File Nos. 333-06709
811-05618
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 2 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 34 (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
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(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, 1998 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.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
- -------- -----------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . Index of Terms
Item 3. Synopsis or Highlights. . . . . . . . . . . Profile
Item 4. Condensed Financial Information. . . . . . . Appendix-Condensed
Financial Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . Other Information-
The Separate Account,
Allianz Life,
Investment Options
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . .The Valuemark IV
Variable Annuity
Contract
Item 8. Annuity Period. . .. . . . . . . . . . . . . . Annuity Payments
(The Payout Phase)
Item 9. Death Benefit. . . . . . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value. . . . . . . . . .Purchase
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . Table of Contents
of the Statement of
Additional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
- -------- --------------------
PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . Insurance Company
Item 18. Services. . . . . . . . . . . . .. . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
PART A
Profile of the
Valuemark IV
Variable Annuity
Contract
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
May 1, 1998
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
WITH A FIXED OPTION. THE CONTRACT IS MORE FULLY DESCRIBED IN THE PROSPECTUS
WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT
The variable annuity contract with a fixed option offered by Allianz Life
Insurance Company of North America (Allianz Life) is a contract between you, the
owner, and Allianz Life, an insurance company. The Contract provides a means for
investing on a tax-deferred basis in 25 portfolios of Franklin Valuemark Funds,
a series fund, and a fixed option of Allianz Life. The Contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed annuity income options.
The Contract has 26 investment options. There are 25 portfolios which are
managed by Franklin Advisers, Inc. and its Templeton and Franklin affiliates. A
list of the available portfolios is contained in Section 4. Depending upon
market conditions, you can make or lose money in the Contract based on the
portfolios' investment performance. The portfolios are designed to offer a
better return than the fixed option, however, this is not guaranteed.
The fixed option offers an interest rate that is guaranteed by Allianz Life. The
interest rate is set monthly and is guaranteed for 12 months. While your money
is in the fixed option, the interest your money will earn as well as your
principal is guaranteed by Allianz Life.
Allianz Life reserves the right to limit the number of portfolios which you may
invest in at any one time (now or in the future). Currently, you can put your
money in 10 investment options (which includes any of the 25 portfolios listed
in Section 4 and the Allianz Life fixed option).
Like all deferred annuity contracts, your Contract has two phases: the
accumulation phase and the payout phase. During the accumulation phase, your
earnings accumulate on a tax-deferred basis and are based on the investment
performance of the portfolio(s) you selected and/or the interest rate earned on
the money you have in the fixed option. During the accumulation phase, the
earnings are taxed as income only when you make a surrender. The payout phase
occurs when you begin receiving regular payments from your Contract. The amount
of the payments you may receive during the payout phase depends in part upon the
amount of money you are able to accumulate in your Contract during the
accumulation phase.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
You can receive monthly annuity payments from your Contract by selecting one of
the following annuity options (all of these options assume you are the owner and
the annuitant): (1) payments for your life; (2) payments for your life, but if
you die before payments have been made for the guaranteed period you selected,
payments will continue for the remainder of the guaranteed period (5, 10, 15 or
20 years); (3) payments during the joint lifetime of you and the joint annuitant
- - when either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you or the joint annuitant die before payments have been made for the guaranteed
period you selected, payments will continue for the remainder of the guaranteed
period (5, 10, 15 or 20 years); and (5) payments during your life ending with
the last payment due prior to your death with a guarantee that at your death
Allianz Life will make a refund to your beneficiary. Once you begin receiving
regular annuity payments, you cannot change your annuity option or surrender
your Contract.
During the payout phase, you may select from the portfolios available or the
fixed option for your investment choices. You may elect to receive annuity
payments as a variable payout, a fixed payout, or a combination of both. If you
choose to have any part of your payments based on portfolio performance (i.e.,
variable payout), the dollar amount of your annuity payments may go up or down,
depending on the investment performance.
3. PURCHASE
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the accumulation phase. Contact your
registered representative to help you fill out the proper forms. You and the
annuitant cannot be older than 85 years old at the time you buy the Contract.
This product is not appropriate for market timers.
4. INVESTMENT OPTIONS
You may invest in the Allianz Life fixed option or the following portfolios of
Franklin Valuemark Funds:
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING
CURRENT INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING
GROWTH AND INCOME:
Global Utilities Securities Fund
(formerly, Utility Equity Fund)
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING
CAPITAL GROWTH:
Capital Growth Fund
Global Health Care Securities Fund
Mutual DiscoverySecurities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
The portfolios are fully described in the attached prospectus for Franklin
Valuemark Funds. You can make or lose money based on the portfolios'
performance. IN CALIFORNIA, THE GLOBAL HEALTH CARE SECURITIES FUND AND THE VALUE
SECURITIES FUND ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE
DEPARTMENT. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY.)
5. EXPENSES
The Contract has insurance features and investment features, and there are costs
related to each.
The annual insurance charges total 1.49% of the average daily value of your
Contract allocated to the portfolios during the accumulation phase (1.40% during
the payout phase). Each year Allianz Life also deducts a $30 contract
maintenance charge from your Contract. Allianz Life currently waives this charge
if the cumulative value of all your Valuemark IV Contracts (registered with the
same social security number) are at least $50,000 (except in New Jersey). There
are also annual portfolio operating expenses, which vary depending upon the
portfolios you select. In 1997, these expenses ranged from .40% to 1.42% of the
average daily value of the portfolios.
You can transfer between investment options up to 12 times a year without
charge. After 12 transfers, the charge is $25 or 2% of the amount transferred,
whichever is less. Market timing transfers may not be permitted.
If you make a surrender from the Contract, Allianz Life may assess a contingent
deferred sales charge (surrender charge). The amount of the charge depends upon
how long Allianz Life has had your payment. Each purchase payment you add to
your Contract has its own 7 year contingent deferred sales charge period. The
charge is:
<TABLE>
<CAPTION>
Contingent deferred
Years since sales charge (as a percentage
purchase payment of purchase payments)
------------- ------------------
<S> <C>
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
</TABLE>
Under certain circumstances, after the first year, Allianz Life will permit you
to access your money in the Contract without deducting a contingent deferred
sales charge: 1) if you become confined to a nursing home; 2) if you become
terminally ill; or 3) if you become disabled. Also, if you are unemployed for at
least 90 consecutive days, you can take up to 50% of your money out of the
Contract without incurring a contingent deferred sales charge. These options
vary from state to state and may not be available in all states.
Allianz Life may assess a state premium tax charge which ranges from 0%-3.5%
(depending upon the state) when you die, start receiving annuity payments, or
make a complete surrender.
We have provided the following chart to help you understand the expenses in your
Contract. The column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .10% below), the 1.49% insurance
charges and the total 1997 annual portfolio expenses for each portfolio (actual
portfolio expenses vary from year to year). The next two columns show you two
examples of the expenses, in dollars, you would pay under a Contract. The
examples assume that you invested $1,000 in a Contract which earns 5% annually
and that you surrender your Contract: (1) at the end of year 1, and (2) at the
end of year 10. For year 1, the Total Annual Expenses are assessed as well as
the contingent deferred sales charge. For year 10, the Total Annual Expenses are
assessed but no contingent deferred sales charge is deducted. The premium tax is
assumed to be 0% in both examples. These are just examples. They do not
represent past or future expenses or returns. Actual expenses may be higher or
lower than those shown.
<TABLE>
<CAPTION>
EXAMPLES:
Total Total
Annual Annual Tota
Insurance Portfolio Annual Expenses at end of:
Portfolio Charges Expenses Expenses 1 Year 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 1.59% .77% 2.36% $84 $270
Global Health Care Securities 1.59% .86% 2.45% $85 $279
Global Utilities Securities* 1.59% .50% 2.09% $81 $242
Growth and Income 1.59% .49% 2.08% $81 $241
High Income 1.59% .53% 2.12% $82 $245
Income Securities 1.59% .50% 2.09% $81 $242
Money Market 1.59% .53% 2.12% $82 $245
Mutual Discovery Securities 1.59% 1.06% 2.65% $87 $299
Mutual Shares Securities 1.59% .80% 2.39% $84 $273
Natural Resources Securities 1.59% .69% 2.28% $83 $261
Real Estate Securities 1.59% .54% 2.13% $82 $246
Rising Dividends 1.59% .74% 2.33% $84 $266
Small Cap 1.59% .77% 2.36% $84 $270
Templeton Developing Markets Equity 1.59% 1.42% 3.01% $90 $333
Templeton Global Asset Allocation 1.59% .94% 2.53% $86 $287
Templeton Global Growth 1.59% .88% 2.47% $85 $281
Templeton Global Income Securities 1.59% .62% 2.21% $82 $254
Templeton International Equity 1.59% .89% 2.48% $85 $282
Templeton International Smaller Companies 1.59% 1.06% 2.65% $87 $299
Templeton Pacific Growth 1.59% 1.03% 2.62% $87 $296
U.S. Government Securities 1.59% .50% 2.09% $81 $242
Value Securities 1.59% .81% 2.40% $84 $274
Zero Coupon 2000 1.59% .40% 1.99% $80 $231
Zero Coupon 2005 1.59% .40% 1.99% $80 $231
Zero Coupon 2010 1.59% .40% 1.99% $80 $231
<FN>
*Prior to May 1, 1998, the Global Utilities Securities Fund was known as the Utility Equity Fund .
</FN>
</TABLE>
The expenses for the newly formed portfolios have been estimated. The expenses
for the Zero Coupon Funds reflect current fee waiver arrangements. For more
detailed information, see the Fee Table in the prospectus for the Contract.
6. TAXES
Any earnings are not taxed until you take them out. In most cases, if you take
money out, earnings come out first and are taxed as income. If you are younger
than 591/2 when you take money out, you may be charged a 10% federal tax penalty
on the taxable amounts surrendered. Payments during the payout phase are
considered partly a return of your original investment. That part of each
payment is not taxable as income. If the Contract is tax-qualified, the entire
payment may be taxable.
7. ACCESS TO YOUR MONEY
You may make a surrender at any time during the accumulation phase. Any partial
surrender must be for at least $500. You may request a surrender or elect the
Systematic Withdrawal Program or Minimum Distribution Program which are briefly
described in Section 10 of this Profile. After the first year, you can make
multiple surrenders up to a total of 15% of the value of your Contract each year
without charge from Allianz Life. Surrenders in excess of that amount will be
subject to a contingent deferred sales charge. If you do not surrender the full
15% in any one Contract year, you may not carry over the remaining percentage
amount to another year. Surrenders in excess of the 15% free withdrawal will be
charged a contingent deferred sales charge which declines from 6% to 0%
depending upon the number of complete years we have had your payment. After
Allianz Life has had a payment for 7 years, there is no charge for surrenders
related to that payment. Each purchase payment you add to your Contract has its
own 7 year contingent deferred sales charge period. Of course, you may also have
to pay income tax and a tax penalty on any money you take out of the Contract.
8. PERFORMANCE
OF THE PORTFOLIOS
The value of the Contract will vary up or down depending upon the performance of
the portfolio(s) you choose.
The following chart shows total returns for the portfolios for the periods
shown. Performance is not shown for the Global Health Care Securities Fund and
the Value Securities Fund because they were first offered for sale on May 1,
1998. These numbers reflect the insurance charges, the contract maintenance
charge and the operating expenses of the portfolios. These numbers do not
reflect any contingent deferred sales charges, which if applied, would reduce
such performance. Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
Calendar Year
Portfolio 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 16.46% NA NA NA NA NA NA NA
Global Utilities Securities 24.79% 5.47% 29.32% -12.97% 8.80% 7.00% 22.66% 0.25%
Growth and Income 25.76% 12.39% 30.77% -3.57% 8.58% 5.03% 21.69% -3.89%
High Income 9.80% 12.10% 17.90% -3.80% 13.94% 14.43% 28.12% -10.12%
Income Securities 15.26% 9.52% 20.49% -7.75% 16.76% 11.45% 37.76% -8.91%
Money Market 3.59% 3.50% 4.09% 2.20% 0.93% 1.43% 3.82% 5.93%
Mutual Discovery Securities 17.50% NA NA NA NA NA NA NA
Mutual Shares Securities 15.89% NA NA NA NA NA NA NA
Natural Resources Securities -20.27% 2.35% 0.74% -3.54% 53.23% -11.56% 2.19% -15.36%
Real Estate Securities 18.81% 30.74% 15.69% 1.27% 17.16% 10.33% 31.43% -13.37%
Rising Dividends 30.96% 22.23% 27.73% -5.59% -4.98% NA NA NA
Small Cap 15.59% 27.05% NA NA NA NA NA NA
Templeton Developing
Markets Equity -10.17% 19.68% 1.16% NA NA NA NA NA
Templeton Global Asset Allocation 9.96% 17.95% NA NA NA NA NA NA
Templeton Global Growth 11.72% 19.38% 10.96% NA NA NA NA NA
Templeton Global
Income Securities 0.86% 7.91% 12.88% -6.49% 14.86% -1.96% 10.53% 8.06%
Templeton International Equity 9.94% 21.04% 8.86% -0.72% 26.58% NA NA NA
Templeton International
Smaller Companies -3.06% NA NA NA NA NA NA NA
Templeton Pacific Growth -37.00% 9.35% 6.28% -10.24% 45.59% NA NA NA
U.S. Government Securities 7.59% 1.97% 17.60% -6.06% 7.99% 5.97% 14.07% 7.21%
Zero Coupon 2000 5.42% 0.80% 18.79% -8.22% 14.34% 7.35% 18.35% 4.23%
Zero Coupon 2005 9.62% -2.09% 29.71% -11.01% 20.33% 9.07% 18.50% 1.02%
Zero Coupon 2010 14.75% -4.24% 40.59% -12.38% 23.48% 8.61% 18.16% -1.02%
</TABLE>
9. DEATH BENEFIT
If you die during the accumulation phase, the person you have selected as your
beneficiary will receive a death benefit. This death benefit will be the greater
of: 1) the current value of your Contract, less any taxes, on the day all claim
proofs and payment election forms are received by Allianz Life at the Valuemark
Service Center; or 2) (if applicable) the guaranteed minimum death benefit, less
any taxes, as of the day you die. During the first year, the guaranteed minimum
death benefit is equal to the payments you have made, less any money you have
taken out and any charges paid on the money you have taken out. After the first
year and before your 76th birthday, the guaranteed minimum death benefit as of
the date of death is the greater of: A) payments you have made, less any money
you have taken out and charges paid on the money you have taken out, increased
by 5% per year on each Contract anniversary; or B) the highest of the Contract
values for each six year Contract anniversary determined by the Contract value
on such six year anniversary plus any payments made, less any money taken out
since that Contract anniversary, and charges paid on the money you have taken
out. Different rules will apply after your 76th birthday.
10. OTHER INFORMATION
Free Look. If you cancel the Contract within 10 days after receiving it (or
whatever period is required in your state), we will send your money back without
assessing a contingent deferred sales charge. You will receive whatever your
Contract is worth on the day we receive your request. This may be more or less
than your original payment. (Some states require that we return your payment.)
No Probate. In most cases, when you die, your beneficiary will receive the death
benefit without going through probate.
Purchasing Considerations. The Valuemark IV Variable Annuity Contract is
designed for people seeking long-term tax deferred accumulation of assets,
generally for retirement or other long-term purposes. The tax deferred feature
is most attractive to people in high federal and state tax brackets. You should
not buy this Contract if you are looking for a short-term investment or if you
cannot accept the risk of getting back less money than you put in.
Additional Features
The Contract offers additional features which you might be interested in. These
include:
Automatic Investment Plan - You can automatically add to your Contract on a
monthly or quarterly basis for as little as $100 by electronic transfer of
monies from your savings or checking account.
Dollar Cost Averaging Program - You can arrange to have a regular amount of
money automatically transferred from selected portfolios to other portfolios
each month. Theoretically this can give you a lower average cost per unit over
time than a single one time purchase. However, there are no guarantees that this
will take place.
Flexible Rebalancing - Allianz Life will automatically readjust your Contract
value among the portfolios to maintain your specified allocation mix. This can
be done quarterly, semi-annually or annually.
Systematic Withdrawal Program - You can elect to receive monthly or quarterly
payments from Allianz Life while your Contract is in the accumulation phase. Of
course, you may have to pay tax penalties and income taxes on the money you
receive.
Minimum Distribution Program - You can arrange to have money sent to you each
month or quarter to meet certain required distribution requirements imposed by
the Internal Revenue Code generally after age 701/2.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES
If you have any questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
THE VALUEMARK IV VARIABLE ANNUITY CONTRACT
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
This prospectus describes the Valuemark IV Variable Annuity Contract with a
Fixed Option offered by Allianz Life Insurance Company of North America (Allianz
Life).
The annuity has 26 investment options - the 25 Portfolios of Franklin Valuemark
Funds which are listed below and a Fixed Option of Allianz Life. You can select
up to 10 investment options (which includes any of the Portfolios listed below
and the Fixed Option). The Fixed Option may not be available in your state.
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
PORTFOLIOS SEEKING CURRENT INCOME
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund
(formerly, Utility Equity Fund)
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities 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
Prior to May 1, 1998, the Global Utilities Securities Fund was known as the
Utility Equity Fund. IN CALIFORNIA, THE GLOBAL HEALTH CARE SECURITIES FUND AND
THE VALUE SECURITIES FUND ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA
INSURANCE DEPARTMENT. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING
AVAILABILITY.)
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark IV Variable Annuity
Contract with a Fixed Option.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 1998. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is on Page 22 of this prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information about registrants that file electronically with the SEC.
For a free copy of the SAI, call us at (800) 342-3863 or write us at: 1750
Hennepin Avenue, Minneapolis, Minnesota 55403-2195.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is not an offering of the securities herein described in any
state, country, or jurisdiction in which the offering is unauthorized. No sales
representative, dealer or other person is authorized to give any information or
make any representations other than those contained in this prospectus.
Dated: May 1, 1998
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEX OF TERMS ................................... 3
FEE TABLE ........................................ 4
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT ........................ 8
Contract Owner ............................... 8
Joint Owner .................................. 8
Annuitant .................................... 8
Beneficiary .................................. 8
Assignment .................................. 8
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE) ............................... 9
Annuity Options .............................. 9
3. PURCHASE ..................................... 10
Purchase Payments ............................ 10
Automatic Investment Plan .................... 10
Allocation of Purchase Payments .............. 10
Free Look .................................... 10
Accumulation Units ........................... 10
4. INVESTMENT OPTIONS ........................... 11
Transfers .................................... 12
Dollar Cost Averaging Program ................ 12
Flexible Rebalancing ......................... 13
Voting Privileges ............................ 13
Substitution ................................. 13
5. EXPENSES ..................................... 13
Insurance Charges ............................ 13
Mortality and Expense Risk Charge ........... 13
Administrative Charge ....................... 13
Contract Maintenance Charge .................. 13
Contingent Deferred Sales Charge ............. 14
Waiver of Contingent
Deferred Sales Charge Benefits ............... 14
Reduction or Elimination of the
Contingent Deferred Sales Charge ............. 15
Transfer Fee ................................. 15
Premium Taxes ................................ 15
Income Taxes ................................. 15
Portfolio Expenses ........................... 15
6. TAXES ........................................ 15
Annuity Contracts in General ................. 15
Qualified and Non-Qualified Contracts ........ 16
Multiple Contracts ........................... 16
Surrenders - Non-Qualified Contracts ......... 16
Surrenders - Qualified Contracts ............. 16
Surrenders - Tax-Sheltered Annuities ......... 16
Diversification .............................. 16
7. ACCESS TO YOUR MONEY ......................... 16
Systematic Withdrawal Program ................ 17
Minimum Distribution Program ................. 17
Suspension of Payments or Transfers .......... 17
8. PERFORMANCE .................................. 17
9. DEATH BENEFIT ................................ 18
Upon Your Death .............................. 18
Death of Annuitant ........................... 19
10. OTHER INFORMATION ............................ 19
Allianz Life ................................. 19
The Separate Account ......................... 19
Distribution ................................. 20
Administration ............................... 20
Financial Statements ......................... 20
APPENDIX ..................................... 21
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ....................... 22
INDEX OF TERMS
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase ............................... 8
Accumulation Unit ................................ 10
Annuitant ........................................ 8
Annuity Options .................................. 9
Annuity Payments ................................. 9
Annuity Unit ..................................... 11
Beneficiary ...................................... 8
Contract ......................................... 8
Contract Owner ................................... 8
Fixed Option ..................................... 8
Income Date ...................................... 9
Joint Owner ...................................... 8
Non-Qualified .................................... 16
Payout Phase ..................................... 8
Portfolios ....................................... 11
Purchase Payment ................................. 10
Qualified ........................................ 16
Tax Deferral ..................................... 15
FEE TABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contract Owner Transaction Fees
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
Years Since
Purchase Payment Charge
-----------------------
<S> <C>
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 + 0%
</TABLE>
Transfer Fee**........................................... First 12 transfers in
a Contract year are free. Thereafter, the fee is $25 (or 2% of the amount
transferred, if less). Dollar Cost Averaging transfers and Flexible Rebalancing
transfers are not counted.
Contract Maintenance Charge***........................... $30 per Contract per
year
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge****.................... 1.34%
Administrative Charge.................................... .15%
--------
Total Separate Account Annual Expenses................... 1.49%
*Each year after the first Contract year, you may make multiple partial
surrenders of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 - "Access to
Your Money" for additional options.
**The Contract provides that if more than three transfers have been made in a
Contract year, the Company reserves the right to deduct a transfer fee which
will not exceed the lesser of $25 or 2% of the amount transferred. Market timing
transfers may not be permitted.
***During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Valuemark IV Contract
(registered with the same social security number), we will determine the total
value of all your Contracts. If the total value of all your Contracts is at
least $50,000, the charge is waived (except in New Jersey). Currently, the
charge is also waived during the Payout Phase if the value of your Contract at
the Income Date is at least $50,000 (except in New Jersey).
****The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Portfolio Administration Fees for each Portfolio are based on a percentage of that Portfolio's net assets. See
the prospectus for Franklin Valuemark Funds for more information.
The "Management and Portfolio Administration Fees" below are the amounts that were paid to the Managers and Portfolio
Administrators for the 1997 calendar year except for Portfolios with fee waivers or newer Portfolios without a full year of
operations as of December 31, 1997.
Management
and Portfolio Total Annual
Administration Fees1Other Expenses Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund ........................................................ .75% .02% .77%
Global Health Care Securities Fund2 ........................................ .75% .11% .86%
Global Utilities Securities Fund3........................................... .47% .03% .50%
Growth and Income Fund ..................................................... .47% .02% .49%
High Income Fund ........................................................... .50% .03% .53%
Income Securities Fund ..................................................... .47% .03% .50%
Money Market Fund4 ......................................................... .51% .02% .53%
Mutual Discovery Securities Fund ........................................... .80% .26% 1.06%
Mutual Shares Securities Fund .............................................. .60% .20% .80%
Natural Resources Securities Fund .......................................... .62% .07% .69%
Real Estate Securities Fund ................................................ .51% .03% .54%
Rising Dividends Fund ...................................................... .72% .02% .74%
Small Cap Fund ............................................................. .75% .02% .77%
Templeton Developing Markets Equity Fund ................................... 1.25% .17% 1.42%
Templeton Global Asset Allocation Fund ..................................... .65% .29% .94%
Templeton Global Growth Fund ............................................... .83% .05% .88%
Templeton Global Income Securities Fund .................................... .56% .06% .62%
Templeton International Equity Fund ........................................ .80% .09% .89%
Templeton International Smaller Companies Fund ............................. .85% .21% 1.06%
Templeton Pacific Growth Fund .............................................. .92% .11% 1.03%
U.S. Government Securities Fund ............................................ .48% .02% .50%
Value Securities Fund2 ..................................................... .75% .06% .81%
Zero Coupon Fund - 20005 ................................................... .37% .03% .40%
Zero Coupon Fund - 20055 ................................................... .37% .03% .40%
Zero Coupon Fund - 20105 ................................................... .37% .03% .40%
<FN>
1The Portfolio Administration Fee is a direct expense for the Global Health Care Securities Fund, the Mutual Discovery Securities
Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton International Smaller Companies
Fund, and the Value Securities Fund; other Portfolios pay for similar services indirectly through the Management Fee. See the
Franklin Valuemark Funds prospectus for further information regarding these fees.
2The Global Health Care Securities Fund and the Value Securities Fund commenced operations May 1, 1998. The expenses shown above
for these Portfolios are therefore estimated for 1998.
3Prior to May 1, 1998, the Global Utilities Securities Fund was known as the Utility Equity Fund.
4Franklin Advisers, Inc. agreed to waive a portion of its Management Fee and to pay certain expenses of the Money Market Fund
during 1997. It is currently continuing this arrangement in 1998. This arrangement may be terminated at any time. With this
reduction, the Portfolio's actual total annual expenses for 1997 were .45% of the average daily net assets of the Portfolio.
5Although not obligated to, Franklin Advisers, Inc. has agreed to waive a portion of its Management Fees and to pay certain
expenses of the three Zero Coupon Funds through at least December 31, 1998 so that the total expenses of each Zero Coupon Fund
will not exceed 0.40% of each Portfolio's net assets. Absent the management fee waivers, for the year ended December 31, 1997, the
Total Annual Expenses and the Management and Portfolio Administration Fees would have been as follows: Zero Coupon Fund - 2000,
.63% and .60%; Zero Coupon Fund - 2005, .65% and .62%; and Zero Coupon Fund - 2010, .65% and .62%. There were no expense
reimbursements during 1997 for the Zero Coupon Funds.
</FN>
</TABLE>
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Contract.
The Fee Table reflects the 1997 expenses of the Separate Account as well as the
Portfolios. The examples below should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown. The
$30 contract maintenance charge is included in the Examples as a prorated charge
of $1. Since the average Contract size is greater than $1,000, the contract
maintenance charge is reduced accordingly. Premium taxes are not reflected in
the tables. Premium taxes may apply. For additional information, see Section 5 -
"Expenses" and the Franklin Valuemark Funds prospectus.
Examples
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if you surrender your
Contract at the end of each time period:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund ............................................................ $84 $125 $160 $270
Global Health Care Securities Fund*............................................. $85 $127 $165 $279
Global Utilities Securities Fund ............................................... $81 $116 $146 $242
Growth and Income Fund ......................................................... $81 $116 $146 $241
High Income Fund ............................................................... $82 $117 $148 $245
Income Securities Fund ......................................................... $81 $116 $146 $242
Money Market Fund .............................................................. $82 $117 $148 $245
Mutual Discovery Securities Fund ............................................... $87 $133 $175 $299
Mutual Shares Securities Fund .................................................. $84 $126 $162 $273
Natural Resources Securities Fund .............................................. $83 $122 $156 $261
Real Estate Securities Fund .................................................... $82 $118 $148 $246
Rising Dividends Fund .......................................................... $84 $124 $158 $266
Small Cap Fund ................................................................. $84 $125 $160 $270
Templeton Developing Markets Equity Fund ....................................... $90 $144 $192 $333
Templeton Global Asset Allocation Fund ......................................... $86 $130 $169 $287
Templeton Global Growth Fund ................................................... $85 $128 $166 $281
Templeton Global Income Securities Fund ........................................ $82 $120 $152 $254
Templeton International Equity Fund ............................................ $85 $128 $166 $282
Templeton International Smaller Companies Fund ................................. $87 $133 $175 $299
Templeton Pacific Growth Fund .................................................. $87 $132 $173 $296
U.S. Government Securities Fund ................................................ $81 $116 $146 $242
Value Securities Fund* ......................................................... $84 $126 $162 $274
Zero Coupon Fund - 2000++....................................................... $80 $113 $141 $231
Zero Coupon Fund - 2005++....................................................... $80 $113 $141 $231
Zero Coupon Fund - 2010++....................................................... $80 $113 $141 $231
<FN>
*Estimated
++Calculated with waiver of fees
</FN>
</TABLE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if your Contract is not
surrendered or is annuitized:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund ............................................................ $24 $74 $126 $270
Global Health Care Securities Fund* ............................................ $25 $76 $131 $279
Global Utilities Securities Fund ............................................... $21 $65 $112 $242
Growth and Income Fund ......................................................... $21 $65 $112 $241
High Income Fund ............................................................... $22 $66 $114 $245
Income Securities Fund ......................................................... $21 $65 $112 $242
Money Market Fund .............................................................. $22 $66 $114 $245
Mutual Discovery Securities Fund ............................................... $27 $82 $141 $299
Mutual Shares Securities Fund .................................................. $24 $75 $128 $273
Natural Resources Securities Fund .............................................. $23 $71 $122 $261
Real Estate Securities Fund .................................................... $22 $67 $114 $246
Rising Dividends Fund .......................................................... $24 $73 $124 $266
Small Cap Fund ................................................................. $24 $74 $126 $270
Templeton Developing Markets Equity Fund ....................................... $30 $93 $158 $333
Templeton Global Asset Allocation Fund ......................................... $26 $79 $135 $287
Templeton Global Growth Fund ................................................... $25 $77 $132 $281
Templeton Global Income Securities Fund ........................................ $22 $69 $118 $254
Templeton International Equity Fund ............................................ $25 $77 $132 $282
Templeton International Smaller Companies Fund ................................. $27 $82 $141 $299
Templeton Pacific Growth Fund .................................................. $27 $81 $139 $296
U.S. Government Securities Fund ................................................ $21 $65 $112 $242
Value Securities Fund* ......................................................... $24 $75 $128 $274
Zero Coupon Fund - 2000++....................................................... $20 $62 $107 $231
Zero Coupon Fund - 2005++....................................................... $20 $62 $107 $231
Zero Coupon Fund - 2010++....................................................... $20 $62 $107 $231
<FN>
*Estimated
++Calculated with waiver of fees
</FN>
</TABLE>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
<PAGE>
1. THE VALUEMARK IV VARIABLE
ANNUITY CONTRACT
This prospectus describes a variable annuity contract with a Fixed Option
offered by Allianz Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Allianz Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments, beginning
on a designated date that is at least two years in the future. Until you decide
to begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Payout
Phase. The Contract benefits from Tax Deferral.
Tax Deferral means that you are not taxed on any earnings or appreciation on the
assets in your Contract until you take money out of your Contract.
The Contract is called a variable annuity because you can choose among 25
Portfolios and, depending upon market conditions, you can make or lose money in
the Contract based on the Portfolios' investment performance. The Portfolios are
designed to offer a better return than the Fixed Option, however, this is not
guaranteed. If you select the variable annuity portion of the Contract, the
amount of money you are able to accumulate in your Contract during the
Accumulation Phase depends in large part upon the investment performance of the
Portfolio(s) you select. The amount of the Annuity Payments you receive during
the Payout Phase from the variable annuity portion of the Contract also depends
in large part upon the investment performance of the Portfolios you select for
the Payout Phase.
The Contract also contains a Fixed Option (referred to in the Contract as the
"Fixed Account"). The Fixed Option offers an interest rate that is guaranteed by
Allianz Life for all deposits made within the twelve month period. This interest
rate is set monthly and is guaranteed for 12 months. Allianz Life guarantees
that the interest credited to the Fixed Option will not be less than 3% per
year. If you select the Fixed Option, your money will be placed with the other
general assets of Allianz Life.
If you select the Fixed Option, the amount of money you are able to accumulate
in your Contract during the Accumulation Phase depends upon the total interest
credited to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
Contract Owner
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
Joint Owner
The Contract can be owned by Joint Owners. Any Joint Owner must be the spouse of
the other Contract Owner (except in Pennsylvania, Oregon and New Jersey). Upon
the death of either Joint Owner, the surviving Joint Owner will be the
designated Beneficiary. Any other Beneficiary designation at the time the
Contract was issued or as may have been later changed will be treated as a
contingent Beneficiary unless otherwise indicated.
Annuitant
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
Beneficiary
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
Assignment
You can assign the Contract at any time during your lifetime. Allianz Life will
not be bound by the assignment until it receives the written notice of the
assignment. Allianz Life will not be liable for any payment or other action we
take in accordance with the Contract before we receive notice of the assignment.
Any assignment made after the death benefit has become payable can only be done
with our consent. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 years after you buy the Contract. You can also choose among income
plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the Annuitant's 85th birthday or 10 years (5 years in
Pennsylvania) from the date the Contract was issued, whichever is later. This
limitation may not apply when the Contract is issued to a charitable remainder
trust. You (or someone you designate) will receive the Annuity Payments. You
will receive tax reporting on those payments.
If you do not choose an Annuity Option prior to the Income Date, we will assume
that you selected Option 2 which provides a life annuity with 5 years of
guaranteed payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available Portfolios. If you do not
tell us otherwise, your Annuity Payments will be based on the investment
allocations that were in place on the Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Portfolio(s), the dollar amount of your payments
will depend upon three things: 1) the value of your Contract in the Portfolio(s)
on the Income Date, 2) the 5% assumed investment rate used in the annuity table
for the Contract, and 3) the performance of the Portfolio(s) you selected. If
the actual performance exceeds the 5% assumed rate, your Annuity Payments will
increase.
Similarly, if the actual rate is less than 5%, your Annuity Payments will
decrease.
Annuity Options
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Allianz Life agrees to provide. After Annuity Payments begin,
you cannot change the Annuity Option.
OPTION 1. LIFE ANNUITY. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 or 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if, when the Annuitant dies, we have made Annuity Payments for less
than the selected guaranteed period, we will continue to make Annuity Payments
to you for the rest of the guaranteed period. If you do not want to receive
Annuity Payments, you can ask us for a single lump sum.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments, so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to the
Contract Owner can be equal to 100%, 75% or 50% of the amount that was being
paid when both Annuitants were alive. The monthly Annuity Payments will end when
the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 or 20 YEAR PAYMENTS
GUARANTEED. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that was being paid when both were alive. If, when the last death occurs,
we have made Annuity Payments for less than the selected guaranteed period, we
will continue to make Annuity Payments to you or any person you designate for
the rest of the guaranteed period. If you do not want to receive Annuity
Payments, you can ask us for a single lump sum.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies and if the value of the Annuity Payments is less than
the value annuitized, then the Contract Owner will receive a refund as set forth
in the Contract.
3. PURCHASE
Purchase Payments
A Purchase Payment is the money you invest in the Contract. The minimum payment
Allianz Life will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If you enroll in the Automatic Investment Plan (which is
described below), your Purchase Payment can be $2,000. If you are buying the
Contract as part of an IRA (Individual Retirement Annuity), 401(k) or other
Qualified plan, the minimum amount we will accept is $2,000. The maximum we will
accept without our prior approval is $1 million. You can make additional
Purchase Payments of $250 (or as low as $100 if you have selected the Automatic
Investment Plan) or more to either type of Contract. Allianz Life may, at its
sole discretion, waive the minimum payment requirements. We reserve the right to
decline any Purchase Payment. At the time you buy the Contract, you and the
Annuitant cannot be older than 85 years old. This product is not designed for
professional market timing organizations, other entities, or persons using
programmed, large or frequent transfers.
Automatic Investment Plan
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
Allocation of Purchase Payments
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Option and/or one or more of the Portfolios you have selected. We ask that
you allocate your money in either whole percentages or round dollars. The Fixed
Option may not be available in your state (check with your registered
representative). You can instruct us how to allocate additional Purchase
Payments you make. If you do not instruct us, we will allocate them in the same
way as your previous instructions to us. Allianz Life reserves the right to
limit the number of Portfolios that you may invest in at one time. Currently,
you may invest in 10 investment options at one time (which includes any of the
25 Portfolios of Franklin Valuemark Funds listed in Section 4 and the Allianz
Life Fixed Option). We may change this in the future. However, we will always
allow you to invest in at least five Portfolios.
Once we receive your Purchase Payment, the necessary information and federal
funds (federal funds means monies credited to a bank's account with its regional
federal reserve bank), we will issue your Contract and allocate your first
Purchase Payment within 2 business days. If you do not give us all of the
information we need, we will contact you or your registered representative to
get it. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you make additional
Purchase Payments, we will credit these amounts to your Contract within one
business day. Our business day closes when the New York Stock Exchange closes,
which is usually at 4:00 p.m. Eastern time.
Free Look
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it (or the period required in your state). When you cancel
the Contract within this time period, Allianz Life will not assess a contingent
deferred sales charge. You will receive back whatever your Contract is worth on
the day we receive your request. In certain states or if you have purchased the
Contract as an IRA, we may be required to give you back your Purchase Payment if
you decide to cancel your Contract within 10 days after receiving it (or
whatever period is required in your state). If that is the case, we reserve the
right to allocate your initial Purchase Payment in the Money Market Fund for 15
days after we receive your first Purchase Payment. (In some states, the period
may be longer.) At the end of that period, we will re-allocate your money as you
selected. Currently, however, we will directly allocate your money to the
Portfolios and/or the Fixed Option as you have selected.
Accumulation Units
The value of the portion of your Contract allocated to the Portfolios will go up
or down based upon the investment performance of the Portfolio(s) you choose.
The value of your Contract will also depend on the expenses of the Contract. In
order to keep track of the value of your Contract, we use a measurement called
an Accumulation Unit (which is like a share of a mutual fund). During the Payout
Phase of the Contract we call it an Annuity Unit.
Every business day we determine the value of an Accumulation Unit by multiplying
the Accumulation Unit value for the previous period by a factor for the current
period. The factor is determined by:
1. dividing the value of a Portfolio Accumulation Unit at the end of the current
period by the value of a Portfolio Accumulation Unit for the previous period;
and
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Portfolio. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the corresponding
Accumulation Unit.
We calculate the value of each Accumulation Unit after the New York Stock
Exchange closes each day and then credit your Contract.
Example:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Growth and Income Fund. When the New
York Stock Exchange closes on that Wednesday, we determine that the value of an
Accumulation Unit based on an investment in the Growth and Income Fund is
$12.50. We then divide $3,000 by $12.50 and credit your Contract on Wednesday
night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers 25 Portfolios of Franklin Valuemark Funds and a Fixed Option
of Allianz Life. Additional Portfolios may be available in the future. IN
CALIFORNIA, THE GLOBAL HEALTH CARE SECURITIES FUND AND THE VALUE SECURITIES FUND
ARE NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE DEPARTMENT. (CHECK
WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY.)
YOU SHOULD READ THE FRANKLIN VALUEMARK FUNDS PROSPECTUS (WHICH IS ATTACHED TO
THIS PROSPECTUS) CAREFULLY BEFORE INVESTING.
Franklin Valuemark Funds is the mutual fund underlying your Contract. Each
Portfolio has its own investment objective. Investment managers for each
Portfolio are listed in the table below and are as follows: Franklin Advisers,
Inc. (FA), Franklin Advisory Services, Inc. (FAS), Franklin Mutual Advisers,
Inc. (FMA), Templeton Asset Management Ltd. (TAM), Templeton Global Advisors
Limited (TGA), and Templeton Investment Counsel, Inc. (TIC). Certain managers
have retained one or more affiliated subadvisers to help them manage the
Portfolios.
The following is a list of the Portfolios available under the Contract:
<TABLE>
<CAPTION>
Investment
Available Portfolios Managers
- ------------------------------------------------------------------------------
<S> <C>
Portfolio Seeking Stability
of Principal and Income
Money Market Fund ........................... FA
Portfolios Seeking
Current Income
High Income Fund ............................ FA
Templeton Global Income Securities Fund ..... FA
U.S. Government Securities Fund ............. FA
Zero Coupon Funds - 2000, 2005, 2010 ........ FA
Portfolios Seeking
Growth and Income
Global Utilities Securities Fund
(formerly, Utility Equity Fund) ............ FA
Growth and Income Fund ...................... FA
Income Securities Fund ...................... FA
Mutual Shares Securities Fund ............... FMA
Real Estate Securities Fund ................. FA
Rising Dividends Fund ....................... FAS
Templeton Global Asset Allocation Fund ...... TGA
Value Securities Fund ....................... FAS
Portfolios Seeking
Capital Growth
Capital Growth Fund ......................... FA
Global Health Care Securities Fund .......... FA
Mutual Discovery Securities Fund ............ FMA
Natural Resources Securities Fund ........... FA
Small Cap Fund .............................. FA
Templeton Developing Markets
Equity Fund ................................ TAM
Templeton Global Growth Fund ................ TGA
Templeton International Equity Fund ......... FA
Templeton International Smaller
Companies Fund ............................. TIC
Templeton Pacific Growth Fund ............... FA
- --------------------------------------------------------------------------------
</TABLE>
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Allianz Life and other variable annuity contracts
offered by Allianz Life and its affiliates. Franklin Valuemark Funds does not
believe that offering its shares in this manner will be disadvantageous to you.
Transfers
You can transfer money among the 25 Portfolios and/or the Fixed Option. Allianz
Life currently allows you to make as many transfers as you want to each year.
Allianz Life may change this practice in the future. However, this product is
not designed for professional market timing organizations or other persons using
programmed, large, or frequent transfers. Such activity may be disruptive to a
Portfolio. We reserve the right to reject any specific Purchase Payment
allocation or transfer request from any person, if in the Portfolio managers'
judgment, a Portfolio would be unable to invest effectively in accordance with
its investment objectives and policies, or would otherwise potentially be
adversely affected.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Allianz Life permits you to make 12 transfers every year
without charge. We measure a year from the anniversary of the day we issued your
Contract. You can make a transfer to or from the Fixed Option and to or from any
Portfolio. If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is $25 per transfer or, if less, 2% of the amount transferred.
The following applies to any transfer:
1. The minimum amount which you can transfer is $1,000 ($500 in New Jersey) or
your entire value in the Portfolio or Fixed Option. This requirement is waived
if the transfer is in connection with the Dollar Cost Averaging Program or
Flexible Rebalancing (which are described below).
2. We may not allow you to make transfers during the free look period.
3. Your request for a transfer must clearly state which Portfolio(s) or the
Fixed Option is involved in the transfer.
4. Your request for a transfer must clearly state how much the transfer is for.
5. You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6. During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7. During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Allianz Life has reserved the right to modify the transfer provisions subject to
the guarantees described above and subject to applicable state law.
You can make transfers by telephone. We may allow you to authorize someone else
to make transfers by telephone on your behalf. If you own the Contract with a
Joint Owner, unless Allianz Life is instructed otherwise, Allianz Life will
accept instructions from either one of you. Allianz Life will use reasonable
procedures to confirm that instructions given to us by telephone are genuine. If
we do not use such procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions. Allianz Life tape records all telephone
instructions.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Portfolio or the Fixed Option
to up to eight of the other Portfolios. By allocating amounts on a regularly
scheduled basis, as opposed to allocating the total amount at one particular
time, you may be less susceptible to the impact of market fluctuations. You may
only participate in this program during the Accumulation Phase.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option and it is available for new Contracts and additional
Purchase Payments to new and existing Contracts which will receive a special
fixed rate guaranteed for one year by Allianz Life. Dollar cost averaging will
take place over twelve months and requires a minimum investment of $6,000. The
Dollar Cost Averaging Fixed Option may not be available in your state.
The second option is the Standard Dollar Cost Averaging option which requires a
$3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day. You may elect either program by properly completing
the Dollar Cost Averaging form provided by Allianz Life. The Portfolio(s) you
transfer from may not be the Portfolio(s) you transfer to in this program.
Your participation in the program will end when any of the following occurs: (1)
the number of desired transfers have been made; (2) you do not have enough money
in the Portfolio(s) or Fixed Option to make the transfer (if less money is
available, that amount will be dollar cost averaged and the program will end);
(3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or (4) the Contract is
terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
Flexible Rebalancing
Once your money has been invested, the performance of the Portfolios may cause
your chosen allocation to shift. Flexible Rebalancing is designed to help you
maintain your specified allocation mix among the different Portfolios. You can
direct us to readjust your Contract value on a quarterly, semi-annual or annual
basis to return to your original Portfolio allocations. Flexible Rebalancing
transfers will be made on the 20th day of the month unless that day is not a
business day. If it is not, then the transfer will be made on the previous day.
If you participate in Flexible Rebalancing, the transfers made under the program
are not taken into account in determining any transfer fee. The Fixed Option is
not permitted to be part of Flexible Rebalancing.
Voting Privileges
Allianz Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote, Allianz Life
will obtain from you and other Contract Owners instructions as to how to vote
those shares. When we receive those instructions, we will vote all of the shares
we own in proportion to those instructions. This will also include any shares
that Allianz Life owns on its own behalf. Should Allianz Life determine that it
is no longer required to comply with the above, we will vote the shares in our
own right.
Substitution
Allianz Life may substitute one of the Portfolios you have selected with another
Portfolio. We would not do this without the prior approval of the Securities and
Exchange Commission. We will give you notice of our intention to do this.
5. EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
Insurance Charges
Each day, Allianz Life makes a deduction for its insurance charges. Allianz Life
does this as part of its calculation of the value of the Accumulation Units and
the Annuity Units. The insurance charge has two parts: 1) the mortality and
expense risk charge and 2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Portfolio, after the deduction of expenses. During the Payout
Phase, the charge is equal, on an annual basis, to 1.25% of the average daily
value of the Contract invested in a Portfolio, after the deduction of expenses.
This charge compensates us for all the insurance benefits provided by your
Contract (for example, the guarantee of annuity rates, the death benefits,
certain expenses related to the Contract, and for assuming the risk (expense
risk) that the current charges will be insufficient in the future to cover the
cost of administering the Contract). The amount of the mortality and expense
risk charge is less during the Payout Phase because Allianz Life does not pay a
death benefit if you die during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Portfolio, after the deduction
of expenses. This charge, together with the contract maintenance charge (which
is explained below), is for all the expenses associated with the administration
of the Contract. Some of these expenses include: preparation of the Contract,
confirmations, annual reports and statements, maintenance of contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
Contract Maintenance Charge
Every year on the anniversary of the date when your Contract was issued, Allianz
Life deducts $30 from your Contract as a contract maintenance charge. (In South
Carolina, if your Contract is in force on the 20th Contract anniversary, we will
waive the contract maintenance charge that is to be deducted after the 20th
Contract anniversary.) This charge is for administrative expenses (see above).
This charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $50,000 when the deduction for the charge is to be made, Allianz Life will
not deduct this charge. If you own more than one Valuemark IV Contract, Allianz
Life will determine the total value of all your Valuemark IV Contracts. If the
total value of all Valuemark IV Contracts registered under the same social
security number is at least $50,000, Allianz Life will not assess the contract
maintenance charge (except in New Jersey). Currently, the charge is also waived
during the Payout Phase if the value of your Contract at the Income Date is at
least $50,000 (except in New Jersey). If the Contract is owned by a non-natural
person (e.g., a corporation), Allianz Life will look to the Annuitant to
determine if it will assess the charge.
If you make a complete surrender from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
Contingent Deferred Sales Charge
Surrenders may be subject to a contingent deferred sales charge. During the
Accumulation Phase, you can make surrenders from your Contract. Allianz Life
keeps track of each Purchase Payment you make. The amount of the contingent
deferred sales charge depends upon how long Allianz Life has had your payment.
The charge is:
<TABLE>
<CAPTION>
Contingent
Years Since Deferred
Purchase Payment Sales Charge
------------ --------
<S> <C>
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
</TABLE>
However, after Allianz Life has had a Purchase Payment for 7 full years, there
is no charge when you surrender that Purchase Payment. For purposes of the
contingent deferred sales charge, Allianz Life treats surrenders as coming from
the oldest Purchase Payments first. Allianz Life does not assess the contingent
deferred sales charge on any payments paid out as Annuity Payments or as death
benefits.
In the state of Washington, the contingent deferred sales charge will be waived
beginning with the later of the first Contract anniversary after your attaining
age 70 or the 10th Contract anniversary.
NOTE: For tax purposes, surrenders are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
FREE SURRENDER AMOUNT (referred to in sales literature as "15% Withdrawal
Privilege") - Each year after the first Contract year, you can make multiple
surrenders up to 15% of the value of your Contract and no contingent deferred
sales charge will be deducted from the 15% you take out. (This amount may be
increased when the Contract is issued to a charitable remainder trust.)
Surrenders in excess of that free amount will be subject to the contingent
deferred sales charge. If you do not surrender the full 15% in any one Contract
year, you may not carry over the remaining percentage amount to another year.
You may also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program which allow you to make surrenders without the
deduction of the contingent deferred sales charge under certain circumstances.
See Section 7 - "Access to Your Money" for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
Waiver of Contingent Deferred
Sales Charge Benefits
Under certain circumstances, after the first year, Allianz Life will permit you
to take your money out of the Contract without deducting a contingent deferred
sales charge: 1) if you become confined to a nursing home; 2) if you become
terminally ill, which is defined as life expectancy of 12 months or less (a full
surrender of the Contract will be required); or 3) if you become totally
disabled for at least 90 consecutive days.
Also, after the first year, if you become unemployed for at least 90 consecutive
days, you can take up to 50% of your money out of the Contract without incurring
a contingent deferred sales charge. This benefit is available only once during
the life of the Contract and you may not use both this benefit and the 15% free
surrender amount in the same Contract year.
These benefits vary from state to state or may not be available in your state.
(Check with your registered representative.)
Reduction or Elimination of the
Contingent Deferred Sales Charge
Allianz Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Allianz Life. Allianz Life may not deduct a contingent
deferred sales charge under a Contract issued to an officer, director or
employee of Allianz Life or any of its affiliates. Also, Allianz Life may reduce
or not deduct a contingent deferred sales charge when a Contract is sold by an
agent of Allianz Life to any members of his or her immediate family and the
commission is waived. Any circumstances resulting in reduction or elimination of
the contingent deferred sales charge requires prior approval by Allianz Life.
Transfer Fee
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer. If the transfer is part of the Dollar Cost
Averaging Program or Flexible Rebalancing, it will not count in determining the
transfer fee.
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Allianz Life is responsible for the payment of
these taxes and will make a deduction from the value of the Contract for them.
Some of these taxes are due when the Contract is issued, others are due when
Annuity Payments begin. It is Allianz Life's current practice to not charge you
for these taxes until you die, Annuity Payments begin or a complete surrender is
made. Allianz Life may some time in the future discontinue this practice and
assess the charge when the tax is due. Premium taxes generally range from 0% to
3.5% of the Purchase Payment, depending on the state.
Income Taxes
Allianz Life reserves the right to deduct from the Contract for any income taxes
which it may incur because of the Contract. Currently, Allianz Life is not
making any such deductions.
Portfolio Expenses
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described in the attached
prospectus for Franklin Valuemark Funds.
6. TAXES
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NOTE: ALLIANZ LIFE HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU SHOULD CONSULT
YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. ALLIANZ LIFE HAS INCLUDED
ADDITIONAL INFORMATION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL
INFORMATION.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs - either as a surrender or as Annuity
Payments. When you make a surrender you are taxed on the amount of the surrender
that is earnings. For Annuity Payments, different rules apply. A portion of each
Annuity Payment you receive will be treated as a partial return of your Purchase
Payments and will not be taxed. The remaining portion of the Annuity Payment
will be treated as ordinary income. How the Annuity Payment is divided between
taxable and non-taxable portions depends upon the period over which the Annuity
Payments are expected to be made. Annuity Payments received after you have
received all of your Purchase Payments are fully includible in income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than tax-qualified trusts), the
Contract will generally not be treated as an annuity for tax purposes. This
means that the Contract may not receive the benefits of Tax Deferral. Income may
be taxed as ordinary income every year.
Qualified and Non-Qualified Contracts
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), H.R. 10 Plans (sometimes referred to as Keogh Plans), and
pension and profit-sharing plans, which include 401(k) plans. If you do not
purchase the Contract under a Qualified plan, your Contract is referred to as a
Non-Qualified Contract.
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. You should consult a tax adviser prior to purchasing
more than one Non-Qualified annuity contract in any calendar year period.
Surrenders - Non-Qualified Contracts
If you make a surrender from your Contract, the Code treats such a surrender as
first coming from earnings and then from your Purchase Payments. In most cases,
such surrendered earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some surrenders will
be exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 591/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) for
the life or life expectancy of the taxpayer; (5) paid under an immediate
annuity; or (6) which come from purchase payments made prior to August 14, 1982.
Surrenders - Qualified Contracts
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of surrenders from Qualified Contracts is
contained in the Statement of Additional Information.
Surrenders - Tax-Sheltered Annuities
The Code limits the surrender of Purchase Payments made by Contract Owners from
certain Tax-Sheltered Annuities. Surrenders can only be made when a Contract
Owner: (1) reaches age 591/2; (2) leaves his/her job; (3) dies; (4) becomes
disabled (as that term is defined in the Code); or (5) in the case of hardship.
However, in the case of hardship, the Contract Owner can only surrender the
Purchase Payments and not any earnings.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Allianz Life believes that the Portfolios are being managed so
as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Allianz Life,
would be considered the owner of the shares of the Portfolios. If this occurs,
it will result in the loss of the favorable tax treatment for the Contract. It
is unknown to what extent under federal tax law Contract Owners are permitted to
select Portfolios, to make transfers among the Portfolios or the number and type
of Portfolios Contract Owners may select from. If any guidance is provided which
is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the owner of the
Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Allianz Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can have access to the money in your Contract:
(1) by making a surrender (either a partial or a total surrender); (2) by
receiving Annuity Payments; or (3) when a death benefit is paid to your
Beneficiary. Surrenders can only be made during the Accumulation Phase.
When you make a complete surrender you will receive the value of the Contract on
the day you made the surrender less any applicable contingent deferred sales
charge, less any premium tax and less any contract maintenance charge. (See
Section 5 - "Expenses" for a discussion of the charges.)
Any partial surrender must be for at least $500 and, unless you instruct Allianz
Life otherwise, will be made pro-rata from all the Portfolios and the Fixed
Option you selected. Allianz Life requires that after you make a partial
surrender the value of your Contract must be at least $2,000.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY SURRENDER
YOU MAKE.
There are limits to the amount you can surrender from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6 - "Taxes" and
the discussion in the SAI.
Systematic Withdrawal Program
If the value of your Contract is at least $25,000, Allianz Life offers a program
which provides automatic monthly or quarterly payments to you each year. The
total systematic withdrawals which you can make each year without Allianz Life
deducting a contingent deferred sales charge is limited to 15% of the value of
your Contract determined on the last valuation date prior to the day your
request is received. You may surrender any amount you want under this program if
your payments are no longer subject to the contingent deferred sales charge. If
you make surrenders under this program, you may not also use the 15% free
surrender amount that year. For a discussion of the contingent deferred sales
charge and the 15% free surrender amount, see Section 5 - "Expenses." All
systematic withdrawals will be made on the 9th day of the month unless that day
is not a business day. If it is not, then the surrender will be made the
previous business day.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
Minimum Distribution Program
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Allianz Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Allianz Life will make payments to you on a
monthly or quarterly basis. The payments will not be subject to the contingent
deferred sales charge and will be instead of the 15% free surrender amount.
Suspension of Payments or Transfers
Allianz Life may be required to suspend or postpone payments for surrenders or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares is
not reasonably practicable or Allianz Life cannot reasonably value the Portfolio
shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Allianz Life has reserved the right to defer payment for a surrender or transfer
from the Fixed Option for the period permitted by law but not for more than six
months.
8. PERFORMANCE
- --------------------------------------------------------------------------------
Allianz Life periodically advertises performance of the various Accumulation
Units. Allianz Life will calculate performance by determining the percentage
change in the value of an Accumulation Unit by dividing the increase (decrease)
for that unit by the value of the Accumulation Unit at the beginning of the
period. This performance number reflects the deduction of the insurance charges.
It may not reflect the deduction of any applicable contingent deferred sales
charge and contract maintenance charge. The deduction of any applicable contract
maintenance charge and contingent deferred sales charges would reduce the
percentage increase or make greater any percentage decrease. Any advertisement
will also include average annual total return figures which reflect the
deduction of the insurance charges, contract maintenance charge, contingent
deferred sales charges and the expenses of the Portfolios. Allianz Life may also
advertise cumulative total return information. Cumulative total return is
determined the same way except that the results are not annualized. Performance
information for the underlying Portfolios may also be advertised; see the
Franklin Valuemark Funds prospectus for more information.
Certain Portfolios have been in existence for some time and have investment
performance history. However, the Contracts have been available only since
February 3, 1997. In order to demonstrate how the actual investment experience
of the Portfolios may affect your Accumulation Unit values, Allianz Life has
prepared performance information which can be found in the SAI. There is
performance shown which is based on the historical performance of the
Portfolios, modified to reflect the current charges and expenses of your
Contract as if the Contract had been in existence for the time periods shown.
The information is based upon the historical experience of the Portfolios and
does not represent past performance or predict future performance.
Allianz Life may in the future also advertise yield information. If it does, it
will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data and does not
guarantee future results of the Portfolios.
9. DEATH BENEFIT
- --------------------------------------------------------------------------------
Upon Your Death
If you die during the Accumulation Phase, Allianz Life will pay a death benefit
to your Beneficiary (see below). No death benefit is paid if you die during the
Payout Phase.
I. CONTRACTS THAT RECEIVE AN ENHANCED DEATH BENEFIT ENDORSEMENT
Contracts that are owned individually, or jointly with another person, or as
agent for an individual person, will receive an enhanced death benefit
endorsement. For these Contracts the death benefit will be the greater of (1) or
(2) below:
(1) The current value of your Contract, less any taxes owed. This amount is
determined as of the day that all claim proofs and payment election forms are
received at the Valuemark Service Center.
(2) The guaranteed minimum death benefit (as explained below and in the
enhanced death benefit endorsement to your Contract), as of the day you die.
A. During the first year of all such Contracts and if you are age 76 or older at
the time of purchase, the following guaranteed minimum death benefit will apply:
o payments you have made, o less any money you have taken out,
o less any applicable charges paid on money taken out, o less any
premium taxes owed.
B. After the first Contract year, for Contracts issued before your 76th
birthday, and until you reach age 76, the greater of (a) or (b) below will be
your guaranteed minimum death benefit:
a) 5% Increase
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out, o plus 5%
on each Contract anniversary, o less any premium taxes owed.
b) Highest 6th Year Contract Value
o highest Contract value on any six year Contract anniversary, o
plus any payments made since that Contract anniversary, o less any
money you have taken out since that anniversary, o less any
applicable charges paid on money taken out since that anniversary,
o less any premium taxes owed.
C. After your 76th birthday, the following guaranteed minimum death
benefit will apply: o your guaranteed minimum death benefit on the
Contract anniversary prior to your 76th birthday, o plus any
payments you have made since then, o less any money you have taken
out since then, o less any applicable charges paid on money taken
out since then, o less any premium taxes owed.
II. CONTRACTS THAT DO NOT RECEIVE AN ENHANCED DEATH BENEFIT ENDORSEMENT
For all Contracts that do not receive an enhanced death benefit endorsement, the
death benefit will be:
the current value of your Contract, less any taxes owed. This amount is
determined as of the day that all claim proofs and payment election forms are
received at the Valuemark Service Center.
III. ADDITIONAL PROVISIONS
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts surrendered after the date of death. If
the Contract is owned by a non-natural person, then all references to you mean
the Annuitant.
The death benefit provision described above may not be available in your state.
If it is not available, the death benefit will be equal to the value of your
Contract (less any premium taxes) on the close of the business day that Allianz
Life receives proof of the death and payment instructions.
In the case of Joint Owners, if a Joint Owner dies, the surviving Joint Owner
will be considered the Beneficiary. Joint Owners must be spouses (except in
Pennsylvania, Oregon and New Jersey).
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. If the Beneficiary is
the spouse of the Contract Owner, he/she can choose to continue the Contract in
his/her own name at the then current value, or if greater, the death benefit
value. If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from some states, are met, the payment will
be made within 7 days. Payment of the death benefit may be delayed pending
receipt of any applicable tax consents and/or forms from a state.
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
Death of Annuitant
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If a new Annuitant is not
named within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
- --------------------------------------------------------------------------------
Allianz Life
Allianz Life Insurance Company of North America (Allianz Life), 1750 Hennepin
Avenue, Minneapolis, Minnesota 55403, was organized under the laws of the state
of Minnesota in 1896. Allianz Life offers fixed and variable life insurance and
annuities and group life, accident and health insurance. Allianz Life is
licensed to do business in 49 states and the District of Columbia. Allianz Life
is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
The Separate Account
Allianz Life established a separate account, Allianz Life Variable Account B
(Separate Account), to hold the assets that underlie the Contracts. The Board of
Directors of Allianz Life adopted a resolution to establish the Separate Account
under Minnesota insurance law on May 31, 1985. Allianz Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into Contract sub-accounts. Each Contract sub-account invests in a
Portfolio.
The assets of the Separate Account are held in Allianz Life's name on behalf of
the Separate Account and legally belong to Allianz Life. However, those assets
that underlie the variable Contracts are not chargeable with liabilities arising
out of any other business Allianz Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Allianz Life
may issue.
Distribution
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is a wholly-owned subsidiary of
Allianz Life. NFP has subcontracted with Franklin Advisers, Inc. ("Advisers")
for it and/or certain of its affiliates to provide certain marketing support
services and NFP compensates these entities for their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 6.0% of Purchase Payments.
Sometimes, Allianz Life enters into an agreement with the broker-dealer to pay
the broker-dealer commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which when totaled could
exceed 6% of Purchase Payments). In addition, Allianz Life and Advisers and/or
its affiliates may pay certain sellers for other services not directly related
to the sale of the Contracts (such as special marketing support allowances).
Commissions may be recovered from a broker-dealer if a surrender occurs within
12 months of a Purchase Payment.
Administration
Allianz Life has hired Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, to perform certain administrative services
regarding the Contracts. The administrative services include issuance of the
Contracts and maintenance of Contract Owner's records.
Financial statements
The consolidated financial statements of Allianz Life and the Separate Account
have been included in the Statement of Additional Information.
APPENDIX
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 includes accumulation unit values for the period indicated.**
This information should be read in conjunction with the financial statements and
related notes to the Separate Account included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
(Number of units in thousands)
Period from
Inception to
Sub-Accounts: Dec. 31, 1997
- -------------------------------------------------------------------------------
<S> <C>
Capital Growth
Unit value at beginning of period............ $11.247
Unit value at end of period.................. $13.110
Number of units outstanding at end of period. 1,957
Global Health Care Securities**
Unit value at beginning of period............ NA
Unit value at end of period.................. NA
Number of units outstanding at end of period. NA
Global Utilities Securities*
Unit value at beginning of period............ $20.526
Unit value at end of period.................. $25.635
Number of units outstanding at end of period. 310
Growth and Income
Unit value at beginning of period............ $19.351
Unit value at end of period.................. $24.354
Number of units outstanding at end of period. 2,376
High Income
Unit value at beginning of period............ $19.237
Unit value at end of period.................. $21.141
Number of units outstanding at end of period. 2,202
Income Securities
Unit value at beginning of period............ $21.554
Unit value at end of period.................. $24.864
Number of units outstanding at end of period. 2,094
Money Market
Unit value at beginning of period............ $13.266
Unit value at end of period.................. $13.756
Number of units outstanding at end of period. 3,214
Mutual Discovery Securities
Unit value at beginning of period............ $10.179
Unit value at end of period.................. $11.971
Number of units outstanding at end of period. 5,461
Mutual Shares Securities
Unit value at beginning of period............ $10.329
Unit value at end of period.................. $11.981
Number of units outstanding at end of period. 11,394
Natural Resources Securities
Unit value at beginning of period............ $14.364
Unit value at end of period.................. $11.466
Number of units outstanding at end of period. 304
Real Estate Securities
Unit value at beginning of period............ $23.499
Unit value at end of period.................. $27.944
Number of units outstanding at end of period. 1,217
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)
Period from
Inception to
Sub-Accounts: Dec. 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Rising Dividends
Unit value at beginning of period............ $15.235
Unit value at end of period.................. $19.968
Number of units outstanding at end of period. 1,991
Small Cap
Unit value at beginning of period............ $12.899
Unit value at end of period.................. $14.923
Number of units outstanding at end of period. 2,965
Templeton Developing Markets Equity
Unit value at beginning of period............ $11.458
Unit value at end of period.................. $10.305
Number of units outstanding at end of period. 2,663
Templeton Global Asset Allocation
Unit value at beginning of period............ $12.495
Unit value at end of period.................. $13.752
Number of units outstanding at end of period. 1,008
Templeton Global Growth
Unit value at beginning of period............ $13.525
Unit value at end of period.................. $15.124
Number of units outstanding at end of period. 5,525
Templeton Global Income Securities
Unit value at beginning of period............ $16.661
Unit value at end of period.................. $16.821
Number of units outstanding at end of period. 393
Templeton International Equity
Unit value at beginning of period............ $16.010
Unit value at end of period.................. $17.617
Number of units outstanding at end of period. 3,122
Templeton International Smaller Companies
Unit value at beginning of period............ $11.138
Unit value at end of period.................. $10.809
Number of units outstanding at end of period. 792
Templeton Pacific Growth
Unit value at beginning of period............ $14.866
Unit value at end of period.................. $ 9.381
Number of units outstanding at end of period. 379
U.S. Government Securities
Unit value at beginning of period............ $16.533
Unit value at end of period.................. $17.805
Number of units outstanding at end of period. 1,359
Value Securities**
Unit value at beginning of period............ NA
Unit value at end of period.................. NA
Number of units outstanding at end of period. NA
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)
Period from
Inception to
Sub-Accounts: Dec. 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Zero Coupon 2000
Unit value at beginning of period............ $18.345
Unit value at end of period.................. $19.358
Number of units outstanding at end of period. 94
Zero Coupon 2005
Unit value at beginning of period............ $20.375
Unit value at end of period.................. $22.357
Number of units outstanding at end of period. 161
Zero Coupon 2010
Unit value at beginning of period............ $21.371
Unit value at end of period.................. $24.544
Number of units outstanding at end of period. 150
<FN>
*Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as
the Utility Equity Sub-Account.
**The Global Health Care Securities and the Value Securities Sub-Accounts
commenced operations May 1, 1998.
</FN>
</TABLE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Insurance Company................................. 2
Experts .......................................... 2
Legal Opinions ................................... 2
Distributor ...................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge ................. 2
Calculation of Performance Data .................. 2
Federal Tax Status ............................... 5
Annuity Provisions................................ 10
Mortality and Expense Risk Guarantee ............. 11
Financial Statements ............................. 11
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, 1998
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800)
342-3863.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1998, AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
Contents Page
Insurance Company .............................. 2
Experts ........................................ 2
Legal Opinions ................................. 2
Distributor .................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge .............. 2
Calculation of Performance Data ................ 2
Federal Tax Status ............................. 5
Annuity Provisions ............................. 10
Mortality and Expense Risk Guarantee ........... 11
Financial Statements ........................... 11
Insurance Company
Allianz Life Insurance Company of North America (the "Insurance Company") is a
stock life insurance company organized under the laws of the state of Minnesota
in 1896. The Insurance Company is a wholly-owned subsidiary of Allianz
Versicherungs-AG Holding ("Allianz"). Allianz is headquartered in Munich,
Germany, and has sales outlets throughout the world. The Insurance Company
offers fixed and variable life insurance and annuities, and group life, accident
and health insurance. On April 1, 1993, the Insurance Company changed its name
from North American Life and Casualty Company to its present name.
The Insurance Company is rated A+ (Superior) by A.M. BEST, an independent
analyst of the insurance industry. The financial strength of an insurance
company may be relevant insofar as the ability of a company to make fixed
annuity payments from its general account.
On May 1, 1998, Allianz Life Insurance Company of North America ("Company")
contributed initial capital of $250,000 each to the Value Securities Fund and
Global Health Care Securities Fund Sub-Accounts of Allianz Life Variable Account
B ("Variable Account"). As of May 1, 1998, the capital contributed to these
Sub-Accounts by the Company represented 100% of the total assets of each
Sub-Account, respectively. The Company currently intends to remove these assets
from the Sub-Accounts on a prorata basis in proportion to money invested in the
Sub-Accounts by Contract Owners.
Experts
- --------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the Insurance Company as of and for the year ended
December 31, 1997 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
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
Distributor
- --------------------------------------------------------------------------------
NALAC Financial Plans, LLC, a subsidiary of the Insurance Company, acts as the
distributor. The offering is on a continuous basis.
Reduction or Elimination of the
Contingent Deferred Sales Charge
- -------------------------------------------------------------------------------
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Insurance
Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges for
sales is contractually guaranteed.
The Contingent Deferred Sales Charge will be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. The Contingent Deferred Sales Charge may be reduced or
eliminated when the Contract is sold by an agent of the Insurance Company to any
members of his or her immediate family and the commission is waived. In no event
will any reduction or elimination of the Contingent Deferred Sales Charge be
permitted where the reduction or elimination will be unfairly discriminatory to
any person.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Insurance Company may advertise the performance data for
the Portfolios 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 Portfolio over a stated period of time which is determined by dividing the
increase (or decrease) in value for that unit by the accumulation unit value at
the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.34% Mortality and Expense Risk Charge,
a 0.15% Administrative Charge, the operating expenses of the underlying
Portfolios and any applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge ("Standardized Total Return"). The Contingent Deferred Sales
Charge and Contract Maintenance Charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contract Maintenance
Charges and any applicable Contingent Deferred Sales Charge to arrive at the
ending hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000; T = average annual total return; n
= number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the Contingent Deferred Sales Charge and the Contract Maintenance
Charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Company may also present
performance information computed on a different basis ("Non-Standardized Total
Return").
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
Yield
The Money Market Fund. The Insurance Company may advertise yield information for
the Money Market Fund. The Money Market Fund's current yield may vary each day,
depending upon, among other things, the average maturity of the underlying
Portfolio's investment securities and changes in interest rates, operating
expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Charge and the Contract Maintenance Charge and, in certain
instances, the value of the underlying Portfolio's investment securities. The
fact that the Portfolio's current yield will fluctuate and that the principal is
not guaranteed should be taken into consideration when using the Portfolio's
current yield as a basis for comparison with savings accounts or other
fixed-yield investments. The yield at any particular time is not indicative of
what the yield may be at any other time.
The Money Market Fund's current yield is computed on a base period return of a
hypothetical Contract having a beginning balance of one accumulation unit for a
particular period of time (generally seven days). The return is determined by
dividing the net change (exclusive of any capital changes) in such accumulation
unit by its beginning value, and then multiplying it by 365/7 to get the
annualized current yield. The calculation of net change reflects the value of
additional shares purchased with the dividends paid by the Portfolio, and the
deduction of the Mortality and Expense Risk Charge, the Administrative Charge
and Contract Maintenance Charge. The effective yield reflects the effects of
compounding and represents an annualization of the current return with all
dividends reinvested. (Effective yield = [(Base Period Return + 1)365/7] - 1.)
For the seven-day period ending on 12/31/97, the Money Market Sub-Account had a
current yield of 3.79% and an effective yield of 3.86%. The yield information
assumes that the Contract Sub-Account was invested in the Money Market Fund for
the time period shown. Other Portfolios. The Insurance Company may also quote
yield in sales literature, advertisements, personalized hypothetical
illustrations, and Contract Owner communications for the other Portfolios. Each
Portfolio (other than the Money Market Fund) will publish standardized total
return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
------
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Contract 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 no sales load. The
Insurance Company does not currently advertise yield information for any
Portfolio (other than the Money Market Fund).
Performance Ranking
Total return may be compared to relevant indices, including U.S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS(R).
From time to time, evaluation of performance by independent sources may also be
used.
Performance Information
Franklin Valuemark Funds - Existing Portfolios. The Portfolios of Franklin
Valuemark Funds have been in existence for some time and have investment
performance history (except the Global Health Care Securities and Value
Securities Funds). In order to show how investment performance of the Portfolios
affects accumulation unit values, the following performance information was
developed.
The chart below shows accumulation unit performance which assumes that the
accumulation units were invested in each of the Portfolios for the same periods.
The performance figures in Column I represent performance figures for the
accumulation units which reflects the deduction of the Mortality and Expense
Risk Charge, Administrative Charge, and the operating expenses of the
Portfolios. Column II represents performance figures for the accumulation units
which reflects the the Mortality and Expense Risk Charge, Administrative Charge,
the Contract Maintenance Charge, the operating expenses of the Portfolios and
assumes that you make a surrender at the end of the period (therefore the
Contingent Deferred Sales Charge is reflected). Past performance does not
guarantee future results.
Franklin Valuemark IV
Total Return for the periods ended December 31, 1997
<TABLE>
<CAPTION>
Column I Column II
------------------------------ ------------------------------
Inception One Three Five Since One Three Five Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 16.56% NA NA 17.62% 10.46% NA NA 14.74%
Global Utilities
Securities1 1/24/89 24.89% 19.50% 10.12% 11.10% 18.79% 18.21% 9.56% 11.03%
Growth and Income 1/24/89 25.86% 22.82% 14.22% 10.47% 19.76% 21.60% 13.73% 10.39%
High Income 1/24/89 9.90% 13.32% 9.83% 8.73% 3.80% 11.89% 9.27% 8.65%
Income Securities 1/24/89 15.36% 15.10% 10.48% 10.73% 9.26% 13.72% 9.93% 10.65%
Money Market+ 1/24/89 3.69% 3.83% 2.96% 3.63% -2.41% 2.13% 2.24% 3.54%
Mutual Discovery
Securities 11/8/96 17.60% NA NA 17.01% 11.50% NA NA 12.47%
Mutual Shares
Securities 11/8/96 15.99% NA NA 17.09% 9.89% NA NA 12.56%
Natural Resources
Securities 1/24/89 -20.17% -6.22% 4.07% 1.54% -26.27% -8.30% 3.41% 1.46%
</TABLE>
Franklin Valuemark IV (cont.)
<TABLE>
<CAPTION>
Column I Column II
------------------------------ ------------------------------
Inception One Three Five Since One Three Five Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Securities 1/24/89 18.91% 21.68% 16.45% 12.18% 12.81% 20.43% 16.00% 12.10%
Rising Dividends 1/27/92 31.06% 27.02% 13.00% 12.37% 24.96% 25.88% 12.48% 12.03%
Small Cap 11/1/95 15.69% NA NA 20.29% 9.59% NA NA 18.25%
Templeton Developing
Markets Equity 3/15/94 -10.07% 2.94% NA 0.79% -16.17% 1.21% NA -0.42%
Templeton Global
Asset Allocation 5/1/95 10.06% NA NA 12.67% 3.96% NA NA 10.98%
Templeton Global
Growth 3/15/94 11.82% 14.06% NA 11.50% 5.72% 12.64% NA 10.57%
Templeton Global
Income Securities 1/24/89 0.96% 7.20% 5.80% 5.99% -5.14% 5.61% 5.16% 5.91%
Templeton
International Equity 1/27/92 10.04% 13.25% 12.83% 10.02% 3.94% 11.82% 12.33% 9.66%
Templeton International
Smaller Companies 5/1/96 -2.96% NA NA 4.77% -9.06% NA NA 1.67%
Templeton Pacific
Growth 1/27/92 -36.90% -9.77% -0.77% -1.07% -43.00% -12.00% -1.57% -1.62%
U.S. Government
Securities 3/14/89 7.69% 8.96% 5.63% 6.77% 1.59% 7.42% 4.98% 6.69%
Zero Coupon - 2000+ 3/14/89 5.52% 8.17% 5.88% 7.79% -0.58% 6.61% 5.25% 7.71%
Zero Coupon - 2005+ 3/14/89 9.72% 11.76% 8.42% 9.57% 3.62% 10.30% 7.83% 9.49%
Zero Coupon - 2010+ 3/14/89 14.85% 15.70% 10.92% 10.73% 8.75% 14.33% 10.38% 10.66%
<FN>
The Global Health Care Securities and the Value Securities Sub-Accounts commenced operations on May 1, 1998.
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
+Calculated with waiver of fees.
</FN>
</TABLE>
Federal Tax Status
- --------------------------------------------------------------------------------
Note: The following description is based upon the Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance Company cannot predict the probability that any changes
in such laws will be made. Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes. The Insurance Company does not
guarantee the tax status of the Contracts. Purchasers bear the complete risk
that the Contracts may not be treated as "annuity contracts" under federal
income tax laws. It should be further understood that the following discussion
is not exhaustive and that special rules not described herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios of Franklin Valuemark Funds
underlying the Contracts will be managed by the managers for Franklin Valuemark
Funds in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. Contract Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year
period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includable 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. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his Beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Surrenders - Qualified Contracts.")
Qualified Plans
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Insurance Company's administrative procedures. Contract
Owners, participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain 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 includable in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of 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.
Roth IRAs
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to a maximum
of $2,000 per year. Lower maximum limitations apply to individuals with adjusted
gross incomes between $95,000 and $110,000 in the case of single taxpayers,
between $150,000 and $160,000 in the case of married taxpayers filing joint
returns, and between $0 and $10,000 in the case of married taxpayers filing
separately. An overall $2,000 annual limitation continues to apply to all of a
taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year period beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA 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 or her designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he or she 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; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception no longer applies after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (h) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72(t)(7) of the Code) of the Owner or
Annuitant (as applicable) for the taxable year; and (i) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 701/2, or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities - 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.
Annuity Provisions
- --------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the Annuitant and any
joint Annuitant and the sex of the Annuitant and joint Annuitant where allowed.
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Portfolio(s).
Annuity Unit Value
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
Mortality and Expense Risk Guarantee
- -------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- -------------------------------------------------------------------------------
The audited consolidated financial statements of the Insurance Company as of and
for the year ended December 31, 1997, included herein should be considered only
as bearing upon the ability of the Insurance Company to meet its obligations
under the Contracts. The audited financial statements of the Separate Account as
of and for the year ended December 31, 1997 are also included herein.
ALLIANZ LIFE VARIABLE ACCOUNT B
OF
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
December 31, 1997
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Independent Auditors'Report
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account B as of December 31, 1997, 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, 1997, 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 30, 1998
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
Statements of Assets and Liabilities
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund, 7,534 shares, cost $90,511 $101,106 - - - - -
Growth and Income Fund, 57,806 shares, cost $857,189 - 1,214,494 - - - -
High Income Fund, 31,088 shares, cost $413,883 - - 449,526 - - -
Income Securities Fund, 71,085 shares, cost $1,074,128 - - - 1,305,822 - -
Money Market Fund, 336,851 shares, cost $336,851 - - - - 336,851 -
Mutual Discovery Securities Fund, 15,387 shares,
cost $171,528 - - - - - 187,264
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 101,106 1,214,494 449,526 1,305,822 336,851 187,264
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 27 87 19 95 41 22
Accrued mortality and expense risk charges -
Valuemark IV 7 9 8 9 8 10
Accrued administrative charges - Valuemark II & III 3 10 2 11 4 3
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 38 107 30 116 54 36
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $101,068 1,214,387 449,496 1,305,706 336,797 187,228
===========================================================================================================================
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III
(notes 5 and 6) $74,473 1,152,961 402,167 1,248,520 290,904 119,104
Contracts in accumulation period - Valuemark IV
(notes 5 and 6) 25,654 57,877 46,545 52,069 44,200 65,375
Contracts in annuity payment period (note 2) 941 3,549 784 5,117 1,693 2,749
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $101,068 1,214,387 449,496 1,305,706 336,797 187,228
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Shares Securities Fund, 29,971 shares,
cost $332,618 $365,047 - - - - -
Natural Resources Securities Fund, 6,091 shares,
cost $86,957 - 69,494 - - - -
Real Estate Securities Fund, 16,146 shares,
cost $285,681 - - 413,338 - - -
Rising Dividends Fund, 36,047 shares, cost $433,623 - - - 709,415 - -
Small Cap Fund, 19,870 shares, cost $260,474 - - - - 299,049 -
Templeton Developing Markets Equity Fund, 25,956 shares,
cost $285,808 - - - - - 267,090
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 365,047 69,494 413,338 709,415 299,049 267,090
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 34 8 32 55 38 38
Accrued mortality and expense risk charges -
Valuemark IV 15 6 7 8 8 7
Accrued administrative charges - Valuemark II & III 3 0 4 7 5 4
Accrued administrative charges - Valuemark IV 2 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 54 15 44 71 52 50
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $364,993 69,479 413,294 709,344 298,997 267,040
===========================================================================================================================
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III
(notes 5 and 6) $224,796 65,992 378,751 667,473 253,045 237,895
Contracts in accumulation period - Valuemark IV
(notes 5 and 6) 136,521 3,482 34,023 39,752 44,268 27,448
Contracts in annuity payment period (note 2) 3,676 5 520 2,119 1,684 1,697
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $364,993 69,479 413,294 709,344 298,997 267,040
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
6,359 shares, cost $76,064 $87,244 - - - - -
Templeton Global Growth Fund,
46,780 shares, cost $563,961 - 717,610 - - - -
Templeton Global Income Securities Fund,
12,852 shares, cost $163,473 - - 166,686 - - -
Templeton International Equity Fund, 67,492 shares,
cost $903,141 - - - 1,087,967 - -
Templeton International Smaller Companies Fund,
2,751 shares, cost $30,874 - - - - 30,317 -
Templeton Pacific Growth Fund,
16,525 shares, cost $222,301 - - - - - 153,352
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 87,244 717,610 166,686 1,087,967 30,317 153,352
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 21 76 10 107 6 16
Accrued mortality and expense risk charges -
Valuemark IV 6 11 5 9 6 5
Accrued administrative charges - Valuemark II & III 2 9 1 12 1 2
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 30 97 17 129 14 24
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $87,214 717,513 166,669 1,087,838 30,303 153,328
===========================================================================================================================
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III
(notes 5 and 6) $72,082 628,785 159,973 1,030,420 21,626 149,327
Contracts in accumulation period - Valuemark IV
(notes 5 and 6) 13,864 83,558 6,620 55,008 8,557 3,566
Contracts in annuity payment period (note 2) 1,268 5,170 76 2,410 120 435
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $87,214 717,513 166,669 1,087,838 30,303 153,328
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
U.S. Government Securities Fund,
48,640 shares, cost $636,393 $677,068 - - - -
Utility Equity Fund, 50,793 shares, cost $807,547 - 1,032,620 - - -
Zero Coupon Fund - 2000, 5,951 shares, cost $83,601 - - 90,103 - -
Zero Coupon Fund - 2005, 4,057 shares, cost $60,336 - - - 69,173 -
Zero Coupon Fund - 2010, 4,369 shares, cost $67,935 - - - - 77,903
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 677,068 1,032,620 90,103 69,173 77,903 9,908,539
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 28 61 8 6 6 841
Accrued mortality and expense risk charges -
Valuemark IV 7 5 5 5 4 170
Accrued administrative charges - Valuemark II & III 2 7 1 3 3 99
Accrued administrative charges - Valuemark IV 1 1 1 1 1 24
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 38 74 15 15 14 1,134
- ---------------------------------------------------------------------------------------------------------------------------
Net assets $677,030 1,032,546 90,088 69,158 77,889 9,907,405
===========================================================================================================================
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (notes 5 and 6) $652,317 1,022,994 88,260 65,573 74,199 9,081,637
Contracts in accumulation period -
Valuemark IV (notes 5 and 6) 24,222 7,959 1,801 3,585 3,676 789,630
Contracts in annuity payment period (note 2) 491 1,593 27 - 14 36,138
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $677,030 1,032,546 90,088 69,158 77,889 9,907,405
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations
For the year ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Mutual
Capital Growth and High Income Money Discovery
Growth Income Income Securities Market Securities
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 102 35,369 33,513 92,343 19,012 47
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III 766 13,417 4,931 15,492 4,368 1,031
Mortality and expense risk charges - Valuemark IV 124 301 255 277 287 371
Administrative charges - Valuemark II & III 92 1,610 592 1,859 524 124
Administrative charges - Valuemark IV 14 34 28 31 32 41
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 996 15,362 5,806 17,659 5,211 1,567
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (894) 20,007 27,707 74,684 13,801 (1,520)
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds - 34,302 1,099 19,836 - -
Realized gains (losses) on sales of investments, net 2,092 23,907 9,848 24,687 - 591
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 2,092 58,209 10,947 44,523 - 591
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments 8,783 173,409 389 62,214 - 15,535
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 10,875 231,618 11,336 106,737 - 16,126
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $ 9,981 251,625 39,043 181,421 13,801 14,606
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Mutual Natural Templeton
Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 83 1,320 10,278 9,066 554 3,810
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III 1,851 1,062 4,382 7,730 2,809 3,909
Mortality and expense risk charges - Valuemark IV 705 19 189 188 237 158
Administrative charges - Valuemark II & III 222 127 526 928 337 469
Administrative charges - Valuemark IV 79 2 21 21 26 18
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 2,857 1,210 5,118 8,867 3,409 4,554
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net (2,774) 110 5,160 199 (2,855) (744)
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds - - 4,908 15,481 6,560 6,044
Realized gains (losses) on sales of investments, net 65 (3,931) 11,421 28,364 9,696 5,228
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on
investments, net 65 (3,931) 16,329 43,845 16,256 11,272
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 31,825 (14,906) 42,697 123,868 21,914 (46,160)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 31,890 (18,837) 59,026 167,713 38,170 (34,888)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $29,116 (18,727) 64,186 167,912 35,315 (35,632)
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $1,445 10,484 13,072 30,398 147 5,370
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges -
Valuemark II & III 871 7,923 2,231 13,873 281 3,217
Mortality and expense risk charges - Valuemark IV 81 454 41 335 51 22
Administrative charges - Valuemark II & III 105 951 268 1,665 34 386
Administrative charges - Valuemark IV 9 51 5 38 6 2
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,066 9,379 2,545 15,911 372 3,627
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 379 1,105 10,527 14,487 (225) 1,743
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds 417 3,495 - 46,610 - -
Realized gains (losses) on sales of investments, net 692 5,282 1,131 44,819 545 (6,660)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 1,109 8,777 1,131 91,429 545 (6,660)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 4,962 58,155 (10,041) 1,618 (1,688) (91,510)
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net 6,071 66,932 (8,910) 93,047 (1,143) (98,170)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $6,450 68,037 1,617 107,534 (1,368) (96,427)
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
U.S. Government Utility Zero Zero Zero Total
Securities Equity Coupon Coupon Coupon All
Fund Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $37,725 49,569 6,559 4,439 4,451 369,156
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges -
Valuemark II & III 8,500 12,391 1,195 852 879 113,961
Mortality and expense risk charges -
Valuemark IV 140 36 14 22 19 4,326
Administrative charges - Valuemark II & III 1,020 1,487 143 102 105 13,676
Administrative charges - Valuemark IV 16 4 2 2 2 484
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 9,676 13,918 1,354 978 1,005 132,447
- ---------------------------------------------------------------------------------------------------------------------------
Investment income (loss), net 28,049 35,651 5,205 3,461 3,446 236,709
Realized gains (losses) and unrealized appreciation
(depreciation) on investments:
Realized capital gain distributions on mutual funds - 68,585 148 15 36 207,536
Realized gains (losses) on sales of
investments, net 5,606 38,034 1,529 1,495 1,539 205,980
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 5,606 106,619 1,677 1,510 1,575 413,516
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 17,549 76,100 (1,692) 1,476 5,123 479,620
- ---------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and
unrealized appreciation (depreciation)
on investments, net 23,155 182,719 (15) 2,986 6,698 893,136
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations $51,204 218,370 5,190 6,447 10,144 1,129,845
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Adjustable U.S.
Government Fund Capital Growth Fund Growth and Income Fund High Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ - 10,420 (894) (187) 20,007 7,630 27,707 23,047
Realized gains (losses)
on investments, net - (5,967) 2,092 24 58,209 86,540 10,947 9,464
Net change in unrealized
appreciation (depreciation)
on investments - 1,206 8,783 1,811 173,409 13,214 389 8,973
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations - 5,659 9,981 1,648 251,625 107,384 39,043 41,484
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark II & III (note 5):
Purchase payments - 26,642 11,652 13,726 50,544 134,960 22,772 51,687
Transfers between funds - (185,683) 18,490 28,227 23,747 35,764 310 30,106
Surrenders and terminations - (20,600) (5,581) (1,326) (141,024) (111,266) (59,371) (43,860)
Rescissions - (559) (159) (185) (922) (2,911) (602) (691)
Other transactions (note 2) - 34 (89) 20 241 447 246 73
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark II & III - (180,166) 24,313 40,462 (67,414) 56,994 (36,645) 37,315
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark IV (note 5):
Purchase payments - - 23,159 - 49,951 - 42,607 -
Transfers between funds - - 2,395 - 4,608 - 3,456 -
Surrenders and terminations - - (174) - (685) - (521) -
Rescissions - - (754) - (859) - (844) -
Other transactions (note 2) - - 38 - 51 - 21 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV - - 24,664 - 53,066 - 44,719 -
Increase (decrease) in net assets - (174,507) 58,958 42,110 237,277 164,378 47,117 78,799
Net assets at beginning of year - 174,507 42,110 - 977,110 812,732 402,379 323,580
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ - - 101,068 42,110 1,214,387 977,110 449,496 402,379
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Investment Grade Mutual Discovery
Income Securities Fund Intermediate Bond Fund Money Market Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 74,684 44,974 - 6,095 13,801 14,651 (1,520) (18)
Realized gains (losses)
on investments, net 44,523 22,468 - 5,263 - - 591 -
Net change in unrealized
appreciation (depreciation)
on investments 62,214 45,516 - (8,886) - - 15,535 200
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 181,421 112,958 - 2,472 13,801 14,651 14,606 182
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 50,873 152,823 - 11,116 70,286 175,341 28,591 3,317
Transfers between funds (56,241) (37,286) - (149,196) (3,675) (91,126) 74,361 12,081
Surrenders and terminations (169,518) (149,073) - (14,036) (161,311) (120,353) (7,182) (506)
Rescissions (1,451) (3,237) - (275) (2,246) (2,971) (510) -
Other transactions (note 2) 446 516 - 37 894 152 17 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (175,891) (36,257) - (152,354) (96,052) (38,957) 95,277 14,892
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark IV (note 5):
Purchase payments 46,661 - - - 93,106 - 57,513 -
Transfers between funds 3,254 - - - (46,177) - 6,028 -
Surrenders and terminations (443) - - - (3,086) - (520) -
Rescissions (1,143) - - - (918) - (763) -
Other transactions (note 2) 3 - - - 494 - 13 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV 48,332 - - - 43,419 - 62,271 -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 53,862 76,701 - (149,882) (38,832) (24,306) 172,154 15,074
Net assets at beginning of year 1,251,844 1,175,143 - 149,882 375,629 399,935 15,074 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $1,305,706 1,251,844 - - 336,797 375,629 187,228 15,074
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Mutual Shares Natural Resources Real Estate
Securities Fund Securities Fund Securities Fund Rising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($2,774) (34) 110 (162) 5,160 5,882 199 2,950
Realized gains (losses)
on investments, net 65 - (3,931) 5,476 16,329 2,738 43,845 9,161
Net change in unrealized
appreciation (depreciation)
on investments 31,825 604 (14,906) (5,135) 42,697 58,128 123,868 84,727
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 29,116 570 (18,727) 179 64,186 66,748 167,912 96,838
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 55,149 8,157 3,818 20,879 25,139 30,999 23,594 51,514
Transfers between funds 136,704 18,952 (11,395) (5,980) 28,062 27,778 20,217 24,084
Surrenders and terminations (12,002) (537) (9,401) (11,177) (36,947) (22,133) (84,492)(49,247)
Rescissions (558) - (67) (321) (342) (204) (422) (1,165)
Other transactions (note 2) 11 (1) 26 38 89 13 537 111
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III 179,304 26,571 (17,019) 3,439 16,001 36,453 (40,566) 25,297
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark IV (note 5):
Purchase payments 113,173 - 3,783 - 29,207 - 32,143 -
Transfers between funds 18,844 - 290 - 2,787 - 5,752 -
Surrenders and terminations (1,198) - (6) - (354) - (409) -
Rescissions (1,424) - (94) - (517) - (624) -
Other transactions (note 2) 37 - 4 - 10 - 9 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV 129,432 - 3,977 - 31,133 - 36,871 -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 337,852 27,141 (31,769) 3,618 111,320 103,201 164,217 122,135
Net assets at beginning of year 27,141 - 101,248 97,630 301,974 198,773 545,127 422,992
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $364,993 27,141 69,479 101,248 413,294 301,974 709,344 545,127
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net... ($2,855) (1,323) (744) (1,013) 379 (431) 1,105 843
Realized gains (losses)
on investments, net.............. 16,256 806 11,272 5,139 1,109 168 8,777 8,526
Net change in unrealized
appreciation (depreciation)
on investments.................... 21,914 16,477 (46,160) 30,681 4,962 5,895 58,155 68,710
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations........ 35,315 15,960 (35,632) 34,807 6,450 5,632 68,037 78,079
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark II & III (note 5):
Purchase payments............... 29,239 51,827 29,184 54,987 11,196 19,536 58,703 139,155
Transfers between funds......... 50,164 93,997 5,324 36,529 9,847 14,964 4,664 46,194
Surrenders and terminations..... (23,270) (9,173) (24,867) (16,917) (6,290)(2,138) (46,883)(33,945)
Rescissions..................... (651) (459) (281) (568) (71) (139) (1,055) (1,728)
Other transactions (note 2)..... 71 166 2 27 186 28 54 27
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III................ 55,553 136,358 9,362 74,058 14,868 32,251 15,483 149,703
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark IV (note 5):
Purchase payments............... 40,513 - 32,069 - 13,018 - 79,798 -
Transfers between funds......... 2,867 - 2,442 - 1,126 - 5,848 -
Surrenders and terminations..... (266) - (253) - (107) - (652) -
Rescissions..................... (589) - (302) - (260) - (1,079) -
Other transactions (note 2)..... 26 - 8 - 2 - 12 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV....... 42,551 - 33,964 - 13,779 - 83,927 -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets.. 133,419 152,318 7,694 108,865 35,097 37,883 167,447 227,782
Net assets at beginning of year.... 165,578 13,260 259,346 150,481 52,117 14,234 550,066 322,284
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year.......... $298,997 165,578 267,040 259,346 87,214 52,117 717,513 550,066
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Templeton Global Templeton International Templeton International Templeton
Income Securities Fund Equity Fund Smaller Companies Fund Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net... $10,527 12,436 14,487 10,789 (225) (95) 1,743 5,289
Realized gains (losses)
on investments, net.............. 1,131 1,570 91,429 36,562 545 60 (6,660) 16,017
Net change in unrealized
appreciation (depreciation)
on investments................... (10,041) 1,397 1,618 129,022 (1,688) 1,131 (91,510) 8,976
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations...... 1,617 15,403 107,534 176,373 (1,368) 1,096 (96,427) 30,282
Contract transactions -
Valuemark II & III (note 5):
Purchase payments............... 5,204 11,615 48,236 106,669 5,943 5,995 7,156 32,634
Transfers between funds......... (17,682) (19,697) (33,305) 50,892 2,953 9,255 (55,954) (1,902)
Surrenders and terminations..... (27,867) (28,371) (126,296) (90,832) (1,856) (763) (36,981)(37,424)
Rescissions..................... (283) (174) (1,041) (1,605) (91) (46) (144) (382)
Other transactions (note 2)..... 193 49 282 416 32 (10) 398 108
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III................ (40,435) (36,578) (112,124) 65,540 6,981 14,431 (85,525) (6,966)
Contract transactions -
Valuemark IV (note 5):
Purchase payments............... 6,478 - 53,802 - 8,807 - 4,649 -
Transfers between funds......... 316 - 2,916 - 531 - 622 -
Surrenders and terminations..... (83) - (259) - (128) - (98) -
Rescissions..................... (207) - (629) - (50) - (52) -
Other transactions (note 2)..... 15 - 15 - 3 - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV...... 6,519 - 55,845 - 9,163 - 5,121 -
Increase (decrease) in net assets.. (32,299) (21,175) 51,255 241,913 14,776 15,527 (176,831) 23,316
Net assets at beginning of year.... 198,968 220,143 1,036,583 794,670 15,527 - 330,159 306,843
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year.......... $166,669 198,968 1,087,838 1,036,583 30,303 15,527 153,328 330,159
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 28,049 28,207 35,651 43,207 5,205 4,403 3,461 2,728
Realized gains (losses) on
investments, net 5,606 3,616 106,619 33,442 1,677 1,564 1,510 807
Net change in unrealized
appreciation (depreciation)
on investments 17,549 (18,709) 76,100 (17,145) (1,692) (4,982) 1,476 (4,814)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 51,204 13,114 218,370 59,504 5,190 985 6,447 (1,279)
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 23,060 42,193 14,377 56,194 1,290 12,076 1,695 10,095
Transfers between funds (47,874) 211,454 (131,387) (148,616) (6,415) (5,558) (6,814) (2,776)
Surrenders and terminations (115,692) (82,684) (173,138) (174,285) (15,927) (14,126) (8,976) (5,726)
Rescissions (756) (717) (730) (734) (43) (214) (1) (158)
Other transactions (note 2) 775 379 246 315 134 (3) 7 (14)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (140,487) 170,625 (290,632) (267,126) (20,961) (7,825) (14,089) 1,421
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions -
Valuemark IV (note 5):
Purchase payments 22,408 - 5,818 - 1,862 - 3,410 -
Transfers between funds 1,524 - 1,246 - (121) - 34 -
Surrenders and terminations (132) - (70) - (7) - (10) -
Rescissions (527) - (60) - - - (68) -
Other transactions (note 2) 67 - 1 - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from contract
transactions - Valuemark IV 23,340 - 6,935 - 1,734 - 3,366 -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (65,943) 183,739 (65,327) (207,622) (14,037) (6,840) (4,276) 142
Net assets at beginning of year 742,973 559,234 1,097,873 1,305,495 104,125 110,965 73,434 73,292
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $677,030 742,973 1,032,546 1,097,873 90,088 104,125 69,158 73,434
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $3,446 2,690 236,709 222,978
Realized gains (losses) on investments, net 1,575 3,429 413,516 246,873
Net change in unrealized appreciation
(depreciation) on investments 5,123 (9,041) 479,620 407,956
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 10,144 (2,922) 1,129,845 877,807
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark II & III (note 5):
Purchase payments 3,822 12,642 581,523 1,236,779
Transfers between funds (2,318) (8,596) 1,783 (16,139)
Surrenders and terminations (8,063) (7,034) (1,302,935) (1,047,532)
Rescissions (17) (244) (12,443) (19,687)
Other transactions (note 2) (11) (13) 4,787 2,915
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from contract transactions - Valuemark II & III (6,587) (3,245) (727,285) 156,336
- ---------------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 5):
Purchase payments 3,098 - 767,033 -
Transfers between funds 282 - 20,870 -
Surrenders and terminations (11) - (9,472) -
Rescissions (6) - (11,769) -
Other transactions (note 2) - - 829 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from contract transactions - Valuemark IV 3,363 - 767,491 -
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 6,920 (6,167) 1,170,051 1,034,143
Net assets at beginning of year 70,969 77,136 8,737,354 7,703,211
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $77,889 70,969 9,907,405 8,737,354
===========================================================================================================================
<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, 1997
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. and its Templeton and Franklin affiliates, 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. Gains on the sale of fund shares are 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.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general assets of Allianz Life. The
liabilities of the Fixed Accounts are part of the general obligations of Allianz
Life and are not included in the Variable Account. The guaranteed minimum rate
of return of the Fixed Accounts is 3%.
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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Investments (cont.)
On May 1, 1996, the Global Income Fund name was changed to Templeton Global
Income Securities Fund. The Precious Metals Fund name was changed to Natural
Resources Securities Fund on May 1, 1997.
Contracts in Annuity Payment Period
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3% or 5%. Charges to
annuity reserves for mortality and risk expense are reimbursed to Allianz Life
if the reserves required are less than originally estimated. If additional
reserves are required, Allianz Life reimburses the account.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and Valuemark III and 1.34% of the daily net assets of
Valuemark IV.
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 all products
which comprise 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, 1997 and 1996 were $4,561,683 and $4,491,487,
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 Valuemark II
and Valuemark III contracts and within seven years of the date of surrender for
Valuemark IV contracts. 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:
Years Since Contingent Deferred Sales Charge
- --------------------------------------------------------------------------------
Payment Valuemark II Valuemark III Valuemark IV
- --------------------------------------------------------------------------------
0-1 5% 6% 6%
1-2 5% 5% 6%
2-3 4% 4% 6%
3-4 3% 3% 5%
4-5 1.5% 1.5% 4%
5-6 0% 0% 3%
6-7 0% 0% 2%
7+ 0% 0% 0%
and (c) adding the products of each multiplication in (b) above.
A Valuemark II or Valuemark III 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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses (cont.)
A Valuemark IV deferred annuity contract owner may make multiple surrenders,
each year after the first contract year, up to fifteen percent (15%) of the
contract value 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, 1997 and 1996 were $8,999,290
and $10,529,337, 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, 1997 and 1996 were $126,072 and $93,255, respectively. Transfer charges are
reflected in the Statements of Changes in Net Assets as other transactions. Net
transfers from the Fixed Accounts for the year ended December 31, 1997 were
$22,652,962. Net transfers to the Fixed Accounts were $16,138,672 during the
year ended December 31, 1996.
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 Valuemark II and Valuemark III deferred annuity contracts, a systematic
withdrawal plan is available which allows an owner to withdraw up to nine
percent (9%) of purchase payments less prior surrenders annually, paid monthly
or quarterly, without incurring a contingent deferred sales charge. The
systematic withdrawal plan available to Valuemark IV deferred annuity contract
owners allows up to fifteen percent (15%) of the contract value withdrawn
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 for all deferred
annuity contracts.
A rescission is defined as a contract that is returned to the Company by the
Contract Owner and canceled within the free-look period, generally within 10
days.
3. CAPITALIZATION
Allianz Life provides capital for the establishment of new funds as investment
options of the Variable Account. There were no capitalization transactions
during the year ended December 31, 1997. The capitalization transactions were as
follows during the year ended December 31, 1996:
<TABLE>
<CAPTION>
Capitalization Date of Market Value Date of
Fund Amount Capitalization at Withdrawal Withdrawal
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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. 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 (continued)
December 31, 1997
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Adjustable Growth Investment Mutual Mutual
U.S Capital and High Income Grade Money Discovery Shares
Government Growth Income Income Securities Intermediate Market Securities Securities
Fund Fund Fund Fund Fund Bond Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding
at December 31, 1995 14,600 - 46,893 18,756 59,309 9,692 31,040 - -
Contract transactions:
Purchase payments 2,202 1,261 7,454 2,862 7,457 719 13,261 327 797
Transfers between funds (15,066) 2,597 1,961 1,598 (1,819) (9,490) (6,879) 1,194 1,869
Surrenders and terminations (1,693) (121) (6,143) (2,446) (7,308) (905) (9,147) (50) (53)
Rescissions (46) (17) (163) (38) (159) (18) (226) - -
Other transactions 3 2 25 4 24 2 11 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions (14,600) 3,722 3,134 1,980 (1,805) (9,692) (2,980) 1,471 2,613
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 - 3,722 50,027 20,736 57,504 - 28,060 1,471 2,613
===========================================================================================================================
Contract transactions:
Purchase payments - 948 2,362 1,153 2,205 - 5,065 2,480 4,911
Transfers between funds - 1,469 1,043 (57) (2,484) - (219) 6,648 12,308
Surrenders and terminations - (445) (6,436) (2,943) (7,368) - (11,824) (613) (1,037)
Rescissions - (14) (44) (30) (65) - (166) (47) (52)
Other transactions - (7) 10 12 19 - 66 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - 1,951 (3,065) (1,865) (7,693) - (7,078) 8,469 16,131
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 - 5,673 46,962 18,871 49,811 - 20,982 9,940 18,744
===========================================================================================================================
Valuemark IV
Accumulation units outstanding
at December 31, 1996 - - - - - - - - -
Contract transactions:
Purchase payments - 1,839 2,241 2,100 2,022 - 6,870 5,050 9,998
Transfers between funds - 188 200 168 140 - (3,400) 518 1,620
Surrenders and terminations - (13) (29) (25) (19) - (225) (43) (101)
Rescissions - (60) (38) (42) (49) - (67) (65) (126)
Other transactions - 3 2 1 - - 36 1 3
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions - 1,957 2,376 2,202 2,094 - 3,214 5,461 11,394
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 - 1,957 2,376 2,202 2,094 - 3,214 5,461 11,394
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Natural Templeton Templeton Templeton Templeton Templeton
Resource Real Estate Rising Small Developing Global Asset Global Global Income International
Securities Securities Dividends Cap Markets Allocation Growth Securities Equity
Fund Fund Fund Fund Equity Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding
at December 31, 1995 6,919 10,998 33,789 1,302 15,618 1,338 28,309 14,181 59,883
Contract transactions:
Purchase payments 1,298 1,562 3,849 4,358 5,057 1,657 11,183 740 7,288
Transfers between funds (484) 1,332 1,653 7,933 3,367 1,303 3,694 (1,254) 3,483
Surrenders and terminations (717) (1,125) (3,644) (786) (1,569) (184) (2,720) (1,802) (6,198)
Rescissions (20) (11) (87) (38) (53) (12) (141) (11) (110)
Other transactions 2 1 9 15 3 2 2 3 29
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 79 1,759 1,780 11,482 6,805 2,766 12,018 (2,324) 4,492
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 6,998 12,757 35,569 12,784 22,423 4,104 40,327 11,857 64,375
===========================================================================================================================
Contract transactions:
Purchase payments 276 1,023 1,368 2,180 2,264 819 3,970 314 2,786
Transfers between funds (861) 1,129 1,034 3,656 330 755 334 (1,058) (1,782)
Surrenders and terminations (701) (1,453) (4,724) (1,652) (1,990) (456) (3,127) (1,673) (7,156)
Rescissions (5) (14) (26) (49) (22) (6) (74) (17) (59)
Other transactions 2 3 28 6 - 13 3 11 15
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract
transactions (1,289) 688 (2,320) 4,141 582 1,125 1,106 (2,423) (6,196)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 5,709 13,445 33,249 16,925 23,005 5,229 41,433 9,434 58,179
===========================================================================================================================
Valuemark IV
Accumulation units outstanding
at December 31, 1996 - - - - - - - - -
Contract transactions:
Purchase payments 288 1,144 1,745 2,823 2,516 952 5,261 391 3,008
Transfers between funds 23 106 299 198 190 82 375 19 162
Surrenders and terminations - (13) (21) (18) (21) (8) (42) (5) (14)
Rescissions (7) (20) (33) (40) (23) (18) (70) (13) (35)
Other transactions - - 1 2 1 - 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 304 1,217 1,991 2,965 2,663 1,008 5,525 393 3,122
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 304 1,217 1,991 2,965 2,663 1,008 5,525 393 3,122
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
<TABLE>
<CAPTION>
Templeton
International Templeton U.S. Zero Zero Zero
Smaller Pacific Government Utility Coupon Coupon Coupon Total
Companies Growth Securities Equity Fund- Fund- Fund All
Fund Fund Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding
at December 31, 1995 - 22,483 34,313 66,669 6,066 3,504 3,437 489,099
Contract transactions:
Purchase payments 568 2,196 2,609 2,847 672 513 618 83,355
Transfers between funds 897 (62) 12,819 (7,585) (308) (139) (403) 2,211
Surrenders and terminations (72) (2,537) (5,122) (8,824) (782) (290) (342) (64,580)
Rescissions (4) (26) (44) (37) (12) (8) (12) (1,293)
Other transactions (1) 7 23 16 - (1) (1) 180
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 1,388 (422) 10,285 (13,583) (430) 75 (140) 19,873
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1996 1,388 22,061 44,598 53,086 5,636 3,579 3,297 508,972
===========================================================================================================================
Contract transactions:
Purchase payments 517 501 1,363 663 69 83 177 37,497
Transfers between funds 258 (4,037) (2,875) (6,159) (341) (328) (113) 8,650
Surrenders and terminations (160) (2,707) (6,740) (7,944) (846) (424) (362) (72,781)
Rescissions (8) (10) (44) (34) (2) - (1) (789)
Other transactions 3 25 45 11 7 - - 274
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 610 (6,228) (8,251) (13,463) (1,113) (669) (299) (27,149)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 1,998 15,833 36,347 39,623 4,523 2,910 2,998 481,823
===========================================================================================================================
Valuemark IV
Accumulation units outstanding
at December 31, 1996 - - - - - - - -
Contract transactions:
Purchase payments 761 346 1,310 263 100 162 138 51,328
Transfers between funds 46 47 84 53 (6) 2 12 1,126
Surrenders and terminations (11) (10) (8) (3) - - - (629)
Rescissions (4) (4) (31) (3) - (3) - (751)
Other transactions - - 4 - - - - 57
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
accumulation units resulting
from contract transactions 792 379 1,359 310 94 161 150 51,131
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding
at December 31, 1997 792 379 1,359 310 94 161 150 51,131
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
6. 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 year of the five-year period ended December 31, 1997
follows:
<TABLE>
<CAPTION>
Valuemark II & III Valuemark IV
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation Net Assets to Average Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable U.S. Government Fund
December 31,
19961 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 - - - -
Capital Growth Fund
December 31,
1997 5,673 13.130 74,473 2.17 1,957 13.110 25,654 2.26
19962 3,722 11.254 42,110 2.17+ - - - -
Growth and Income Fund
December 31,
1997 46,962 24.551 1,152,961 1.89 2,376 24.354 57,877 1.98
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 - - - -
High Income Fund
December 31,
1997 18,871 21.312 402,167 1.93 2,202 21.141 46,545 2.02
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 - - - -
Income Securities Fund
December 31,
1997 49,811 25.065 1,248,520 1.90 2,094 24.864 52,069 1.99
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 - - - -
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
6. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II & III Valuemark IV
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation Net Assets to Average Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Grade Intermediate Bond Fund
December 31,
19961 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 - - - -
Money Market Fund
December 31,
1997 20,982 13.865 290,904 1.85 3,214 13.756 44,200 1.94
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 - - - -
Mutual Discovery Securities Fund
December 31,
1997 9,940 11.983 119,104 2.46 5,461 11.971 65,375 2.55
19963 1,471 10.180 15,074 2.77+ - - - -
Mutual Shares Securities Fund
December 31,
1997 18,744 11.993 224,796 2.20 11,394 11.981 136,521 2.29
19963 2,613 10.330 27,141 2.40+ - - - -
Natural Resources Securities Fund
December 31,
1997 5,709 11.559 65,992 2.09 304 11.466 3,482 2.18
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 - - - -
Real Estate Securities Fund
December 31,
1997 13,445 28.169 378,751 1.94 1,217 27.944 34,023 2.03
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 - - - -
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
6. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II & III Valuemark IV
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation Net Assets to Average Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rising Dividends Fund
December 31,
1997 33,249 $20.074 $667,473 2.14% 1,991 $19.968 $39,752 2.23%
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 - - - -
Small Cap Fund
December 31,
1997 16,925 14.952 253,045 2.17 2,965 14.923 44,268 2.26
1996 12,784 12.913 165,578 2.17 - - - -
19954 1,302 10.146 13,260 2.30+ - - - -
Templeton Developing Markets Equity Fund
December 31,
1997 23,005 10.340 237,895 2.82 2,663 10.305 27,448 2.91
1996 22,423 11.487 259,346 2.89 - - - -
1995 15,618 9.582 150,481 2.81 - - - -
19945 9,774 9.454 92,469 2.93+ - - - -
Templeton Global Asset Allocation Fund
December 31,
1997 5,229 13.786 72,082 2.34 1,008 13.752 13,864 2.43
1996 4,104 12.514 52,117 2.26 - - - -
19956 1,338 10.591 14,234 2.30+ - - - -
Templeton Global Growth Fund
December 31,
1997 41,433 15.176 628,785 2.28 5,525 15.124 83,558 2.37
1996 40,327 13.560 550,066 2.33 - - - -
1995 28,309 11.339 322,284 2.37 - - - -
19945 14,637 10.201 149,393 2.54+ - - - -
Templeton Global Income Securities Fund
December 31,
1997 9,434 16.957 159,973 2.02 393 16.821 6,620 2.11
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 - - - -
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
6. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II & III Valuemark IV
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation Net Assets to Average Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton International Equity Fund
December 31,
1997 58,179 $17.711 $1,030,420 2.29% 3,122 $17.617 $55,008 2.38%
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 - - - -
Templeton International Smaller Companies Fund
December 31,
1997 1,998 10.825 21,626 2.46 792 10.809 8,557 2.55
19962 1,388 11.145 15,527 2.18+ - - - -
Templeton Pacific Growth Fund
December 31,
1997 15,833 9.431 149,327 2.43 379 9.381 3,566 2.52
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 - - - -
U.S. Government Securities Fund
December 31,
1997 36,347 17.947 652,317 1.90 1,359 17.805 24,222 1.99
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 - - - -
Utility Equity Fund
December 31,
1997 39,623 25.818 1,022,994 1.90 310 25.635 7,959 1.99
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 - - - -
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (continued)
December 31, 1997
6. UNIT VALUES (cont.)
<TABLE>
<CAPTION>
Valuemark II & III Valuemark IV
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation Net Assets to Average Outstanding Accumulation Net Assets to Average
(in thousands) Unit Value (in thousands) Net Assets* (in thousands) Unit Value (in thousands) Net Assets*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zero Coupon Fund - 2000
December 31,
1997 4,523 $19.512 $ 88,260 1.80% 94 $19.358 $1,801 1.89%
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 - - - -
Zero Coupon Fund - 2005
December 31,
1997 2,910 22.532 65,573 1.80 161 22.357 3,585 1.89
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 - - - -
Zero Coupon Fund - 2010
December 31,
1997 2,998 24.740 74,199 1.80 150 24.544 3,676 1.89
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 - - - -
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1 Period from January 1, 1996 to October 25, 1996 (fund closure).
2 Period from May 1, 1996 (fund commencement) to December 31, 1996.
3 Period from November 8, 1996 (fund commencement) to December 31, 1996.
4 Period from November 1, 1995 (fund commencement) to December 31, 1995.
5 Period from March 15, 1994 (fund commencement) to December 31, 1994.
6 Period from May 1, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
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 and subsidiaries as of December 31, 1997 and
1996, 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,
1997. 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, 1997
and 1996, 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,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 4, 1998
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at market $ 2,705,210 2,768,306
Equity securities, at market 442,607 327,834
Mortgage loans on real estate 318,683 245,559
Certificates of deposit and short-term securities 117,124 204,972
Policy loans 5,695 103,708
Other invested assets 51,863 44,948
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 3,641,182 3,695,327
Cash 26,871 37,992
Accrued investment income 38,345 36,130
Receivables (net of allowance for uncollectible accounts of $3,122 in 1997 and $4,630 in 1996) 262,676 155,278
Reinsurance receivable:
Funds held on deposit 1,145,210 1,101,716
Recoverable on future policy benefit reserves 1,120,663 48,909
Recoverable on unpaid claims 219,443 142,199
Receivable on paid claims 31,158 18,240
Deferred acquisition costs 927,080 863,338
Other assets 34,475 26,052
Federal income tax recoverable 20,761 12,455
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 7,467,864 6,137,636
Separate account assets 10,756,929 9,520,561
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $18,224,793 15,658,197
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (Continued)
Consolidated Balance Sheets (cont.)
December 31, 1997 and 1996
(in thousands)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Future benefit reserves:
Life $ 1,297,269 1,204,633
Annuity 3,251,829 2,879,221
Policy and contract claims 553,113 438,824
Unearned premiums 50,168 32,176
Reinsurance payable 165,582 96,857
Deferred income on reinsurance 150,526 0
Deferred income taxes 228,861 150,760
Accrued expenses 93,341 84,254
Commissions due and accrued 39,517 37,103
Other policyholder funds 30,208 52,267
Other liabilities 389,858 147,364
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 6,250,272 5,123,459
Separate account liabilities 10,756,929 9,520,561
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 17,007,201 14,644,020
- ---------------------------------------------------------------------------------------------------------------------------
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 195,505 102,637
Net unrealized Canadian currency loss (4,448) (3,473)
Retained earnings 574,447 462,925
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,217,592 1,014,177
Commitments and contingencies (notes 6 and 11)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $18,224,793 15,658,197
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (Continued)
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 339,841 284,084 257,647
Other life policy considerations 83,816 85,747 93,158
Annuity considerations 219,262 170,656 147,112
Accident and health premiums 747,718 603,230 527,059
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 1,390,637 1,143,717 1,024,976
Premiums ceded 438,018 277,163 223,226
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 952,619 866,554 801,750
Investment income, net 162,350 222,622 201,158
Realized investment gains, net 61,488 28,561 29,202
Other 53,760 6,193 10,170
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 1,230,217 1,123,930 1,042,280
- ---------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Life insurance benefits 336,090 281,441 268,163
Annuity benefits 206,189 153,238 145,636
Accident and health insurance benefits 566,746 434,793 374,743
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 1,109,025 869,472 788,542
Benefit recoveries 426,607 249,552 210,702
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 682,418 619,920 577,840
Commissions and other agent compensation 310,665 267,714 233,939
General and administrative expenses 106,744 99,018 115,419
Taxes, licenses and fees 20,605 19,959 17,672
Increase in deferred acquisition costs, net (63,742) (36,344) (28,552)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,056,690 970,267 916,318
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 173,527 153,663 125,962
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense:
Current 31,571 21,936 12,993
Deferred 28,283 30,559 25,772
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 59,854 52,495 38,765
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 113,673 101,168 87,197
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (Continued)
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<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 25,000 40,000
Redemption of stock during the year 0 0 (15,000)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 25,000 25,000 25,000
- ---------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 407,088 407,088 406,494
Additional contribution from parent 0 0 594
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 407,088 407,088 407,088
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments:
Balance at beginning of year 102,637 139,204 (62,073)
Net unrealized gain on securities transferred from held-to-maturity
to available-for-sale classification, net of deferred federal income 0 0 1,789
Net unrealized gain (loss) during the year, net of deferred federal income taxes 92,868 (36,567) 199,488
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 195,505 102,637 139,204
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized Canadian currency loss:
Balance at beginning of year (3,473) (3,455) (3,787)
Net unrealized gain (loss) during the year, net of deferred federal income taxes (975) (18) 332
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (4,448) (3,473) (3,455)
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 462,925 363,357 278,811
Net income 113,673 101,168 87,197
Cash dividend to stockholder (2,151) (1,600) (2,651)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 574,447 462,925 363,357
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $1,217,592 1,014,177 951,194
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 113,673 101,168 87,197
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Realized investment gains, net (61,488) (28,561) (29,202)
Deferred federal income tax expense 28,283 30,559 25,772
Charges to policy account balances (859,852) (675,737) (632,962)
Interest credited to policy account balances 211,590 166,766 169,151
Change in:
Accrued investment income (2,215) 728 (2,072)
Receivables (107,398) (30,578) (13,300)
Reinsurance receivables (1,644,423) (119,384) (190,953)
Deferred acquisition costs (63,742) (36,344) (28,552)
Future benefit reserves 1,194,990 76,478 66,932
Policy and contract claims and other policyholder funds 92,230 37,055 25,116
Unearned premiums 17,992 (2,005) (6,195)
Reinsurance payable 68,725 24,019 (8,669)
Current tax recoverable (8,306) (8,508) (153)
Accrued expenses and other liabilities 12,113 15,506 17,365
Commissions due and accrued 2,414 14,124 (1,211)
Depreciation and amortization (13,312) (25,874) (23,391)
Other, net 18 (1,568) 916
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments (1,132,381) (563,324) (631,408)
Net cash provided by (used in) operating activities (1,018,708) (462,156) (544,211)
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities (1,018,708) (462,156) (544,211)
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities, at market $(1,748,950) (1,324,676)(1,533,290)
Purchase of equity securities (1,699,847) (137,304) (166,701)
Funding of mortgage loans (103,626) (70,265) (66,301)
Sale of fixed maturities, at market 1,921,534 1,043,748 1,242,988
Matured or redeemed fixed maturities, at amortized cost 0 0 7,022
Matured fixed maturities, at market 1,150 2,711 38,991
Sale of equity securities 1,691,789 122,788 97,619
Repayment of mortgage loans 29,520 23,317 25,563
Net change in certificates of deposit and short-term securities 87,848 (173,471) 123,806
Other 82,797 (20,566) (10,754)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 262,215 (533,718) (241,057)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
Policyholders' deposits to account balances $1,497,321 1,184,338 1,066,407
Policyholders' withdrawals from account balances (448,998) (368,490) (291,102)
Change in assets held under reinsurance agreements (540,268) 52,973 36,354
Funds borrowed on dollar reverse repurchase agreements, net 239,468 130,196 (58,150)
Net change in mortgage notes payable 0 0 (1,049)
Additional paid-in capital from parent 0 0 594
Preferred stock transactions 0 0 (15,000)
Cash dividends paid (2,151) (1,600) (2,651)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 745,372 997,417 735,403
- ---------------------------------------------------------------------------------------------------------------------------
Net change in cash (11,121) 1,543 (49,865)
Cash at beginning of year 37,992 36,449 86,314
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 26,871 37,992 36,449
===========================================================================================================================
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(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 1997 premiums and considerations,
33%, 20% and 47% 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 in which it holds
an ownership interest effective in 1998.
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.
Recognition of Nontraditional and Variable Life and Annuity Revenue
Nontraditional and variable life insurance and interest sensitive contracts that
have significant mortality or morbidity risk are accounted for in accordance
with the retrospective deposit method. Interest sensitive contracts that do not
have significant mortality or morbidity risk are accounted for in a manner
consistent with interest bearing financial instruments. For both types of
contracts, premium receipts are reported as deposits to the contractholder's
account while revenues consist of amounts assessed against contractholders
including surrender charges and earned administrative service fees. Mortality or
morbidity charges are also accounted for as revenue on those contracts
containing mortality or morbidity risk. Benefits consist of interest credited to
contractholder's accounts and claims or benefits incurred in excess of the
contractholder's balance.
Deferred Acquisition Costs
Acquisition costs, consisting of commissions and other costs which vary with and
are primarily related to production of new business, are deferred. For
traditional life and group life products, such costs are amortized over the
revenue-producing period of the related policies using the same actuarial
assumptions used in computing future policy benefit reserves. Acquisition costs
for accident and health insurance policies
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Deferred Acquisition Costs (cont.)
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 1997, 1996 and 1995 were $219,266, $137,618,
and $117,782, 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.
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.
Investments
The Company has classified all of its investment portfolio as
"available-for-sale". 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.
The Company analyzes loan impairment at least once a year when assessing the
adequacy of the allowance for possible credit losses. The Company does not
accrue interest on impaired loans and accounts for interest income on such loans
on a cash basis.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1997 and 1996, investments with a carrying value of $103,590
and $102,361, 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
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
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 underlying 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 Statement of Financial Accounting Standard (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. No adjustments were made to the consolidated financial
statements upon adoption of this pronouncement.
In 1997 the Company adopted SFAS No. 129, Disclosure of Information about
Capital Structure, which establishes standards for disclosing information about
an entity's capital structure. No additional disclosures were required.
Accounting Pronouncements to be Adopted
The Financial Accounting Standards Board (FASB) has 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 applicable to the Company. The Statements are
to be applied prospectively. As a result of SFAS No. 127, the Company will adopt
SFAS No. 125 January 1, 1998. Adoption of these pronouncements is not expected
to have a significant impact on the consolidated financial statements.
In June, 1997, the FASB issued SFAS No. 130 Reporting Comprehensive Income,
which establishes standards for reporting and displaying comprehensive income
and its components in general purpose financial statements, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
requires certain business enterprises to report specified information about
their operating segments in a complete set of financial statements to
shareholders. SFAS No. 130 and SFAS No. 131 are effective for the Company, and
will be adopted in 1998.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
(2) Investments
Investments at December 31, 1997 consist of:
<TABLE>
<CAPTION>
Amount
shown on
Amortized Estimated consolidated
cost fair balance
or cost value sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government $ 499,652 528,657 528,657
States and political subdivisions 82,287 85,829 85,829
Foreign government 35,858 37,734 37,734
Public utilities 44,151 48,237 48,237
Corporate securities 1,206,392 1,250,532 1,250,532
Mortgage backed securities 628,307 663,891 663,891
Collateralized mortgage obligations 86,246 90,330 90,330
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $2,582,893 2,705,210 2,705,210
- ---------------------------------------------------------------------------------------------------------------------------
Equity securities:
Common stocks:
Banks, trusts and insurance companies 7,670 11,220 11,220
Industrial and miscellaneous 246,395 418,871 418,871
Nonredeemable preferred stocks 10,079 12,516 12,516
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 264,144 442,607 442,607
- ---------------------------------------------------------------------------------------------------------------------------
Other investments:
Mortgage loans on real estate 318,683 XXXXXXXXX 318,683
Certificates of deposit and short-term securities 117,124 XXXXXXXXX 117,124
Policy loans 5,695 XXXXXXXXX 5,695
Other invested assets 51,863 XXXXXXXXX 51,863
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments $ 493,365 XXXXXXXXX 493,365
- ---------------------------------------------------------------------------------------------------------------------------
Total investments $3,340,402 XXXXXXXXX 3,641,182
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(2) Investments (cont.)
At December 31, 1997 and 1996, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
U.S. Government $ 499,652 29,191 186 528,657
States and political subdivisions 82,287 3,561 19 85,829
Foreign government 35,858 1,876 0 37,734
Public utilities 44,151 4,086 0 48,237
Corporate securities 1,206,392 60,016 15,876 1,250,532
Mortgage backed securities 628,307 35,584 0 663,891
Collateralized mortgage obligations 86,246 4,086 2 90,330
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,582,893 138,400 16,083 2,705,210
Equity securities 264,144 205,632 27,169 442,607
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,847,037 344,032 43,252 3,147,817
===========================================================================================================================
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
===========================================================================================================================
<FN>
The changes in unrealized gains (losses) on fixed maturity securities were
$58,422, $(97,973) and $261,471 in each of the years ended December 31, 1997,
1996 and 1995, respectively.
The changes in unrealized gains (losses) in equity investments, which include
common stocks and nonredeemable preferred stocks were $84,718, $40,895 and
$48,186 for the years ended December 31, 1997, 1996 and 1995, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1997, 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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 27,247 27,392
Due after one year through five years 439,279 446,935
Due after five years through ten years 913,045 941,311
Due after ten years 575,015 625,68
Mortgage backed securities 628,307 663,891
- ---------------------------------------------------------------------------------------------------------------------------
Totals $2,582,893 2,705,210
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(2) Investments (cont.)
Gross gains of $70,335, $43,696 and $41,962 and gross losses of $8,654, $16,834
and $14,607 were realized on sales of securities in 1997, 1996 and 1995,
respectively; related taxes were $21,588, $9,402, and $9,574 in 1997, 1996 and
1995, respectively. Proceeds from redemptions of held-to-maturity securities
during 1995 were $7,022 with no gain or loss realized on such transactions.
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
<TABLE>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $40,268 8,897 21,877
Equity securities 21,413 17,964 5,478
Mortgage loans (982) (1,129) (687)
Real estate 635 3,104 2,530
Other 154 (275) 4
- ---------------------------------------------------------------------------------------------------------------------------
Net gains before taxes 61,488 28,561 29,202
Tax expense on net realized gains 21,521 9,996 10,218
- ---------------------------------------------------------------------------------------------------------------------------
Net gains after taxes $39,967 18,565 18,984
===========================================================================================================================
</TABLE>
The Company has 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,
1997 and 1996, mortgage backed securities underlying such agreements were
carried at a market value of $350,985 and $124,281 respectively, and other
liabilities included $369,664 and $130,196 respectively for funds received under
these agreements. Average balances outstanding were $183,530 and $83,602 and
weighted average interest rates were 7.2% and 7.5% during 1997 and 1996
respectively. The maximum balance outstanding during 1997 and 1996 was $369,664
and $130,196 respectively.
The Company participates 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 loans 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, 1997 and 1996.
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 at December 31,
1997 and 1996.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(2) Investments (cont.)
The valuation allowances at December 31, 1997, 1996 and 1995 and the changes in
the allowance for the years then ended are summarized as follows:
<TABLE>
<CAPTION>
Writedowns
Beginning Charged to Charged to End
of year Operations Allowance Recoveries of year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1997:
Mortgage loans $ 7,279 1,000 0 0 8,279
- ---------------------------------------------------------------------------------------------------------------------------
Total valuation allowance $ 7,279 1,000 0 0 8,279
===========================================================================================================================
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
===========================================================================================================================
</TABLE>
Major categories of net investment income for the respective years ended
December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Fixed maturities, at amortized cost $ 0 0 6,284
Fixed maturities, at market 211,335 178,664 158,421
Mortgage loans 25,232 19,267 16,125
Policy loans 6,526 7,013 6,688
Short-term investments 12,804 10,688 7,182
Dividends:
Preferred stock 748 818 581
Common stock 4,603 4,527 3,204
Interest on assets held by reinsurers 8,858 9,709 10,445
Other invested assets 9,438 5,344 3,614
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 279,544 236,030 212,544
Investment expenses related to coinsurance agreement (note 6) 98,417 0 0
Investment expenses 18,777 13,408 11,386
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $162,350 222,622 201,158
============================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(3) Summary Table of Fair Value Disclosures
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 528,657 528,657 645,264 645,264
States and political subdivisions 85,829 85,829 424 424
Foreign governments 37,734 37,734 309,394 309,394
Public utilities 48,237 48,237 7,041 7,041
Corporate securities 1,250,532 1,250,532 1,040,322 1,040,322
Mortgage backed securities 663,891 663,891 687,054 687,054
Collateralized mortgage obligations 90,330 90,330 78,807 78,807
Equity securities 442,607 442,607 327,834 327,834
Mortgage loans 318,683 333,540 245,559 252,825
Short term investments 117,124 117,124 204,972 204,972
Policy loans 5,695 5,695 103,708 103,708
Other long term investments 51,863 51,863 124 124
Receivables 262,676 262,676 155,278 155,278
Separate accounts assets 10,756,929 10,756,929 9,520,561 9,520,561
Financial liabilities:
Investment contracts 3,536,690 2,945,366 3,297,973 2,747,914
Separate account liabilities 10,756,929 10,565,205 9,520,561 9,324,358
Dollar reverse repurchase agreements 369,664 369,664 130,196 130,196
<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
Receivables at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $207,293 125,216
Agents balances 3,186 5,523
Related party receivables 1,445 2,099
Reinsurance commission receivable 23,921 7,515
Scholarship enrollment fees 8,401 8,025
Due from administrators 13,630 3,244
Other 4,800 3,656
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $262,676 155,278
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(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, 1997 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.
Activity in the accident and health claims reserves, exclusive of long term
care, hospital indemnity and AIDS reserves of $12,479, $14,348 and $18,858 in
1997, 1996 and 1995, respectively, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $114,230,
$99,292 and $96,090 $216,596 191,804 185,028
Incurred related to:
Current year 341,908 271,308 242,024
Prior years (12,087) (11,642) (9,163)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 329,821 259,666 232,861
- ---------------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year 150,942 107,842 100,165
Prior years 144,798 127,032 125,920
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 295,740 234,874 226,085
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, net of reinsurance recoverables of $125,543,
$114,230 and $99,292 $250,677 216,596 191,804
===========================================================================================================================
<FN>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
</FN>
</TABLE>
(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, 1997 are $902,500, $851,849,
$254,448, and $36,520 recoverable from four insurers who, as of December 31,
1997, were rated A+, A+, B++, and A+, 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, 1997, 1996 and 1995 (in thousands, except share data)
(6) Reinsurance (cont.)
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
<TABLE>
<CAPTION>
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, 1997:
Life insurance in force $32,234,241 72,682,842 19,873,094 85,043,989 85.5%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life insurance 252,859 170,798 110,579 313,078 54.6%
Annuities 217,353 1,910 30,789 188,474 1.0%
Accident and health insurance 436,105 311,612 296,650 451,067 69.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 906,317 484,320 438,018 952,619 50.8%
===========================================================================================================================
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%
===========================================================================================================================
</TABLE>
Effective January 1, 1997, the Company entered into a 100% coinsurance agreement
with an unrelated insurance company to coinsure a block of business with life
insurance inforce of $13,200,000 and 1997 premium of $90,000. The coinsured
block included certain universal life and traditional life insurance policies
and annuity contracts. In connection with this agreement, the Company recognized
a recoverable on future benefit reserves of $1,102,000, received a ceding
commission of $138,500 and transferred assets of $881,000 which support the
business. The unearned ceding commission represents deferred revenue which will
be amortized over the revenue-producing period of the related reinsured
policies. The servicing of the coinsured business was also transferred to a
third party insurer who is also the retrocessionaire of the block.
Of the amounts ceded to others, the Company ceded life insurance inforce of
$1,163,533, $381,381 and $182,638 in 1997, 1996 and 1995, respectively, and life
insurance premiums earned of $2,538, $1,293 and $641 in 1997, 1996 and 1995,
respectively, to its ultimate parent Allianz Aktiengesellshaft. The Company also
ceded accident and health premiums earned to Allianz Aktiengesellshaft of
$2,467, $1,922 and $(7,520) in 1997, 1996 and 1995.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(7) Income Taxes
Income Tax Expense
Total income tax expense (benefit) for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $ 31,571 21,936 12,993
Deferred tax expense 28,283 30,559 25,772
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $ 59,854 52,495 38,765
Income tax effect on equity:
Income tax allocated to stockholder's equity:
Attributable to unrealized gains and losses for the year 49,748 (19,967) 108,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $109,602 32,528 147,324
===========================================================================================================================
</TABLE>
Components of Income Tax Expense
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Consolidated Statements of Income for the respective years ended
December 31 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense computed at the statutory rate $60,735 53,782 44,087
Dividends received deductions and tax-exempt interest (2,792) (650) (5,430)
Foreign tax 916 (2,723) (464)
Interest on tax deficiency 1,100 261 408
Other (105) 1,824 164
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $59,854 52,494 38,765
===========================================================================================================================
</TABLE>
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liability at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for post retirement benefits $ 2,100 2,024
Allowance for uncollectible accounts 929 1,256
Policy reserves 177,442 158,131
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 180,471 161,411
Deferred tax liabilities:
Deferred acquisition costs 277,627 240,906
Net unrealized gain 102,756 53,008
Other 28,949 18,257
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 409,332 312,171
Net deferred tax liability $228,861 150,760
===========================================================================================================================
<FN>
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
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(7) Income Taxes (cont.)
Components of Deferred Tax Assets and Liabilities on the Balance Sheet (cont.)
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, 1997 and 1996, 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 $39,914, $30,946 and
$14,865 in 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996 the
Company had a tax recoverable from AZOA of $20,689 and $11,599, respectively and
a recoverable from Revenue Canada Taxation of $72 and $856, respectively.
(8) Related Party Transactions
The Company reimbursed AZOA $562, $86 and $738 in 1997, 1996 and 1995,
respectively, for certain administrative services performed. The Company had no
liability to AZOA for such amounts at December 31, 1997 and 1996, respectively.
AZOA's investment division manages the Company's investment portfolio. The
Company paid AZOA $1,957, $1,657 and $1,024 in 1997, 1996 and 1995,
respectively, for investment advisory fees. The Company's liability to AZOA for
such amounts was $437 and $543 at December 31, 1997 and 1996, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $2,826, $3,275 and $3,752 in
1997, 1996 and 1995, respectively. The Company's liability for data center
charges was $292 and $58 at December 31, 1997 and 1996, 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 million 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. These receivables,
valued at $5,827, were repurchased by the Company in 1997.
(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 $729, $808 and $860 in 1997, 1996 and 1995,
respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(9) Employee Benefit Plans (cont.)
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 Plan participants was 90% in 1997 and 100% in 1996 and 1995,
respectively. 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 $907, $1,105 and $1,188 in 1997, 1996 and 1995, 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. 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. The Company made no contributions to the
Plan in either 1997 or 1996, and $118 in 1995.
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, 1997 and 1996 was $6,001 and $5,783, respectively.
This liability is included in "Other liabilities" in the accompanying balance
sheet.
(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. Currently, 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 and annuity
benefit reserves calculated for statutory accounting do not include provisions
for withdrawals.
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:
<TABLE>
<CAPTION>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory basis $ 635,711 384,989 72,343 67,995 11,565
Adjustments:
Change in reserve basis (255,816) (199,566) (85,110) 13,324 (43,642)
Deferred acquisition costs 927,080 863,338 63,742 36,344 28,552
Net deferred taxes (228,861) (150,760) (28,283) (30,559) (25,772)
Statutory asset valuation reserve 151,675 133,564 0 0 0
Statutory interest maintenance reserve 34,336 26,342 7,994 1,183 8,756
Modified coinsurance reinsurance (31,953) (113,743) 81,790 5,435 104,222
Unrealized gains on investments 124,754 64,928 0 0 0
Nonadmitted assets 14,824 7,121 0 0 0
Deferred income on reinsurance (150,526) 0 0 0 0
Other (3,632) (2,036) 1,197 7,446 3,516
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying
consolidated financial statements $1,217,592 1,014,177 113,673 101,168 87,197
===========================================================================================================================
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(10) Statutory Financial Data and Dividend Restrictions (cont.)
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1997 and 1996 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 1997 and 1996, the Company paid AZOA
dividends on preferred stock in the amount of $1,600. A common stock dividend of
$551 was paid in 1997. Dividends of $59,071 could be paid in 1998 without prior
approval of the Commissioner of Commerce.
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,
1997 and 1996.
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.
(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.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(11) Commitments and Contingencies (cont.)
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.
The Company is expending significant resources to assure that its computer
systems are reprogrammed in time to effectively deal with transactions in the
year 2000 and beyond. Costs associated with this effort are not expected to be
material and are expensed as incurred. This "Year 2000 Computer Problem" creates
risk for the Company from unforeseen problems in its own computer systems and
from third parties with whom the Company deals on financial transactions
worldwide. Such failures of the Company and/or third parties' computer systems
could have a material impact on the Company's ability to conduct its business,
and especially to process and account for the transfer of funds electronically.
(12) Foreign Currency Translation
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:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(3,473) (3,455) (3,787)
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate adjustment for the period resulting from translation adjustments (1,500) (28) 511
Amount of income tax benefit (expense) for period related to aggregate adjustment 525 10 (179)
- ---------------------------------------------------------------------------------------------------------------------------
Net aggregate translation included in equity (975) (18) 332
- ---------------------------------------------------------------------------------------------------------------------------
Ending amount of cumulative translation adjustments $(4,448) (3,473) (3,455)
===========================================================================================================================
Canadian foreign exchange rate at end of year 0.6992 0.7297 0.7329
</TABLE>
(13) Subsequent Event - Life USA Holding, Inc.
In 1995, in conjunction with an expanded marketing agreement, the Company
provided Life USA Holding, Inc. (Life USA), 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 based
on LIBOR plus 1%. In connection with a definitive agreement signed in January
1998, the Company will convert its debenture to equity in 1998.
As noted above, the Company entered into a definitive agreement with Life USA in
January 1998 to acquire up to a 35% equity ownership in Life USA and extend the
existing marketing agreement between the two companies to December 31, 2000.
Acquisition of the Company's equity ownership will be accomplished through the
following:
- Conversion of the $30,000 debenture for 2.43 million shares of common stock
(conversion price of $12.34 per share);
- Exercise of the Company's preemptive right to purchase 241,846 shares of
common stock at $12.36 per share;
- Purchase of 925,000 shares of common stock from certain members of Life USA
management at $16.44 per share; and
- Commitment of $100 million to purchase newly issued common stock in
increments of $20 million over a five year period beginning in 1998.
Additionally, the Company may acquire an additional 1,604,104 shares of Life USA
common stock in open market purchases over the next year.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995 (in thousands, except share data)
(13) Subsequent Event - Life USA Holding, Inc. (cont.)
As part of this agreement, the Company has the right to nominate two people to
Life USA's board of directors, with additional rights of nomination in the
future based on the Company's proportional ownership. Two members of the
Company's management were named to Life USA's board of directors in January
1998.
(14) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future policy Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisitionclaims andUnearned benefits contract investment settlement acquisition operating Premiums
costs loss expensepremiums payable considerations income expenses costs (a) expenses written (b)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Life $189,971 1,297,269 5,215 63,572 313,078 24,352 230,357 (14,363) 99,913
Annuities 717,721 3,251,829 0 1,881 188,474 118,028 124,535 (44,924) 186,789
Accident and health 19,388 0 44,953 487,660 451,067 19,970 327,526 (4,455) 151,312
- ---------------------------------------------------------------------------------------------------------------------------
$927,080 4,549,098 50,168 553,113 952,619 162,350 682,418 (63,742) 438,014
===========================================================================================================================
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
===========================================================================================================================
<FN>
(a) See note 1 for total gross amortization.
(b) Premiums written are not applicable for life insurance companies.
</FN>
</TABLE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1997 and 1996.
3. Consolidated Statements of Income for the years ended December
31, 1997, 1996 and 1995.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1997, 1996 and 1995.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
6. Notes to Consolidated Financial Statements - December 31, 1997,
1996 and 1995.
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, 1997.
3. Statements of Operations for the year ended December 31, 1997.
4. Statements of Changes in Net Assets for the years ended
December 31, 1997 and 1996.
5. Notes to Financial Statements - December 31, 1997.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. Principal Underwriter's Agreement**
4. Individual Variable Annuity Contract*
4.a. Waiver of Contingent Deferred Sales Charge Endorsement*
4.b. Enhanced Death Benefit Endorsement*
5. Application for Individual Variable Annuity Contract*
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Form of Fund Participation Agreement*
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Data
14. Company Organizational Chart**
27. Not Applicable
* Incorporated by reference to Registrant's Form N-4 electronically filed on
June 24, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
form N-4 electronically filed on December 13, 1996.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Insurance Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ---------------------------- ---------------------------------
Lowell C. Anderson Chairman, President, Chief
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Boulevard
Minneapolis, MN 55439
Dr. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Edward J. Bonach Senior Vice President, Chief
1750 Hennepin Avenue Financial Officer and Treasurer
Minneapolis, MN 55403
Robert S. James President - Individual
1750 Hennepin Avenue Division
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis Dease Director
c/o University of St. Thomas
215 Summit Avenue
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Corp.
Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0116
Robert M. Kimmitt Director
Wilmer, Cutler & Pickering
2445 M Street NW
Washington, DC 20037-1420
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is incorporated by reference to Pre-Effective
Amendment No. 1 (File No. 811-05618)
Item 27. Number of Contract Owners
As of February 19, 1998, there were 4,770 qualified Contract Owners and 12,263
non-qualified Contract Owners with Contracts in the separate account
Item 28. Indemnification
The Bylaws of the Insurance Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Insurance Company pursuant to the foregoing, or otherwise, the Insurance Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Insurance Company of expenses
incurred or paid by a director, officer or controlling person of the Insurance
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers and directors of NALAC Financial Plans,
LLC:
<TABLE>
<CAPTION>
<S> <C>
Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
James P. Kelso Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Allianz Life Insurance Company of North America ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Insurance Company hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 24th day of April, 1998.
ALLIANZ LIFE
VARIABLE ACCOUNT B
(Registrant)
By: ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By:/s/ MICHAEL T. WESTERMEYER
--------------------------------
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By:/s/ MICHAEL T. WESTERMEYER
------------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board,
Lowell C. Anderson* President 4-24-98
Lowell C. Anderson and Chief Executive Officer
Herbert F. Hansmeyer* Director 4-24-98
Herbert F. Hansmeyer
Michael P. Sullivan* Director 4-24-98
Michael P. Sullivan
Dr. Jerry E. Robertson* Director 4-24-98
Dr. Jerry E. Robertson
Dr. Gerhard Rupprecht* Director 4-24-98
Dr. Gerhard Rupprecht
Edward J. Bonach* Chief Financial Officer 4-24-98
Edward J. Bonach
Rev. Dennis Dease* Director 4-24-98
Rev. Dennis Dease
James R. Campbell* Director 4-24-98
James R. Campbell
Robert M. Kimmitt* Director 4-24-98
Robert M. Kimmitt
</TABLE>
*By Power of Attorney
By: /s/ MICHAEL T. WESTERMEYER
--------------------------------
Michael T. Westermeyer
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Herbert F. Hansmeyer, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 29th day of September 1997.
WITNESS
/s/ Kathleen Doolwith /s/ Herbert Hansmeyer
___________________________ _____________________________
Herbert Hansmeyer
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Michael P Sullivan, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 5th day of September 1997.
WITNESS
/s/ Karen M Amundson /s/ Michael P. Sullivan
___________________________ _____________________________
Michael P. Sullivan
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Jerry E. Robertson, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 4th day of September 1997.
WITNESS
/s/ Jerry E. Robertson
___________________________ _____________________________
Jerry E. Robertson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Gerhard G. Rupprecht, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a securi.y under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this ____ day of ___________ 1997.
WITNESS
/s/ Gerhard G. Rupprecht
___________________________ _____________________________
Gerhard G Rupprecht
I hereby certify that the above is the true signature, acknowledged in my
presence of
Dr. Gerhard Rupprecht
Chairman of the Board of Management
Reinsburgstrabe 19, 70178 Stuttgart, Germany
personally known to me.
Stuttgart, den 17.09.1997
/s/ Dr. Kubler
Dr. Kubler
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Dennis J. Dease, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 5th day of September 1997.
WITNESS
/s/ Sandra J. Schwartz /s/ Dennis J. Dease
___________________________ _____________________________
Dennis J. Dease
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, James R. Campbell, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 8th day of September 1997.
WITNESS
/s/ Carrie Knowles /s/ James R. Campbell
___________________________ _____________________________
James R. Campbell
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Edward J Bonach, Senior Vice
President and Chief Financial Officer of Allianz Life Insurance Company of North
America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Lowell C. Anderson and Michael T. Westermeyer, each
individually as my attorney and agent, for me, and in my name as Senior Vice
President and Chief Financial Officer on behalf of Allianz Life, with full power
to execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 7th day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Edward J. Bonach
___________________________ _____________________________
Edward J. Bonach
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Lowell C. Anderson, Chairman of
the Board, President & Chief Executive Officer of Allianz Life Insurance Company
of North America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Michael T. Westermeyer, as my attorney and agent,
for me, and in my name as Chairman of the Board, President & Chief Executive
Officer on behalf of Allianz Life, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of aforesaid Acts.
WITNESS my hand and seal this 3rd day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Lowell C. Anderson
___________________________ _____________________________
Lowell C. Anderson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert M. Kimmitt, a Director of
Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually, as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 6th day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Robert M. Kimmitt
___________________________ _____________________________
Robert M. Kimmitt
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
EXHIBIT PAGE
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Data
April 24,1998
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
RE: Opinion and Consent of Counsel
Allianz Life Variable Account B
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Flexible
Payment Variable Annuity Contracts to be issued by Allianz Life Insurance
Company of North America and its separate account, Allianz Life Variable Account
B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term
is defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner
pursuant to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a Contract
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America
and Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 30, 1998 on the financial
statements of Allianz Life Variable Account B and our report dated February 4,
1998, 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, 1998
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK IV
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1996
Valuation Date as of December 31, 1997
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-96 Purchase $1,000.00 $11.24740541 88.909 88.909 $1,000.00
12-31-97 Contract Fee (1.00) 13.10996126 (0.076) 88.833 1,164.60
12-31-97 Value before Surr Chg 13.10996126 0.000 88.833 1,164.60
12-31-97 Surrender Charge (60.00) 13.10996126 (4.577) 84.256 1,104.60
Cumulative and Average Annual Total Returns
without/with charges 16.56% A 10.46% B
Global Utilities Securities
12-31-96 Purchase $1,000.00 $20.52658248 48.717 48.717 $1,000.00
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 48.678 1,247.89
12-31-97 Value before Surr C 25.63546176 0.000 48.678 1,247.89
12-31-97 Surrender Charge (60.00) 25.63546176 (2.341) 46.338 1,187.89
Cumulative and Average Annual Total Returns
without/with charge 24.89% A 18.79% B
Growth and Income
12-31-96 Purchase $1,000.00 $19.35081369 51.677 51.677 $1,000.00
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 51.636 1,257.55
12-31-97 Value before Surr Chg 24.35403985 0.000 51.636 1,257.55
12-31-97 Surrender Charge (60.00) 24.35403985 (2.464) 49.173 1,197.55
Cumulative and Average Annual Total Returns
without/with charges 25.86% A 19.76% B
High Income
12-31-96 Purchase $1,000.00 $19.23682686 51.984 51.984 $1,000.00
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 51.936 1,097.98
12-31-97 Value before Surr Chg 21.14081079 0.000 51.936 1,097.98
12-31-97 Surrender Charge (60.00) 21.14081079 (2.838) 49.098 1,037.98
Cumulative and Average Annual Total Returns
without/with charges 9.90% A 3.80% B
Income Securities
12-31-96 Purchase $1,000.00 $21.55369456 46.396 46.396 $1,000.00
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 46.356 1,152.57
12-31-97 Value before Surr Chg 24.86373833 0.000 46.356 1,152.57
12-31-97 Surrender Charge (60.00) 24.86373833 (2.413) 43.942 1,092.57
Cumulative and Average Annual Total Returns
without/with charges 15.36% A 9.26% B
Money Market
12-31-96 Purchase $1,000.00 $13.26609762 75.380 75.380 $1,000.00
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 75.307 1,035.91
12-31-97 Value before Surr Chg 13.75569800 0.000 75.307 1,035.91
12-31-97 Surrender Charge (60.00) 13.75569800 (4.362) 70.946 975.91
Cumulative and Average Annual Total Returns
without/with charges 3.69% A -2.41% B
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.17920124 98.240 98.240 $1,000.00
12-31-97 Contract Fee (1.00) 11.97090670 (0.084) 98.156 1,175.02
12-31-97 Value before Surr Chg 11.97090670 0.000 98.156 1,175.02
12-31-97 Surrender Charge (60.00) 11.97090670 (5.012) 93.144 1,115.02
Cumulative and Average Annual Total Returns
without/with charges 17.60% A 11.50% B
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.32889538 96.816 96.816 $1,000.00
12-31-97 Contract Fee (1.00) 11.98070033 (0.083) 96.732 1,158.92
12-31-97 Value before Surr Chg 11.98070033 0.000 96.732 1,158.92
12-31-97 Surrender Charge (60.00) 11.98070033 (5.008) 91.724 1,098.92
Cumulative and Average Annual Total Returns
without/with charges 15.99% A 9.89% B
Natural Resources Securities
12-31-96 Purchase $1,000.00 $14.36439436 69.617 69.617 $1,000.00
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 69.529 797.26
12-31-97 Value before Surr Chg 11.46649607 0.000 69.529 797.26
12-31-97 Surrender Charge (60.00) 11.46649607 (5.233) 64.297 737.26
Cumulative and Average Annual Total Returns
without/with charges -20.17% A -26.27% B
Real Estate Securities
12-31-96 Purchase $1,000.00 $23.49916899 42.555 42.555 $1,000.00
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 42.519 1,188.13
12-31-97 Value before Surr Chg 27.94367614 0.000 42.519 1,188.13
12-31-97 Surrender Charge (60.00) 27.94367614 (2.147) 40.372 1,128.13
Cumulative and Average Annual Total Returns
without/with charges 18.91% A 12.81% B
Rising Dividends
12-31-96 Purchase $1,000.00 $15.23536682 65.637 65.637 $1,000.00
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 65.587 1,309.61
12-31-97 Value before Surr Chg 19.96761178 0.000 65.587 1,309.61
12-31-97 Surrender Charge (60.00) 19.96761178 (3.005) 62.582 1,249.61
Cumulative and Average Annual Total Returns
without/with charges 31.06% A 24.96% B
Small Cap
12-31-96 Purchase $1,000.00 $12.89918829 77.524 77.524 $1,000.00
12-31-97 Contract Fee (1.00) 14.92280844 (0.067) 77.457 1,155.88
12-31-97 Value before Surr Chg 14.92280844 0.000 77.457 1,155.88
12-31-97 Surrender Charge (60.00) 14.92280844 (4.021) 73.437 1,095.88
Cumulative and Average Annual Total Returns
without/with charges 15.69% A 9.59% B
Templeton Developing Markets Equity
12-31-96 Purchase $1,000.00 $11.45833113 87.273 87.273 $1,000.00
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 87.176 898.33
12-31-97 Value before Surr Chg 10.30480726 0.000 87.176 898.33
12-31-97 Surrender Charge (60.00) 10.30480726 (5.823) 81.353 838.33
Cumulative and Average Annual Total Returns
without/with charges -10.07% A -16.17% B
Templeton Global Asset Allocation
12-31-96 Purchase $1,000.00 $12.49492743 80.032 80.032 $1,000.00
12-31-97 Contract Fee (1.00) 13.75214238 (0.073) 79.960 1,099.62
12-31-97 Value before Surr Chg 13.75214238 0.000 79.960 1,099.62
12-31-97 Surrender Charge (60.00) 13.75214238 (4.363) 75.597 1,039.62
Cumulative and Average Annual Total Returns
without/with charges 10.06% A 3.96% B
Templeton Global Growth
12-31-96 Purchase $1,000.00 $13.52541005 73.935 73.935 $1,000.00
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 73.869 1,117.22
12-31-97 Value before Surr Chg 15.12444656 0.000 73.869 1,117.22
12-31-97 Surrender Charge (60.00) 15.12444656 (3.967) 69.902 1,057.22
Cumulative and Average Annual Total Returns
without/with charges 11.82% A 5.72% B
Templeton Global Income Securities
12-31-96 Purchase $1,000.00 $16.66103106 60.020 60.020 $1,000.00
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 59.961 1,008.59
12-31-97 Value before Surr Chg 16.82084400 0.000 59.961 1,008.59
12-31-97 Surrender Charge (60.00) 16.82084400 (3.567) 56.394 948.59
Cumulative and Average Annual Total Returns
without/with charges 0.96% A -5.14% B
Templeton International Equity
12-31-96 Purchase $1,000.00 $16.01035857 62.460 62.460 $1,000.00
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 62.403 1,099.36
12-31-97 Value before Surr Chg 17.61715343 0.000 62.403 1,099.36
12-31-97 Surrender Charge (60.00) 17.61715343 (3.406) 58.997 1,039.36
Cumulative and Average Annual Total Returns
without/with charges 10.04% A 3.94% B
Templeton International Smaller Companies
12-31-96 Purchase $1,000.00 $11.13849568 89.779 89.779 $1,000.00
12-31-97 Contract Fee (1.00) 10.80891898 (0.093) 89.686 969.41
12-31-97 Value before Surr Chg 10.80891898 0.000 89.686 969.41
12-31-97 Surrender Charge (60.00) 10.80891898 (5.551) 84.135 909.41
Cumulative and Average Annual Total Returns
without/with charges -2.96% A -9.06% B
Templeton Pacific Growth
12-31-96 Purchase $1,000.00 $14.86560901 67.269 67.269 $1,000.00
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 67.163 630.05
12-31-97 Value before Surr Chg 9.38089631 0.000 67.163 630.05
12-31-97 Surrender Charge (60.00) 9.38089631 (6.396) 60.767 570.05
Cumulative and Average Annual Total Returns
without/with charges -36.90% A -43.00% B
U.S. Government Securities
12-31-96 Purchase $1,000.00 $16.53304452 60.485 60.485 $1,000.00
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 60.429 1,075.93
12-31-97 Value before Surr Chg 17.80492179 0.000 60.429 1,075.93
12-31-97 Surrender Charge (60.00) 17.80492179 (3.370) 57.059 1,015.93
Cumulative and Average Annual Total Returns
without/with charges 7.69% A 1.59% B
Zero Coupon - 2000
12-31-96 Purchase $1,000.00 $18.34477774 54.511 54.511 $1,000.00
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 54.460 1,054.21
12-31-97 Value before Surr Chg 19.35767222 0.000 54.460 1,054.21
12-31-97 Surrender Charge (60.00) 19.35767222 (3.100) 51.360 994.21
Cumulative and Average Annual Total Returns
without/with charges 5.52% A -0.58% B
Zero Coupon - 2005
12-31-96 Purchase $1,00 $20.37523353 49.079 49.079 $1,000.00
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 49.034 1,096.25
12-31-97 Value before Surr Chg 22.35667212 0.000 49.034 1,096.25
12-31-97 Surrender Charge (60.00) 22.35667212 (2.684) 46.351 1,036.25
Cumulative and Average Annual Total Returns
without/with charges 9.72% A 3.62% B
Zero Coupon - 2010
12-31-96 Purchase 1,000.00 $21.37105221 46.792 46.792 $1,000.00
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 46.752 1,147.45
12-31-97 Value before Surr Chg 24.54360878 0.000 46.752 1,147.45
12-31-97 Surrender Charge (60.00) 24.54360878 (2.445) 44.307 1,087.45
Cumulative and Average Annual Total Returns
without/with charges 14.85% A 8.75% B
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of December 31, 1994
Valuation Date as of December 31, 1997
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Global Utilities Securities
12-31-94 Purchase $1,000.00 $15.02348951 66.562 66.562 $1,000.00
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 66.511 1,293.16
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 66.462 1,364.24
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 66.423 1,702.79
12-31-97 Value before Surr Chg 25.63546176 0.000 66.423 1,702.79
12-31-97 Surrender Charge (51.00) 25.63546176 (1.989) 64.434 1,651.79
Cumulative Total Returns without/with chrgs. 70.64% A 65.18% C
Avg. Annual Total Returns without/with chrgs. 19.50% B 18.21% D
Growth and Income
12-31-94 Purchase $1,000.00 $13.14423327 76.079 76.079 $1,000.00
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 76.021 1,307.71
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 75.969 1,470.07
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 75.928 1,849.16
12-31-97 Value before Surr Chg 24.35403985 0.000 75.928 1,849.16
12-31-97 Surrender Charge (51.00) 24.35403985 (2.094) 73.834 1,798.16
Cumulative Total Returns without/with chrgs. 85.28% A 79.82% C
Avg. Annual Total Returns without/with chrgs. 22.82% B 21.60% D
High Income
12-31-94 Purchase $1,000.00 $14.52977464 68.824 68.824 $1,000.00
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 68.766 1,178.96
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 68.714 1,321.84
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 68.667 1,451.67
12-31-97 Value before Surr Chg 21.14081079 0.000 68.667 1,451.67
12-31-97 Surrender Charge (51.00) 21.14081079 (2.412) 66.254 1,400.67
Cumulative Total Returns without/with chrgs. 45.50% A 40.07% C
Avg. Annual Total Returns without/with chrgs. 13.32% B 11.89% D
Income Securities
12-31-94 Purchase $1,000.00 $16.30439562 61.333 61.333 $1,000.00
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 61.282 1,204.95
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 61.236 1,319.86
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 61.196 1,521.55
12-31-97 Value before Surr Chg 24.86373833 0.000 61.196 1,521.55
12-31-97 Surrender Charge (51.00) 24.86373833 (2.051) 59.144 1,470.55
Cumulative Total Returns without/with chrgs. 52.50% A 47.06% C
Avg. Annual Total Returns without/with chrgs. 15.10% B 13.72% D
Money Market
12-31-94 Purchase $1,000.00 $12.29002320 81.367 81.367 $1,000.00
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 81.289 1,040.93
12-31-96 Contract Fee (1.00) 13.26609762 (0.075) 81.213 1,077.38
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 81.141 1,116.15
12-31-97 Value before Surr Chg 13.75569800 0.000 81.141 1,116.15
12-31-97 Surrender Charge (51.00) 13.75569800 (3.708) 77.433 1,065.15
Cumulative Total Returns without/with chrgs. 11.93% A 6.51% C
Avg. Annual Total Returns without/with chrgs. 3.83% B 2.13% D
Natural Resources Securities
12-31-94 Purchase $1,000.00 $13.90432727 71.920 71.920 $1,000.00
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 71.849 1,007.39
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 71.779 1,031.06
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 71.692 822.05
12-31-97 Value before Surr Chg 11.46649607 0.000 71.692 822.05
12-31-97 Surrender Charge (51.00) 11.46649607 (4.448) 67.244 771.05
Cumulative Total Returns without/with chrgs. -17.53% A -22.89% C
Avg. Annual Total Returns without/with chrgs. -6.22% B -8.30% D
Real Estate Securities
12-31-94 Purchase $1,000.00 $15.51100005 64.470 64.470 $1,000.00
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 64.415 1,156.91
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 64.372 1,512.69
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 64.336 1,797.79
12-31-97 Value before Surr Chg 27.94367614 0.000 64.336 1,797.79
12-31-97 Surrender Charge (51.00) 27.94367614 (1.825) 62.511 1,746.79
Cumulative Total Returns without/with chrgs. 80.15% A 74.68% C
Avg. Annual Total Returns without/with chrgs. 21.68% B 20.43% D
Rising Dividends
12-31-94 Purchase $1,000.00 $9.74313966 102.636 102.636 $1,000.00
12-31-95 Contract Fee (1.00) 12.45442887 (0.080) 102.556 1,277.28
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 102.490 1,561.48
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 102.440 2,045.49
12-31-97 Value before Surr Chg 19.96761178 0.000 102.440 2,045.49
12-31-97 Surrender Charge (51.00) 19.96761178 (2.554) 99.886 1,994.49
Cumulative Total Returns without/with chrgs. 104.94% A 99.45% C
Avg. Annual Total Returns without/with chrgs. 27.02% B 25.88% D
Templeton Developing Markets Equity
12-31-94 Purchase $1,000.00 $9.44748810 105.848 105.848 $1,000.00
12-31-95 Contract Fee (1.00) 9.56626187 (0.105) 105.744 1,011.57
12-31-96 Contract Fee (1.00) 11.45833113 (0.087) 105.656 1,210.65
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 105.559 1,087.77
12-31-97 Value before Surr Chg 10.30480726 0.000 105.559 1,087.77
12-31-97 Surrender Charge (51.00) 10.30480726 (4.949) 100.610 1,036.77
Cumulative Total Returns without/with chrgs. 9.07% A 3.68% C
Avg. Annual Total Returns without/with chrgs. 2.94% B 1.21% D
Templeton Global Growth
12-31-94 Purchase $1,000.00 $10.19356357 98.101 98.101 $1,000.00
12-31-95 Contract Fee (1.00) 11.32067650 (0.088) 98.013 1,109.57
12-31-96 Contract Fee (1.00) 13.52541005 (0.074) 97.939 1,324.66
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 97.873 1,480.27
12-31-97 Value before Surr Chg 15.12444656 0.000 97.873 1,480.27
12-31-97 Surrender Charge (51.00) 15.12444656 (3.372) 94.501 1,429.27
Cumulative Total Returns without/with chrgs. 48.37% A 42.93% C
Avg. Annual Total Returns without/with chrgs. 14.06% B 12.64% D
Templeton Global Income Securities
12-31-94 Purchase $1,000.00 $13.65317533 73.243 73.243 $1,000.00
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 73.178 1,128.84
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 73.118 1,218.22
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 73.059 1,228.91
12-31-97 Value before Surr Chg 16.82084400 0.000 73.059 1,228.91
12-31-97 Surrender Charge (51.00) 16.82084400 (3.032) 70.027 1,177.91
Cumulative Total Returns without/with chrgs. 23.20% A 17.79% C
Avg. Annual Total Returns without/with chrgs. 7.20% B 5.61% D
Templeton International Equity
12-31-94 Purchase $1,000.00 $12.12945216 82.444 82.444 $1,000.00
12-31-95 Contract Fee (1.00) 13.21605786 (0.076) 82.368 1,088.58
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 82.306 1,317.75
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 82.249 1,448.99
12-31-97 Value before Surr Chg 17.61715343 0.000 82.249 1,448.99
12-31-97 Surrender Charge (51.00) 17.61715343 (2.895) 79.354 1,397.99
Cumulative Total Returns without/with chrgs. 45.24% A 39.80% C
Avg. Annual Total Returns without/with chrgs. 13.25% B 11.82% D
Templeton Pacific Growth
12-31-94 Purchase $1,000.00 $12.76818771 78.320 78.320 $1,000.00
12-31-95 Contract Fee (1.00) 13.58246157 (0.074) 78.246 1,062.77
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 78.179 1,162.17
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 78.072 732.39
12-31-97 Value before Surr Chg 9.38089631 0.000 78.072 732.39
12-31-97 Surrender Charge (51.00) 9.38089631 (5.437) 72.636 681.39
Cumulative Total Returns without/with chrgs. -26.53% A -31.86% C
Avg. Annual Total Returns without/with chrgs. -9.77% B -12.00% D
U.S. Government Securities
12-31-94 Purchase $1,000.00 $13.76239537 72.662 72.662 $1,000.00
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 72.600 1,175.96
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 72.540 1,199.30
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 72.483 1,290.56
12-31-97 Value before Surr Chg 17.80492179 0.000 72.483 1,290.56
12-31-97 Surrender Charge (51.00) 17.80492179 (2.864) 69.619 1,239.56
Cumulative Total Returns without/with chrgs. 29.37% A 23.96% C
Avg. Annual Total Returns without/with chrgs. 8.96% B 7.42% D
Zero Coupon - 2000
12-31-94 Purchase $1,000.00 $15.29260574 65.391 65.391 $1,000.00
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 65.336 1,187.90
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 65.282 1,197.58
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 65.230 1,262.70
12-31-97 Value before Surr Chg 19.35767222 0.000 65.230 1,262.70
12-31-97 Surrender Charge (51.00) 19.35767222 (2.635) 62.595 1,211.70
Cumulative Total Returns without/with chrgs. 26.58% A 21.17% C
Avg. Annual Total Returns without/with chrgs. 8.17% B 6.61% D
Zero Coupon - 2005
12-31-94 Purchase $1,000.00 $16.01393970 62.446 62.446 $1,000.00
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 62.397 1,297.14
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 62.348 1,270.36
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 62.304 1,392.90
12-31-97 Value before Surr Chg 22.35667212 0.000 62.304 1,392.90
12-31-97 Surrender Charge (51.00) 22.35667212 (2.281) 60.022 1,341.90
Cumulative Total Returns without/with chrgs. 39.61% A 34.19% C
Avg. Annual Total Returns without/with chrgs. 11.76% B 10.30% D
Zero Coupon - 2010
12-31-94 Purchase $1,000.00 $15.84633119 63.106 63.106 $1,000.00
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 63.061 1,405.87
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 63.014 1,346.68
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 62.974 1,545.60
12-31-97 Value before Surr Chg 24.54360878 0.000 62.974 1,545.60
12-31-97 Surrender Charge (51.00) 24.54360878 (2.078) 60.896 1,494.60
Cumulative Total Returns without/with chrgs. 54.89% A 49.46% C
Avg. Annual Total Returns without/with chrgs. 15.70% B 14.33% D
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1997 - 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, 1992
Valuation Date as of December 31, 1997
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Global Utilities Securities
12-31-92 Purchase $1,000.00 $15.83244652 63.161 63.161 $1,000.00
12-31-93 Contract Fee (1.00) 17.24200577 (0.058) 63.103 1,088.03
12-31-94 Contract Fee (1.00) 15.02348951 (0.067) 63.037 947.03
12-31-95 Contract Fee (1.00) 19.44283491 (0.051) 62.985 1,224.62
12-31-96 Contract Fee (1.00) 20.52658248 (0.049) 62.937 1,291.88
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 62.898 1,612.41
12-31-97 Value before Surr Chg 25.63546176 0.000 62.898 1,612.41
12-31-97 Surrender Charge (34.00) 25.63546176 (1.326) 61.571 1,578.41
Cumulative Total Returns without/with chrgs. 61.92% A 57.84% C
Avg. Annual Total Returns without/with chrgs. 10.12% B 9.56% D
Growth and Income
12-31-92 Purchase $1,000.00 $12.52913900 79.814 79.814 $1,000.00
12-31-93 Contract Fee (1.00) 13.61630571 (0.073) 79.741 1,085.77
12-31-94 Contract Fee (1.00) 13.14423327 (0.076) 79.664 1,047.13
12-31-95 Contract Fee (1.00) 17.20200155 (0.058) 79.606 1,369.39
12-31-96 Contract Fee (1.00) 19.35081369 (0.052) 79.555 1,539.45
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 79.514 1,936.48
12-31-97 Value before Surr Chg 24.35403985 0.000 79.514 1,936.48
12-31-97 Surrender Charge (34.00) 24.35403985 (1.396) 78.117 1,902.48
Cumulative Total Returns without/with chrgs. 94.38% A 90.25% C
Avg. Annual Total Returns without/with chrgs. 14.22% B 13.73% D
High Income
12-31-92 Purchase $1,000.00 $13.23092335 75.581 75.581 $1,000.00
12-31-93 Contract Fee (1.00) 15.08792342 (0.066) 75.514 1,139.35
12-31-94 Contract Fee (1.00) 14.52977464 (0.069) 75.445 1,096.20
12-31-95 Contract Fee (1.00) 17.14451419 (0.058) 75.387 1,292.47
12-31-96 Contract Fee (1.00) 19.23682686 (0.052) 75.335 1,449.21
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 75.288 1,591.65
12-31-97 Value before Surr Chg 21.14081079 0.000 75.288 1,591.65
12-31-97 Surrender Charge (34.00) 21.14081079 (1.608) 73.680 1,557.65
Cumulative Total Returns without/with chrgs. 59.78% A 55.76% C
Avg. Annual Total Returns without/with chrgs. 9.83% B 9.27% D
Income Securities
12-31-92 Purchase $1,000.00 $15.10888772 66.186 66.186 $1,000.00
12-31-93 Contract Fee (1.00) 17.65574049 (0.057) 66.130 1,167.57
12-31-94 Contract Fee (1.00) 16.30439562 (0.061) 66.068 1,077.20
12-31-95 Contract Fee (1.00) 19.66228575 (0.051) 66.017 1,298.05
12-31-96 Contract Fee (1.00) 21.55369456 (0.046) 65.971 1,421.92
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 65.931 1,639.29
12-31-97 Value before Surr Chg 24.86373833 0.000 65.931 1,639.29
12-31-97 Surrender Charge (34.00) 24.86373833 (1.367) 64.563 1,605.29
Cumulative Total Returns without/with chrgs. 64.56% A 60.53% C
Avg. Annual Total Returns without/with chrgs. 10.48% B 9.93% D
Money Market
12-31-92 Purchase $1,000.00 $11.89167887 84.092 84.092 $1,000.00
12-31-93 Contract Fee (1.00) 12.01410752 (0.083) 84.009 1,009.30
12-31-94 Contract Fee (1.00) 12.29002320 (0.081) 83.928 1,031.47
12-31-95 Contract Fee (1.00) 12.80529257 (0.078) 83.850 1,073.72
12-31-96 Contract Fee (1.00) 13.26609762 (0.075) 83.774 1,111.36
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 83.702 1,151.37
12-31-97 Value before Surr Chg 13.75569800 0.000 83.702 1,151.37
12-31-97 Surrender Charge (34.00) 13.75569800 (2.472) 81.230 1,117.37
Cumulative Total Returns without/with chrgs. 15.67% A 11.74% C
Avg. Annual Total Returns without/with chrgs. 2.96% B 2.24% D
Natural Resources Securities
12-31-92 Purchase $1,000.00 $9.39103298 106.485 106.485 $1,000.00
12-31-93 Contract Fee (1.00) 14.39941891 (0.069) 106.415 1,532.32
12-31-94 Contract Fee (1.00) 13.90432727 (0.072) 106.343 1,478.63
12-31-95 Contract Fee (1.00) 14.02092182 (0.071) 106.272 1,490.03
12-31-96 Contract Fee (1.00) 14.36439436 (0.070) 106.202 1,525.53
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 106.115 1,216.77
12-31-97 Value before Surr Chg 11.46649607 0.000 106.115 1,216.77
12-31-97 Surrender Charge (34.00) 11.46649607 (2.965) 103.150 1,182.77
Cumulative Total Returns without/with chrgs. 22.10% A 18.28% C
Avg. Annual Total Returns without/with chrgs. 4.07% B 3.41% D
Real Estate Securities
12-31-92 Purchase $1,000.00 $13.04914908 76.633 76.633 $1,000.00
12-31-93 Contract Fee (1.00) 15.30083761 (0.065) 76.568 1,171.55
12-31-94 Contract Fee (1.00) 15.51100005 (0.064) 76.504 1,186.65
12-31-95 Contract Fee (1.00) 17.96041830 (0.056) 76.448 1,373.04
12-31-96 Contract Fee (1.00) 23.49916899 (0.043) 76.405 1,795.46
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 76.370 2,134.04
12-31-97 Value before Surr Chg 27.94367614 0.000 76.370 2,134.04
12-31-97 Surrender Charge (34.00) 27.94367614 (1.217) 75.153 2,100.04
Cumulative Total Returns without/with chrgs. 114.14% A 110.00% C
Avg. Annual Total Returns without/with chrgs. 16.45% B 16.00% D
Rising Dividends
12-31-92 Purchase $1,000.00 $10.83875667 92.262 92.262 $1,000.00
12-31-93 Contract Fee (1.00) 10.30939159 (0.097) 92.165 $950.16
12-31-94 Contract Fee (1.00) 9.74313966 (0.103) 92.062 $896.97
12-31-95 Contract Fee (1.00) 12.45442887 (0.080) 91.982 1,145.58
12-31-96 Contract Fee (1.00) 15.23536682 (0.066) 91.916 1,400.37
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 91.866 1,834.34
12-31-97 Value before Surr Chg 19.96761178 0.000 91.866 1,834.34
12-31-97 Surrender Charge (34.00) 19.96761178 (1.703) 90.163 1,800.34
Cumulative Total Returns without/with chrgs. 84.22% A 80.03% C
Avg. Annual Total Rtns. without/with chrgs. 13.00% B 12.48% D
Templeton Global Income Securities
12-31-92 Purchase $1,000.00 $12.68746730 78.818 78.818 $1,000.00
12-31-93 Contract Fee (1.00) 14.58489254 (0.069) 78.749 1,148.55
12-31-94 Contract Fee (1.00) 13.65317533 (0.073) 78.676 1,074.18
12-31-95 Contract Fee (1.00) 15.42592706 (0.065) 78.611 1,212.65
12-31-96 Contract Fee (1.00) 16.66103106 (0.060) 78.551 1,308.75
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 78.492 1,320.30
12-31-97 Value before Surr Chg 16.82084400 0.000 78.492 1,320.30
12-31-97 Surrender Charge (34.00) 16.82084400 (2.021) 76.471 1,286.30
Cumulative Total Returns without/with chrgs. 32.58% A 28.63% C
Avg. Annual Total Returns without/with chrgs. 5.80% B 5.16% D
Templeton International Equity
12-31-92 Purchase $1,000.00 $9.63445037 103.794 103.794 $1,000.00
12-31-93 Contract Fee (1.00) 12.20456639 (0.082) 103.712 1,265.76
12-31-94 Contract Fee (1.00) 12.12945216 (0.082) 103.630 1,256.97
12-31-95 Contract Fee (1.00) 13.21605786 (0.076) 103.554 1,368.58
12-31-96 Contract Fee (1.00) 16.01035857 (0.062) 103.492 1,656.94
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 103.435 1,822.23
12-31-97 Value before Surr Chg 17.61715343 0.000 103.435 1,822.23
12-31-97 Surrender Charge (34.00) 17.61715343 (1.930) 101.505 1,788.23
Cumulative Total Returns without/with chrgs. 82.86% A 78.82% C
Avg. Annual Total Rtns. without/with chrgs. 12.83% B 12.33% D
Templeton Pacific Growth
12-31-92 Purchase $1,000.00 $9.75290673 102.534 102.534 $1,000.00
12-31-93 Contract Fee (1.00) 14.20875721 (0.070) 102.463 1,455.87
12-31-94 Contract Fee (1.00) 12.76818771 (0.078) 102.385 1,307.27
12-31-95 Contract Fee (1.00) 13.58246157 (0.074) 102.311 1,389.64
12-31-96 Contract Fee (1.00) 14.86560901 (0.067) 102.244 1,519.92
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 102.137 958.14
12-31-97 Value before Surr Chg 9.38089631 0.000 102.137 958.14
12-31-97 Surrender Charge (34.00) 9.38089631 (3.624) 98.513 924.14
Cumulative Total Returns without/with chrgs. -3.81% A -7.59% C
Avg. Annual Total Rtns. without/with chrgs. -0.77% B -1.57% D
U.S. Government Securities
12-31-92 Purchase $1,000.00 $13.53931957 73.859 73.859 $1,000.00
12-31-93 Contract Fee (1.00) 14.63435517 (0.068) 73.791 1,079.88
12-31-94 Contract Fee (1.00) 13.76239537 (0.073) 73.718 1,014.54
12-31-95 Contract Fee (1.00) 16.19773372 (0.062) 73.656 1,193.06
12-31-96 Contract Fee (1.00) 16.53304452 (0.060) 73.596 1,216.76
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 73.540 1,309.37
12-31-97 Value before Surr Chg 17.80492179 0.000 73.540 1,309.37
12-31-97 Surrender Charge (34.00) 17.80492179 (1.910) 71.630 1,275.37
Cumulative Total Returns without/with chrgs. 31.51% A 27.54% C
Avg. Annual Total Returns without/with chrgs. 5.63% B 4.98% D
Zero Coupon - 2000
12-31-92 Purchase $1,000.00 $14.54452031 68.754 68.754 $1,000.00
12-31-93 Contract Fee (1.00) 16.64474050 (0.060) 68.694 1,143.40
12-31-94 Contract Fee (1.00) 15.29260574 (0.065) 68.629 1,049.52
12-31-95 Contract Fee (1.00) 18.18141100 (0.055) 68.574 1,246.77
12-31-96 Contract Fee (1.00) 18.34477774 (0.055) 68.519 1,256.97
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 68.468 1,325.38
12-31-97 Value before Surr Chg 19.35767222 0.000 68.468 1,325.38
12-31-97 Surrender Charge (34.00) 19.35767222 (1.756) 66.711 1,291.38
Cumulative Total Returns without/with chrgs. 33.09% A 29.14% C
Avg. Annual Total Returns without/with chrgs. 5.88% B 5.25% D
Zero Coupon - 2005
12-31-92 Purchase $1,000.00 $14.92512949 67.001 67.001 $1,000.00
12-31-93 Contract Fee (1.00) 17.97404729 (0.056) 66.945 1,203.28
12-31-94 Contract Fee (1.00) 16.01393970 (0.062) 66.883 1,071.06
12-31-95 Contract Fee (1.00) 20.78832859 (0.048) 66.835 1,389.39
12-31-96 Contract Fee (1.00) 20.37523353 (0.049) 66.786 1,360.78
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 66.741 1,492.11
12-31-97 Value before Surr Chg 22.35667212 0.000 66.741 1,492.11
12-31-97 Surrender Charge (34.00) 22.35667212 (1.521) 65.220 1,458.11
Cumulative Total Returns without/with chrgs. 49.79% A 45.81% C
Avg. Annual Total Returns without/with chrgs. 8.42% B 7.83% D
Zero Coupon - 2010
12-31-92 Purchase $1,000.00 $14.61898218 68.404 68.404 $1,000.00
12-31-93 Contract Fee (1.00) 18.06559695 (0.055) 68.349 1,234.76
12-31-94 Contract Fee (1.00) 15.84633119 (0.063) 68.286 1,082.08
12-31-95 Contract Fee (1.00) 22.29375904 (0.045) 68.241 1,521.35
12-31-96 Contract Fee (1.00) 21.37105221 (0.047) 68.194 1,457.38
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 68.153 1,672.73
12-31-97 Value before Surr Chg 24.54360878 0.000 68.153 1,672.73
12-31-97 Surrender Charge (34.00) 24.54360878 (1.385) 66.768 1,638.73
Cumulative Total Returns without/with chrgs. 67.89% A 63.87% C
Avg. Annual Total Returns without/with chrgs. 10.92% B 10.38% D
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of December 31, 1997 - 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, 1997
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
5-1-97 Contract Fee (1.00) $11.17227997 (0.090) 99.910 $1,116.23
12-31-97 Contract Fee (1.00) 13.10996126 (0.076) 99.834 1,308.82
12-31-97 Value before Surr Chg 13.10996126 0.000 99.834 1,308.82
12-31-97 Surrender Charge (51.00) 13.10996126 (3.890) 95.944 1,257.82
Cumulative Total Returns without/with chgs. 31.10% A 25.78% C
Avg. Annual Total Returns without/with chgs. 17.62% B 14.74% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) 11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) 14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) 15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) 16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) 15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) 19.69346882 (0.051) 99.520 1,959.89
1-24-97 Contract Fee (1.00) 20.83359223 (0.048) 99.472 2,072.35
12-31-97 Value before Surr Chg 25.63546176 0.000 99.472 2,550.00
12-31-97 Contract Fee (1.00) 25.63546176 (0.039) 99.433 2,549.00
12-31-97 Surrender Charge 0.00 25.63546176 0.000 99.433 2,549.00
Cumulative Total Returns without/with chgs. 156.35% A 154.90% C
Avg. Annual Total Returns without/with chgs. 11.10% B 11.03% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) 10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) 12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) 12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) 14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) 13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) 17.25393143 (0.058) 99.430 1,715.56
1-24-97 Contract Fee (1.00) 19.79450666 (0.051) 99.380 1,967.17
12-31-97 Value before Surr Chg 24.35403985 0.000 99.380 2,420.30
12-31-97 Contract Fee (1.00) 24.35403985 (0.041) 99.339 2,419.30
12-31-97 Surrender Charge 0.00 24.35403985 0.000 99.339 2,419.30
Cumulative Total Returns without/with chgs. 143.54% A 141.93% C
Avg. Annual Total Returns without/with chgs. 10.47% B 10.39% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) 8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) 11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) 13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) 15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) 14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) 17.40215300 (0.057) 99.438 1,730.44
1-24-97 Contract Fee (1.00) 19.32656477 (0.052) 99.387 1,920.80
12-31-97 Value before Surr Chg 21.14081079 0.000 99.387 2,101.11
12-31-97 Contract Fee (1.00) 21.14081079 (0.047) 99.339 2,100.11
12-31-97 Surrender Charge 0.00 21.14081079 0.000 99.339 2,100.11
Cumulative Total Returns without/with chgs. 111.41% A 110.01% C
Avg. Annual Total Returns without/with chgs. 8.73% B 8.65% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) 9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) 13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) 15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) 17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) 16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) 20.08267334 (0.050) 99.501 1,998.25
1-24-97 Contract Fee (1.00) 21.74528582 (0.046) 99.455 2,162.68
12-31-97 Value before Surr Chg 24.86373833 0.000 99.455 2,472.83
12-31-97 Contract Fee (1.00) 24.86373833 (0.040) 99.415 2,471.83
12-31-97 Surrender Charge 0.00 24.86373833 0.000 99.415 2,471.83
Cumulative Total Returns without/with chgs. 148.64% A 147.18% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.65% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67178511 (0.094) 99.906 1,066.18
1-24-91 Contract Fee (1.00) 11.31010498 (0.088) 99.818 1,128.95
1-24-92 Contract Fee (1.00) 11.72881708 (0.085) 99.733 1,169.75
1-24-93 Contract Fee (1.00) 11.90009827 (0.084) 99.649 1,185.83
1-24-94 Contract Fee (1.00) 12.02348344 (0.083) 99.565 1,197.12
1-24-95 Contract Fee (1.00) 12.32338409 (0.081) 99.484 1,225.98
1-24-96 Contract Fee (1.00) 12.84105599 (0.078) 99.406 1,276.48
1-24-97 Contract Fee (1.00) 13.29676207 (0.075) 99.331 1,320.78
12-31-97 Value before Surr Chg 13.75569800 0.000 99.331 1,366.37
12-31-97 Contract Fee (1.00) 13.75569800 (0.073) 99.258 1,365.37
12-31-97 Surrender Charge 0.00 13.75569800 0.000 99.258 1,365.37
Cumulative Total Returns without/with chgs. 37.56% A 36.54% C
Avg. Annual Total Returns without/with chgs. 3.63% B 3.54% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.82973739 (0.085) 99.915 1,181.97
12-31-97 Contract Fee (1.00) 11.97090670 (0.084) 99.832 1,195.08
12-31-97 Value before Surr Chg 11.97090670 0.000 99.832 1,195.08
12-31-97 Surrender Charge (51.00) 11.97090670 (4.260) 95.572 1,144.08
Cumulative Total Returns without/with chgs. 19.71% A 14.41% C
Avg. Annual Total Returns without/with chgs. 17.01% B 12.47% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) $11.75083052 (0.085) 99.915 1,174.08
12-31-97 Value before Surr Chg 11.98070033 0.000 99.915 1,197.05
12-31-97 Contract Fee (1.00) 11.98070033 (0.083) 99.831 1,196.05
12-31-97 Surrender Charge (51.00) 11.98070033 (4.257) 95.575 1,145.05
Cumulative Total Returns without/with chgs. 19.81% A 14.51% C
Avg. Annual Total Returns without/with chgs. 17.09% B 12.56% D
Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) 9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) 10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) 9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) 14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) 12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) 15.88612084 (0.063) 99.409 1,579.23
1-24-97 Contract Fee (1.00) 13.72771013 (0.073) 99.336 1,363.66
12-31-97 Value before Surr Chg 11.46649607 0.000 99.336 1,139.04
12-31-97 Contract Fee (1.00) 11.46649607 (0.087) 99.249 1,138.04
12-31-97 Surrender Charge 0.00 11.46649607 0.000 99.249 1,138.04
Cumulative Total Returns without/with chgs. 14.66% A 13.80% C
Avg. Annual Total Returns without/with chgs. 1.54% B 1.46% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13076509 (0.099) 99.901 1,012.08
1-24-91 Contract Fee (1.00) 9.36020172 (0.107) 99.794 934.10
1-24-92 Contract Fee (1.00) 12.25114822 (0.082) 99.713 1,221.60
1-24-93 Contract Fee (1.00) 13.49614031 (0.074) 99.639 1,344.74
1-24-94 Contract Fee (1.00) 15.30618064 (0.065) 99.573 1,524.09
1-24-95 Contract Fee (1.00) 14.92840438 (0.067) 99.506 1,485.47
1-24-96 Contract Fee (1.00) 18.04447622 (0.055) 99.451 1,794.54
1-24-97 Contract Fee (1.00) 23.78351943 (0.042) 99.409 2,364.29
12-31-97 Value before Surr Chg 27.94367614 0.000 99.409 2,777.85
12-31-97 Contract Fee (1.00) 27.94367614 (0.036) 99.373 2,776.85
12-31-97 Surrender Charge 0.00 27.94367614 0.000 99.373 2,776.85
Cumulative Total Returns without/with chgs. 179.44% A 177.69% C
Avg. Annual Total Returns without/with chgs. 12.18% B 12.10% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) 10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) 9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) 12.48933274 (0.080) 99.629 1,244.30
1-27-97 Contract Fee (1.00) 15.20870091 (0.066) 99.564 1,514.23
12-31-97 Value before Surr Chg 19.96761178 0.000 99.564 1,988.05
12-31-97 Contract Fee (1.00) 19.96761178 (0.050) 99.514 1,987.05
12-31-97 Surrender Charge (25.50) 19.96761178 (1.277) 98.236 1,961.55
Cumulative Total Returns without/with chgs. 99.68% A 96.15% C
Avg. Annual Total Returns without/with chgs. 12.37% B 12.03% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.14713625 (0.082) 99.918 1,213.71
11-1-97 Contract Fee (1.00) 15.53654825 (0.064) 99.853 1,551.38
12-31-97 Value before Surr Chg 14.92280844 0.000 99.853 1,490.09
12-31-97 Contract Fee (1.00) 14.92280844 (0.067) 99.786 1,489.09
12-31-97 Surrender Charge (51.00) 14.92280844 (3.418) 96.369 1,438.09
Cumulative Total Returns without/with chgs. 49.23% A 43.81% C
Avg. Annual Total Returns without/with chgs. 20.29% B 18.25% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) 10.27729571 (0.097) 99.787 1,025.54
3-15-97 Contract Fee (1.00) 12.41978933 (0.081) 99.706 1,238.33
12-31-97 Value before Surr Chg 10.30480726 0.000 99.706 1,027.45
12-31-97 Contract Fee (1.00) 10.30480726 (0.097) 99.609 1,026.45
12-31-97 Surrender Charge (42.50) 10.30480726 (4.124) 95.485 983.95
Cumulative Total Returns without/with chgs. 3.05% A -1.60% C
Avg. Annual Total Returns without/with chgs. 0.79% B -0.42% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.24184599 (0.089) 99.911 1,123.18
5-1-97 Contract Fee (1.00) 12.74937771 (0.078) 99.833 1,272.80
12-31-97 Value before Surr Chg 13.75214238 0.000 99.833 1,372.91
12-31-97 Contract Fee (1.00) 13.75214238 (0.073) 99.760 1,371.91
12-31-97 Surrender Charge (51.00) 13.75214238 (3.709) 96.051 1,320.91
Cumulative Total Returns without/with chgs. 37.52% A 32.09% C
Avg. Annual Total Returns without/with chgs. 12.67% B 10.98% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) 11.79417892 (0.085) 99.816 1,177.25
3-15-97 Contract Fee (1.00) 14.06170230 (0.071) 99.745 1,402.58
12-31-97 Value before Surr Chg 15.12444656 0.000 99.745 1,508.59
12-31-97 Contract Fee (1.00) 15.12444656 (0.066) 99.679 1,507.59
12-31-97 Surrender Charge (42.50) 15.12444656 (2.810) 96.869 1,465.09
Cumulative Total Returns without/with chgs. 51.24% A 46.51% C
Avg. Annual Total Returns without/with chgs. 11.50% B 10.57% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.85157001 (0.092) 99.908 1,084.16
1-24-91 Contract Fee (1.00) 11.76337661 (0.085) 99.823 1,174.25
1-24-92 Contract Fee (1.00) 12.92541183 (0.077) 99.745 1,289.25
1-24-93 Contract Fee (1.00) 12.75002133 (0.078) 99.667 1,270.76
1-24-94 Contract Fee (1.00) 14.76765782 (0.068) 99.599 1,470.85
1-24-95 Contract Fee (1.00) 13.50498150 (0.074) 99.525 1,344.09
1-24-96 Contract Fee (1.00) 15.35232035 (0.065) 99.460 1,526.94
1-24-97 Contract Fee (1.00) 16.46140335 (0.061) 99.399 1,636.25
12-31-97 Value before Surr Chg 16.82084400 0.000 99.399 1,671.98
12-31-97 Contract Fee (1.00) 16.82084400 (0.059) 99.340 1,670.98
12-31-97 Surrender Charge 0.00 16.82084400 0.000 99.340 1,670.98
Cumulative Total Returns without/with chgs. 68.21% A 67.10% C
Avg. Annual Total Returns without/with chgs. 5.99% B 5.91% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) 12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) 11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) 13.52801052 (0.074) 99.659 1,348.19
1-27-97 Contract Fee (1.00) 16.14799023 (0.062) 99.598 1,608.30
12-31-97 Value before Surr Chg 17.61715343 0.000 99.598 1,754.63
12-31-97 Contract Fee (1.00) 17.61715343 (0.057) 99.541 1,753.63
12-31-97 Surrender Charge (25.50) 17.61715343 (1.447) 98.093 1,728.13
Cumulative Total Returns without/with chgs. 76.17% A 72.81% C
Avg. Annual Total Returns without/with chgs. 10.02% B 9.66% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.32006145 (0.088) 99.912 1,131.01
12-31-97 Value before Surr Chg 10.80891898 0.000 99.912 1,079.94
12-31-97 Contract Fee (1.00) 10.80891898 (0.093) 99.819 1,078.94
12-31-97 Surrender Charge (51.00) 10.80891898 (4.718) 95.101 1,027.94
Cumulative Total Returns without/with chgs. 8.09% A 2.79% C
Avg. Annual Total Returns without/with chgs. 4.77% B 1.67% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) 14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) 11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) 14.44474860 (0.069) 99.675 1,439.78
1-27-97 Contract Fee (1.00) 14.58766078 (0.069) 99.606 1,453.03
12-31-97 Value before Surr Chg 9.38089631 0.000 99.606 934.40
12-31-97 Contract Fee (1.00) 9.38089631 (0.107) 99.500 933.40
12-31-97 Surrender Charge (25.50) 9.38089631 (2.718) 96.782 907.90
Cumulative Total Returns without/with chgs. -6.19% A -9.21% C
Avg. Annual Total Returns without/with chgs. -1.07% B -1.62% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) 11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) 12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) 14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) 14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) 14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) 15.82460547 (0.063) 99.461 1,573.94
3-14-97 Contract Fee (1.00) 16.60622197 (0.060) 99.401 1,650.68
12-31-97 Value before Surr Chg 17.80492179 0.000 99.401 1,769.83
12-31-97 Contract Fee (1.00) 17.80492179 (0.056) 99.345 1,768.83
12-31-97 Surrender Charge 0.00 17.80492179 0.000 99.345 1,768.83
Cumulative Total Returns without/with chgs. 78.05% A 76.88% C
Avg. Annual Total Returns without/with chgs. 6.77% B 6.69% D
Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.37748201 (0.096) 99.904 1,036.75
3-14-91 Contract Fee (1.00) 11.49325260 (0.087) 99.817 1,147.22
3-14-92 Contract Fee (1.00) 12.63019476 (0.079) 99.737 1,259.70
3-14-93 Contract Fee (1.00) 15.48457708 (0.065) 99.673 1,543.39
3-14-94 Contract Fee (1.00) 15.97181577 (0.063) 99.610 1,590.96
3-14-95 Contract Fee (1.00) 16.16440029 (0.062) 99.548 1,609.14
3-14-96 Contract Fee (1.00) 17.74484226 (0.056) 99.492 1,765.47
3-14-97 Contract Fee (1.00) 18.31427141 (0.055) 99.437 1,821.12
12-31-97 Value before Surr Chg 19.35767222 0.000 99.437 1,924.88
12-31-97 Contract Fee (1.00) 19.35767222 (0.052) 99.386 1,923.88
12-31-97 Surrender Charge 0.00 19.35767222 0.000 99.386 1,923.88
Cumulative Total Returns without/with chgs. 93.58% A 92.39% C
Avg. Annual Total Returns without/with chgs. 7.79% B 7.71% D
Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38882453 (0.096) 99.904 1,037.88
3-14-91 Contract Fee (1.00) 11.53456820 (0.087) 99.817 1,151.35
3-14-92 Contract Fee (1.00) 12.62819047 (0.079) 99.738 1,259.51
3-14-93 Contract Fee (1.00) 16.36793990 (0.061) 99.677 1,631.50
3-14-94 Contract Fee (1.00) 16.86182251 (0.059) 99.617 1,679.73
3-14-95 Contract Fee (1.00) 17.12592868 (0.058) 99.559 1,705.04
3-14-96 Contract Fee (1.00) 19.37651757 (0.052) 99.507 1,928.11
3-14-97 Contract Fee (1.00) 20.04125698 (0.050) 99.458 1,993.25
12-31-97 Value before Surr Chg 22.35667212 0.000 99.458 2,223.54
12-31-97 Contract Fee (1.00) 22.35667212 (0.045) 99.413 2,222.54
12-31-97 Surrender Charge 0.00 22.35667212 0.000 99.413 2,222.54
Cumulative Total Returns without/with chgs. 123.57% A 122.25% C
Avg. Annual Total Returns without/with chgs. 9.57% B 9.49% D
Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.25922011 (0.097) 99.903 1,024.92
3-14-91 Contract Fee (1.00) 11.34740047 (0.088) 99.814 1,132.63
3-14-92 Contract Fee (1.00) 12.25923536 (0.082) 99.733 1,222.65
3-14-93 Contract Fee (1.00) 16.12714811 (0.062) 99.671 1,607.41
3-14-94 Contract Fee (1.00) 16.82866376 (0.059) 99.611 1,676.33
3-14-95 Contract Fee (1.00) 17.03620553 (0.059) 99.553 1,696.00
3-14-96 Contract Fee (1.00) 19.87163939 (0.050) 99.502 1,977.28
3-14-97 Contract Fee (1.00) 20.61421426 (0.049) 99.454 2,050.16
12-31-97 Value before Surr Chg 24.54360878 0.000 99.454 2,440.96
12-31-97 Contract Fee (1.00) 24.54360878 (0.041) 99.413 2,439.96
12-31-97 Surrender Charge 0.00 24.54360878 0.000 99.413 2,439.96
Cumulative Total Returns without/with chgs. 145.44% A 144.00% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.66% D
<FN>
A = (Unit Value as of December 31, 1997 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
