File Nos. 33-23035
811-05618
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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. 18 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 36 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
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(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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(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>
Item No. Location
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<S> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions. . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights. . . . . . . . . . . Highlights
Item 4. Condensed Financial Information. . . . . . . Condensed Financial
Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . The Company; The
Variable Account;
Franklin Valuemark
Funds
Item 6. Deductions. . . . . . . . . . . . . . . . . . Charges and
Deductions
Item 7. General Description of Variable Annuity
Contracts. . . . . . . . . . . . . . . . . . . The Contracts
Item 8. Annuity Period. . . . . . . . . . . . . . . . Annuity Provisions
Item 9. Death Benefit. . . . . . . . . . . . . . . . . The Contracts;
Annuity Provisions
Item 10. Purchases and Contract Value.. . . . . . . . . Purchase Payments
and Contract Value
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Surrenders
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Federal Tax Status
Item 13. Legal Proceedings. . . . . . . . . . . . . . . Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . . Table of Contents of
the Statement of
Additional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
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<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . . The Company
Item 18. Services. . . . . . . . . . . . . .. . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . .. . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
HOME OFFICE: VALUEMARK SERVICE CENTER:
1750 Hennepin Avenue 300 Berwyn Park
Minneapolis, MN 55403-2195 P.O. Box 3031
(800) 542-5427 Berwyn, PA 19312-0031
(800) 624-0197
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
MAY 1, 1998
The Individual Flexible Payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments. The Contracts are designed to aid
individuals in long-term planning for retirement or other long-term purposes.
This is not appropriate as a trading vehicle.
The Contracts are available for retirement plans which do not qualify for the
special federal tax advantages available under the Internal Revenue Code
("Non-Qualified Plans") and for retirement plans which do qualify for the
federal tax advantages available under the Internal Revenue Code ("Qualified
Plans"). (See "Federal Tax Status - Qualified Plans.") However, because of the
minimum purchase payment requirements, these Contracts may not be appropriate
for some periodic payment retirement plans.
Purchase payments for the Contracts will be allocated to a segregated investment
account of Allianz Life Insurance Company of North America (the "Company") which
account has been designated Allianz Life Variable Account B (the "Variable
Account") or to the Company's Fixed Option. IN WASHINGTON, THE FIXED OPTION IS
NOT AVAILABLE UNTIL APPROVED BY THE WASHINGTON INSURANCE DEPARTMENT.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-five Portfolios: the Capital
Growth Fund, the Global Health Care Securities Fund, the Global Utilities
Securities Fund, the Growth and Income Fund, the High Income Fund, the Income
Securities Fund, the Money Market Fund, the Mutual Discovery Securities Fund,
the Mutual Shares Securities Fund, the Natural Resources Securities Fund, the
Real Estate Securities Fund, the Rising Dividends Fund, the Small Cap Fund, the
Templeton Developing Markets Equity Fund, the Templeton Global Asset Allocation
Fund, the Templeton Global Growth Fund, the Templeton Global Income Securities
Fund, the Templeton International Equity Fund, the Templeton International
Smaller Companies Fund, the Templeton Pacific Growth Fund, the U.S. Government
Securities Fund, the Value Securities Fund, and the Zero Coupon Funds - 2000,
2005 and 2010. 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). See "Highlights" and "Federal Tax
Status" for a discussion of owner control of the underlying investments in a
variable annuity contract.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE
SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information," (SAI)which is available
at no charge. The SAI has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. 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.
The Table of Contents of the Statement of Additional Information can be found on
the last page of this Prospectus. For a free copy of the SAI, call or write the
Home Office address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the Home Office phone number or address listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, COUNTRY, OR JURISDICTION IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALES
REPRESENTATIVE, DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS MUST BE ACCOMPANIED BY OR PRECEDED BY A CURRENT PROSPECTUS FOR
FRANKLIN VALUEMARK FUNDS.
This Prospectus and the SAI are dated May 1, 1998, and may be amended from time
to time.
This Prospectus should be kept for future reference.
IN THE STATE OF OREGON, ALL REFERENCES TO FRANKLIN VALUEMARK(R) II REFER TO
VALUEMARK II.
TABLE OF CONTENTS PAGE
DEFINITIONS....................................... 3
HIGHLIGHTS........................................ 4
FEE TABLE......................................... 6
CONDENSED FINANCIAL
INFORMATION...................................... 10
THE COMPANY....................................... 13
THE VARIABLE ACCOUNT.............................. 13
FRANKLIN VALUEMARK FUNDS.......................... 13
General.......................................... 14
Substitution of Securities....................... 14
Voting Privileges................................ 14
CHARGES AND DEDUCTIONS............................ 14
Deduction for Contingent Deferred
Sales Charge (Sales Load)....................... 15
Reduction or Elimination of
Contingent Deferred Sales Charge................ 15
Deduction for Mortality and
Expense Risk Charge............................. 15
Deduction for Administrative
Expense Charge.................................. 16
Deduction for Contract
Maintenance Charge.............................. 16
Deduction for Premium Taxes...................... 16
Deduction for Income Taxes....................... 16
Deduction for Trust Expenses..................... 16
Deduction for Transfer Fee....................... 17
THE CONTRACTS..................................... 17
Ownership........................................ 17
Assignment....................................... 17
Beneficiary...................................... 17
Change of Beneficiary............................ 17
Annuitant........................................ 18
Death of the Contract Owner
Before the Income Date.......................... 18
Death of the Contract Owner
After the Income Date........................... 19
Death of the Annuitant........................... 19
ANNUITY PROVISIONS................................ 19
Income Date...................................... 19
Change in Income Date and
Annuity Option.................................. 19
Annuity Options.................................. 19
Annuity Units.................................... 20
PURCHASE PAYMENTS AND
CONTRACT VALUE................................... 21
Purchase Payments................................ 21
Automatic Investment Plan........................ 21
Allocation of Purchase Payments.................. 21
Transfer of Contract Values...................... 22
Dollar Cost Averaging............................ 23
Flexible Rebalancing............................. 23
Contract Value................................... 24
Accumulation Unit................................ 24
DISTRIBUTOR....................................... 24
SURRENDERS........................................ 24
Systematic Withdrawal............................ 25
Minimum Distribution Program..................... 25
Delay of Payments................................ 25
ADMINISTRATION OF THE CONTRACTS................... 26
PERFORMANCE DATA.................................. 26
Money Market Sub-Account......................... 26
Other Contract Sub-Accounts...................... 26
Performance Ranking.............................. 27
FEDERAL TAX STATUS................................. 27
General.......................................... 27
Diversification.................................. 27
Multiple Contracts............................... 28
Contracts Owned by Other
than Natural Persons............................ 28
Tax Treatment of Assignments..................... 29
Income Tax Withholding........................... 29
Tax Treatment of Surrenders -
Non-Qualified Contracts......................... 29
Qualified Plans.................................. 29
Tax Treatment of Surrenders -
Qualified Contracts............................. 31
Tax-Sheltered Annuities -
Surrender Limitations........................... 32
FINANCIAL STATEMENTS.............................. 32
LEGAL PROCEEDINGS................................. 32
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION........................... 32
DEFINITIONS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Contract
Value prior to the Income Date.
ANNUITANT - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant may be changed at any time
prior to the Income Date unless the Contract Owner is not a natural person.
ANNUITY OPTION - An arrangement under which annuity payments are made under the
Contract.
ANNUITY PERIOD - The period starting on the Income Date.
ANNUITY UNIT - An accounting unit of measure used to calculate annuity payments
after the Income Date.
COMPANY - Allianz Life Insurance Company of North America at its Valuemark
Service Center shown on the cover page of this Prospectus.
CONTINGENT OWNER - In those Contracts containing Contingent Owner provisions,
the Contingent Owner is named in the application, unless changed. Only the
spouse of the Owner may be the Contingent Owner.
CONTRACT ANNIVERSARY - An anniversary of the Effective Date of the Contract.
CONTRACT OWNER - The person(s) or entity who own the Contract as named in the
Company's records as the owner or Joint Owner. If Joint Owners are named, all
references to Contract Owner shall mean the Joint Owners.
CONTRACT SUB-ACCOUNT (referred to in the Contract as "Sub-Account") - A segment
of the Variable Account. Each Contract Sub-Account is invested in shares of a
Portfolio of an Eligible Investment.
CONTRACT VALUE - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
CONTRACT YEAR - Any period of twelve (12) months commencing with the Effective
Date and each Contract Anniversary thereafter.
EFFECTIVE DATE - The date on which the first Contract Year begins.
ELIGIBLE INVESTMENT(S) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
FIXED OPTION (referred to in the Contract as the "Fixed Account") - The
Company's general investment account which contains all the assets of the
Company with the exception of the Variable Account and other segregated asset
accounts (referred to in the Contract as "Fixed Account").
INCOME DATE - The date on which annuity payments are to commence.
JOINT OWNER - In Contracts containing Joint Owner provisions, if there is more
than one Contract Owner, each Contract Owner shall be a Joint Owner of the
Contract. Joint Owners have equal ownership rights and must both authorize any
exercising of those ownership rights unless otherwise allowed by the Company.
Any Joint Owner must be the spouse of the other Joint Owner (except in
Pennsylvania).
NON-QUALIFIED CONTRACTS - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) or 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
PORTFOLIO (referred to in the Contract as "Fund") - A segment of an Eligible
Investment which constitutes a separate and distinct class of interests under an
Eligible Investment.
QUALIFIED CONTRACTS - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 401, 403(b) or 408 of the Code.
SURRENDER VALUE - The Contract Value for the Valuation Period next following the
Valuation Period during which the written request to the Company for surrender
is received, reduced by the sum of: (i) any applicable premium taxes not
previously deducted; (ii) any applicable Contract Maintenance Charge; and (iii)
any applicable Contingent Deferred Sales Charge.
VALUATION DATE - The Variable Account will be valued each day that the New York
Stock Exchange is open for trading, which is Monday through Friday, except for
normal business holidays.
VALUATION PERIOD - The period commencing at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
VARIABLE ACCOUNT - A separate investment account of the Company, designated as
Allianz Life Variable Account B, into which purchase payments may be allocated.
HIGHLIGHTS
- --------------------------------------------------------------------------------
Purchase payments for the Contracts will be allocated to a segregated investment
account of Allianz Life Insurance Company of North America (the "Company") which
has been designated Allianz Life Variable Account B (the "Variable Account") or
to the Company's Fixed Option. IN WASHINGTON, THE FIXED OPTION IS NOT AVAILABLE
UNTIL APPROVED BY THE WASHINGTON INSURANCE DEPARTMENT.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). (See "Franklin Valuemark Funds.") CONTRACT OWNERS BEAR THE INVESTMENT
RISK FOR ALL AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNT.
The Contract may be returned within 10 days (or for a longer period in states
where required) after it is received ("Free-Look Period"). It can be mailed or
delivered to either the Company or the agent who sold it. Return of the Contract
by mail is effective on being postmarked, properly addressed and postage
prepaid. The returned Contract will be treated as if the Company had never
issued it. The Company will promptly refund the Contract Value in states where
permitted. This may be more or less than the purchase payments. In states where
required and where the Contract is purchased pursuant to an Individual
Retirement Annuity, the Company will promptly refund the purchase payments, less
any surrenders. The Company has reserved the right to allocate initial purchase
payments to the Money Market Sub-Account (except those allocated to the Fixed
Option) until the expiration of the Free-Look Period. If the Company does so
allocate the initial purchase payment to the Money Market Sub-Account, it will
refund the greater of the purchase payments, less any surrenders, or the
Contract Value. It is the Company's current practice to directly allocate the
initial purchase payments to the Contract Sub-Accounts and/or to the Fixed
Option as selected by the Contract Owner.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event of
a surrender. The Contingent Deferred Sales Charge is imposed on surrenders of
purchase payments within five (5) years after their being made. Once each
Contract Year, Contract Owners may surrender up to fifteen percent (15%) of
purchase payments paid less any prior surrenders without incurring a Contingent
Deferred Sales Charge. If no surrender is made during a Contract Year, the 15%
is cumulative into future years. If less than 15% is surrendered in a Contract
Year, the remaining percentage is not available in future years. The Contingent
Deferred Sales Charge will vary in amount, depending upon the Contract Year in
which the purchase payment being surrendered was made. The Company currently
makes available a systematic withdrawal plan which allows for additional options
in some instances. (See "Surrenders - Systematic Withdrawal.") The Contingent
Deferred Sales Charge is found in the Fee Table. (See also "Charges and
Deductions - Deduction for Contingent Deferred Sales Charge (Sales Load).") The
maximum Contingent Deferred Sales Charge is 5% of purchase payments. For
purposes of determining the applicability of the Contingent Deferred Sales
Charge, surrenders are deemed to be on a first-in, first-out basis.
There is a Mortality and Expense Risk Charge which is equal, on an annual basis,
to 1.25% of the average daily net assets of the Variable Account. This charge
compensates the Company for assuming the mortality and expense risks under the
Contracts. (See "Charges and Deductions - Deduction for Mortality and Expense
Risk Charge.")
There is an Administrative Expense Charge which is equal, on an annual basis, to
0.15% of the average daily net assets of the Variable Account. This charge
compensates the Company for costs associated with the administration of the
Contract and the Variable Account.
(See "Charges and Deductions - Deduction for Administrative Expense Charge.")
There is an annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.")
Under certain circumstances there may be assessed a transfer fee when a Contract
Owner transfers Contract Values. (See "Charges and Deductions - Deduction for
Transfer Fee.")
There is a ten percent (10%) federal income tax penalty that may be applied to
the income portion of any distribution from the Contracts. However, the penalty
is not imposed under certain circumstances. (See "Federal Tax Status - Tax
Treatment of Surrenders - Non-Qualified Contracts" and "Tax Treatment of
Surrenders - Qualified Contracts.") For a further discussion of the taxation of
the Contracts, see "Federal Tax Status."
For Contracts purchased in connection with 403(b) plans, surrenders of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) are limited to circumstances only
when the Contract Owner: (1) attains age 591/2; (2) separates from service; (3)
dies; (4) becomes disabled (within the meaning of Section 72(m)(7) of the Code);
or (5) in the case of hardship. However, surrenders for hardship are restricted
to the portion of the Contract Owner's Contract Value which represents
contributions made by the Contract Owner and does not include any investment
results. The limitations on surrenders became effective on January 1, 1989 and
only apply to (i) salary reduction contributions made after December 31, 1988;
(ii) to income attributable to such contributions; and (iii) to amounts held as
of December 31, 1988. The limitations on surrenders do not affect rollovers or
transfers between certain Qualified Plans. Contract Owners should consult their
own tax counsel or other tax adviser regarding distributions. (See "Federal Tax
Status - Tax Sheltered Annuities - Surrender Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investment underlying the contract. The issuance of such guidelines may require
the Company to impose limitations on a Contract Owner's right to control the
investment. It is not known whether any such guidelines would have a retroactive
effect (see "Federal Tax Status - Diversification").
The Company offers other deferred variable annuity contracts but does not permit
exchange of those contracts for the Contracts offered by this Prospectus.
Because of certain exemptive and exclusionary provisions, interests in the Fixed
Option are not registered under the Securities Act of 1933 and the Fixed Option
is not registered as an investment company under the Investment Company Act of
1940, as amended. Accordingly, neither the Fixed Option nor any interests
therein are subject to the provisions of these Acts, and the Company has been
advised that the staff of the Securities and Exchange Commission has not
reviewed the disclosures in the Prospectus relating to the Fixed Option.
Disclosures regarding the Fixed Option may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of purchase payments) YEARS SINCE
PAYMENT CHARGE
----------- -------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
Current Transfer Fee**.................... First 12 transfers in a Contract
Year are free. Thereafter, the fee
is $25 (or 2% of the amount
transferred, if less).
Prescheduled automatic dollar cost
averaging and flexible rebalancing
transfers are not counted.
Contract Maintenance Charge............... $30 per Contract per year
(Prior to the Income Date the charge
is waived for Contracts having Contract
Values or purchase payments less
surrenders of $100,000 or more. Currently,
the charge is also waived during the
Annuity Period if the Contract Value at
the time of annuitization is at least
$100,000.)
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge ......... 1.25%
Administrative Expense Charge ............. .15%
------
Total Variable Account Annual Expenses .... 1.40%
*Once each Contract Year, a Contract Owner may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge. If no surrender is made during a Contract
Year, the 15% is cumulative into future years. If less than 15% is surrendered
in a Contract Year, the remaining percentage is not available in future years.
See also "Surrenders - Systematic Withdrawal" and "Surrenders - Minimum
Distribution Program" for additional options.
**The Contract provides that if more than three transfers have been made in a
Contract Year, the Company reserves the right to deduct a transfer fee which
shall not exceed the lesser of $25 or 2% of the amount transferred. Market
timing transfers may not be permitted.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES
(as a percentage of Franklin Valuemark Funds' average net assets).
The Management and Portfolio Administration Fees for each Portfolio are based on a percentage of that Portfolio's net assets.
See "Franklin Valuemark Funds" in this Prospectus and "Management" in the Trust prospectus.
The "Management and Portfolio Administration Fees" below include investment advisory and other management and administrative
fees not included as "Other Expenses" that were paid to the Managers and Portfolio Administrators to the Trust 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 (see explanatory footnotes below). The purpose of the Table is to assist the Contract Owner in understanding the various
costs and expenses of investing, directly or indirectly, in the Contract.
MANAGEMENT
AND PORTFOLIO OTHER TOTAL ANNUAL
ADMINISTRATION FEES1 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 in advance 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 0.45% of the average daily net assets of the
Portfolio.
5Although not obligated to, Franklin Advisers, Inc. has agreed in advance 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 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>
<PAGE>
<TABLE>
<CAPTION>
The following Examples reflect expenses of the Variable Account as well as of the Trust. The dollar figures should not be
considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. The $30
Contract Maintenance Charge is included in the Examples as a prorated charge of $1 based on a Contract size of $30,000. For
additional information, see "Charges and Deductions" in this Prospectus and "Management" in the Trust Prospectus.
Premium taxes are not reflected in the Tables. Premium taxes may apply.
EXAMPLE
If the Contract is fully surrendered at the end of the applicable time period and no prior surrenders have occurred, the
Contract Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on assets
compounded annually:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund ........................................................... $66 $ 93 $125 $260
Global Health Care Securities Fund* ........................................... $66 $ 96 $130 $270
Global Utilities Securities Fund .............................................. $63 $ 85 $111 $232
Growth and Income Fund ........................................................ $63 $ 84 $111 $231
High Income Fund .............................................................. $63 $ 86 $113 $235
Income Securities Fund ........................................................ $63 $ 85 $111 $232
Money Market Fund ............................................................. $63 $ 86 $113 $235
Mutual Discovery Securities Fund .............................................. $68 $102 $140 $290
Mutual Shares Securities Fund ................................................. $66 $ 94 $127 $263
Natural Resources Securities Fund ............................................. $65 $ 90 $121 $252
Real Estate Securities Fund ................................................... $63 $ 86 $113 $236
Rising Dividends Fund ......................................................... $65 $ 92 $124 $257
Small Cap Fund ................................................................ $66 $ 93 $125 $260
Templeton Developing Markets Equity Fund ...................................... $72 $112 $158 $325
Templeton Global Asset Allocation Fund ........................................ $67 $ 98 $134 $278
Templeton Global Growth Fund .................................................. $67 $ 96 $131 $272
Templeton Global Income Securities Fund ....................................... $64 $ 88 $118 $245
Templeton International Equity Fund ........................................... $67 $ 97 $131 $273
Templeton International Smaller Companies Fund ................................ $68 $102 $140 $290
Templeton Pacific Growth Fund ................................................. $68 $101 $138 $287
U.S. Government Securities Fund ............................................... $63 $ 85 $111 $232
Value Securities Fund*......................................................... $66 $94 $127 $264
Zero Coupon Fund - 2000+....................................................... $62 $ 82 $106 $222
Zero Coupon Fund - 2005+....................................................... $62 $ 82 $106 $222
Zero Coupon Fund - 2010+....................................................... $62 $ 82 $106 $222
<FN>
*Estimated
+Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If the Contract is not surrendered at the end of the applicable time period and no prior surrenders have occurred or is
annuitized, the Contract Owner would have incurred the following expenses on a $1,000 investment, assuming a 5% annual return on
assets compounded annually:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund ........................................................... $23 $71 $121 $260
Global Health Care Securities Fund*............................................ $24 $74 $126 $270
Global Utilities Securities Fund .............................................. $20 $63 $108 $232
Growth and Income Fund ........................................................ $20 $62 $107 $231
High Income Fund .............................................................. $21 $64 $109 $235
Income Securities Fund ........................................................ $20 $63 $108 $232
Money Market Fund ............................................................. $20 $61 $105 $227
Mutual Discovery Securities Fund .............................................. $26 $80 $136 $290
Mutual Shares Securities Fund ................................................. $23 $72 $123 $263
Natural Resources Securities Fund ............................................. $22 $68 $117 $252
Real Estate Securities Fund ................................................... $21 $64 $110 $236
Rising Dividends Fund ......................................................... $23 $70 $120 $257
Small Cap Fund ................................................................ $23 $71 $121 $260
Templeton Developing Markets Equity Fund ...................................... $30 $90 $154 $325
Templeton Global Asset Allocation Fund ........................................ $25 $76 $130 $278
Templeton Global Growth Fund .................................................. $24 $74 $127 $272
Templeton Global Income Securities Fund ....................................... $22 $66 $114 $245
Templeton International Equity Fund ........................................... $24 $75 $128 $273
Templeton International Smaller Companies Fund ................................ $26 $80 $136 $290
Templeton Pacific Growth Fund ................................................. $26 $79 $135 $287
U.S. Government Securities Fund ............................................... $20 $63 $108 $232
Value Securities Fund*......................................................... $23 $72 $123 $264
Zero Coupon Fund - 2000+....................................................... $19 $60 $102 $222
Zero Coupon Fund - 2005+....................................................... $19 $60 $102 $222
Zero Coupon Fund - 2010+....................................................... $19 $60 $102 $222
<FN>
*Estimated
+Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
The consolidated financial statements of Allianz Life Insurance Company of North America and the financial statements of Allianz
Life Variable Account B may be found in the SAI.
The table below gives per Accumulation Unit information about the financial history of each Contract Sub-Account from the
inception of each to December 31, 1997.+
This information should be read in conjunction with the financial statements and related notes to the Variable Account included
in the SAI.
(NUMBER OF UNITS IN THOUSANDS) GLOBAL GLOBAL GROWTH MUTUAL
CAPITAL HEALTH CARE UTILITIES AND HIGH INCOME MONEY DISCOVERY
CONTRACT SUB-ACCOUNTS: GROWTH SECURITIES+ SECURITIES* INCOME INCOME SECURITIES MARKET SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period.. $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Unit value at end of period........ $13.130 NA $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Number of units outstanding at
end of period..................... 5,673 NA 39,623 46,962 18,871 49,812 20,982 9,940
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period.. $10.000** NA $19.565 $17.310 $17.252 $19.785 $12.883 $10.000**
Unit value at end of period........ $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Number of units outstanding at
end of period..................... 3,722 NA 53,086 50,027 20,736 57,504 28,060 1,471
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period.. NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Unit value at end of period........ NA NA $19.565 $17.310 $17.252 $19.785 $12.883 NA
Number of units outstanding at
end of period..................... NA NA 66,669 46,893 18,756 59,309 31,040 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period.. NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Unit value at end of period........ NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Number of units outstanding at
end of period..................... NA NA 70,082 35,695 15,679 56,569 39,437 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period.. NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Unit value at end of period........ NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Number of units outstanding at
end of period..................... NA NA 84,217 24,719 11,787 38,967 10,247 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period.. NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Unit value at end of period........ NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Number of units outstanding at
end of period..................... NA NA 39,387 17,144 4,780 11,397 6,951 NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period.. NA NA $12.062 $ 9.803 $ 9.026 $ 9.842 $11.288 NA
Unit value at end of period........ NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Number of units outstanding at
end of period..................... NA NA 16,188 9,671 1,923 4,472 5,682 NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period.. NA NA $12.010 $10.180 $10.021 $10.783 $10.637 NA
Unit value at end of period........ NA NA $12.062 $ 9.803 $ 9.026 $ 9.842 $11.288 NA
Number of units outstanding at
end of period..................... NA NA 6,300 5,356 1,056 3,011 5,768 NA
PERIOD FROM INCEPTION**
TO DEC. 31, 1989
Unit value at beginning of period.. NA NA $10.000 $10.000 $10.000 $10.000 $10.000 NA
Unit value at end of period........ NA NA $12.010 $10.180 $10.021 $10.783 $10.637 NA
Number of units outstanding at
end of period..................... NA NA 1,173 1,662 612 1,508 1,199 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS) MUTUAL NATURAL REAL TEMPLETON GLOBAL TEMPLETON
SHARES RESOURCES ESTATE RISING SMALL DEVELOPING ASSET GLOBAL
CONTRACT SUB-ACCOUNTS: SECURITIES SECURITIES SECURITIES DIVIDENDS CAP MARKETS EQUITY ALLOCATION GROWTH
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period.. $10.330 $14.467 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Unit value at end of period........ $11.993 $11.559 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Number of units outstanding at
end of period..................... 18,744 5,709 13,445 33,249 16,925 23,005 5,229 41,433
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period.. $10.000** $14.109 $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Unit value at end of period........ $10.330 $14.467 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Number of units outstanding at
end of period..................... 2,613 6,998 12,757 35,569 12,784 22,423 4,104 40,327
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period.. NA $13.979 $15.594 $ 9.769 $10.000** $ 9.454 $10.000** $10.201
Unit value at end of period........ NA $14.109 $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Number of units outstanding at
end of period..................... NA 6,919 10,998 33,789 1,302 15,618 1,338 28,309
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period.. NA $14.464 $15.369 $10.327 NA $10.000** NA $10.000**
Unit value at end of period........ NA $13.979 $15.594 $ 9.769 NA $ 9.454 NA $10.201
Number of units outstanding at
end of period..................... NA 8,285 11,645 28,778 NA 9,774 NA 14,637
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period.. NA $ 9.424 $13.095 $10.848 NA NA NA NA
Unit value at end of period........ NA $14.464 $15.369 $10.327 NA NA NA NA
Number of units outstanding at
end of period..................... NA 4,685 5,589 26,256 NA NA NA NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period.. NA $10.635 $11.848 $10.000** NA NA NA NA
Unit value at end of period........ NA $ 9.424 $13.095 $10.848 NA NA NA NA
Number of units outstanding at
end of period..................... NA 1,419 1,052 8,388 NA NA NA NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period.. NA $10.387 $ 9.000 NA NA NA NA NA
Unit value at end of period........ NA $10.635 $11.848 NA NA NA NA NA
Number of units outstanding at
end of period..................... NA 833 394 NA NA NA NA NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period.. NA $12.247 $10.368 NA NA NA NA NA
Unit value at end of period........ NA $10.387 $ 9.000 NA NA NA NA NA
Number of units outstanding at
end of period..................... NA 1,015 200 NA NA NA NA NA
PERIOD FROM INCEPTION**
TO DEC. 31, 1989
Unit value at beginning of period.. NA $10.000 $10.000 NA NA NA NA NA
Unit value at end of period........ NA $12.247 $10.368 NA NA NA NA NA
Number of units outstanding at
end of period..................... NA 167 57 NA NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS) TEMPLETON TEMPLETON TEMPLETON TEMPLETON U.S. ZERO ZERO ZERO
GLOBAL INCOME INTERNATIONAL INTERNATIONAL PACIFIC GOVERNMENT VALUE COUPON COUPON COUPON
CONTRACT SUB-ACCOUNTS: SECURITIES EQUITY SMALLER COS. GROWTH SECURITIES SECURITIES+ 2000 2005 2010
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $16.780 $16.081 $11.145 $14.932 $16.650 NA $18.475 $22.517 $21.522
Unit value at end of period.... $16.957 $17.711 $10.825 $ 9.431 $17.947 NA $19.512 $22.532 $24.740
Number of units outstanding at
end of period................. 9,434 58,179 1,998 15,833 36,347 NA 4,523 2,910 2,998
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $15.522 $13.263 $10.000** $13.630 $16.298 NA $18.294 $20.914 $22.431
Unit value at end of period.... $16.781 $16.081 $11.145 $14.932 $16.650 NA $18.475 $20.517 $21.522
Number of units outstanding at
end of period................. 11,857 64,375 1,388 22,061 44,598 NA 5,636 3,579 3,297
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period $13.726 $12.161 NA $12.802 $13.835 NA $15.373 $16.096 $15.930
Unit value at end of period.... $15.522 $13.263 NA $13.630 $16.298 NA $18.294 $20.914 $22.431
Number of units outstanding at
end of period................. 14,181 59,883 NA 22,483 34,313 NA 6,066 3,504 3,437
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period $14.650 $12.226 NA $14.233 $14.698 NA $16.717 $18.050 $18.144
Unit value at end of period.... $13.726 $12.161 NA $12.802 $13.835 NA $15.373 $16.096 $15.930
Number of units outstanding at
end of period................. 16,855 60,464 NA 27,231 36,490 NA 4,953 2,780 2,589
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period $12.733 $ 9.642 NA $ 9.761 $13.586 NA $14.595 $14.975 $14.670
Unit value at end of period.... $14.650 $12.226 NA $14.233 $14.698 NA $16.717 $18.050 $18.144
Number of units outstanding at
end of period................. 13,054 24,026 NA 14,240 40,402 NA 3,787 2,020 1,405
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period $12.962 $10.000** NA $10.000** $12.798 NA $13.570 $13.705 $13.482
Unit value at end of period.... $12.733 $ 9.642 NA $ 9.761 $13.586 NA $14.595 $14.975 $14.670
Number of units outstanding at
end of period................. 5,487 1,329 NA 534 25,054 NA 2,886 1,090 849
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period $11.706 NA NA NA $11.199 NA $11.446 $11.545 $11.390
Unit value at end of period.... $12.962 NA NA NA $12.798 NA $13.570 $13.705 $13.482
Number of units outstanding at
end of period................. 2,979 NA NA NA 14,426 NA 2,012 795 1,150
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period $10.813 NA NA NA $10.427 NA $10.961 $11.406 $11.486
Unit value at end of period.... $11.706 NA NA NA $11.199 NA $11.446 $11.545 $11.390
Number of units outstanding at
end of period................. 1,322 NA NA NA 5,450 NA 1,041 406 581
PERIOD FROM INCEPTION**
TO DEC. 31, 1989
Unit value at beginning of period $10.000 NA NA NA $10.000 NA $10.000 $10.000 $10.000
Unit value at end of period.... $10.813 NA NA NA $10.427 NA $10.961 $11.406 $11.486
Number of units outstanding at
end of period................. 278 NA NA NA 1,102 NA 162 86 194
<FN>
+The Global Health Care Securities and the Value Securities Sub-Accounts commenced operations May 1, 1998.
*Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
**Unit Value at inception was $10.00.
</FN>
</TABLE>
<PAGE>
The Accumulation Unit Value at the inception was $10.00 for each Contract
Sub-Account. Inception was 1/24/89 for the Global Utilities Securities, Growth
and Income, High Income, Income Securities, Money Market, Natural Resources
Securities, Real Estate Securities and Templeton Global Income Securities
Sub-Accounts; 3/14/89 for the U.S. Government Securities and the three Zero
Coupon Sub-Accounts; 1/27/92 for the Rising Dividends, Templeton International
Equity and Templeton Pacific Growth Sub-Accounts; 3/15/94 for the Templeton
Developing Markets Equity and Templeton Global Growth Sub-Accounts; 5/1/95 for
the Templeton Global Asset Allocation Sub-Account; 11/1/95 for the Small Cap
Sub-Account; 5/1/96 for the Capital Growth and Templeton International Smaller
Companies Sub-Accounts; 11/8/96 for the Mutual Discovery Securities and Mutual
Shares Securities Sub-Accounts; and 5/1/98 for the Global Health Care Securities
and Value Securities Sub-Accounts.
THE COMPANY
- --------------------------------------------------------------------------------
Allianz Life Insurance Company of North America (the "Company") is a stock life
insurance company organized under the laws of the state of Minnesota in 1896.
The Company is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding
("Allianz"). Allianz is headquartered in Munich, Germany, and has sales outlets
throughout the world. The Company offers fixed and variable life insurance and
annuities, and group life, accident and health insurance.
NALAC Financial Plans, LLC is a wholly-owned subsidiary of the Company. It
provides marketing services for the Company and is the principal underwriter of
the Contracts. NALAC Financial Plans, LLC is reimbursed for expenses incurred in
the distribution of the Contracts.
Administration for the Contracts is provided at the Company's Valuemark Service
Center: 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania 19312-0031, (800)
624-0197.
THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
The Variable Account was established pursuant to a resolution of the Board of
Directors on May 31, 1985. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the "1940 Act").
The assets of the Variable Account are the property of the Company. However, the
assets of the Variable Account equal to the reserves, and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations.
The Variable Account meets the definition of a "separate account" under the
federal securities laws.
The Variable Account is divided into Contract Sub-Accounts with the assets of
each Contract Sub-Account invested in one of the Portfolios of Franklin
Valuemark Funds. Currently, there are twenty-five Portfolios available under
Franklin Valuemark Funds.
FRANKLIN VALUEMARK FUNDS
- --------------------------------------------------------------------------------
Each of the Contract Sub-Accounts of the Variable Account is invested solely in
the shares of one of the Portfolios of Franklin Valuemark Funds ("Trust"). The
Trust is an open-end management investment company registered under the 1940
Act. The investment objectives of each Portfolio and a discussion of potential
risks are found in the accompanying prospectus for the Trust, which is included
with this Prospectus. 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.)
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
<PAGE>
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.
The following is a list of the Portfolios available under the Contract:
INVESTMENT
AVAILABLE PORTFOLIOS MANAGERS
- --------------------------------------------------------
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
GENERAL
- --------------------------------------------------------------------------------
There is no assurance that the investment objectives of any of the Portfolios
will be met. Contract Owners bear the complete investment risk for Contract
Values allocated to a Contract Sub-Account.
Additional Portfolios and/or additional Eligible Investments may, from time to
time, be made available as investments to underlie the Contract. However, the
right to make such selections will be limited by the terms and conditions
imposed on such transactions by the Company. (See "Purchase Payments and
Contract Value - Allocation of Purchase Payments.")
SUBSTITUTION OF SECURITIES
The Company may substitute one of the Portfolios Contract Owners have selected
with another Portfolio. The Company would not do this without the prior approval
of the Securities and Exchange Commission. The Company will give Contract Owners
notice of its intention to do this.
VOTING PRIVILEGES
In accordance with its view of present applicable law, the Company will vote the
shares of the Trust held in the Variable Account at special meetings of the
shareholders of the Trust in accordance with instructions received from persons
having the voting interest in the Variable Account. The Company will vote shares
for which it has not received instructions, as well as shares attributable to
it, in the same proportion as it votes shares for which it has received
instructions. The Trust does not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to the
meeting of the Trust. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to the meeting.
Trust shares are issued and redeemed only in connection with variable annuity
contracts and variable life insurance policies issued through separate accounts
of the Company and its affiliates. The Trust does not foresee any disadvantage
to Contract Owners arising out of the fact that the Trust may be made available
to separate accounts which are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Trust's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in the Trust. This might force
the Trust to sell portfolio securities at disadvantageous prices.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
Various charges and deductions are made from Contract Values and the Variable
Account. These charges and deductions are:
DEDUCTION FOR CONTINGENT DEFERRED
SALES CHARGE (SALES LOAD)
If all or a portion of the Surrender Value (see "Definitions") is surrendered, a
Contingent Deferred Sales Charge (sales load) will be calculated at the time of
each surrender and will be deducted from the Contract Value. This charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Contingent Deferred Sales Charge
applies only to those purchase payments received within five (5) years of the
date of surrender. In calculating the Contingent Deferred Sales Charge, purchase
payments are allocated to the amount surrendered on a first-in, first-out basis.
The amount of the Contingent Deferred Sales Charge is calculated by: (a)
allocating purchase payments to the amount surrendered; (b) multiplying each
such allocated purchase payment that has been held under the Contract for the
period by the charge shown below:
YEARS SINCE
PAYMENT CHARGE
---------------------
0-1 5%
1-2 5%
2-3 4%
3-4 3%
4-5 1.5%
5+ 0
and (c) adding the products of each multiplication in (b) above. The charge will
not exceed 5% of the purchase payments.
Once each Contract Year, Contract Owners may surrender up to fifteen percent
(15%) of purchase payments paid less any prior surrenders without incurring a
Contingent Deferred Sales Charge ("free surrender amount"). If no surrender is
made during a Contract Year, the 15% is cumulative into future years. If less
than 15% is surrendered in a Contract Year, the remaining percentage is not
available in future years. No Contingent Deferred Sales Charge will be deducted
from purchase payments which have been held under the Contract for more than
five (5) Contract Years or as annuity payments. See also "Surrenders -
Systematic Withdrawal." The Company may also eliminate or reduce the Contingent
Deferred Sales Charge under the Company procedures then in effect. (See "Charges
and Deductions Reduction or Elimination of Contingent Deferred Sales Charge.")
For a partial surrender, the Contingent Deferred Sales Charge will be deducted
from the remaining Contract Value, if sufficient; otherwise it will be deducted
from the amount surrendered. The amount deducted from the Contract Value will be
determined by canceling Accumulation Units from each applicable Contract
Sub-Account and/or subtracting values from the Fixed Option in the ratio that
the value of each Contract Sub-Account and/or the Fixed Option bears to the
total Contract Value. The Contract Owner must specify in writing in advance
which units are to be canceled or values are to be reduced if other than the
above method of cancellation is desired.
REDUCTION OR ELIMINATION OF
CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Company after examination of the following factors: (1) the
size of the group; (2) the total amount of purchase payments expected to be
received from the group; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The Contingent Deferred Sales Charge may also be eliminated when the
Contract is sold by an agent of the Company to any members of his or her family
and the commission is reduced. In no event will reductions or elimination of the
Contingent Deferred Sales Charge be permitted where reductions or elimination
will unfairly discriminate against any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
The Company deducts on each Valuation Date a Mortality and Expense Risk Charge
which is equal, on an annual basis, to 1.25% of the average daily net assets of
the Variable Account. The mortality risk borne by the Company arises from its
contractual obligation to make annuity payments after the Income Date for the
life of the Annuitant in accordance with annuity rates guaranteed in the
Contracts. In addition, the Company assumes a mortality risk for the guaranteed
death benefit provided under the Contract. The expense risk assumed by the
Company is that all actual expenses involved in administering the Contracts,
including Contract maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees, and the costs of
other services may exceed the amount recovered from the Contract Maintenance
Charge and the Administrative Expense Charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
DEDUCTION FOR ADMINISTRATIVE EXPENSE CHARGE
The Company deducts on each Valuation Date an Administrative Expense Charge
which is equal, on an annual basis, to 0.15% of the average daily net assets of
the Variable Account. This charge, together with the Contract Maintenance Charge
(see below), is to reimburse the Company for the expenses it incurs in the
establishment and maintenance of the Contracts and the Variable Account. These
expenses include, but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Contract Owner
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Contract Owner servicing, and
all accounting, valuation, regulatory and reporting requirements.
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. Prior to the Income Date the charge
is waived for Contracts having Contract Values or purchase payments less
surrenders of $100,000 or more. Currently, the charge is also waived during the
Annuity Period if the Contract Value at the time of annuitization is at least
$100,000. This charge is to reimburse the Company for its administrative
expenses (see above). Prior to the Income Date, this charge is deducted by
canceling Accumulation Units from each applicable Contract Sub-Account and/or by
subtracting values from the Fixed Option in the ratio that the value of each
Contract Sub-Account or the Fixed Option bears to the total Contract Value. When
the Contract is surrendered for its full Surrender Value on other than a
Contract Anniversary, the entire Contract Maintenance Charge will be deducted at
the time of surrender. On and after the Income Date, if the Contract Maintenance
Charge is deducted, the charge will be collected pro rata on a monthly basis
($2.50 per month) and will result in a reduction of the monthly annuity
payments.
DEDUCTION FOR PREMIUM TAXES
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Contract Values. Premium taxes
currently imposed by certain states on the Contracts range from 0% to 3.5% of
premiums paid. Some states assess premium taxes at the time purchase payments
are made; others assess premium taxes at the time annuity payments begin. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Variable Account; receipt by the Company of the
purchase payment(s); or commencement of annuity payments. The Company may, at
its sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date.
DEDUCTION FOR INCOME TAXES
While the Company is not currently maintaining a provision for federal income
taxes, the Company has reserved the right to establish a provision for income
taxes if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Variable Account. The Company will deduct for any
income taxes incurred by it as a result of the operation of the Variable Account
whether or not there was a provision for taxes and whether or not it was
sufficient. Currently, no federal income taxes are assessed against the Variable
Account. However, if the tax laws should change, the Company reserves the right
to deduct the amount of such taxes from the Variable Account. The Company will
deduct any withholding taxes required by applicable law.
DEDUCTION FOR TRUST EXPENSES
There are other deductions from the assets of Franklin Valuemark Funds for
operating expenses (including management fees), which are described in the
accompanying Trust Prospectus.
DEDUCTION FOR TRANSFER FEE
Prior to the Income Date, a Contract Owner may transfer all or a part of the
Contract Owner's interest without the imposition of any fee or charge if there
have been no more than three transfers made in the Contract Year. The Contract
provides that if more than three transfers have been made in the Contract Year,
the Company reserves the right to deduct a transfer fee. The maximum transfer
fee that the Company may deduct, per transfer, is the lesser of $25 or 2% of the
amount transferred. Currently twelve transfers may be made in a Contract Year
without a charge. Thereafter, the charge is $25 (or 2% of the amount
transferred, if less).Currently, prescheduled automatic dollar cost averaging
and flexible rebalancing transfers are not counted. The Company reserves the
right to charge a fee for all transfers after the Income Date, which fee, per
transfer, will not exceed the lesser of $25 or 2% of the amount transferred. The
transfer fee at any given time will not be set at a level greater than its cost
and will contain no element of profit.
THE CONTRACTS
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OWNERSHIP
The Contract Owner and if provided for in the Contract, any Joint Owner as named
on the Contract Schedule, have all rights and may receive all benefits under the
Contract. The Contract Owner remains the Contract Owner after the Income Date.
The Contract Owner if provided for in the Contract, may name a Contingent Owner
or change the Contract Owner at any time. Any Joint Owner must be the spouse of
the other Joint Owner (except in Pennsylvania) and any Contingent Owner must be
the spouse of the Contract Owner. Upon the death of the Contract Owner, the
Contingent Owner or the surviving Joint Owner, as applicable, may elect to keep
the Contract in force and become the new Contract Owner, if they are the spouse
of the Contract Owner. In those states where a non-spousal Joint Owner is
permitted, the death benefit must be paid in accordance with the Code and the
Joint Owner cannot continue the Contract in force. A change of Contract Owner or
Contingent Owner will automatically revoke any prior designation of Contract
Owner or Contingent Owner. A request for change must be: (1) made in writing;
and (2) received by the Company at its Valuemark Service Center. After the
transfer is recorded, the change will become effective as of the date the
written request is signed. A new designation of Contract Owner, Joint Owner or
Contingent Owner (as applicable) will not apply to any payment made or action
taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a deferred
annuity contract held by a corporation or other entity that is not a natural
person is not treated as an annuity contract for tax purposes. Income on the
contract is treated as ordinary income received by the owner during the taxable
year. However, for purposes of Code Section 72(u), an annuity contract held by a
trust or other entity as agent for a natural person is considered held by a
natural person and treated as an annuity contract for tax purposes. Tax advice
should be sought prior to purchasing a Contract which is to be owned by a trust
or other non-natural person.
ASSIGNMENT
The Contract Owner may assign the Contract at any time during his or her
lifetime. The Company will not be bound by any assignment until written notice
is received by the Company at its Valuemark Service Center. The Company is not
responsible for the validity of any assignment. The Contract Owner's rights and
those of any revocably-named person will be subject to the assignment. An
assignment will not affect any payments the Company may make or actions the
Company may take before such assignment has been recorded at its Valuemark
Service Center.
If the Contract is issued pursuant to a Qualified Plan, it may not be assigned,
pledged or otherwise transferred except as may be allowed under applicable law.
BENEFICIARY
One or more Beneficiaries and/or Contingent Beneficiaries are named in the
application and, unless changed, are entitled to receive any death benefits to
be paid. Upon the death of the Contract Owner, the Contingent Owner or surviving
Joint Owner (as applicable), will be the designated Beneficiary and any other
Beneficiary named will be treated as a Contingent Beneficiary, unless otherwise
indicated.
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary or Contingent Beneficiary by filing
a written request with the Company at its Valuemark Service Center unless an
irrevocable Beneficiary designation was previously filed. After the change is
recorded, it will take effect as of the date the request was signed. If the
request reaches the Valuemark Service Center after the Annuitant or Contract
Owner, as applicable, dies but before any payment is made, the change will be
valid. The Company will not be liable for any payment made or action taken
before it records the change.
ANNUITANT
The Annuitant must be a natural person. The maximum age of the Annuitant on the
Effective Date is 80 years old. The Annuitant may be changed at any time prior
to the Income Date unless the Contract is owned by a non-natural person. (See
"Death of the Annuitant Prior to the Income Date.") Joint Annuitants are allowed
at the time of annuitization only. The Annuitant has no rights or privileges
prior to the Income Date. When an Annuity Option is elected, the amount payable
as of the Income Date is based on the age (and sex, where permissible) of the
Annuitant, as well as the Option selected and the Contract Value.
DEATH OF THE CONTRACT OWNER
BEFORE THE INCOME DATE
In those Contracts where a Contingent Owner has been named, in the event of the
death of the Contract Owner prior to the Income Date, the Contingent Owner, if
any, becomes the designated Beneficiary and any other Beneficiary named will be
treated as a Contingent Beneficiary, unless otherwise indicated. In those
Contracts where Joint Owners have been named, upon the death of either Joint
Owner prior to the Income Date, the surviving Joint Owner, if any, becomes the
designated Beneficiary and any other Beneficiary named will be treated as a
Contingent Beneficiary, unless otherwise indicated. Only the Contract Owner's
spouse may be the Contingent Owner or a Joint Owner (except in Pennsylvania). If
there is no surviving Contingent Owner or Joint Owner, a death benefit is
payable to the Beneficiary designated by the Contract Owner. The value of the
death benefit will be determined as of the Valuation Period next computed after
receipt of both due proof of death and a payment election by the Company at the
Valuemark Service Center.
1. The value of the death benefit at the time the elected option is processed is
guaranteed to be at least the larger of the Surrender Value or the Guaranteed
Minimum Death Benefit. The Guaranteed Minimum Death Benefit will be the greater
of (a) or (b) below:
a. the sum of all purchase payments made less any surrenders and any
Contingent Deferred Sales Charge paid on such surrenders, accumulated at 5% each
Contract Anniversary prior to the earlier of the Contract Owner's 81st birthday
or the date of death.
b. the greatest sixth Contract Anniversary value for Contract Anniversaries
prior to the earlier of the Contract Owner's 81st birthday or the date of death.
The sixth Contract Anniversary value is equal to the Contract Value on a sixth
Contract Anniversary (i.e., 6th, 12th, 18th, etc.) increased by the dollar
amount of any purchase payments made since that anniversary, and decreased by
the dollar amount of any surrenders and Contingent Deferred Sales Charges paid
on such surrenders since that anniversary.
Upon the earlier of the Owner's 81st birthday or the date of death, and
thereafter, the Guaranteed Minimum Death Benefit will only be increased by
subsequent purchase payments and decreased by subsequent surrenders and any
Contingent Deferred Sales Charge paid on such surrenders. If there are multiple
Contract Owners, the age of the oldest Joint Owner will be used in determining
the Guaranteed Minimum Death Benefit.
2. The Beneficiary may, at any time before the end of a sixty (60) day period
following receipt of proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit (The value of the death benefit is
equal to the greater of the guaranteed death benefit or the Surrender Value as
of the Valuation Period next computed after receipt of both due proof of death
and a payment election by the Company.);
B. The payment of the entire death benefit within 5 years of the date of the
Contract Owner's death (The value of the death benefit under Option B is
determined by comparing the guaranteed death benefit to the Contract Value as of
the Valuation Period next computed after receipt of both due proof of death and
a payment election by the Company. If the Contract Value is the greater, it will
be the death benefit. Any distribution of such death benefit will be reduced by
the sum of any applicable premium taxes, Contract Maintenance Charges and
Contingent Deferred Sales Charges. If the guaranteed death benefit is the
greater, it will be the death benefit. After the death benefit is calculated, it
will be subject to market risk. No additional purchase payments will be accepted
after the death of the Contract Owner.);
C. Payment over the lifetime of the designated Beneficiary or over a period
not extending beyond the life expectancy of the designated Beneficiary with
distribution beginning within one year of the death of the Contract Owner (See
"Annuity Provisions Annuity Options"). (The value of the death benefit under
Option C is determined by comparing the guaranteed death benefit to the Contract
Value as of the Valuation Period next computed after receipt of both due proof
of death and a payment election by the Company. If the Contract Value is
greater, it will be treated as the death benefit. If the guaranteed death
benefit is the greater, it will be the death benefit.); or
D. If the Beneficiary is the Contract Owner's spouse, he/she can continue the
Contract in his/her own name. (The value of the death benefit under Option D is
determined by comparing the guaranteed death benefit to the Contract Value as of
the Valuation Period next computed after receipt of both due proof of death and
a payment election by the Company. If the Contract Value is greater, it will
remain the Contract Value. If the guaranteed death benefit is greater, it will
become the new Contract Value. Any distribution by the new Contract Owner will
be reduced by the sum of any applicable premium taxes, Contract Maintenance
Charges and Contingent Deferred Sales Charges.)
If no payment option is elected, a single sum settlement will be made at the end
of the sixty (60) day period following receipt of proof of death. Payment of the
death benefit may be delayed pending receipt of any applicable tax consents
and/or forms from a state.
DEATH OF THE CONTRACT OWNER
AFTER THE INCOME DATE
If the Contract Owner or any Joint Owner dies after the Income Date, any
remaining payments under the Annuity Option elected will continue at least as
rapidly as under the method of distribution in effect at such Contract Owner's
death. Upon the death of the Contract Owner after the Income Date, the
Beneficiary becomes the Contract Owner.
DEATH OF THE ANNUITANT
If the Annuitant who is not the Contract Owner dies before the Income Date, the
Contract Owner will become the Annuitant unless the Contract Owner designates a
new Annuitant (subject to the Company's underwriting rules then in effect). If
the Contract Owner is a non-natural person, the death of the Annuitant will be
treated as the death of the Contract Owner and a new Annuitant may not be
designated. If the Annuitant dies after the Income Date, the remaining payments,
if any, will be specified in the Annuity Option selected. The remaining payments
will be paid at least as rapidly as under the method of distribution in effect
at the Annuitant's death.
ANNUITY PROVISIONS
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INCOME DATE
The Contract Owner selects an Income Date at the time of application (or at the
time of issue for certain Contracts). The Income Date must always be the first
day of a calendar month. The Income Date may not be later than the month
following the Annuitant's 85th birthday or 10 years from the Effective Date, if
later. If no Income Date is selected on the application, the date will be the
later of the Annuitant's 65th birthday (or 85th birthday for certain Contracts)
or 10 years from the Effective Date.
CHANGE IN INCOME DATE AND ANNUITY OPTION
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, change the Income Date. The
Income Date must always be the first day of a calendar month. The Income Date
may not be later than the month following the Annuitant's 85th birthday (or 10
years from the Effective Date, if later).
The Contract Owner may, upon at least thirty (30) days prior written notice to
the Company, at any time prior to the Income Date, select and/or change the
Annuity Option.
ANNUITY OPTIONS
Instead of having the proceeds paid in one sum, the Contract Owner may select an
Annuity Option. The Annuity Options are available on a fixed or variable basis
or a combination fixed and variable basis. If the Contract Owner does not choose
an Annuity Option, Option 2 with 60 monthly annuity payments guaranteed will
automatically be applied. The following Annuity Options are available or any
other Annuity Option acceptable to the Company:
OPTION 1. LIFE ANNUITY. The Company will make monthly annuity payments during
the life of the Annuitant, ceasing with the last annuity payment due prior to
the Annuitant's death.
OPTION 2. LIFE ANNUITY WITH 60, 120, 180 OR 240 MONTHLY ANNUITY PAYMENTS
GUARANTEED. The Company will make monthly annuity payments during the life of
the Annuitant with a guarantee that if at the Annuitant's death, payments have
been made for less than the guaranteed period selected, monthly annuity payments
will be continued thereafter to the Beneficiary for the remainder of the
guaranteed period. The Contract Owner may elect to have the present value of the
guaranteed monthly annuity payments remaining, as of the date the Company
receives proof of the claim, commuted and paid in a lump sum as set forth in the
Contract.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. The Company will make monthly annuity
payments during the joint lifetime of the Annuitant and the joint Annuitant.
When the Annuitant dies, if the joint Annuitant is then living, annuity payments
will continue to be paid during the remaining lifetime of the joint Annuitant at
a level of 100%, 75% or 50% of the previous level, as selected. Monthly annuity
payments will cease with the final annuity payment due prior to the last
surviving annuitant's death.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 60, 120, 180 OR 240 MONTHLY
ANNUITY PAYMENTS GUARANTEED. The Company will make monthly annuity payments
during the joint lifetime of the Annuitant and the joint Annuitant. When the
Annuitant dies, if the joint Annuitant is then living, annuity payments will
continue to be paid during the remaining lifetime of the joint Annuitant at 100%
of the previous level. If, when the last surviving Annuitant dies, annuity
payments have been made for less than the selected guaranteed period, monthly
annuity payments will continue to be made for the remainder of the guaranteed
period. The Contract Owner may elect to have the present value of the guaranteed
monthly annuity payments remaining, as of the date the Company receives proof of
the claim, commuted and paid in a lump sum as set forth in the Contract.
OPTION 5. REFUND LIFE ANNUITY. The Company will make monthly annuity payments
during the lifetime of the Annuitant ceasing with the last annuity payment due
prior to the Annuitant's death. If, at the Annuitant's death, the value of the
annuity payments made is less than the value annuitized, the Contract Owner will
receive a refund. For a fixed annuity, the amount of the refund will be any
excess of the amount of the adjusted Contract Value applied under this annuity
option over the total of all annuity payments made under this option. For a
variable annuity, the amount of the refund will be the then dollar value of the
number of annuity units equal to the adjusted Contract Value applied to this
annuity option divided by the annuity unit value used to determine the first
annuity payment, minus the product of the number of the annuity units
represented by each monthly annuity payment and the number of payments made.
ANNUITY UNITS
The dollar amount of the first monthly variable annuity payment is determined by
applying the available value (after deduction of any premium taxes not
previously deducted) to the table using the age (and sex, where permissible) of
the Annuitant and any joint Annuitant. The number of Annuity Units is then
determined by dividing this dollar amount by the then current Annuity Unit
value. Thereafter, the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made separately for each
Contract Sub-Account of the Variable Account. The number of Annuity Units is
determined for each Contract Sub-Account and is based upon the available value
in each Contract Sub-Account as of the date annuity payments are to begin. The
dollar amount determined for each Contract Sub-Account will then be aggregated
for purposes of making payments. The prorata portion of the Contract Maintenance
Charge is deducted.
The dollar amount of the second and later variable annuity payments is equal to
the number of Annuity Units determined for each Contract Sub-Account times the
Annuity Unit value for that Contract Sub-Account as of the due date of the
payment. This amount may increase or decrease from month to month. The prorata
portion of the Contract Maintenance Charge is deducted each month.
The annuity tables contained in the Contract are based on a five percent (5%)
assumed investment rate. If the actual net investment rate exceeds five percent
(5%), payments will increase. Conversely, if the actual rate is less than five
percent (5%), annuity payments will decrease. If a higher assumed investment
rate were used, the initial payment would be higher, but the actual net
investment rate would have to be higher in order for annuity payments to
increase.
The Annuitant receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the Contract Sub-Account selected and the amount of each annuity
payment will vary accordingly.
PURCHASE PAYMENTS AND CONTRACT VALUE
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PURCHASE PAYMENTS
The Contracts may be purchased under a flexible purchase payment plan. Purchase
payments are payable in the frequency and in the amount selected by the Contract
Owner. The initial purchase payment is due on the Effective Date. The initial
purchase payment must be at least $2,000. Subsequent purchase payments must be
at least $250 (or $100 if the Automatic Investment Plan has been selected).
These minimum amounts are not waived for Qualified Plans. The Company reserves
the right to decline any application (except in New Jersey) or purchase payment.
Amounts in excess of $1 million require preapproval by the Company. The Company
may, at its sole discretion, waive the minimum payment requirements. The
Contract Owner may elect to increase, decrease or change the frequency of
purchase payments. Neither the Variable Account nor the Trust is 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 by which a Contract Owner may
make monthly or quarterly investments by electronic funds transfer from their
checking or savings account if their bank is a member of an Automatic Clearing
House. Election of this program may occur at the time a Contract is issued, or
at any time thereafter by completing and signing the appropriate form and
returning it to the Company. The form must be received in good order by the
first of the month in order for AIP to begin that same month. Investments take
place on the 20th of the month, or the next business day. AIP may not be used
for the initial purchase payment. The minimum investment that may be made by AIP
is $100.
AIP is subject to any regulations that may govern the bank account, the
Automatic Clearing House, or the Contract. The Company may correct any error by
a debit or credit to the Contract Owner's bank account and/or Contract.
Participation in AIP may be stopped at any time at the request of the Contract
Owner. When the Company is advised to stop AIP, no automatic investments will be
processed until signed authorization is received to initiate the plan again. The
Company will need to be notified by the first of the month in order to stop or
change AIP within that month. If a transaction is rejected or returned to the
Company for any reason, including stop payment, insufficient funds, or account
closed, the respective number of units will be removed from the Contract Owner's
account, and AIP will be discontinued.
If AIP is used for a Qualified Contract, the Contract Owner should contact his
or her tax adviser for maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
Purchase payments are allocated to one or more of the Contract Sub-Accounts
within the Variable Account or to the Fixed Option as selected by the Contract
Owner. IN WASHINGTON, THE FIXED OPTION IS NOT AVAILABLE UNTIL APPROVED BY THE
WASHINGTON INSURANCE DEPARTMENT. For each Contract Sub-Account, the purchase
payments are converted into Accumulation Units. The number of Accumulation Units
credited to the Contract is determined by dividing the purchase payment
allocated to the Contract Sub-Account by the value of the Accumulation Unit for
the Contract Sub-Account. Purchase payments allocated to the Fixed Option are
credited in dollars.
The Company has reserved the right to allocate initial purchase payments to the
Money Market Sub-Account (except those allocated to the Fixed Option) until the
expiration of the Free-Look Period. In the event that the Company does so
allocate initial purchase payments to the Money Market Sub-Account, at the end
of the Free-Look Period the Contract Value will be allocated to the Contract
Sub-Account(s) selected by the Contract Owner. Currently, however, the Company
will allocate the initial purchase payment directly to the Contract
Sub-Account(s) and/or the Fixed Option as selected by the Contract Owner.
Transfers do not change the allocation instructions for payments. Subsequent
payments will be allocated as directed by the Contract Owner in instructions
accompanying a payment; if no direction is given, the allocation will be that
which has been most recently directed for payments by the Contract Owner. The
Contract Owner may change the allocation of future payments without fee, penalty
or other charge upon written notice or telephone instructions to the Valuemark
Service Center. A change will be effective for payments received on or after
receipt of the written notice or telephone instructions.
The Company reserves the right to limit the number of investment options (the
Portfolios and the Allianz Life Fixed Option) that a Contract Owner may invest
in at any one time. Currently, the Contract Owner may initially select up to
nine investment options and may only be invested in a maximum of ten investment
options at any one time throughout the life of the Contract. The Company
reserves the right to change the maximum number of investment options in the
future.
For initial purchase payments, if the forms required to issue a Contract are
received in good order, the Company will apply the purchase payment to the
Variable Account and credit the Contract with Accumulation Units and/or to the
Fixed Option and credit the Contract with dollars within two business days of
receipt.
In addition to the underwriting requirements of the Company, good order means
that the Company has received federal funds (monies credited to a bank's account
with its regional Federal Reserve Bank). If the forms required to issue a
Contract are not in good order, the Company will attempt to get them in good
order or the Company will return the forms and the purchase payment within five
business days. The Company will not retain purchase payments for more than five
business days while processing incomplete forms unless it has been so authorized
by the purchaser.
For subsequent purchase payments, the Company will apply purchase payments to
the Variable Account and credit the Contract with Accumulation Units and/or to
the Fixed Option and credit the Contract with dollars during the Valuation
Period next following the Valuation Period during which the purchase payment was
received in good order.
TRANSFER OF CONTRACT VALUES
Prior to the Income Date, the Contract Owner may transfer all or part of the
Contract Owner's interest in a Contract Sub-Account to another Contract
Sub-Account or to or from the Fixed Option without the imposition of any fee or
charge if there have been no more than three transfers made in the Contract
Year. If more than three transfers have been made in the Contract Year, the
Company reserves the right to deduct a transfer fee. Currently, 12 transfers may
be made in a Contract Year without a charge. (See "Charges and Deductions -
Deduction for Transfer Fee.")
Neither the Variable Account nor the Trust is designed for professional market
timing organizations, other entities or persons using programmed, large or
frequent transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Portfolio and may be refused. Accounts under
common ownership or control may be aggregated for purposes of transfer limits.
In coordination with the Trust, the Company reserves the right to restrict the
transfer privilege or reject any specific purchase payment allocation request
for any person, if, in the Portfolio manager's judgment, a Portfolio would be
unable to invest effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected.
After the Income Date, provided a variable annuity option was selected, the
Contract Owner may make transfers. The Company reserves the right to charge for
all transfers after the Income Date.
All transfers are subject to the following:
a. The deduction of any transfer fee that may be imposed. The transfer fee will
be deducted from the amount which is transferred if the entire amount in the
Contract Sub-Account or the Fixed Option is being transferred; otherwise from
the amount remaining in the Contract Sub-Account or the Fixed Option from which
the transfer is made.
b. The minimum amount which may be transferred is the lesser of (i) $1,000 from
each Contract Sub-Account or the Fixed Option; or (ii) the Contract Owner's
entire interest in the Contract Sub-Account or the Fixed Option.
c. No partial transfer will be made if the Contract Owner's remaining Contract
Value in the Contract Sub-Account or the Fixed Option will be less than $1,000.
d. Transfers will be effected during the Valuation Period next following receipt
by the Company of a written transfer request (or by telephone, if authorized)
containing all required information. However, no transfer may be made effective
within seven calendar days prior to the date on which the first annuity payment
is due. No transfers may occur until the end of the Free-Look Period. (See
"Highlights.")
e. On or after the Income Date, the Contract Owner may not make a transfer from
the Fixed Option to the Variable Account. Currently, on or after the Income
Date, one transfer to the Fixed Option will be allowed.
f. After Income Date, no transfer may be made if it will result in any selected
Contract Sub-Account or the Fixed Option providing less than 10% of the annuity
benefits under the Contract.
g. Any transfer direction must clearly specify the amount which is to be
transferred and the accounts which are to be affected.
h. The Company reserves the right at any time and without prior notice to any
party to terminate, suspend or modify the transfer privileges described above,
subject to applicable state law and regulation.
A Contract Owner may elect to make transfers by telephone. To elect this option
the Contract Owner must do so in writing to the Company. If there are Joint
Owners, unless the Company is informed to the contrary, instructions will be
accepted from either one of the Joint Owners. The Company will use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If it does not, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The Company tape records all telephone instructions.
Transfers do not change the allocation instructions for future payments. (See
"Purchase Payments and Contract Value - Allocation of Purchase Payments.")
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, enables a Contract Owner
to systematically allocate specified dollar amounts from any one Contract
Sub-Account ("source Contract Sub-Account") or the Fixed Option to the
Contract's other Contract Sub-Accounts (maximum of eight) at regular intervals.
By allocating amounts on a regularly scheduled basis as opposed to allocating
the total amount at one particular time, a Contract Owner may be less
susceptible to the impact of market fluctuations.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option and it is available for additional purchase payments to
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 effective the tenth of the
month (or the next Valuation Date if the tenth of the month is not a Valuation
Date). Election into either program may occur at any time by properly completing
the Dollar Cost Averaging election form, returning it to the Company by the
first of the month, to be effective that month, and insuring that sufficient
value is in the source Contract Sub-Account or the Fixed Option. The
Portfolio(s) you transfer from may not be the Portfolio(s) you transfer to in
this program.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the value of the source
Contract Sub-Account or the Fixed Option (as applicable) is insufficient to
complete the next transfer; (3) the Contract Owner requests termination in
writing and such writing is received by the first of the month in order to
cancel the transfer scheduled to take effect that month; or (4) the Contract is
terminated. The Dollar Cost Averaging program may not be active following the
Income Date. There is no current charge for Dollar Cost Averaging but the
Company reserves the right to charge for this program. The Company does not
intend to profit from any such charge. In the event there are additional
transfers, the transfer fee may be charged. Transfers made pursuant to a Dollar
Cost Averaging program are not counted in determining the applicability of the
transfer fee. The Contract Owner may not participate in a Dollar Cost Averaging
Program and Flexible Rebalancing at the same time.
FLEXIBLE REBALANCING
Once the Contract Owner's money has been invested, the performance of the
Portfolios may cause his or her chosen allocation to shift. Flexible Rebalancing
is designed to help Contract Owners maintain their specified allocation mix
among the different Portfolios. Contract Owners may select which Portfolios to
rebalance (maximum of ten Portfolios). The Contract Owner can instruct the
Company to readjust his or her Contract Value quarterly, semi-annually or
annually. Rebalancing is done on calendar quarters only (e.g., March 20, June
20, September 20 and December 20). Flexible Rebalancing transfers will be made
on the 20th of the month unless that day is not a Valuation Date, in which case
the transfer will be made on the previous Valuation Date. Requests to
participate in the program must be received by the Company by the 8th of the
month for Flexible Rebalancing to begin that month. Transfers made pursuant to
Flexible Rebalancing are not counted in determining the applicability of the
transfer fee. The Contract Owner may not participate in Flexible Rebalancing and
the Dollar Cost Averaging Program at the same time.
CONTRACT VALUE
The value of the Contract is the sum of the values attributable to the Contract
for each Contract Sub-Account and the Fixed Option. The value of each Contract
Sub-Account is determined by multiplying the number of Accumulation Units
attributable to the Contract in the Contract Sub-Account by the value of an
Accumulation Unit for the Contract Sub-Account.
ACCUMULATION UNIT
For each Contract Sub-Account, purchase payments are converted into Accumulation
Units. This is done by dividing each purchase payment by the value of an
Accumulation Unit for the Valuation Period during which the purchase payment is
allocated to the Contract Sub-Account. The Accumulation Unit value for each
Contract Sub-Account was arbitrarily set initially at $10. The Accumulation Unit
value for any later Valuation Period is determined by subtracting (b) from (a)
and dividing the result by (c) where:
a. is the net result of
1) the assets of the Contract Sub-Account attributable to Accumulation Units
(i.e., the aggregate value of the underlying Eligible Investments held at the
end of such Valuation Period); plus or minus
2) the cumulative charge or credit for taxes reserved which is determined by
the Company to have resulted from the operation of the Contract Sub-Account;
b. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge (See "Charges and Deductions"); and
c. is the number of Accumulation Units outstanding at the end of such Valuation
Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
DISTRIBUTOR
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NALAC Financial Plans, LLC ("NFP"), 1750 Hennepin Avenue, Minneapolis, Minnesota
55403, acts as the distributor of the Contracts. NFP is a wholly-owned
subsidiary of the Company. The Contracts are offered on a continuous basis. NFP
has subcontracted with Franklin Advisers, Inc. ("Advisers") for it and/or
certain of its affiliates to provide certain marketing support services and NFP
compensates these entities for their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions, up to an amount currently equal to 6.0%
of purchase payments, for promotional or distribution expenses associated with
the marketing of the Contracts. The Company, by agreement with the
broker-dealer, pays commissions as a combination of a certain percentage amount
at the time of sale and a trail commission (which when combined could exceed
6.0% of purchase payments). In addition, under certain circumstances, the
Company and/or Advisers or certain of its affiliates, under a marketing support
agreement with NFP, may pay certain sellers for other services not directly
related to the sale of the Contracts such as special marketing support
allowances. Commissions may be recovered from broker-dealers if a full or
partial surrender occurs within 12 months of a purchase payment.
SURRENDERS
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While the Contract is in force and before the Income Date, the Company will,
upon request to the Company by the Contract Owner, allow the surrender of all or
a portion of the Contract for its Surrender Value. Surrenders will result in the
cancellation of Accumulation Units from each applicable Contract Sub-Account
and/or a reduction in the Fixed Option value in the ratio that the value of each
Contract Sub-Account and/or the Fixed Option value bears to the total Contract
Value. The Contract Owner must specify which units are to be canceled or values
are to be reduced if other than the above mentioned method of cancellation is
desired. The Company will pay the amount of any surrender from the Variable
Account within seven (7) days of receipt of a valid request, unless the "Delay
of Payments" provision is in effect. (See "Surrenders - Delay of Payments.")
Certain tax surrender penalties and restrictions may apply to surrenders from
the Contracts. (See "Federal Tax Status.") For Contracts purchased in connection
with 403(b) plans, 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 made by the Contract Owner
and does not include any investment results. The limitations on surrenders
became effective on January 1, 1989 and apply only to salary reduction
contributions made after December 31, 1988, to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations on surrenders do not affect rollovers or transfers between
certain Qualified Plans. Contract Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
SYSTEMATIC WITHDRAWAL
The Company permits a systematic withdrawal plan which enables a Contract Owner
to pre-authorize a periodic exercise of the contractual surrender rights
described above. Income taxes and certain tax penalties and restrictions may
apply to systematic withdrawals from the Contracts. (See "Federal Tax Status -
Tax Treatment of Surrenders - Non Qualified Contracts and Tax Treatment of
Surrenders - Qualified Contracts.") Contract Owners entering into such a plan
instruct the Company to withdraw a level dollar amount from the Contract on a
monthly or quarterly basis. Currently, systematic withdrawal is available to
Contract Owners who have a Contract Value of $25,000 or more. The amount
deducted will result in the cancellation of Accumulation Units from each
applicable Contract Sub-Account and/or the reduction of values in the Fixed
Option in the ratio that the value of each Contract Sub-Account and/or the Fixed
Option bears to the total Contract Value. The Contract Owner must specify in
writing in advance which units are to be canceled or values are to be reduced if
other than the above mentioned method of cancellation is desired. The Company
reserves the right to modify the eligibility rules at any time, without notice.
The total systematic withdrawal in a Contract Year which can be made without
incurring a Contingent Deferred Sales Charge is limited to not more than 9% of
the Contract Value. However, the 9% limit may be increased to allow systematic
withdrawals to meet the applicable minimum distribution requirements for
Qualified Contracts. The exercise of the systematic withdrawal plan in any
Contract Year replaces the 15% free surrender amount which is allowable each
year. Any other withdrawal in a year when the systematic withdrawal plan has
been utilized will be subject to the Contingent Deferred Sales Charge.
MINIMUM DISTRIBUTION PROGRAM
The Company currently makes available a Minimum Distribution Program to Contract
Owners who own Contracts that are individual retirement annuities. Under the
program, the Company will make payments to the Contract Owner from his or her
Contract that are designed to meet the applicable minimum distribution
requirements imposed by the Code for individual retirement annuities. If the
Contract Value is less than $25,000 at the time the Contract Owner elects to
participate in the program, the Company will make payments to the Contract Owner
on an annual basis. If the Contract Value is $25,000 or more at the time the
Contract Owner elects to participate in the program, the payments can be made
either monthly or quarterly. Payments under the Minimum Distribution Program
will not be subject to the Contingent Deferred Sales Charge and will be instead
of the free surrender amount which is allowable each year.
DELAY OF PAYMENTS
The Company reserves the right to suspend or postpone payments for any period
when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
The applicable rules and regulations of the Securities and Exchange Commission
will govern as to whether the conditions described in 2. and 3. exist.
The Company reserves the right to defer payment for a surrender or transfer from
the Fixed Option for the period permitted by law but not for more than six
months after written election is received by the Company.
ADMINISTRATION OF THE CONTRACTS
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While the Company has primary responsibility for all administration of the
Contracts, it has retained the services of Delaware Valley Financial Services,
Inc. ("DVFS" or "Valuemark Service Center") pursuant to an Administration
Agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. The Company pays all fees and charges
of DVFS. DVFS serves as the administrator to various insurance companies
offering variable and fixed annuity and variable life insurance contracts. The
Company's ability to administer the Contracts could be adversely affected should
DVFS elect to terminate the Agreement.
PERFORMANCE DATA
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MONEY MARKET SUB-ACCOUNT
From time to time, the Company may advertise the "yield" and "effective yield"
of the Money Market Sub-Account. Both yield figures will be based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Money Market Sub-Account refers to the income generated by Contract Values in
the Money Market Sub-Account over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
Contract Values in the Money Market Sub-Account. The "effective yield" is
calculated similarly but, when annualized, the income earned by Contract Values
in the Money Market Sub-Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The computation of the yield calculation
includes a deduction for the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge.
OTHER CONTRACT SUB-ACCOUNTS
From time to time, the Company may publish the current yields and total returns
of the other Contract Sub-Accounts in sales literature, advertisements and
communications to Contract Owners. The current yield for each Contract
Sub-Account will be calculated by dividing the annualization of the interest
income earned by the underlying Portfolio during a recent 30-day period by the
maximum Accumulation Unit value at the end of such period. Total return
information will include the Contract Sub-Account's average annual total return
over the most recent four calendar quarters, the period from the Contract
Sub-Account's inception of operations, and, for Contract Sub-Accounts in
existence for five years or more, for five years. The average annual total
return is based upon the value of the Accumulation Units acquired through a
hypothetical $1,000 investment of the Accumulation Unit value at the beginning
of the specified period and the value of the Accumulation Unit at the end of
such period, assuming reinvestment of all distributions and the deduction of the
Mortality and Expense Risk Charge, Administrative Expense Charge, Contingent
Deferred Sales Charge, and Contract Maintenance Charge. Each Contract
Sub-Account may also advertise cumulative and total return information over
different periods of time without the Contingent Deferred Sales Charge and
Contract Maintenance Charge. Performance information for the Portfolios may also
be advertised; see the Trust prospectus for more information.
The Company may, in addition, advertise or present yield or total return
performance information computed on a different basis. Contract Owners should
note that the investment results of each Contract Sub-Account will fluctuate
over time, and any presentation of a Contract Sub-Account's current yield or
total return for any prior period should not be considered as a representation
of what an investment may earn or what a Contract Owner's yield or total return
may be in any future period. Hypothetical performance illustrations for a
hypothetical contract may be prepared for sales literature or advertisements.
See "Calculation of Performance Data" in the SAI.
PERFORMANCE RANKING
The performance of each or all of the Contract Sub-Accounts of the Variable
Account may be compared in its advertisements and sales literature to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or series
of mutual funds with investment objectives similar to each of the Contract
Sub-Accounts of the Variable Account or indices. Lipper Analytical Services,
Inc. ("Lipper") and the Variable Annuity Research and Data Service ("VARDS") are
independent services which monitor and rank the performance of variable annuity
issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS rank such issuers on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level into
consideration. In addition, VARDS prepares risk adjusted rankings, which
consider the effects of market risk on total return performance. This type of
ranking may address the question as to which portfolios provide the highest
total return with the least amount of risk. Other ranking services may be used
as sources of performance comparisons, such as CDA/Weisenberger and Morningstar.
FEDERAL TAX STATUS
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NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
GENERAL
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the Settlement Option elected. For a lump sum payment received as a total
surrender (total redemption) or death benefit, the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Trust underlying the Contracts
will be managed by the managers for the Trust in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Variable Account will cause the Contract Owner to be
treated as the owner of the assets of the Variable Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Variable Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Variable Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. Contract Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year
period.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign their
Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions). Participants should consult their own tax counsel
or other tax adviser regarding withholding requirements.
TAX TREATMENT OF SURRENDERS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount surrendered will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Surrendered earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his Beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax surrender penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Surrenders - Qualified Contracts.")
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Contract Owners,
participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain surrender penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Surrenders - Qualified Contracts.")
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish Qualified
Plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" plans. Contributions made to the Plan for the benefit of the employees
will not be included in the gross income of the employees until distributed from
the Plan. The tax consequences to participants may vary, depending upon the
particular Plan design. However, the Code places limitations and restrictions on
all Plans, including on such items as: amounts of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, and surrenders. (See "Tax
Treatment of Surrenders - Qualified Contracts.") Purchasers of Contracts for use
with an H.R. 10 Plan should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and surrenders. (See "Tax
Treatment of Surrenders - Qualified Contracts" and "Tax-Sheltered Annuities -
Surrender Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Surrenders - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
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 may 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 designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception will no longer apply after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days.); (h) distributions
from an Individual Retirement Annuity made to the Contract 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 or
life expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES - SURRENDER LIMITATIONS
The Code limits the surrender of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 591/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
surrenders for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on surrenders became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
surrenders do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Audited consolidated financial statements of the Company and audited financial
statements of the Variable Account as of and for the year ended December 31,
1997 are included in the SAI.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Variable Account or the Distributor
is a party or to which the assets of the Variable Account are subject. The
Company is not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Variable Account.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
ITEM PAGE
Company.......................................... 2
Experts.......................................... 2
Legal Opinions................................... 2
Distributor...................................... 2
Calculation of Performance Data.................. 2
Total Return.................................... 2
Yield........................................... 2
Performance Ranking............................. 3
Performance Information......................... 3
Annuity Provisions............................... 8
Variable Annuity Payout......................... 8
Annuity Unit Value.............................. 8
Fixed Annuity Payout............................ 8
Financial Statements............................. 8
<PAGE>
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
COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800) 542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1998, AND AS MAY BE AMENDED FROM TIME TO TIME.
<PAGE>
TABLE OF CONTENTS
CONTENTS PAGE
Company ........................................ 2
Experts ........................................ 2
Legal Opinions ................................. 2
Distributor .................................... 2
Calculation of Performance Data ................ 2
Total Return .................................. 2
Yield ......................................... 3
Performance Ranking ........................... 3
Performance Information ....................... 4
Annuity Provisions ............................. 8
Variable Annuity Payout ....................... 8
Annuity Unit Value ............................ 8
Fixed Annuity Payout .......................... 8
Financial Statements ........................... 8
<PAGE>
COMPANY
Information regarding Allianz Life Insurance Company of North America (the
"Company") and its ownership is contained in the Prospectus. On April 1, 1993,
the Company changed its name from North American Life and Casualty Company to
its present name. The Company is rated A+ (Superior) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
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 pro rata 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 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 wholly-owned subsidiary of the Company, acts as
the distributor. The offering is on a continuous basis.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Company may advertise the performance data for the
Contract Sub-Accounts in sales literature, advertisements, personalized
hypothetical illustrations, and Contract Owner communications. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Contract Sub-Account over a stated period of time which is
determined by dividing the increase (or decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge, the operating expenses of the underlying
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 Contingent Deferred Sales
Charge and Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
<PAGE>
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 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
Contingent Deferred Sales Charge and the Contract Maintenance Charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
YIELD
THE MONEY MARKET SUB-ACCOUNT. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge and, in
certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Contract Sub-Account's current yield will
fluctuate and that the principal is not guaranteed should be taken into
consideration when using the Contract Sub-Account's current yield as a basis for
comparison with savings accounts or other fixed-yield investments. The yield at
any particular time is not indicative of what the yield may be at any other
time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one accumulation unit
for a particular period of time (generally seven days). The return is determined
by dividing the net change (exclusive of any capital changes) in such
accumulation unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the Mortality and Expense Risk Charge, Administrative
Expense Charge and Contract Maintenance Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7] -1.)
For the seven-day period ending on 12/31/97, the Money Market Sub-Account had a
current yield of 3.88% and an effective yield of 3.95%.
OTHER CONTRACT SUB-ACCOUNTS. The Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Contract Sub-Accounts. Each Contract
Sub-Account (other than the Money Market Sub-Account) will publish standardized
total return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and 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;
<PAGE>
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any Contract Sub-Account (other than the Money
Market Sub-Account).
PERFORMANCE RANKING
Total return information for the Contract Sub-Accounts and the Portfolios 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.
<PAGE>
PERFORMANCE INFORMATION
Total returns reflect all aspects of a Contract Sub-Account's return, including
the automatic reinvestment by Allianz Life Variable Account B of all
distributions and any change in a Contract Sub-Account's value over the period.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio and
are shown both with and without the deduction of the Contingent Deferred Sales
Charge and Contract Maintenance Charge. Past performance does not guarantee
future results.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
FRANKLIN VALUEMARK II/III
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1997:
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
FRANKLIN VALUEMARK II FRANKLIN VALUEMARK III
______________________________ ______________________________
CONTRACT SUB-ACCOUNT DATE YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth ...................... 5/1/96 12.31% NA 15.72% 11.46% NA 15.72%
Global Utilities Securities1 ........ 1/24/89 20.65% 10.05% 11.12% 19.80% 10.05% 11.12%
Growth and Income ................... 1/24/89 21.62% 14.19% 10.49% 20.77% 14.19% 10.49%
High Income ......................... 1/24/89 5.65% 9.79% 8.75% 4.80% 9.79% 8.75%
Income Securities ................... 1/24/89 11.11% 10.44% 10.75% 10.26% 10.44% 10.75%
Money Market ........................ 1/24/89 -0.57% 2.89% 3.64% -1.42% 2.89% 3.64%
Mutual Discovery Securities ......... 11/8/96 13.36% NA 13.95% 12.51% NA 13.95%
Mutual Shares Securities ............ 11/8/96 11.75% NA 14.03% 10.90% NA 14.03%
Natural Resources Securities ........ 1/24/89 -24.45% 4.03% 1.55% -25.30% 4.03% 1.55%
Real Estate Securities .............. 1/24/89 14.67% 16.43% 12.20% 13.82% 16.43% 12.20%
Rising Dividends .................... 1/27/92 26.83% 12.96% 12.37% 25.98% 12.96% 12.37%
Small Cap ........................... 11/1/95 11.44% NA 19.46% 10.59% NA 19.46%
Templeton Developing
Markets Equity ..................... 3/15/94 -14.34% NA .47% -15.19% NA .47%
Templeton Global
Asset Allocation ................... 5/1/95 5.81% NA 11.99% 4.96% NA 11.99%
Templeton Global Growth ............. 3/15/94 7.57% NA 11.28% 6.72% NA 11.28%
Templeton Global
Income Securities .................. 1/24/89 -3.30% 5.75% 6.01% -4.15% 5.75% 6.01%
Templeton International
Equity ............................. 1/27/92 5.79% 12.81% 10.03% 4.94% 12.81% 10.03%
Templeton International
Smaller Companies .................. 5/1/96 -7.22% NA 2.71% -8.07% NA 2.71%
Templeton Pacific Growth ............ 1/27/92 -41.19% -.84% -1.07% -42.04% -.84% -1.07%
U.S. Government Securities .......... 3/14/89 3.44% 5.57% 6.79% 2.59% 5.57% 6.79%
Zero Coupon - 2000 2................. 3/14/89 1.27% 5.83% 7.81% .42% 5.83% 7.81%
Zero Coupon - 2005 2................. 3/14/89 5.47% 8.38% 9.59% 4.62% 8.38% 9.59%
Zero Coupon - 2010 2................. 3/14/89 10.60% 10.89% 10.76% 9.75% 10.89% 10.76%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
2Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
FRANKLIN VALUEMARK II/III
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1997:
WITHOUT CONTINGENT DEFERRED SALES CHARGE OR CONTRACT MAINTENANCE CHARGE
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
______________________________________ _____________________________
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth .............. 5/1/96 16.66% NA NA 17.73% NA NA 31.30%
Global Utilities Securities1 1/24/89 25.00% 19.57% 10.20% 11.19% 70.94% 62.50% 158.18%
Growth and Income ........... 1/24/89 25.97% 22.93% 14.32% 10.57% 85.78% 95.26% 145.51%
High Income ................. 1/24/89 10.00% 13.42% 9.93% 8.83% 45.89% 60.50% 113.12%
Income Securities ........... 1/24/89 15.46% 15.21% 10.58% 10.83% 52.91% 65.31% 150.65%
Money Market ................ 1/24/89 3.78% 3.92% 3.05% 3.72% 12.23% 16.20% 38.65%
Mutual Discovery
Securities ................. 11/8/96 17.71% NA NA 17.11% NA NA 19.83%
Mutual Shares
Securities ................. 11/8/96 16.10% NA NA 17.20% NA NA 19.93%
Natural Resources
Securities ................. 1/24/89 -20.10% -6.14% 4.17% 1.63% -17.31% 22.65% 15.59%
Real Estate Securities ...... 1/24/89 19.02% 21.79% 16.56% 12.28% 80.64% 115.11% 181.69%
Rising Dividends ............ 1/27/92 31.18% 27.14% 13.10% 12.47% 105.50% 85.06% 100.74%
Small Cap ................... 11/1/95 15.79% NA NA 20.40% NA NA 49.52%
Templeton Developing
Markets Equity ............. 3/15/94 -9.99% 3.03% NA .88% 9.37% NA 3.40%
Templeton Global
Asset Allocation ........... 5/1/95 10.16% NA NA 12.77% NA NA 37.86%
Templeton Global
Growth ..................... 3/15/94 11.92% 14.16% NA 11.60% 48.77% NA 51.76%
Templeton Global
Income Securities .......... 1/24/89 1.05% 7.30% 5.90% 6.09% 23.53% 33.18% 69.57%
Templeton International
Equity ..................... 1/27/92 10.14% 13.35% 12.93% 10.12% 45.64% 83.68% 77.11%
Templeton International
Smaller Companies .......... 5/1/96 -2.87% NA NA 4.87% NA NA 8.25%
Templeton Pacific
Growth ..................... 1/27/92 -36.84% -9.68% -.69% -.98% -26.33% -3.38% -5.69%
U.S. Government
Securities ................. 3/14/89 7.79% 9.06% 5.73% 6.87% 29.72% 32.10% 79.47%
Zero Coupon - 2000 2......... 3/14/89 5.62% 8.27% 5.98% 7.89% 26.92% 33.69% 95.12%
Zero Coupon - 2005 2......... 3/14/89 9.82% 11.87% 8.51% 9.66% 39.99% 50.47% 125.32%
Zero Coupon - 2010 2......... 3/14/89 14.95% 15.81% 11.02% 10.83% 55.30% 68.65% 147.40%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
2Calculated with waiver fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
FRANKLIN VALUEMARK III
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1997:
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
_______________________________________ _____________________________
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth ............. 5/1/96 11.46% NA NA 15.72% NA NA 27.58%
Global Utilities
Securities1 ............... 1/24/89 19.80% 18.97% 10.05% 11.12% 68.38% 61.44% 156.72%
Growth and Income ........... 1/24/89 20.77% 22.36% 14.19% 10.49% 83.22% 94.15% 143.89%
High Income ................. 1/24/89 4.80% 12.76% 9.79% 8.75% 43.36% 59.51% 111.71%
Income Securities ........... 1/24/89 10.26% 14.56% 10.44% 10.75% 50.37% 64.29% 149.19%
Money Market ................ 1/24/89 -1.42% 3.14% 2.89% 3.64% 9.72% 15.28% 37.62%
Mutual Discovery
Securities ................. 11/8/96 12.51% NA NA 13.95% NA NA 16.13%
Mutual Shares
Securities ................. 11/8/96 10.90% NA NA 14.03% NA NA 16.23%
Natural Resources
Securities ................. 1/24/89 -25.30% -7.08% 4.03% 1.55% -19.77% 21.85% 14.73%
Real Estate Securities ...... 1/24/89 13.82% 21.21% 16.43% 12.20% 78.07% 113.99% 179.94%
Rising Dividends ............ 1/27/92 25.98% 26.60% 12.96% 12.37% 102.90% 83.89% 99.77%
Small Cap ................... 11/1/95 10.59% NA NA 19.46% NA NA 47.00%
Templeton Developing
Markets Equity ............. 3/15/94 -15.19% 2.24% NA .47% 6.87% NA 1.80%
Templeton Global Asset
Allocation ................. 5/1/95 4.96% NA NA 11.99% NA NA 35.33%
Templeton Global
Growth ..................... 3/15/94 6.72% 13.50% NA 11.28% 46.23% NA 50.08%
Templeton Global
Income Securities .......... 1/24/89 -4.15% 6.57% 5.75% 6.01% 21.02% 32.25% 68.45%
Templeton International
Equity ..................... 1/27/92 4.94% 12.69% 12.81% 10.03% 43.09% 82.67% 76.30%
Templeton International
Smaller Companies .......... 5/1/96 -8.07% NA NA 2.71% NA NA 4.56%
Templeton Pacific
Growth ..................... 1/27/92 -42.04% -10.69% -.84% -1.07% -28.76% -4.13% -6.16%
U.S. Government
Securities ................. 3/14/89 2.59% 8.35% 5.57% 6.79% 27.21% 31.15% 78.30%
Zero Coupon - 2000 2......... 3/14/89 0.42% 7.55% 5.83% 7.81% 24.41% 32.76% 93.93%
Zero Coupon - 2005 2......... 3/14/89 4.62% 11.19% 8.38% 9.59% 37.47% 49.51% 124.00%
Zero Coupon - 2010 2......... 3/14/89 9.75% 15.17% 10.89% 10.76% 52.78% 67.65% 145.95%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
2Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
FRANKLIN VALUEMARK II
TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1997:
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
__________________________________ ____ _____________________________
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
CONTRACT SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth .............. 5/1/96 12.31% NA NA 15.72% NA NA 27.58%
Global Utilities
Securities1 ................ 1/24/89 20.65% 18.97% 10.05% 11.12% 68.38% 61.44% 156.72%
Growth and Income ........... 1/24/89 21.62% 22.36% 14.19% 10.49% 83.22% 94.15% 143.89%
High Income ................. 1/24/89 5.65% 12.76% 9.79% 8.75% 43.36% 59.51% 111.71%
Income Securities ........... 1/24/89 11.11% 14.56% 10.44% 10.75% 50.37% 64.29% 149.19%
Money Market ................ 1/24/89 -.57% 3.14% 2.89% 3.64% 9.72% 15.28% 37.62%
Mutual Discovery
Securities ................. 11/8/96 13.36% NA NA 13.95% NA NA 16.13%
Mutual Shares
Securities ................. 11/8/96 11.75% NA NA 14.03% NA NA 16.23%
Natural Resources
Securities ................. 1/24/89 -24.45% -7.08% 4.03% 1.55% -19.77% 21.85% 14.73%
Real Estate Securities ...... 1/24/89 14.67% 21.21% 16.43% 12.20% 78.07% 113.99% 179.94%
Rising Dividends ............ 1/27/92 26.83% 26.60% 12.96% 12.37% 102.90% 83.89% 99.77%
Small Cap ................... 11/1/95 11.44% NA NA 19.46% NA NA 47.00%
Templeton Developing
Markets Equity ............. 3/15/94 -14.34% 2.24% NA .47% 6.87% NA 1.80%
Templeton Global
Asset Allocation ........... 5/1/95 5.81% NA NA 11.99% NA NA 35.33%
Templeton Global
Growth ..................... 3/15/94 7.57% 13.50% NA 11.28% 46.23% NA 50.08%
Templeton Global
Income Securities .......... 1/24/89 -3.30% 6.57% 5.75% 6.01% 21.02% 32.25% 68.45%
Templeton International
Equity ..................... 1/27/92 5.79% 12.69% 12.81% 10.03% 43.09% 82.67% 76.30%
Templeton International
Smaller Companies .......... 5/1/96 -7.22% NA NA 2.71% NA NA 4.56%
Templeton Pacific
Growth ..................... 1/27/92 -41.19% -10.69% -.84% -1.07% -28.76% -4.13% -6.16%
U.S. Government
Securities ................. 3/14/89 3.44% 8.35% 5.57% 6.79% 27.21% 31.15% 78.30%
Zero Coupon - 2000 2......... 3/14/89 1.27% 7.55% 5.83% 7.81% 24.41% 32.76% 93.93%
Zero Coupon - 2005 2......... 3/14/89 5.47% 11.19% 8.38% 9.59% 37.47% 49.51% 124.00%
Zero Coupon - 2010 2......... 3/14/89 10.60% 15.17% 10.89% 10.76% 52.78% 67.65% 145.95%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
2Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
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.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Contract Sub-Account(s) of the Variable Account. At the Income
Date, the Contract Value in each Contract Sub-Account will be applied to the
applicable Annuity Tables. The Annuity Table used will depend upon the Annuity
Option chosen. Both sex distinct and unisex Annuity Tables are utilized by the
Company, depending on the state and type of Contract. If, as of the Income Date,
the then current Annuity Option rates applicable to this class of Contracts
provide a larger income than that guaranteed for the same form of annuity under
the Contract, the larger amount will be paid. The dollar amount of annuity
payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of an
Annuity Unit as of the Income Date. This establishes the number of Annuity Units
for each monthly payment. The number of Annuity Units remains fixed during the
annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit value for
the last Valuation Period of the month preceding the month for which the payment
is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Contract Sub-Account Variable Annuity payments, reduced by the Contract
Maintenance Charge.
ANNUITY UNIT VALUE
The value of an Annuity Unit for a Contract Sub-Account is determined (see
below) by subtracting (2) from (1), dividing the result by (3) and multiplying
the result by .999866337248 (.999866337248 is the daily factor to neutralize the
assumed net investment rate of 5% per annum which is built into the annuity rate
table) where:
<PAGE>
1. is the net result of
a. the assets of the Contract Sub-Account attributable to the Annuity
Units; plus or minus
b. the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation of the Contract
Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
FIXED ANNUITY PAYOUT
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Option value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Company as of and for the
year ended December 31, 1997, included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts. The audited financial statements of the Variable Account as of and
for the year ended December 31, 1997 are also included herein.
VMB SAI 05/98
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>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 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 Agreement***
4. Individual Variable Annuity Contract**
5. Application for Individual Variable Annuity Contract**
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Form of Fund Participation Agreement**
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart***
27. Not Applicable
* Incorporated by reference to Post-Effective Amendment No. 14
to Registrant's Form N-4 electronically filed on October 27, 1995.
** Incorporated by reference to Post-Effective Amendment No. 15
to Registrant's Form N-4 electronically filed on April 19, 1996.
*** Incorporated by reference to Post-Effective Amendment No. 17
to Registrant's Form N-4 electronically filed on April 25, 1997.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- --------------------------- ---------------------------------------
<S> <C>
Lowell C. Anderson Chairman, President, Chief Executive
1750 Hennepin Avenue Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Boulevard
Minneapolis, MN 55439
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Dr. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Edward J. Bonach Senior Vice President, Chief Financial
1750 Hennepin Avenue Officer and Treasurer
Minneapolis, MN 55403
Michael T. Westermeyer Vice President-Law & Secretary
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert S. James President-Individual Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis J. Dease Director
c/o University of St.Thomas
2115 Summit Ave.
Box AQU100
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0116
Robert M. Kimmitt Director
c/o Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
Item 27. Number of Contract Owners
As of February 19, 1998, there were 33,327 qualified Contract Owners and 67,082
non-qualified Contract Owners with Contracts in the Separate Account.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers and directors of NALAC Financial Plans,
LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------------- --------------------------
<S> <C>
James P. Kelso Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Allianz Life Insurance Company of North America ("Company") hereby represents
that the fees and charges deducted under the Contract described in the
Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter issued
to the American Council of Life Insurance, dated November 28, 1988 (Commission
ref. IP-6-88), and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 24th day of April, 1998.
<TABLE>
<CAPTION>
<S> <C>
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
By: /S/ MICHAEL T. WESTERMEYER
--------------------------
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board, 04/24/98
Lowell C. Anderson President and Date
Chief Executive Officer
Herbert F. Hansmeyer* Director 04/24/98
Herbert F. Hansmeyer Date
Michael P. Sullivan* Director 04/24/98
Michael P. Sullivan Date
Dr. Jerry E. Robertson* Director 04/24/98
Dr. Jerry E. Robertson Date
Gerhard Rupprecht* Director 04/24/98
Gerhard Rupprecht Date
Edward J. Bonach* Chief Financial Officer 04/24/98
Edward J. Bonach Date
Rev. Dennis J. Dease* Director 04/24/98
Rev. Dennis J. Dease Date
James R. Campbell* Director 04/24/98
James R. Campbell Date
Robert M. Kimmitt* Director 04/24/98
Robert M. Kimmitt Date
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
*By Power of Attorney
By: /S/ MICHAEL T. WESTERMEYER
------------------------------
Michael T. Westermeyer
Attorney-in-Fact
</TABLE>
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 9th day of September 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, 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, 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, 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. 18
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit Page
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
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 Deferred
Variable Annuity Contracts to be issued by Allianz Life Insurance Company of
North America and its separate account, Allianz Life Variable Account B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Under the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors 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 II
ALLIANZ LIFE VARIABLE ACCOUNT B
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN AURN 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 $11.25417490 88.856 88.856 $1,000.00
12-31-97 Contract Fee (1.00) 13.12966406 (0.076) 88.780 1,165.65
12-31-97 Value before Surr Chg 13.12966406 0.000 88.780 1,165.65
12-31-97 Surrender Charge (42.50) 13.12966406 (3.237) 85.543 1,123.15
Cumulative and Average Annual Total Returns
without/with charges 16.66% A 12.31% B
Growth and Income
12-31-96 Purchase $1,000.00 $19.48959860 51.309 51.309 $1,000.00
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 51.269 1,258.69
12-31-97 Value before Surr Chg 24.55079561 0.000 51.269 1,258.69
12-31-97 Surrender Charge (42.50) 24.55079561 (1.731) 49.538 1,216.19
Cumulative and Average Annual Total Returns
without/with charges 25.97% A 21.62% B
High Income
12-31-96 Purchase $1,000.00 $19.37479425 51.613 51.613 $1,000.00
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 51.567 1,098.97
12-31-97 Value before Surr Chg 21.31160694 0.000 51.567 1,098.97
12-31-97 Surrender Charge (42.50) 21.31160694 (1.994) 49.572 1,056.47
Cumulative and Average Annual Total Returns
without/with charges 10.00% A 5.65% B
Income Securities
12-31-96 Purchase $1,000.00 $21.70827863 46.065 46.065 $1,000.00
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 46.025 1,153.61
12-31-97 Value before Surr Chg 25.06461193 0.000 46.025 1,153.61
12-31-97 Surrender Charge (42.50) 25.06461193 (1.696) 44.330 1,111.11
Cumulative and Average Annual Total Returns
without/with charges 15.46% A 11.11% B
Money Market
12-31-96 Purchase $1,000.00 $13.35923111 74.855 74.855 $1,000.00
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 74.782 1,036.84
12-31-97 Value before Surr Chg 13.86472844 0.000 74.782 1,036.84
12-31-97 Surrender Charge (42.50) 13.86472844 (3.065) 71.717 994.34
Cumulative and Average Annual Total Returns
without/with charges 3.78% A -0.57% B
Mutual Discovery Securities
12-31-96 Purchase $1,000.00 $10.18045638 98.227 98.227 $1,000.00
12-31-97 Contract Fee (1.00) 11.98316359 (0.083) 98.144 1,176.08
12-31-97 Value before Surr Chg 11.98316359 0.000 98.144 1,176.08
12-31-97 Surrender Charge (42.50) 11.98316359 (3.547) 94.597 1,133.58
Cumulative and Average Annual Total Returns
without/with charges 17.71% 13.36%
Mutual Shares Securities
12-31-96 Purchase $1,000.00 $10.33016898 96.804 96.804 $1,000.00
12-31-97 Contract Fee (1.00) 11.99296726 (0.083) 96.720 1,159.97
12-31-97 Value before Surr Chg 11.99296726 0.000 96.720 1,159.97
12-31-97 Surrender Charge (42.50) 11.99296726 (3.544) 93.177 1,117.47
Cumulative and Average Annual Total Returns
without/with charges 16.10% 11.75%
Natural Resource Securities
12-31-96 Purchase $1,000.00 $14.46741645 69.121 69.121 $1,000.00
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 69.034 797.98
12-31-97 Value before Surr Chg 11.55913365 0.000 69.034 797.98
12-31-97 Surrender Charge (42.50) 11.55913365 (3.677) 65.358 755.48
Cumulative and Average Annual Total Returns
without/with charges -20.10% A -24.45% B
Real Estate Securities
12-31-96 Purchase $1,000.00 $23.66770609 42.252 42.252 $1,000.00
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 42.216 1,189.21
12-31-97 Value before Surr Chg 28.16943249 0.000 42.216 1,189.21
12-31-97 Surrender Charge (42.50) 28.16943249 (1.509) 40.707 1,146.71
Cumulative and Average Annual Total Returns
without/with charges 19.02% A 14.67% B
Rising Dividends
12-31-96 Purchase $1,000.00 $15.30299222 65.347 65.347 $1,000.00
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 65.297 1,310.79
12-31-97 Value before Surr Chg 20.07430239 0.000 65.297 1,310.79
12-31-97 Surrender Charge (42.50) 20.07430239 (2.117) 63.180 1,268.29
Cumulative and Average Annual Total Returns
without/with charges 31.18% A 26.83% B
Small Cap
12-31-96 Purchase $1,000.00 $12.91274591 77.443 77.443 $1,000.00
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 77.376 1,156.92
12-31-97 Value before Surr Chg 14.95194471 0.000 77.376 1,156.92
12-31-97 Surrender Charge (42.50) 14.95194471 (2.842) 74.534 1,114.42
Cumulative and Average Annual Total Returns
without/with charges 15.79% 11.44%
Templeton Developing Markets Equity
12-31-96 Purchase $1,000.00 $11.48724479 87.053 87.053 $1,000.00
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 86.956 899.14
12-31-97 Value before Surr Chg 10.34011278 0.000 86.956 899.14
12-31-97 Surrender Charge (42.50) 10.34011278 (4.110) 82.846 856.64
Cumulative and Average Annual Total Returns
without/with charges -9.99% A -14.34% B
Templeton Global Asset Allocation
12-31-96 Purchase $1,000.00 $12.51416879 79.909 79.909 $1,000.00
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 79.837 1,100.61
12-31-97 Value before Surr Chg 13.78572229 0.000 79.837 1,100.61
12-31-97 Surrender Charge (42.50) 13.78572229 (3.083) 76.754 1,058.11
Cumulative and Average Annual Total Returns
without/with charges 10.16% A 5.81% B
Templeton Global Growth
12-31-96 Purchase $1,000.00 $13.55953972 73.749 73.749 $1,000.00
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 73.683 1,118.23
12-31-97 Value before Surr Chg 15.17626475 0.000 73.683 1,118.23
12-31-97 Surrender Charge (42.50) 15.17626475 (2.800) 70.882 1,075.73
Cumulative and Average Annual Total Returns
without/with charges 11.92% A 7.57% B
Templeton Global Income Securities
12-31-96 Purchase $1,000.00 $16.78052472 59.593 59.593 $1,000.00
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 59.534 1,009.50
12-31-97 Value before Surr Chg 16.95673923 0.000 59.534 1,009.50
12-31-97 Surrender Charge (42.50) 16.95673923 (2.506) 57.028 967.00
Cumulative and Average Annual Total Returns
without/with charges 1.05% A -3.30% B
Templeton International Equity
12-31-96 Purchase $1,000.00 $16.08142393 62.184 62.184 $1,000.00
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 62.127 1,100.35
12-31-97 Value before Surr Chg 17.71128511 0.000 62.127 1,100.35
12-31-97 Surrender Charge (42.50) 17.71128511 (2.400) 59.727 1,057.85
Cumulative and Average Annual Total Returns
without/with charges 10.14% A 5.79% B
Templeton International Smaller Companies
12-31-96 Purchase $1,000.00 $11.14519961 89.725 89.725 $1,000.00
12-31-97 Contract Fee (1.00) 10.82516357 (0.092) 89.632 970.28
12-31-97 Value before Surr Chg 10.82516357 0.000 89.632 970.28
12-31-97 Surrender Charge (42.50) 10.82516357 (3.926) 85.706 927.78
Cumulative and Average Annual Total Returns
without/with charges -2.87% A -7.22% B
Templeton Pacific Growth
12-31-96 Purchase $1,000.00 $14.93159316 66.972 66.972 $1,000.00
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 66.866 630.62
12-31-97 Value before Surr Chg 9.43102016 0.000 66.866 630.62
12-31-97 Surrender Charge (42.50) 9.43102016 (4.506) 62.360 588.12
Cumulative and Average Annual Total Returns
without/with charges -36.84% A -41.19% B
U.S. Government Securities
12-31-96 Purchase $1,000.00 $16.65018339 60.059 60.059 $1,000.00
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 60.004 1,076.90
12-31-97 Value before Surr Chg 17.94721856 0.000 60.004 1,076.90
12-31-97 Surrender Charge (42.50) 17.94721856 (2.368) 57.636 1,034.40
Cumulative and Average Annual Total Returns
without/with charges 7.79% A 3.44% B
Utility Equity
12-31-96 Purchase $1,000.00 $20.65439774 48.416 48.416 $1,000.00
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 48.377 1,249.02
12-31-97 Value before Surr Chg 25.81831690 0.000 48.377 1,249.02
12-31-97 Surrender Charge (42.50) 25.81831690 (1.646) 46.731 1,206.52
Cumulative and Average Annual Total Returns
without/with charges 25.00% A 20.65% B
Zero Coupon - 2000
12-31-96 Purchase $1,000.00 $18.47475298 54.128 54.128 $1,000.00
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 54.077 1,055.16
12-31-97 Value before Surr Chg 19.51237855 0.000 54.077 1,055.16
12-31-97 Surrender Charge (42.50) 19.51237855 (2.178) 51.899 1,012.66
Cumulative and Average Annual Total Returns
without/with charges 5.62% A 1.27% B
Zero Coupon - 2005
12-31-96 Purchase $1,000.00 $20.51665706 48.741 48.741 $1,000.00
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 48.697 1,097.24
12-31-97 Value before Surr Chg 22.53212008 0.000 48.697 1,097.24
12-31-97 Surrender Charge (42.50) 22.53212008 (1.886) 46.810 1,054.74
Cumulative and Average Annual Total Returns
without/with charges 9.82% A 5.47% B
Zero Coupon - 2010
12-31-96 Purchase $1,000.00 $21.52246902 46.463 46.463 $1,000.00
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 46.423 1,148.49
12-31-97 Value before Surr Chg 24.73976107 0.000 46.423 1,148.49
12-31-97 Surrender Charge (42.50) 24.73976107 (1.718) 44.705 1,105.99
Cumulative and Average Annual Total Returns
without/with charges 14.95% A 10.60% 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>
Growth and Income
12-31-94 Purchase $1,000.00 $13.21462941 75.674 75.674 $1,000.00
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 75.616 1,308.89
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 75.565 1,472.72
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 75.524 1,854.17
12-31-97 Value before Surr Chg 24.55079561 0.000 75.524 1,854.17
12-31-97 Surrender Charge (22.00) 24.55079561 (0.896) 74.628 1,832.17
Cumulative Total Returns without/with chrgs. 85.78% A 83.22% C
Avg. Annual Total Returns without/with chrgs. 22.93% B 22.36% D
High Income
12-31-94 Purchase $1,000.00 $14.60759128 68.458 68.458 $1,000.00
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 68.400 1,180.02
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 68.348 1,324.23
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 68.301 1,455.61
12-31-97 Value before Surr Chg 21.31160694 0.000 68.301 1,455.61
12-31-97 Surrender Charge (22.00) 21.31160694 (1.032) 67.269 1,433.61
Cumulative Total Returns without/with chrgs. 45.89% A 43.36% C
Avg. Annual Total Returns without/with chrgs. 13.42% B 12.76% D
Income Securities
12-31-94 Purchase $1,000.00 $16.39171653 61.006 61.006 $1,000.00
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 60.956 1,206.03
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 60.910 1,322.25
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 60.870 1,525.68
12-31-97 Value before Surr Chg 25.06461193 0.000 60.870 1,525.68
12-31-97 Surrender Charge (22.00) 25.06461193 (0.878) 59.992 1,503.68
Cumulative Total Returns without/with chrgs. 52.91% A 50.37% C
Avg. Annual Total Returns without/with chrgs. 15.21% B 14.56% D
Money Market
12-31-94 Purchase $1,000.00 $12.35398427 80.946 80.946 $1,000.00
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 80.868 1,041.86
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 80.793 1,079.33
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 80.721 1,119.17
12-31-97 Value before Surr Chg 13.86472844 0.000 80.721 1,119.17
12-31-97 Surrender Charge (22.00) 13.86472844 (1.587) 79.134 1,097.17
Cumulative Total Returns without/with chrgs. 12.23% A 9.72% C
Avg. Annual Total Returns without/with chrgs. 3.92% B 3.14% D
Natural Resource Securities
12-31-94 Purchase $1,000.00 $13.97879422 71.537 71.537 $1,000.00
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 71.466 1,008.29
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 71.397 1,032.93
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 71.310 824.29
12-31-97 Value before Surr Chg 11.55913365 0.000 71.310 824.29
12-31-97 Surrender Charge (22.00) 11.55913365 (1.903) 69.407 802.29
Cumulative Total Returns without/with chrgs. -17.31% A -19.77% C
Avg. Annual Total Returns without/with chrgs. -6.14% B -7.08% D
Real Estate Securities
12-31-94 Purchase $1,000.00 $15.59407180 64.127 64.127 $1,000.00
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.072 1,157.95
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.029 1,515.43
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 63.994 1,802.67
12-31-97 Value before Surr Chg 28.16943249 0.000 63.994 1,802.67
12-31-97 Surrender Charge (22.00) 28.16943249 (0.781) 63.213 1,780.67
Cumulative Total Returns without/with chrgs. 80.64% A 78.07% C
Avg. Annual Total Returns without/with chrgs. 21.79% B 21.21% D
Rising Dividends
12-31-94 Purchase $1,000.00 $9.76873744 102.367 102.367 $1,000.00
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 102.287 1,278.42
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 102.222 1,564.30
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 102.172 2,051.04
12-31-97 Value before Surr Chg 20.07430239 0.000 102.172 2,051.04
12-31-97 Surrender Charge (22.00) 20.07430239 (1.096) 101.076 2,029.04
Cumulative Total Returns without/with chrgs. 105.50% A 102.90% C
Avg. Annual Total Returns without/with chrgs. 27.14% B 26.60% D
Templeton Developing Markets Equity
12-31-94 Purchase $1,000.00 $9.45424664 105.773 105.773 $1,000.00
12-31-95 Contract Fee (1.00) 9.58170209 (0.104) 105.668 1,012.48
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 105.581 1,212.84
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 105.484 1,090.72
12-31-97 Value before Surr Chg 10.34011278 0.000 105.484 1,090.72
12-31-97 Surrender Charge (22.00) 10.34011278 (2.128) 103.357 1,068.72
Cumulative Total Returns without/with chrgs. 9.37% A 6.87% C
Avg. Annual Total Returns without/with chrgs. 3.03% B 2.24% D
Templeton Global Growth
12-31-94 Purchase $1,000.00 $10.20085584 98.031 98.031 $1,000.00
12-31-95 Contract Fee (1.00) 11.33894840 (0.088) 97.943 1,110.57
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 97.869 1,327.06
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 97.803 1,484.29
12-31-97 Value before Surr Chg 15.17626475 0.000 97.803 1,484.29
12-31-97 Surrender Charge (22.00) 15.17626475 (1.450) 96.354 1,462.29
Cumulative Total Returns without/with chrgs. 48.77% A 46.23% C
Avg. Annual Total Returns without/with chrgs. 14.16% B 13.50% D
Templeton Global Income Securities
12-31-94 Purchase $1,000.00 $13.72629720 72.853 72.853 $1,000.00
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 72.788 1,129.86
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 72.729 1,220.43
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 72.670 1,232.24
12-31-97 Value before Surr Chg 16.95673923 0.000 72.670 1,232.24
12-31-97 Surrender Charge (22.00) 16.95673923 (1.297) 71.372 1,210.24
Cumulative Total Returns without/with chrgs. 23.53% A 21.02% C
Avg. Annual Total Returns without/with chrgs. 7.30% B 6.57% D
Templeton International Equity
12-31-94 Purchase $1,000.00 $12.16131942 82.228 82.228 $1,000.00
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 82.153 1,089.56
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 82.090 1,320.13
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 82.034 1,452.93
12-31-97 Value before Surr Chg 17.71128511 0.000 82.034 1,452.93
12-31-97 Surrender Charge (22.00) 17.71128511 (1.242) 80.792 1,430.93
Cumulative Total Returns without/with chrgs. 45.64% A 43.09% C
Avg. Annual Total Returns without/with chrgs. 13.35% B 12.69% D
Templeton Pacific Growth
12-31-94 Purchase $1,000.00 $12.80173310 78.114 78.114 $1,000.00
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 78.041 1,063.73
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 77.974 1,164.28
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 77.868 734.38
12-31-97 Value before Surr Chg 9.43102016 0.000 77.868 734.38
12-31-97 Surrender Charge (22.00) 9.43102016 (2.333) 75.535 712.38
Cumulative Total Returns without/with chrgs. -26.33% A -28.76% C
Avg. Annual Total Returns without/with chrgs. -9.68% B -10.69% D
U.S. Government Securities
12-31-94 Purchase $1,000.00 $13.83490825 72.281 72.281 $1,000.00
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 72.220 1,177.01
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 72.160 1,201.47
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 72.104 1,294.06
12-31-97 Value before Surr Chg 17.94721856 0.000 72.104 1,294.06
12-31-97 Surrender Charge (22.00) 17.94721856 (1.226) 70.878 1,272.06
Cumulative Total Returns without/with chrgs. 29.72% A 27.21% C
Avg. Annual Total Returns without/with chrgs. 9.06% B 8.35% D
Utility Equity
12-31-94 Purchase $1,000.00 $15.10395032 66.208 66.208 $1,000.00
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 66.157 1,294.32
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 66.108 1,365.43
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 66.070 1,705.81
12-31-97 Value before Surr Chg 25.81831690 0.000 66.070 1,705.81
12-31-97 Surrender Charge (22.00) 25.81831690 (0.852) 65.217 1,683.81
Cumulative Total Returns without/with chrgs. 70.94% A 68.38% C
Avg. Annual Total Returns without/with chrgs. 19.57% B 18.97% D
Zero Coupon - 2000
12-31-94 Purchase $1,000.00 $15.37318118 65.048 65.048 $1,000.00
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 64.994 1,188.97
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 64.940 1,199.74
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 64.888 1,266.13
12-31-97 Value before Surr Chg 19.51237855 0.000 64.888 1,266.13
12-31-97 Surrender Charge (22.00) 19.51237855 (1.127) 63.761 1,244.13
Cumulative Total Returns without/with chrgs. 26.92% A 24.41% C
Avg. Annual Total Returns without/with chrgs. 8.27% B 7.55% D
Zero Coupon - 2005
12-31-94 Purchase $1,000.00 $16.09601101 62.127 62.127 $1,000.00
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 62.079 1,298.31
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 62.031 1,272.66
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 61.986 1,396.68
12-31-97 Value before Surr Chg 22.53212008 0.000 61.986 1,396.68
12-31-97 Surrender Charge (22.00) 22.53212008 (0.976) 61.010 1,374.68
Cumulative Total Returns without/with chrgs. 39.99% A 37.47% C
Avg. Annual Total Returns without/with chrgs. 11.87% B 11.19% D
Zero Coupon - 2010
12-31-94 Purchase $1,000.00 $15.92982416 62.775 62.775 $1,000.00
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 62.731 1,407.14
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 62.684 1,349.12
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 62.644 1,549.79
12-31-97 Value before Surr Chg 24.73976107 0.000 62.644 1,549.79
12-31-97 Surrender Charge (22.00) 24.73976107 (0.889) 61.755 1,527.79
Cumulative Total Returns without/with chrgs. 55.30% A 52.78% C
Avg. Annual Total Returns without/with chrgs. 15.81% B 15.17% 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>
Growth and Income
12-31-92 Purchase $1,000.00 $12.57361730 79.532 79.532 $1,000.00
12-31-93 Contract Fee (1.00) 13.67694811 (0.073) 79.458 1,086.75
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 79.383 1,049.01
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 79.325 1,373.09
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 79.274 1,545.01
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 79.233 1,945.23
12-31-97 Value before Surr Chg 24.55079561 0.000 79.233 1,945.23
12-31-97 Surrender Charge (3.75) 24.55079561 (0.153) 79.080 1,941.48
Cumulative Total Returns without/with chrgs. 95.26% A 94.15% C
Avg. Annual Total Returns without/with chrgs. 14.32% B 14.19% D
High Income
12-31-92 Purchase $1,000.00 $13.27789297 75.313 75.313 $1,000.00
12-31-93 Contract Fee (1.00) 15.15511991 (0.066) 75.247 1,140.38
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 75.179 1,098.18
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 75.121 1,295.97
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 75.069 1,454.45
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 75.022 1,598.84
12-31-97 Value before Surr Chg 21.31160694 0.000 75.022 1,598.84
12-31-97 Surrender Charge (3.75) 21.31160694 (0.176) 74.846 1,595.09
Cumulative Total Returns without/with chrgs. 60.50% A 59.51% C
Avg. Annual Total Returns without/with chrgs. 9.93% B 9.79% D
Income Securities
12-31-92 Purchase $1,000.00 $15.16252410 65.952 65.952 $1,000.00
12-31-93 Contract Fee (1.00) 17.73437317 (0.056) 65.896 1,168.62
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 65.835 1,079.14
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 65.784 1,301.56
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 65.738 1,427.06
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 65.698 1,646.70
12-31-97 Value before Surr Chg 25.06461193 0.000 65.698 1,646.70
12-31-97 Surrender Charge (3.75) 25.06461193 (0.150) 65.549 1,642.95
Cumulative Total Returns without/with chrgs. 65.31% A 64.29% C
Avg. Annual Total Returns without/with chrgs. 10.58% B 10.44% D
Money Market
12-31-92 Purchase $1,000.00 $11.93209752 83.808 83.808 $1,000.00
12-31-93 Contract Fee (1.00) 12.06579747 (0.083) 83.725 1,010.21
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 83.644 1,033.33
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 83.566 1,076.62
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 83.491 1,115.38
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 83.419 1,156.58
12-31-97 Value before Surr Chg 13.86472844 0.000 83.419 1,156.58
12-31-97 Surrender Charge (3.75) 13.86472844 (0.270) 83.149 1,152.83
Cumulative Total Returns without/with chrgs. 16.20% A 15.28% C
Avg. Annual Total Returns without/with chrgs. 3.05% B 2.89% D
Natural Resource Securities
12-31-92 Purchase $1,000.00 $9.42437104 106.108 106.108 $1,000.00
12-31-93 Contract Fee (1.00) 14.46354903 (0.069) 106.039 1,533.70
12-31-94 Contract Fee (1.00) 13.97879422 (0.072) 105.967 1,481.29
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 105.896 1,494.06
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 105.827 1,531.05
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 105.741 1,222.27
12-31-97 Value before Surr Chg 11.55913365 0.000 105.741 1,222.27
12-31-97 Surrender Charge (3.75) 11.55913365 (0.324) 105.416 1,218.52
Cumulative Total Returns without/with chrgs. 22.65% A 21.85% C
Avg. Annual Total Returns without/with chrgs. 4.17% B 4.03% D
Real Estate Securities
12-31-92 Purchase $1,000.00 $13.09547341 76.362 76.362 $1,000.00
12-31-93 Contract Fee (1.00) 15.36898235 (0.065) 76.297 1,172.61
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 76.233 1,188.78
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 76.178 1,376.75
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 76.135 1,801.95
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 76.100 2,143.69
12-31-97 Value before Surr Chg 28.16943249 0.000 76.100 2,143.69
12-31-97 Surrender Charge (3.75) 28.16943249 (0.133) 75.967 2,139.94
Cumulative Total Returns without/with chrgs. 115.11% A 113.99% C
Avg. Annual Total Returns without/with chrgs. 16.56% B 16.43% D
Rising Dividends
12-31-92 Purchase $1,000.00 $10.84771473 92.185 92.185 $1,000.00
12-31-93 Contract Fee (1.00) 10.32720317 (0.097) 92.088 $951.02
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 91.986 $898.59
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 91.906 1,148.68
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 91.841 1,405.44
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 91.791 1,842.64
12-31-97 Value before Surr Chg 20.07430239 0.000 91.791 1,842.64
12-31-97 Surrender Charge (3.75) 20.07430239 (0.187) 91.604 1,838.89
Cumulative Total Returns without/with chrgs. 85.06% A 83.89% C
Avg. Annual Total Rtns. without/with chrgs. 13.10% B 12.96% D
Templeton Global Income Securities
12-31-92 Purchase $1,000.00 $12.73250766 78.539 78.539 $1,000.00
12-31-93 Contract Fee (1.00) 14.64984870 (0.068) 78.471 1,149.59
12-31-94 Contract Fee (1.00) 13.72629720 (0.073) 78.398 1,076.11
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 78.334 1,215.93
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 78.274 1,313.48
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 78.215 1,326.27
12-31-97 Value before Surr Chg 16.95673923 0.000 78.215 1,326.27
12-31-97 Surrender Charge (3.75) 16.95673923 (0.221) 77.994 1,322.52
Cumulative Total Returns without/with chrgs. 33.18% A 32.25% C
Avg. Annual Total Returns without/with chrgs. 5.90% B 5.75% D
Templeton International Equity
12-31-92 Purchase $1,000.00 $9.64241309 103.708 103.708 $1,000.00
12-31-93 Contract Fee (1.00) 12.22565227 (0.082) 103.627 1,266.90
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 103.544 1,259.24
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 103.469 1,372.28
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 103.407 1,662.93
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 103.350 1,830.47
12-31-97 Value before Surr Chg 17.71128511 0.000 103.350 1,830.47
12-31-97 Surrender Charge (3.75) 17.71128511 (0.212) 103.139 1,826.72
Cumulative Total Returns without/with chrgs. 83.68% A 82.67% C
Avg. Annual Total Rtns. without/with chrgs. 12.93% B 12.81% D
Templeton Pacific Growth
12-31-92 Purchase $1,000.00 $9.76096735 102.449 102.449 $1,000.00
12-31-93 Contract Fee (1.00) 14.23330574 (0.070) 102.379 1,457.19
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 102.300 1,309.62
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 102.227 1,393.39
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 102.160 1,525.41
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 102.054 962.47
12-31-97 Value before Surr Chg 9.43102016 0.000 102.054 962.47
12-31-97 Surrender Charge (3.75) 9.43102016 (0.398) 101.656 958.72
Cumulative Total Returns without/with chrgs. -3.38% A -4.13% C
Avg. Annual Total Rtns. without/with chrgs. -0.69% B -0.84% D
U.S. Government Securities
12-31-92 Purchase $1,000.00 $13.58621153 73.604 73.604 $1,000.00
12-31-93 Contract Fee (1.00) 14.69826319 (0.068) 73.536 1,080.85
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 73.464 1,016.36
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 73.402 1,196.29
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 73.342 1,221.16
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 73.287 1,315.29
12-31-97 Value before Surr Chg 17.94721856 0.000 73.287 1,315.29
12-31-97 Surrender Charge (3.75) 17.94721856 (0.209) 73.078 1,311.54
Cumulative Total Returns without/with chrgs. 32.10% A 31.15% C
Avg. Annual Total Returns without/with chrgs. 5.73% B 5.57% D
Utility Equity
12-31-92 Purchase $1,000.00 $15.88865152 62.938 62.938 $1,000.00
12-31-93 Contract Fee (1.00) 17.31879581 (0.058) 62.880 1,089.01
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 62.814 948.74
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 62.763 1,227.93
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 62.715 1,295.33
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 62.676 1,618.18
12-31-97 Value before Surr Chg 25.81831690 0.000 62.676 1,618.18
12-31-97 Surrender Charge (3.75) 25.81831690 (0.145) 62.531 1,614.43
Cumulative Total Returns without/with chrgs. 62.50% A 61.44% C
Avg. Annual Total Returns without/with chrgs. 10.20% B 10.05% D
Zero Coupon - 2000
12-31-92 Purchase $1,000.00 $14.59489368 68.517 68.517 $1,000.00
12-31-93 Contract Fee (1.00) 16.71742785 (0.060) 68.457 1,144.43
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 68.392 1,051.41
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 68.338 1,250.14
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 68.283 1,261.52
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 68.232 1,331.37
12-31-97 Value before Surr Chg 19.51237855 0.000 68.232 1,331.37
12-31-97 Surrender Charge (3.75) 19.51237855 (0.192) 68.040 1,327.62
Cumulative Total Returns without/with chrgs. 33.69% A 32.76% C
Avg. Annual Total Returns without/with chrgs. 5.98% B 5.83% D
Zero Coupon - 2005
12-31-92 Purchase $1,000.00 $14.97467685 66.779 66.779 $1,000.00
12-31-93 Contract Fee (1.00) 18.04995514 (0.055) 66.724 1,204.37
12-31-94 Contract Fee (1.00) 16.09601101 (0.062) 66.662 1,072.99
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 66.614 1,393.14
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 66.565 1,365.70
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 66.521 1,498.86
12-31-97 Value before Surr Chg 22.53212008 0.000 66.521 1,498.86
12-31-97 Surrender Charge (3.75) 22.53212008 (0.166) 66.355 1,495.11
Cumulative Total Returns without/with chrgs. 50.47% A 49.51% C
Avg. Annual Total Returns without/with chrgs. 8.51% B 8.38% D
Zero Coupon - 2010
12-31-92 Purchase $1,000.00 $14.66961344 68.168 68.168 $1,000.00
12-31-93 Contract Fee 1.00) 18.14448916 (0.055) 68.113 1,235.88
12-31-94 Contract Fee (1.00) 15.92982416 (0.063) 68.050 1,084.03
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 68.006 1,525.46
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 67.959 1,462.65
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 67.919 1,680.29
12-31-97 Value before Surr Chg 24.73976107 0.000 67.919 1,680.29
12-31-97 Surrender Charge (3.75) 24.73976107 (0.152) 67.767 1,676.54
Cumulative Total Returns without/with chrgs. 68.65% A 67.65% C
Avg. Annual Total Returns without/with chrgs. 11.02% B 10.89% 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) $11.18234032 (0.089) 99.911 1,117.23
12-31-97 Contract Fee (1.00) 13.12966406 (0.076) 99.834 1,310.79
12-31-97 Value before Surr Chg 13.12966406 0.000 99.834 1,310.79
12-31-97 Surrender Charge (35.00) 13.12966406 (2.666) 97.169 1,275.79
Cumulative Total Returns without/with chgs. 31.30% A 27.58% C
Avg. Annual Total Returns without/with chgs. 17.73% B 15.72% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.60621064 (0.104) 99.896 959.62
1-24-91 Contract Fee (1.00) 10.04911751 (0.100) 99.796 1,002.87
1-24-92 Contract Fee (1.00) 12.19460473 (0.082) 99.714 1,215.98
1-24-93 Contract Fee (1.00) 12.62194644 (0.079) 99.635 1,257.59
1-24-94 Contract Fee (1.00) 14.16249217 (0.071) 99.565 1,410.08
1-24-95 Contract Fee (1.00) 13.34952632 (0.075) 99.490 1,328.14
1-24-96 Contract Fee (1.00) 17.36302808 (0.058) 99.432 1,726.44
1-24-97 Contract Fee (1.00) 19.93765368 (0.050) 99.382 1,981.44
12-31-97 Value before Surr Chg 24.55079561 0.000 99.382 2,439.90
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 99.341 2,438.90
12-31-97 Surrender Charge 0.00 24.55079561 0.000 99.341 2,438.90
Cumulative Total Returns without/with chgs. 145.51% A 143.89% C
Avg. Annual Total Returns without/with chgs. 10.57% B 10.49% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.99164502 (0.100) 99.900 998.16
1-24-91 Contract Fee (1.00) 8.99722270 (0.111) 99.789 897.82
1-24-92 Contract Fee (1.00) 11.88821941 (0.084) 99.705 1,185.31
1-24-93 Contract Fee (1.00) 13.44703876 (0.074) 99.630 1,339.73
1-24-94 Contract Fee (1.00) 15.36027784 (0.065) 99.565 1,529.35
1-24-95 Contract Fee (1.00) 14.72506391 (0.068) 99.497 1,465.10
1-24-96 Contract Fee (1.00) 17.51218685 (0.057) 99.440 1,741.41
1-24-97 Contract Fee (1.00) 19.46632780 (0.051) 99.389 1,934.73
12-31-97 Value before Surr Chg 21.31160694 0.000 99.389 2,118.14
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 99.342 2,117.14
12-31-97 Surrender Charge 0.00 21.31160694 0.000 99.342 2,117.14
Cumulative Total Returns without/with chgs. 113.12% A 111.71% C
Avg. Annual Total Returns without/with chgs. 8.83% B 8.75% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.71309911 (0.093) 99.907 1,070.31
1-24-91 Contract Fee (1.00) 9.95244729 (0.100) 99.806 993.32
1-24-92 Contract Fee (1.00) 14.03346495 (0.071) 99.735 1,399.63
1-24-93 Contract Fee (1.00) 15.36060973 (0.065) 99.670 1,530.99
1-24-94 Contract Fee (1.00) 17.72926867 (0.056) 99.613 1,766.07
1-24-95 Contract Fee (1.00) 16.36456157 (0.061) 99.552 1,629.13
1-24-96 Contract Fee (1.00) 20.20965612 (0.049) 99.503 2,010.92
1-24-97 Contract Fee (1.00) 21.90254020 (0.046) 99.457 2,178.36
12-31-97 Value before Surr Chg 25.06461193 0.000 99.457 2,492.86
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 99.417 2,491.86
12-31-97 Surrender Charge 0.00 25.06461193 0.000 99.417 2,491.86
Cumulative Total Returns without/with chgs. 150.65% A 149.19% C
Avg. Annual Total Returns without/with chgs. 10.83% B 10.75% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67978818 (0.094) 99.906 1,066.98
1-24-91 Contract Fee (1.00) 11.32877884 (0.088) 99.818 1,130.82
1-24-92 Contract Fee (1.00) 11.75876120 (0.085) 99.733 1,172.74
1-24-93 Contract Fee (1.00) 11.94119334 (0.084) 99.649 1,189.93
1-24-94 Contract Fee (1.00) 12.07592840 (0.083) 99.566 1,202.36
1-24-95 Contract Fee (1.00) 12.38828249 (0.081) 99.486 1,232.46
1-24-96 Contract Fee (1.00) 12.92030455 (0.077) 99.408 1,284.39
1-24-97 Contract Fee (1.00) 13.39088993 (0.075) 99.334 1,330.17
12-31-97 Value before Surr Chg 13.86472844 0.000 99.334 1,377.23
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 99.262 1,376.23
12-31-97 Surrender Charge 0.00 13.86472844 0.000 99.262 1,376.23
Cumulative Total Returns without/with chgs. 38.65% A 37.62% C
Avg. Annual Total Returns without/with chgs. 3.72% B 3.64% 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) 11.84027297 (0.084) 99.916 1,183.03
12-31-97 Contract Fee (1.00) 11.98316359 (0.083) 99.832 1,196.30
12-31-97 Value before Surr Chg 11.98316359 0.000 99.832 1,196.30
12-31-97 Surrender Charge (35.00) 11.98316359 (2.921) 96.911 1,161.30
Cumulative Total Returns without/with chgs. 19.83% A 16.13% C
Avg. Annual Total Returns without/with chgs. 17.11% B 13.95% 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) 11.76129584 (0.085) 99.915 1,175.13
12-31-97 Contract Fee (1.00) 11.99296726 (0.083) 99.832 1,197.28
12-31-97 Value before Surr Chg 11.99296726 0.000 99.832 1,197.28
12-31-97 Surrender Charge (35.00) 11.99296726 (2.918) 96.913 1,162.28
Cumulative Total Returns without/with chgs. 19.93% A 16.23% C
Avg. Annual Total Returns without/with chgs. 17.20% B 14.03% D
Natural Resource Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.89722725 (0.078) 99.922 1,288.72
1-24-91 Contract Fee (1.00) 9.78594476 (0.102) 99.820 976.84
1-24-92 Contract Fee (1.00) 10.94243678 (0.091) 99.729 1,091.28
1-24-93 Contract Fee (1.00) 9.15485419 (0.109) 99.620 912.00
1-24-94 Contract Fee (1.00) 14.48022000 (0.069) 99.551 1,441.51
1-24-95 Contract Fee (1.00) 13.03370860 (0.077) 99.474 1,296.51
1-24-96 Contract Fee (1.00) 15.98656882 (0.063) 99.411 1,589.25
1-24-97 Contract Fee (1.00) 13.82698418 (0.072) 99.339 1,373.56
12-31-97 Value before Surr Chg 11.55913365 0.000 99.339 1,148.27
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 99.252 1,147.27
12-31-97 Surrender Charge 0.00 11.55913365 0.000 99.252 1,147.27
Cumulative Total Returns without/with chgs. 15.59% A 14.73% C
Avg. Annual Total Returns without/with chgs. 1.63% B 1.55% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13988901 (0.099) 99.901 1,012.99
1-24-91 Contract Fee (1.00) 9.37706788 (0.107) 99.795 935.78
1-24-92 Contract Fee (1.00) 12.28427530 (0.081) 99.713 1,224.91
1-24-93 Contract Fee (1.00) 13.54478625 (0.074) 99.640 1,349.60
1-24-94 Contract Fee (1.00) 15.37525910 (0.065) 99.574 1,530.98
1-24-95 Contract Fee (1.00) 15.00928122 (0.067) 99.508 1,493.54
1-24-96 Contract Fee (1.00) 18.15857148 (0.055) 99.453 1,805.92
1-24-97 Contract Fee (1.00) 23.95551361 (0.042) 99.411 2,381.44
12-31-97 Value before Surr Chg 28.16943249 0.000 99.411 2,800.35
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 99.376 2,799.35
12-31-97 Surrender Charge 0.00 28.16943249 0.000 99.376 2,799.35
Cumulative Total Returns without/with chgs. 181.69% A 179.94% C
Avg. Annual Total Returns without/with chgs. 12.28% B 12.20% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.69831588 (0.093) 99.907 1,068.83
1-27-94 Contract Fee (1.00) 10.38483458 (0.096) 99.810 1,036.51
1-27-95 Contract Fee (1.00) 9.97357882 (0.100) 99.710 994.47
1-27-96 Contract Fee (1.00) 12.53425589 (0.080) 99.630 1,248.79
1-27-97 Contract Fee (1.00) 15.27722507 (0.065) 99.565 1,521.07
12-31-97 Value before Surr Chg 20.07430239 0.000 99.565 1,998.69
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 99.515 1,997.69
12-31-97 Surrender Charge 0.00 20.07430239 0.000 99.515 1,997.69
Cumulative Total Returns without/with chgs. 100.74% A 99.77% C
Avg. Annual Total Returns without/with chgs. 12.47% B 12.37% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.15810442 (0.082) 99.918 1,214.81
11-1-97 Contract Fee (1.00) 15.56454139 (0.064) 99.854 1,554.17
12-31-97 Value before Surr Chg 14.95194471 0.000 99.854 1,493.00
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 99.787 1,492.00
12-31-97 Surrender Charge (22.00) 14.95194471 (1.471) 98.315 1,470.00
Cumulative Total Returns without/with chgs. 49.52% A 47.00% C
Avg. Annual Total Returns without/with chgs. 20.40% B 19.46% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62834892 (0.116) 99.884 861.83
3-15-96 Contract Fee (1.00) 10.29583833 (0.097) 99.787 1,027.39
3-15-97 Contract Fee (1.00) 12.45337068 (0.080) 99.707 1,241.68
12-31-97 Value before Surr Chg 10.34011278 0.000 99.707 1,030.98
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 99.610 1,029.98
12-31-97 Surrender Charge (12.00) 10.34011278 (1.161) 98.449 1,017.98
Cumulative Total Returns without/with chgs. 3.40% A 1.80% C
Avg. Annual Total Returns without/with chgs. 0.88% B 0.47% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.25238520 (0.089) 99.911 1,124.24
5-1-97 Contract Fee (1.00) 12.77282148 (0.078) 99.833 1,275.15
12-31-97 Value before Surr Chg 13.78572229 0.000 99.833 1,376.27
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 99.760 1,375.27
12-31-97 Surrender Charge (22.00) 13.78572229 (1.596) 98.164 1,353.27
Cumulative Total Returns without/with chgs. 37.86% A 35.33% C
Avg. Annual Total Returns without/with chgs. 12.77% B 11.99% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.10361218 (0.099) 99.901 1,009.36
3-15-96 Contract Fee (1.00) 11.81545835 (0.085) 99.816 1,179.38
3-15-97 Contract Fee (1.00) 14.09972316 (0.071) 99.745 1,406.38
12-31-97 Value before Surr Chg 15.17626475 0.000 99.745 1,513.76
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 99.680 1,512.76
12-31-97 Surrender Charge (12.00) 15.17626475 (0.791) 98.889 1,500.76
Cumulative Total Returns without/with chgs. 51.76% A 50.08% C
Avg. Annual Total Returns without/with chgs. 11.60% B 11.28% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.86134310 (0.092) 99.908 1,085.13
1-24-91 Contract Fee (1.00) 11.78457305 (0.085) 99.823 1,176.37
1-24-92 Contract Fee (1.00) 12.96036211 (0.077) 99.746 1,292.74
1-24-93 Contract Fee (1.00) 12.79597793 (0.078) 99.668 1,275.35
1-24-94 Contract Fee (1.00) 14.83430587 (0.067) 99.600 1,477.50
1-24-95 Contract Fee (1.00) 13.57814674 (0.074) 99.527 1,351.39
1-24-96 Contract Fee (1.00) 15.44939311 (0.065) 99.462 1,536.63
1-24-97 Contract Fee (1.00) 16.58044652 (0.060) 99.402 1,648.12
12-31-97 Value before Surr Chg 16.95673923 0.000 99.402 1,685.53
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 99.343 1,684.53
12-31-97 Surrender Charge 0.00 16.95673923 0.000 99.343 1,684.53
Cumulative Total Returns without/with chgs. 69.57% A 68.45% C
Avg. Annual Total Returns without/with chgs. 6.09% B 6.01% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.54360836 (0.105) 99.895 953.36
1-27-94 Contract Fee (1.00) 12.87738433 (0.078) 99.818 1,285.39
1-27-95 Contract Fee (1.00) 11.94433728 (0.084) 99.734 1,191.25
1-27-96 Contract Fee (1.00) 13.57666972 (0.074) 99.660 1,353.05
1-27-97 Contract Fee (1.00) 16.22074645 (0.062) 99.599 1,615.56
12-31-97 Value before Surr Chg 17.71128511 0.000 99.599 1,764.02
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 99.542 1,763.02
12-31-97 Surrender Charge 0.00 17.71128511 0.000 99.542 1,763.02
Cumulative Total Returns without/with chgs. 77.11% A 76.30% C
Avg. Annual Total Returns without/with chgs. 10.12% B 10.03% 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) $11.33025487 (0.088) 99.912 1,132.03
12-31-97 Value before Surr Chg 10.82516357 0.000 99.912 1,081.56
12-31-97 Contract Fee (1.00) 10.82516357 (0.092) 99.819 1,080.56
12-31-97 Surrender Charge (35.00) 10.82516357 (3.233) 96.586 1,045.56
Cumulative Total Returns without/with chgs. 8.25% A 4.56% C
Avg. Annual Total Returns without/with chgs. 4.87% B 2.71% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.92851087 (0.101) 99.899 991.85
1-27-94 Contract Fee (1.00) 14.10178760 (0.071) 99.828 1,407.76
1-27-95 Contract Fee (1.00) 11.94769270 (0.084) 99.745 1,191.72
1-27-96 Contract Fee (1.00) 14.49670523 (0.069) 99.676 1,444.97
1-27-97 Contract Fee (1.00) 14.65338680 (0.068) 99.607 1,459.59
12-31-97 Value before Surr Chg 9.43102016 0.000 99.607 939.40
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 99.501 938.40
12-31-97 Surrender Charge 0.00 9.43102016 0.000 99.501 938.40
Cumulative Total Returns without/with chgs. -5.69% A -6.16% C
Avg. Annual Total Returns without/with chgs. -0.98% B -1.07% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.30827187 (0.097) 99.903 1,029.83
3-14-91 Contract Fee (1.00) 11.46249369 (0.087) 99.816 1,144.14
3-14-92 Contract Fee (1.00) 12.40064739 (0.081) 99.735 1,236.78
3-14-93 Contract Fee (1.00) 14.10187466 (0.071) 99.664 1,405.45
3-14-94 Contract Fee (1.00) 14.26756989 (0.070) 99.594 1,420.97
3-14-95 Contract Fee (1.00) 14.67370156 (0.068) 99.526 1,460.41
3-14-96 Contract Fee (1.00) 15.92525376 (0.063) 99.463 1,583.98
3-14-97 Contract Fee (1.00) 16.72689010 (0.060) 99.403 1,662.71
12-31-97 Value before Surr Chg 17.94721856 0.000 99.403 1,784.01
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 99.348 1,783.01
12-31-97 Surrender Charge 0.00 17.94721856 0.000 99.348 1,783.01
Cumulative Total Returns without/with chgs. 79.47% A 78.30% C
Avg. Annual Total Returns without/with chgs. 6.87% B 6.79% D
Utility Equity
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.48396786 (0.087) 99.913 1,147.40
1-24-91 Contract Fee (1.00) 11.97256112 (0.084) 99.829 1,195.21
1-24-92 Contract Fee (1.00) 14.23979461 (0.070) 99.759 1,420.55
1-24-93 Contract Fee (1.00) 15.97559846 (0.063) 99.697 1,592.71
1-24-94 Contract Fee (1.00) 16.50535338 (0.061) 99.636 1,644.53
1-24-95 Contract Fee (1.00) 15.57082971 (0.064) 99.572 1,550.42
1-24-96 Contract Fee (1.00) 19.81799066 (0.050) 99.521 1,972.31
1-24-97 Contract Fee (1.00) 20.96455989 (0.048) 99.474 2,085.42
12-31-97 Value before Surr Chg 25.81831690 0.000 99.474 2,568.24
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 99.435 2,567.24
12-31-97 Surrender Charge 0.00 25.81831690 0.000 99.435 2,567.24
Cumulative Total Returns without/with chgs. 158.18% A 156.72% C
Avg. Annual Total Returns without/with chgs. 11.19% B 11.12% D
Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38718687 (0.096) 99.904 1,037.72
3-14-91 Contract Fee (1.00) 11.51435997 (0.087) 99.817 1,149.33
3-14-92 Contract Fee (1.00) 12.66478418 (0.079) 99.738 1,263.16
3-14-93 Contract Fee (1.00) 15.54092694 (0.064) 99.674 1,549.02
3-14-94 Contract Fee (1.00) 16.04445243 (0.062) 99.611 1,598.21
3-14-95 Contract Fee (1.00) 16.25253463 (0.062) 99.550 1,617.94
3-14-96 Contract Fee (1.00) 17.85770371 (0.056) 99.494 1,776.73
3-14-97 Contract Fee (1.00) 18.44735099 (0.054) 99.440 1,834.40
12-31-97 Value before Surr Chg 19.51237855 0.000 99.440 1,940.30
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 99.388 1,939.30
12-31-97 Surrender Charge 0.00 19.51237855 0.000 99.388 1,939.30
Cumulative Total Returns without/with chgs. 95.12% A 93.93% C
Avg. Annual Total Returns without/with chgs. 7.89% B 7.81% D
Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.39705125 (0.096) 99.904 1,038.71
3-14-91 Contract Fee (1.00) 11.55409702 (0.087) 99.817 1,153.30
3-14-92 Contract Fee (1.00) 12.66096149 (0.079) 99.738 1,262.78
3-14-93 Contract Fee (1.00) 16.42515250 (0.061) 99.677 1,637.22
3-14-94 Contract Fee (1.00) 16.93608169 (0.059) 99.618 1,687.14
3-14-95 Contract Fee (1.00) 17.21684038 (0.058) 99.560 1,714.11
3-14-96 Contract Fee (1.00) 19.49696512 (0.051) 99.509 1,940.12
3-14-97 Contract Fee (1.00) 20.18399547 (0.050) 99.459 2,007.49
12-31-97 Value before Surr Chg 22.53212008 0.000 99.459 2,241.03
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 99.415 2,240.03
12-31-97 Surrender Charge 0.00 22.53212008 0.000 99.415 2,240.03
Cumulative Total Returns without/with chgs. 125.32% A 124.00% C
Avg. Annual Total Returns without/with chgs. 9.66% B 9.59% D
Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.26881437 (0.097) 99.903 1,025.88
3-14-91 Contract Fee (1.00) 11.36823998 (0.088) 99.815 1,134.72
3-14-92 Contract Fee (1.00) 12.29280886 (0.081) 99.733 1,226.00
3-14-93 Contract Fee (1.00) 16.18583635 (0.062) 99.672 1,613.27
3-14-94 Contract Fee (1.00) 16.90519720 (0.059) 99.612 1,683.97
3-14-95 Contract Fee (1.00) 17.12909328 (0.058) 99.554 1,705.27
3-14-96 Contract Fee (1.00) 19.99802778 (0.050) 99.504 1,989.88
3-14-97 Contract Fee (1.00) 20.76400623 (0.048) 99.456 2,065.10
12-31-97 Value before Surr Chg 24.73976107 0.000 99.456 2,460.51
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 99.415 2,459.51
12-31-97 Surrender Charge 0.00 24.73976107 0.000 99.415 2,459.51
Cumulative Total Returns without/with chgs. 147.40% A 145.95% C
Avg. Annual Total Returns without/with chgs. 10.83% B 10.76% 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>
