (2.349) 48.147 1,045.19
Cumulative and Average Annual Total Returns
without/with charges 9.72% A 4.52% B
MONEY MARKET
12-31-95 Purchase $1,000.00 $12.88349436 77.619 77.619 $1,000.00
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 77.544 1,035.93
12-31-96 Value before Surr Chg 13.35923111 0.000 77.544 1,035.93
12-31-96 Surrender Charge (51.00) 13.35923111 (3.818) 73.726 984.93
Cumulative and Average Annual Total Returns
without/with charges 3.69% A -1.51% B
NATURAL RESOURCES SECURITIES
12-31-95 Purchase $1,000.00 $14.10867153 70.878 70.878 $1,000.00
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 70.809 1,024.43
12-31-96 Value before Surr Chg 14.46741645 0.000 70.809 1,024.43
12-31-96 Surrender Charge (51.00) 14.46741645 (3.525) 67.284 973.43
Cumulative and Average Annual Total Returns
without/with charges 2.54% A -2.66% B
REAL ESTATE SECURITIES
12-31-95 Purchase $1,000.00 $18.07282328 55.332 55.332 $1,000.00
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 55.289 1,308.57
12-31-96 Value before Surr Chg 23.66770609 0.000 55.289 1,308.57
12-31-96 Surrender Charge (51.00) 23.66770609 (2.155) 53.135 1,257.57
Cumulative and Average Annual Total Returns
without/with charges 30.96% A 25.76% B
RISING DIVIDENDS
12-31-95 Purchase $1,000.00 $12.49836348 80.010 80.010 $1,000.00
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 79.945 1,223.40
12-31-96 Value before Surr Chg 15.30299222 0.000 79.945 1,223.40
12-31-96 Surrender Charge (51.00) 15.30299222 (3.333) 76.612 1,172.40
Cumulative and Average Annual Total Returns
without/with charges 22.44% A 17.24% B
SMALL CAP
12-31-95 Purchase $1,000.00 $10.14638787 98.557 98.557 $1,000.00
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 98.480 1,271.64
12-31-96 Value before Surr Chg 12.91274591 0.000 98.480 1,271.64
12-31-96 Surrender Charge (51.00) 12.91274591 (3.950) 94.530 1,220.64
Cumulative and Average Annual Total Returns
without/with charges 27.26% A 22.06% B
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-95 Purchase $1,000.00 $ 9.58170209 104.366 104.366 $1,000.00
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 104.279 1,197.87
12-31-96 Value before Surr Chg 11.48724479 0.000 104.279 1,197.87
12-31-96 Surrender Charge (51.00) 11.48724479 (4.440) 99.839 1,146.87
Cumulative and Average Annual Total Returns
without/with charges 19.89% A 14.69% B
TEMPLETON GLOBAL ASSET ALLOCATION
12-31-95 Purchase $1,000.00 $10.59122588 94.418 94.418 $1,000.00
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 94.338 1,180.56
12-31-96 Value before Surr Chg 12.51416879 0.000 94.338 1,180.56
12-31-96 Surrender Charge (51.00) 12.51416879 (4.075) 90.262 1,129.56
Cumulative and Average Annual Total Returns
without/with charges 18.16% A 12.96% B
TEMPLETON GLOBAL GROWTH
12-31-95 Purchase $1,000.00 $11.33894840 88.192 88.192 $1,000.00
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 88.118 1,194.84
12-31-96 Value before Surr Chg 13.55953972 0.000 88.118 1,194.84
12-31-96 Surrender Charge (51.00) 13.55953972 (3.761) 84.357 1,143.84
Cumulative and Average Annual Total Returns
without/with charges 19.58% A 14.38% B
TEMPLETON GLOBAL INCOME SECURITIES
12-31-95 Purchase $1,000.00 $15.52246997 64.423 64.423 $1,000.00
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 64.363 1,080.05
12-31-96 Value before Surr Chg 16.78052472 0.000 64.363 1,080.05
12-31-96 Surrender Charge (51.00) 16.78052472 (3.039) 61.324 1,029.05
Cumulative and Average Annual Total Returns
without/with charges 8.10% A 2.90% B
TEMPLETON INTERNATIONAL EQUITY
12-31-95 Purchase $1,000.00 $13.26267921 75.400 75.400 $1,000.00
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 75.337 1,211.53
12-31-96 Value before Surr Chg 16.08142393 0.000 75.337 1,211.53
12-31-96 Surrender Charge (51.00) 16.08142393 (3.171) 72.166 1,160.53
Cumulative and Average Annual Total Returns
without/with charges 21.25% A 16.05% B
TEMPLETON PACIFIC GROWTH
12-31-95 Purchase $1,000.00 $13.63037545 73.366 73.366 $1,000.00
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 73.299 1,094.46
12-31-96 Value before Surr Chg 14.93159316 0.000 73.299 1,094.46
12-31-96 Surrender Charge (51.00) 14.93159316 (3.416) 69.883 1,043.46
Cumulative and Average Annual Total Returns
without/with charges 9.55% A 4.35% B
U.S. GOVERNMENT SECURITIES
12-31-95 Purchase $1,000.00 $16.29770051 61.358 61.358 $1,000.00
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 61.298 1,020.63
12-31-96 Value before Surr Chg 16.65018339 0.000 61.298 1,020.63
12-31-96 Surrender Charge (51.00) 16.65018339 (3.063) 58.235 969.63
Cumulative and Average Annual Total Returns
without/with charges 2.16% A -3.04% B
UTILITY EQUITY
12-31-95 Purchase $1,000.00 $19.56451758 51.113 51.113 $1,000.00
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 51.065 1,054.71
12-31-96 Value before Surr Chg 20.65439774 0.000 51.065 1,054.71
12-31-96 Surrender Charge (51.00) 20.65439774 (2.469) 48.595 1,003.71
Cumulative and Average Annual Total Returns
without/with charges 5.57% A 0.37% B
ZERO COUPON - 2000
12-31-95 Purchase $1,000.00 $18.29362036 54.664 54.664 $1,000.00
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 54.610 1,008.90
12-31-96 Value before Surr Chg 18.47475298 0.000 54.610 1,008.90
12-31-96 Surrender Charge (51.00) 18.47475298 (2.761) 51.849 957.90
Cumulative and Average Annual Total Returns
without/with charges 0.99% A -4.21% B
ZERO COUPON - 2005
12-31-95 Purchase $1,000.00 $20.91363234 47.816 47.816 $1,000.00
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 47.767 980.02
12-31-96 Value before Surr Chg 20.51665706 0.000 47.767 980.02
12-31-96 Surrender Charge (51.00) 20.51665706 (2.486) 45.281 929.02
Cumulative and Average Annual Total Returns
without/with charges -1.90% A -7.10% B
ZERO COUPON - 2010
12-31-95 Purchase $1,000.00 $22.43134838 44.580 44.580 $1,000.00
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 44.534 958.48
12-31-96 Value before Surr Chg 21.52246902 0.000 44.534 958.48
12-31-96 Surrender Charge (51.00) 21.52246902 (2.370) 42.164 907.48
Cumulative and Average Annual Total Returns
without/with charges -4.05% A -9.25% 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 $13.67694811 73.116 73.116 $1,000.00
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 72.931 1,421.40
12-31-96 Value before Surr Chg 19.48959860 0.000 72.931 1,421.40
12-31-96 Surrender Charge (22.00) 19.48959860 (1.129) 71.802 1,399.40
Cumulative Total Returns without/with chrgs 42.50% A 39.94% C
Avg. Annual Total Returns without/with chrgs 12.53% B 11.85% D
HIGH INCOME
12-31-93 Purchase $1,000.00 $15.15511991 65.984 65.984 $1,000.00
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 65.916 962.87
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 65.858 1,136.17
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 65.806 1,274.98
12-31-96 Value before Surr Chg 19.37479425 0.000 65.806 1,274.98
12-31-96 Surrender Charge (22.00) 19.37479425 (1.135) 64.671 1,252.98
Cumulative Total Returns without/with chrgs 27.84% A 25.30% C
Avg. Annual Total Returns without/with chrgs 8.53% B 7.81% D
INCOME SECURITIES
12-31-93 Purchase $1,000.00 $17.73437317 56.388 56.388 $1,000.00
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 56.327 923.29
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 56.276 1,113.44
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 56.230 1,220.66
12-31-96 Value before Surr Chg 21.70827863 0.000 56.230 1,220.66
12-31-96 Surrender Charge (22.00) 21.70827863 (1.013) 55.217 1,198.66
Cumulative Total Returns without/with chrgs 22.41% A 19.87% C
Avg. Annual Total Returns without/with chrgs 6.97% B 6.23% D
MONEY MARKET
12-31-93 Purchase $1,000.00 $12.06579747 82.879 82.879 $1,000.00
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 82.798 1,022.88
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 82.720 1,065.73
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 82.645 1,104.08
12-31-96 Value before Surr Chg 13.35923111 0.000 82.645 1,104.08
12-31-96 Surrender Charge (22.00) 13.35923111 (1.647) 80.999 1,082.08
Cumulative Total Returns without/with chrgs 10.72% A 8.21% C
Avg. Annual Total Returns without/with chrgs 3.45% B 2.66% D
NATURAL RESOURCES SECURITIES
12-31-93 Purchase $1,000.00 $14.46354903 69.139 69.139 $1,000.00
12-31-94 Contract Fee (1.00) 13.97879422 (0.072) 69.068 965.48
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 68.997 973.45
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 68.928 997.21
12-31-96 Value before Surr Chg 14.46741645 0.000 68.928 997.21
12-31-96 Surrender Charge (22.00) 14.46741645 (1.521) 67.407 975.21
Cumulative Total Returns without/with chrgs 0.03% A -2.48% C
Avg. Annual Total Returns without/with chrgs 0.01% B -0.83% D
REAL ESTATE SECURITIES
12-31-93 Purchase $1,000.00 $15.36898235 65.066 65.066 $1,000.00
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 65.002 1,013.65
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.947 1,173.77
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.904 1,536.14
12-31-96 Value before Surr Chg 23.66770609 0.000 64.904 1,536.14
12-31-96 Surrender Charge (22.00) 23.66770609 (0.930) 63.975 1,514.14
Cumulative Total Returns without/with chrgs 54.00% A 51.41% C
Avg. Annual Total Returns without/with chrgs 15.48% B 14.83% D
RISING DIVIDENDS
12-31-93 Purchase $1,000.00 $10.32720317 96.832 96.832 $1,000.00
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 96.729 944.92
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 96.649 1,207.96
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 96.584 1,478.02
12-31-96 Value before Surr Chg 15.30299222 0.000 96.584 1,478.02
12-31-96 Surrender Charge (22.00) 15.30299222 (1.438) 95.146 1,456.02
Cumulative Total Returns without/with chrgs 48.18% A 45.60% C
Avg. Annual Total Returns without/with chrgs 14.01% B 13.34% D
TEMPLETON GLOBAL INCOME SECURITIES
12-31-93 Purchase $1,000.00 $14.64984870 68.260 68.260 $1,000.00
12-31-94 Contract Fee (1.00) 13.72629720 (0.073) 68.187 935.96
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 68.123 1,057.43
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 68.063 1,142.14
12-31-96 Value before Surr Chg 16.78052472 0.000 68.063 1,142.14
12-31-96 Surrender Charge (22.00) 16.78052472 (1.311) 66.752 1,120.14
Cumulative Total Returns without/with chrgs 14.54% A 12.01% C
Avg. Annual Total Returns without/with chrgs 4.63% B 3.85% D
TEMPLETON INTERNATIONAL EQUITY
12-31-93 Purchase $1,000.00 $12.22565227 81.795 81.795 $1,000.00
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 81.713 993.74
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 81.638 1,082.73
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 81.575 1,311.85
12-31-96 Value before Surr Chg 16.08142393 0.000 81.575 1,311.85
12-31-96 Surrender Charge (22.00) 16.08142393 (1.368) 80.207 1,289.85
Cumulative Total Returns without/with chrgs 31.54% A 28.98% C
Avg. Annual Total Returns without/with chrgs 9.57% B 8.85% D
TEMPLETON PACIFIC GROWTH
12-31-93 Purchase $1,000.00 $14.23330574 70.258 70.258 $1,000.00
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 70.180 898.42
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 70.106 955.57
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 70.039 1,045.80
12-31-96 Value before Surr Chg 14.93159316 0.000 70.039 1,045.80
12-31-96 Surrender Charge (22.00) 14.93159316 (1.473) 68.566 1,023.80
Cumulative Total Returns without/with chrgs 4.91% A 2.38% C
Avg. Annual Total Returns without/with chrgs 1.61% B 0.79% D
U.S. GOVERNMENT SECURITIES
12-31-93 Purchase $1,000.00 $14.69826319 68.035 68.035 $1,000.00
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 67.963 940.26
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 67.902 1,106.64
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 67.842 1,129.57
12-31-96 Value before Surr Chg 16.65018339 0.000 67.842 1,129.57
12-31-96 Surrender Charge (22.00) 16.65018339 (1.321) 66.520 1,107.57
Cumulative Total Returns without/with chrgs 13.28% A 10.76% C
Avg. Annual Total Returns without/with chrgs 4.24% B 3.46% D
UTILITY EQUITY
12-31-93 Purchase $1,000.00 $17.31879581 57.741 57.741 $1,000.00
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 57.675 871.11
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 57.623 1,127.37
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 57.575 1,189.18
12-31-96 Value before Surr Chg 20.65439774 0.000 57.575 1,189.18
12-31-96 Surrender Charge (22.00) 20.65439774 (1.065) 56.510 1,167.18
Cumulative Total Returns without/with chrgs 19.26% A 16.72% C
Avg. Annual Total Returns without/with chrgs 6.05% B 5.29% D
ZERO COUPON - 2000
12-31-93 Purchase $1,000.00 $16.71742785 59.818 59.818 $1,000.00
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 59.753 918.59
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 59.698 1,092.09
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 59.644 1,101.91
12-31-96 Value before Surr Chg 18.47475298 0.000 59.644 1,101.91
12-31-96 Surrender Charge (22.00) 18.47475298 (1.191) 58.453 1,079.91
Cumulative Total Returns without/with chrgs 10.51% A 7.99% C
Avg. Annual Total Returns without/with chrgs 3.39% B 2.60% D
ZERO COUPON - 2005
12-31-93 Purchase $1,000.00 $18.04995514 55.402 55.402 $1,000.00
12-31-94 Contract Fee (1.00) 16.09601101 (0.062) 55.340 890.75
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 55.292 1,156.35
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 55.243 1,133.40
12-31-96 Value before Surr Chg 20.51665706 0.000 55.243 1,133.40
12-31-96 Surrender Charge (22.00) 20.51665706 (1.072) 54.171 1,111.40
Cumulative Total Returns without/with chrgs 13.67% A 11.14% C
Avg. Annual Total Returns without/with chrgs 4.36% B 3.58% D
ZERO COUPON - 2010
12-31-93 Purchase $1,000.00 $18.14448916 55.113 55.113 $1,000.00
12-31-94 Contract Fee (1.00) 15.92982416 (0.063) 55.050 876.94
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 55.006 1,233.85
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 54.959 1,182.86
12-31-96 Value before Surr Chg 21.52246902 0.000 54.959 1,182.86
12-31-96 Surrender Charge (22.00) 21.52246902 (1.022) 53.937 1,160.86
Cumulative Total Returns without/with chrgs 18.62% A 16.09% C
Avg. Annual Total Returns without/with chrgs 5.86% B 5.10% 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 $11.94928651 83.687 83.687 $1,000.00
12-31-92 Contract Fee (1.00) 12.57361730 (0.080) 83.607 1,051.25
12-31-93 Contract Fee (1.00) 13.67694811 (0.073) 83.534 1,142.50
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 83.459 1,102.88
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 83.401 1,443.64
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 83.350 1,624.45
12-31-96 Value before Surr Chg 19.48959860 0.000 83.350 1,624.45
12-31-96 Surrender Charge (3.75) 19.48959860 (0.192) 83.157 1,620.70
Cumulative Total Returns without/with chrgs 63.10% A 62.07% C
Avg. Annual Total Returns without/with chrgs 10.28% B 10.14% D
HIGH INCOME
12-31-91 Purchase $1,000.00 $11.58287531 86.334 86.334 $1,000.00
12-31-92 Contract Fee (1.00) 13.27789297 (0.075) 86.259 1,145.34
12-31-93 Contract Fee (1.00) 15.15511991 (0.066) 86.193 1,306.27
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 86.125 1,258.07
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 86.067 1,484.81
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 86.015 1,666.52
12-31-96 Value before Surr Chg 19.37479425 0.000 86.015 1,666.52
12-31-96 Surrender Charge (3.75) 19.37479425 (0.194) 85.821 1,662.77
Cumulative Total Returns without/with chrgs 67.27% A 66.28% C
Avg. Annual Total Returns without/with chrgs 10.84% B 10.70% D
INCOME SECURITIES
12-31-91 Purchase $1,000.00 $13.58029545 73.636 73.636 $1,000.00
12-31-92 Contract Fee (1.00) 15.16252410 (0.066) 73.570 1,115.51
12-31-93 Contract Fee (1.00) 17.73437317 (0.056) 73.514 1,303.72
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 73.453 1,204.02
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 73.402 1,452.29
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 73.356 1,592.44
12-31-96 Value before Surr Chg 21.70827863 0.000 73.356 1,592.44
12-31-96 Surrender Charge (3.75) 21.70827863 (0.173) 73.183 1,588.69
Cumulative Total Returns without/with chrgs 59.85% A 58.87% C
Avg. Annual Total Returns without/with chrgs 9.84% B 9.70% D
MONEY MARKET
12-31-91 Purchase $1,000.00 $11.74177967 85.166 85.166 $1,000.00
12-31-92 Contract Fee (1.00) 11.93209752 (0.084) 85.082 1,015.21
12-31-93 Contract Fee (1.00) 12.06579747 (0.083) 84.999 1,025.58
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 84.918 1,049.08
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 84.841 1,093.04
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 84.766 1,132.41
12-31-96 Value before Surr Chg 13.35923111 0.000 84.766 1,132.41
12-31-96 Surrender Charge (3.75) 13.35923111 (0.281) 84.485 1,128.66
Cumulative Total Returns without/with chrgs 13.78% A 12.87% C
Avg. Annual Total Returns without/with chrgs 2.61% B 2.45% D
NATURAL RESOURCES SECURITIES
12-31-91 Purchase $1,000.00 $10.63476279 94.031 94.031 $1,000.00
12-31-92 Contract Fee (1.00) 9.42437104 (0.106) 93.925 885.19
12-31-93 Contract Fee (1.00) 14.46354903 (0.069) 93.856 1,357.49
12-31-94 Contract Fee (1.00) 13.97879422 (0.072) 93.784 1,310.99
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 93.714 1,322.17
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 93.644 1,354.79
12-31-96 Value before Surr Chg 14.46741645 0.000 93.644 1,354.79
12-31-96 Surrender Charge (3.75) 14.46741645 (0.259) 93.385 1,351.04
Cumulative Total Returns without/with chrgs 36.04% A 35.10% C
Avg. Annual Total Returns without/with chrgs 6.35% B 6.20% D
REAL ESTATE SECURITIES
12-31-91 Purchase $1,000.00 $11.84810701 84.402 84.402 $1,000.00
12-31-92 Contract Fee (1.00) 13.09547341 (0.076) 84.325 1,104.28
12-31-93 Contract Fee (1.00) 15.36898235 (0.065) 84.260 1,294.99
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 84.196 1,312.96
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 84.141 1,520.66
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 84.099 1,990.42
12-31-96 Value before Surr Chg 23.66770609 0.000 84.099 1,990.42
12-31-96 Surrender Charge (3.75) 23.66770609 (0.158) 83.940 1,986.67
Cumulative Total Returns without/with chrgs 99.76% A 98.67% C
Avg. Annual Total Returns without/with chrgs 14.84% B 14.72% D
TEMPLETON GLOBAL INCOME SECURITIES
12-31-91 Purchase $1,000.00 $12.96200318 77.149 77.149 $1,000.00
12-31-92 Contract Fee (1.00) 12.73250766 (0.079) 77.070 981.29
12-31-93 Contract Fee (1.00) 14.64984870 (0.068) 77.002 1,128.06
12-31-94 Contract Fee (1.00) 13.72629720 (0.073) 76.929 1,055.95
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 76.864 1,193.13
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 76.805 1,288.83
12-31-96 Value before Surr Chg 16.78052472 0.000 76.805 1,288.83
12-31-96 Surrender Charge (3.75) 16.78052472 (0.223) 76.581 1,285.08
Cumulative Total Returns without/with chrgs 29.46% A 28.51% C
Avg. Annual Total Returns without/with chrgs 5.30% B 5.14% D
U.S. GOVERNMENT SECURITIES
12-31-91 Purchase $1,000.00 $12.79761583 78.140 78.140 $1,000.00
12-31-92 Contract Fee (1.00) 13.58621153 (0.074) 78.066 1,060.62
12-31-93 Contract Fee (1.00) 14.69826319 (0.068) 77.998 1,146.43
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 77.926 1,078.09
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 77.864 1,269.01
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 77.804 1,295.45
12-31-96 Value before Surr Chg 16.65018339 0.000 77.804 1,295.45
12-31-96 Surrender Charge (3.75) 16.65018339 (0.225) 77.579 1,291.70
Cumulative Total Returns without/with chrgs 30.10% A 29.17% C
Avg. Annual Total Returns without/with chrgs 5.40% B 5.25% D
UTILITY EQUITY
12-31-91 Purchase $1,000.00 $14.82143005 67.470 67.470 $1,000.00
12-31-92 Contract Fee (1.00) 15.88865152 (0.063) 67.407 1,071.01
12-31-93 Contract Fee (1.00) 17.31879581 (0.058) 67.349 1,166.41
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 67.283 1,016.24
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 67.232 1,315.36
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 67.183 1,387.63
12-31-96 Value before Surr Chg 20.65439774 0.000 67.183 1,387.63
12-31-96 Surrender Charge (3.75) 20.65439774 (0.182) 67.002 1,383.88
Cumulative Total Returns without/with chrgs 39.35% A 38.39% C
Avg. Annual Total Returns without/with chrgs 6.86% B 6.71% D
ZERO COUPON - 2000
12-31-91 Purchase $1,000.00 $13.57017992 73.691 73.691 $1,000.00
12-31-92 Contract Fee (1.00) 14.59489368 (0.069) 73.622 1,074.51
12-31-93 Contract Fee (1.00) 16.71742785 (0.060) 73.563 1,229.78
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 73.498 1,129.89
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 73.443 1,343.54
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 73.389 1,355.84
12-31-96 Value before Surr Chg 18.47475298 0.000 73.389 1,355.84
12-31-96 Surrender Charge (3.75) 18.47475298 (0.203) 73.186 1,352.09
Cumulative Total Returns without/with chrgs 36.14% A 35.21% C
Avg. Annual Total Returns without/with chrgs 6.36% B 6.22% D
ZERO COUPON - 2005
12-31-91 Purchase $1,000.00 $13.70496151 72.966 72.966 $1,000.00
12-31-92 Contract Fee (1.00) 14.97467685 (0.067) 72.899 1,091.65
12-31-93 Contract Fee (1.00) 18.04995514 (0.055) 72.844 1,314.83
12-31-94 Contract Fee (1.00) 16.09601101 (0.062) 72.782 1,171.50
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 72.734 1,521.14
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 72.685 1,491.26
12-31-96 Value before Surr Chg 20.51665706 0.000 72.685 1,491.26
12-31-96 Surrender Charge (3.75) 20.51665706 (0.183) 72.503 1,487.51
Cumulative Total Returns without/with chrgs 49.70% A 48.75% C
Avg. Annual Total Returns without/with chrgs 8.40% B 8.27% D
ZERO COUPON - 2010
12-31-91 Purchase $1,000.00 $13.48230431 74.171 74.171 $1,000.00
12-31-92 Contract Fee (1.00) 14.66961344 (0.068) 74.103 1,087.06
12-31-93 Contract Fee (1.00) 18.14448916 (0.055) 74.048 1,343.56
12-31-94 Contract Fee (1.00) 15.92982416 (0.063) 73.985 1,178.57
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 73.941 1,658.59
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 73.894 1,590.39
12-31-96 Value before Surr Chg 21.52246902 0.000 73.894 1,590.39
12-31-96 Surrender Charge (3.75) 21.52246902 (0.174) 73.720 1,586.64
Cumulative Total Returns without/with chrgs 59.63% A 58.66% C
Avg. Annual Total Returns without/with chrgs 9.81% B 9.67% 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) 11.25417490 (0.089) 99.911 1,124.42
12-31-96 Value before Surr Chg 11.25417490 0.000 99.911 1,124.42
12-31-96 Surrender Charge (51.00) 11.25417490 (4.532) 95.379 1,073.42
Cumulative Total Returns without/with chgs 12.54% A 7.34% 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) 9.60621064 (0.104) 99.896 959.62
1-24-91 Contract Fee (1.00) 10.04911751 (0.100) 99.796 1,002.87
1-24-92 Contract Fee (1.00) 12.19460473 (0.082) 99.714 1,215.98
1-24-93 Contract Fee (1.00) 12.62194644 (0.079) 99.635 1,257.59
1-24-94 Contract Fee (1.00) 14.16249217 (0.071) 99.565 1,410.08
1-24-95 Contract Fee (1.00) 13.34952632 (0.075) 99.490 1,328.14
1-24-96 Contract Fee (1.00) 17.36302808 (0.058) 99.432 1,726.44
12-31-96 Value before Surr Chg 19.48959860 0.000 99.432 1,937.89
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 99.381 1,936.89
12-31-96 Surrender Charge 0.00 19.48959860 0.000 99.381 1,936.89
Cumulative Total Returns without/with chgs 94.90% A 93.69% C
Avg. Annual Total Returns without/with chgs 8.77% B 8.68% 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) 9.99164502 (0.100) 99.900 998.16
1-24-91 Contract Fee (1.00) 8.99722270 (0.111) 99.789 897.82
1-24-92 Contract Fee (1.00) 11.88821941 (0.084) 99.705 1,185.31
1-24-93 Contract Fee (1.00) 13.44703876 (0.074) 99.630 1,339.73
1-24-94 Contract Fee (1.00) 15.36027784 (0.065) 99.565 1,529.35
1-24-95 Contract Fee (1.00) 14.72506391 (0.068) 99.497 1,465.10
1-24-96 Contract Fee (1.00) 17.51218685 (0.057) 99.440 1,741.41
12-31-96 Value before Surr Chg 19.37479425 0.000 99.440 1,926.63
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 99.389 1,925.63
12-31-96 Surrender Charge 0.00 19.37479425 0.000 99.389 1,925.63
Cumulative Total Returns without/with chgs 93.75% A 92.56% C
Avg. Annual Total Returns without/with chgs 8.69% B 8.60% 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) 10.71309911 (0.093) 99.907 1,070.31
1-24-91 Contract Fee (1.00) 9.95244729 (0.100) 99.806 993.32
1-24-92 Contract Fee (1.00) 14.03346495 (0.071) 99.735 1,399.63
1-24-93 Contract Fee (1.00) 15.36060973 (0.065) 99.670 1,530.99
1-24-94 Contract Fee (1.00) 17.72926867 (0.056) 99.613 1,766.07
1-24-95 Contract Fee (1.00) 16.36456157 (0.061) 99.552 1,629.13
1-24-96 Contract Fee (1.00) 20.20965612 (0.049) 99.503 2,010.92
12-31-96 Value before Surr Chg 21.70827863 0.000 99.503 2,160.04
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 99.457 2,159.04
12-31-96 Surrender Charge 0.00 21.70827863 0.000 99.457 2,159.04
Cumulative Total Returns without/with chgs 117.08% A 115.90% C
Avg. Annual Total Returns without/with chgs 10.25% B 10.18% 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) 10.67978818 (0.094) 99.906 1,066.98
1-24-91 Contract Fee (1.00) 11.32877884 (0.088) 99.818 1,130.82
1-24-92 Contract Fee (1.00) 11.75876120 (0.085) 99.733 1,172.74
1-24-93 Contract Fee (1.00) 11.94119334 (0.084) 99.649 1,189.93
1-24-94 Contract Fee (1.00) 12.07592840 (0.083) 99.566 1,202.36
1-24-95 Contract Fee (1.00) 12.38828249 (0.081) 99.486 1,232.46
1-24-96 Contract Fee (1.00) 12.92030455 (0.077) 99.408 1,284.39
12-31-96 Value before Surr Chg 13.35923111 0.000 99.408 1,328.02
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 99.334 1,327.02
12-31-96 Surrender Charge 0.00 13.35923111 0.000 99.334 1,327.02
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) 10.18045638 (0.098) 99.902 1,017.05
12-31-96 Value before Surr Chg 10.18045638 0.000 99.902 1,017.05
12-31-96 Surrender Charge (51.00) 10.18045638 (5.010) 94.892 966.05
Cumulative Total Returns without/with chgs 1.80% A -3.40% 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) 10.33016898 (0.097) 99.903 1,032.02
12-31-96 Value before Surr Chg 10.33016898 0.000 99.903 1,032.02
12-31-96 Surrender Charge (51.00) 10.33016898 (4.937) 94.966 981.02
Cumulative Total Returns without/with chgs 3.30% A -1.90% 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) 12.89722725 (0.078) 99.922 1,288.72
1-24-91 Contract Fee (1.00) 9.78594476 (0.102) 99.820 976.84
1-24-92 Contract Fee (1.00) 10.94243678 (0.091) 99.729 1,091.28
1-24-93 Contract Fee (1.00) 9.15485419 (0.109) 99.620 912.00
1-24-94 Contract Fee (1.00) 14.48022000 (0.069) 99.551 1,441.51
1-24-95 Contract Fee (1.00) 13.03370860 (0.077) 99.474 1,296.51
1-24-96 Contract Fee (1.00) 15.98656882 (0.063) 99.411 1,589.25
12-31-96 Value before Surr Chg 14.46741645 0.000 99.411 1,438.22
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 99.342 1,437.22
12-31-96 Surrender Charge 0.00 14.46741645 0.000 99.342 1,437.22
Cumulative Total Returns without/with chgs 44.67% A 43.72% C
Avg. Annual Total Returns without/with chgs 4.76% B 4.67% 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) 10.13988901 (0.099) 99.901 1,012.99
1-24-91 Contract Fee (1.00) 9.37706788 (0.107) 99.795 935.78
1-24-92 Contract Fee (1.00) 12.28427530 (0.081) 99.713 1,224.91
1-24-93 Contract Fee (1.00) 13.54478625 (0.074) 99.640 1,349.60
1-24-94 Contract Fee (1.00) 15.37525910 (0.065) 99.574 1,530.98
1-24-95 Contract Fee (1.00) 15.00928122 (0.067) 99.508 1,493.54
1-24-96 Contract Fee (1.00) 18.15857148 (0.055) 99.453 1,805.92
12-31-96 Value before Surr Chg 23.66770609 0.000 99.453 2,353.82
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 99.411 2,352.82
12-31-96 Surrender Charge 0.00 23.66770609 0.000 99.411 2,352.82
Cumulative Total Returns without/with chgs 136.68% A 135.28% C
Avg. Annual Total Returns without/with chgs 11.46% B 11.38% 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) 10.69831588 (0.093) 99.907 1,068.83
1-27-94 Contract Fee (1.00) 10.38483458 (0.096) 99.810 1,036.51
1-27-95 Contract Fee (1.00) 9.97357882 (0.100) 99.710 994.47
1-27-96 Contract Fee (1.00) 12.53425589 (0.080) 99.630 1,248.79
12-31-96 Value before Surr Chg 15.30299222 0.000 99.630 1,524.64
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 99.565 1,523.64
12-31-96 Surrender Charge (3.75) 15.30299222 (0.245) 99.320 1,519.89
Cumulative Total Returns without/with chgs 53.03% A 51.99% C
Avg. Annual Total Returns without/with chgs 9.01% B 8.86% 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) 12.15810442 (0.082) 99.918 1,214.81
12-31-96 Value before Surr Chg 12.91274591 0.000 99.918 1,290.21
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 99.840 1,289.21
12-31-96 Surrender Charge (35.00) 12.91274591 (2.711) 97.130 1,254.21
Cumulative Total Returns without/with chgs 29.13% A 25.42% C
Avg. Annual Total Returns without/with chgs 24.49% B 21.42% 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) 8.62834892 (0.116) 99.884 861.83
3-15-96 Contract Fee (1.00) 10.29583833 (0.097) 99.787 1,027.39
12-31-96 Value before Surr Chg 11.48724479 0.000 99.787 1,146.28
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 99.700 1,145.28
12-31-96 Surrender Charge (22.00) 11.48724479 (1.915) 97.785 1,123.28
Cumulative Total Returns without/with chgs 14.87% A 12.33% C
Avg. Annual Total Returns without/with chgs 5.08% B 4.24% 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) 11.25238520 (0.089) 99.911 1,124.24
12-31-96 Value before Surr Chg 12.51416879 0.000 99.911 1,250.30
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 99.831 1,249.30
12-31-96 Surrender Charge (35.00) 12.51416879 (2.797) 97.034 1,214.30
Cumulative Total Returns without/with chgs 25.14% A 21.43% C
Avg. Annual Total Returns without/with chgs 14.36% B 12.32% 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) 10.10361218 (0.099) 99.901 1,009.36
3-15-96 Contract Fee (1.00) 11.81545835 (0.085) 99.816 1,179.38
12-31-96 Value before Surr Chg 13.55953972 0.000 99.816 1,353.46
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 99.743 1,352.46
12-31-96 Surrender Charge (22.00) 13.55953972 (1.622) 98.120 1,330.46
Cumulative Total Returns without/with chgs 35.60% A 33.05% C
Avg. Annual Total Returns without/with chgs 11.49% B 10.74% 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) 10.86134310 (0.092) 99.908 1,085.13
1-24-91 Contract Fee (1.00) 11.78457305 (0.085) 99.823 1,176.37
1-24-92 Contract Fee (1.00) 12.96036211 (0.077) 99.746 1,292.74
1-24-93 Contract Fee (1.00) 12.79597793 (0.078) 99.668 1,275.35
1-24-94 Contract Fee (1.00) 14.83430587 (0.067) 99.600 1,477.50
1-24-95 Contract Fee (1.00) 13.57814674 (0.074) 99.527 1,351.39
1-24-96 Contract Fee (1.00) 15.44939311 (0.065) 99.462 1,536.63
12-31-96 Value before Surr Chg 16.78052472 0.000 99.462 1,669.02
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 99.402 1,668.02
12-31-96 Surrender Charge 0.00 16.78052472 0.000 99.402 1,668.02
Cumulative Total Returns without/with chgs 67.81% A 66.80% C
Avg. Annual Total Returns without/with chgs 6.74% B 6.66% 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) 9.54360836 (0.105) 99.895 953.36
1-27-94 Contract Fee (1.00) 12.87738433 (0.078) 99.818 1,285.39
1-27-95 Contract Fee (1.00) 11.94433728 (0.084) 99.734 1,191.25
1-27-96 Contract Fee (1.00) 13.57666972 (0.074) 99.660 1,353.05
12-31-96 Value before Surr Chg 16.08142393 0.000 99.660 1,602.68
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 99.598 1,601.68
12-31-96 Surrender Charge (3.75) 16.08142393 (0.233) 99.365 1,597.93
Cumulative Total Returns without/with chgs 60.81% A 59.79% C
Avg. Annual Total Returns without/with chgs 10.11% B 9.97% 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 11.14519961 0.000 100.000 1,114.52
12-31-96 Contract Fee (1.00) 11.14519961 (0.090) 99.910 1,113.52
12-31-96 Surrender Charge (51.00) 11.14519961 (4.576) 95.334 1,062.52
Cumulative Total Returns without/with chgs 11.45% A 6.25% 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) 9.92851087 (0.101) 99.899 991.85
1-27-94 Contract Fee (1.00) 14.10178760 (0.071) 99.828 1,407.76
1-27-95 Contract Fee (1.00) 11.94769270 (0.084) 99.745 1,191.72
1-27-96 Contract Fee (1.00) 14.49670523 (0.069) 99.676 1,444.97
12-31-96 Value before Surr Chg 14.93159316 0.000 99.676 1,488.32
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 99.609 1,487.32
12-31-96 Surrender Charge (3.75) 14.93159316 (0.251) 99.358 1,483.57
Cumulative Total Returns without/with chgs 49.32% A 48.36% C
Avg. Annual Total Returns without/with chgs 8.47% B 8.33% 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) 10.30827187 (0.097) 99.903 1,029.83
3-14-91 Contract Fee (1.00) 11.46249369 (0.087) 99.816 1,144.14
3-14-92 Contract Fee (1.00) 12.40064739 (0.081) 99.735 1,236.78
3-14-93 Contract Fee (1.00) 14.10187466 (0.071) 99.664 1,405.45
3-14-94 Contract Fee (1.00) 14.26756989 (0.070) 99.594 1,420.97
3-14-95 Contract Fee (1.00) 14.67370156 (0.068) 99.526 1,460.41
3-14-96 Contract Fee (1.00) 15.92525376 (0.063) 99.463 1,583.98
12-31-96 Value before Surr Chg 16.65018339 0.000 99.463 1,656.08
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 99.403 1,655.08
12-31-96 Surrender Charge 0.00 16.65018339 0.000 99.403 1,655.08
Cumulative Total Returns without/with chgs 66.50% A 65.51% C
Avg. Annual Total Returns without/with chgs 6.75% B 6.67% 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) 11.48396786 (0.087) 99.913 1,147.40
1-24-91 Contract Fee (1.00) 11.97256112 (0.084) 99.829 1,195.21
1-24-92 Contract Fee (1.00) 14.23979461 (0.070) 99.759 1,420.55
1-24-93 Contract Fee (1.00) 15.97559846 (0.063) 99.697 1,592.71
1-24-94 Contract Fee (1.00) 16.50535338 (0.061) 99.636 1,644.53
1-24-95 Contract Fee (1.00) 15.57082971 (0.064) 99.572 1,550.42
1-24-96 Contract Fee (1.00) 19.81799066 (0.050) 99.521 1,972.31
12-31-96 Value before Surr Chg 20.65439774 0.000 99.521 2,055.55
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 99.473 2,054.55
12-31-96 Surrender Charge 0.00 20.65439774 0.000 99.473 2,054.55
Cumulative Total Returns without/with chgs 106.54% A 105.46% C
Avg. Annual Total Returns without/with chgs 9.57% B 9.49% 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) 10.38718687 (0.096) 99.904 1,037.72
3-14-91 Contract Fee (1.00) 11.51435997 (0.087) 99.817 1,149.33
3-14-92 Contract Fee (1.00) 12.66478418 (0.079) 99.738 1,263.16
3-14-93 Contract Fee (1.00) 15.54092694 (0.064) 99.674 1,549.02
3-14-94 Contract Fee (1.00) 16.04445243 (0.062) 99.611 1,598.21
3-14-95 Contract Fee (1.00) 16.25253463 (0.062) 99.550 1,617.94
3-14-96 Contract Fee (1.00) 17.85770371 (0.056) 99.494 1,776.73
12-31-96 Value before Surr Chg 18.47475298 0.000 99.494 1,838.12
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 99.440 1,837.12
12-31-96 Surrender Charge 0.00 18.47475298 0.000 99.440 1,837.12
Cumulative Total Returns without/with chgs 84.75% A 83.71% C
Avg. Annual Total Returns without/with chgs 8.18% B 8.10% 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) 10.39705125 (0.096) 99.904 1,038.71
3-14-91 Contract Fee (1.00) 11.55409702 (0.087) 99.817 1,153.30
3-14-92 Contract Fee (1.00) 12.66096149 (0.079) 99.738 1,262.78
3-14-93 Contract Fee (1.00) 16.42515250 (0.061) 99.677 1,637.22
3-14-94 Contract Fee (1.00) 16.93608169 (0.059) 99.618 1,687.14
3-14-95 Contract Fee (1.00) 17.21684038 (0.058) 99.560 1,714.11
3-14-96 Contract Fee (1.00) 19.49696512 (0.051) 99.509 1,940.12
12-31-96 Value before Surr Chg 20.51665706 0.000 99.509 2,041.59
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 99.460 2,040.59
12-31-96 Surrender Charge 0.00 20.51665706 0.000 99.460 2,040.59
Cumulative Total Returns without/with chgs 105.17% A 104.06% C
Avg. Annual Total Returns without/with chgs 9.64% B 9.57% 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) 10.26881437 (0.097) 99.903 1,025.88
3-14-91 Contract Fee (1.00) 11.36823998 (0.088) 99.815 1,134.72
3-14-92 Contract Fee (1.00) 12.29280886 (0.081) 99.733 1,226.00
3-14-93 Contract Fee (1.00) 16.18583635 (0.062) 99.672 1,613.27
3-14-94 Contract Fee (1.00) 16.90519720 (0.059) 99.612 1,683.97
3-14-95 Contract Fee (1.00) 17.12909328 (0.058) 99.554 1,705.27
3-14-96 Contract Fee (1.00) 19.99802778 (0.050) 99.504 1,989.88
12-31-96 Value before Surr Chg 21.52246902 0.000 99.504 2,141.57
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 99.458 2,140.57
12-31-96 Surrender Charge 0.00 21.52246902 0.000 99.458 2,140.57
Cumulative Total Returns without/with chgs 115.22% A 114.06% C
Avg. Annual Total Returns without/with chgs 10.32% B 10.24% 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 $17.33223864 57.696 57.696 $1,000.00
12-31-96 Contract Fee (1.00) 21.35394577 (0.047) 57.649 1,231.04
12-31-96 Value before Surr Chg 21.35394577 0.000 57.649 1,231.04
12-31-96 Surrender Charge (51.00) 21.35394577 (2.388) 55.261 1,180.04
Average Annual Total Returns without/with charges 23.20% B 18.00% C
MUTUAL SHARES SECURITIES SUB-ACCOUNT
12-31-95 Purchase $1,000.00 $499.31112267 2.003 2.003 $1,000.00
12-31-96 Contract Fee (1.00) 594.81873447 (0.002) 2.001 1,190.28
12-31-96 Value before Surr Chg 594.81873447 0.000 2.001 1,190.28
12-31-96 Surrender Charge (51.00) 594.81873447 (0.086) 1.915 1,139.28
Average Annual Total Returns without/with charges 19.13% B 13.93% 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 $267.59225358 3.737 3.737 $1,000.00
12-31-92 Contract Fee (1.00) 319.96432021 (0.003) 3.734 1,194.72
12-31-93 Contract Fee (1.00) 381.49293860 (0.003) 3.731 1,423.46
12-31-94 Contract Fee (1.00) 393.09978847 (0.003) 3.729 1,465.77
12-31-95 Contract Fee (1.00) 499.31112267 (0.002) 3.727 1,860.80
12-31-96 Contract Fee (1.00) 594.81873447 (0.002) 3.725 2,215.73
12-31-96 Value before Surr Chg 594.81873447 0.000 3.725 2,215.73
12-31-96 Surrender Charge (3.75) 594.81873447 (0.006) 3.719 2,211.98
Cumulative Total Rtns. without/with chrgs. 122.29% C 121.20% E
Avg. Annual Total Rtns. without/with chrgs. 17.32% D 17.21% 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 $165.05304095 6.059 6.059 $1,000.00
12-31-87 Contract Fee (1.00) 173.13664331 (0.006) 6.053 1,047.98
12-31-88 Contract Fee (1.00) 222.98420480 (0.004) 6.048 1,348.70
12-31-89 Contract Fee (1.00) 252.57163809 (0.004) 6.044 1,526.65
12-31-90 Contract Fee (1.00) 224.56176656 (0.004) 6.040 1,356.35
12-31-91 Contract Fee (1.00) 267.59225358 (0.004) 6.036 1,615.25
12-31-92 Contract Fee (1.00) 319.96432021 (0.003) 6.033 1,930.38
12-31-93 Contract Fee (1.00) 381.49293860 (0.003) 6.031 2,300.59
12-31-94 Contract Fee (1.00) 393.09978847 (0.003) 6.028 2,369.59
12-31-95 Contract Fee (1.00) 499.31112267 (0.002) 6.026 3,008.83
12-31-96 Contract Fee (1.00) 594.81873447 (0.002) 6.024 3,583.35
12-31-96 Value before Surr Chg 594.81873447 0.000 6.024 3,583.35
12-31-96 Surrender Charge 0.00 594.81873447 0.000 6.024 3,583.35
Cumulative Total Rtns. without/with chrgs. 260.38% C 258.34% E
Avg. Annual Total Rtns. without/with chrgs. 13.68% D 13.61% 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) 13.39109512 (0.075) 99.925 1,338.11
12-31-94 Contract Fee (1.00) 13.67637317 (0.073) 99.852 1,365.62
12-31-95 Contract Fee (1.00) 17.33223864 (0.058) 99.795 1,729.66
12-31-96 Contract Fee (1.00) 21.35394577 (0.047) 99.748 2,130.01
12-31-96 Value before Surr Chg 21.35394577 0.000 99.748 2,130.01
12-31-96 Surrender Charge (12.00) 21.35394577 (0.562) 99.186 2,118.01
Cumulative Total Rtns. without/with chgs. 113.54% C 111.80% E
Avg. Annual Total Rtns. without/with chgs. 20.87% D 20.62% 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>
Organizational Chart
Allianz Aktiengesellschaft Holding (abbreviated as Allianz AG Holding), of
Munich, Germany, is the controlling owner of Allianz of America, Inc.
Allianz of America, Inc. is sole owner of Allianz Life Insurance Company
of North America.
Allianz Life is controlling owner of NALAC Financial Plans, LLC.
