File Nos. 33-76190
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. 7 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 37 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
-------------------------------
(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 Immediate Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights. . . . . . . . . . . . . Highlights
Item 4. Condensed Financial Information . . . . . . . . Condensed Financial
Information
Item 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 Ad-
ditional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . . The Company
Item 18. Services. . . . . . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data . . . . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . . . Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PROFILE
PROFILE OF THE
FRANKLIN TEMPLETON
VALUEMARK INCOME
PLUS IMMEDIATE
VARIABLE ANNUITY
CONTRACT
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
MAY 1, 1998
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE IMMEDIATE VARIABLE ANNUITY CONTRACT. THE
CONTRACT IS MORE FULLY DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS
PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE IMMEDIATE VARIABLE
ANNUITY CONTRACT
The immediate variable annuity contract with a fixed payment annuity (Contract)
offered by Allianz Life Insurance Company of North America (Allianz Life) is a
contract between you, the owner, and Allianz Life, an insurance company. The
Contract provides for income to you and another person, if elected, under a
payment plan you select.
The Contract has variable or fixed payment options. The variable options offer a
choice of 17 portfolios of Franklin Valuemark Funds, which are managed by
Franklin Advisers, Inc. and its Templeton and Franklin affiliates. A list of
available portfolios is contained in Section 4. Depending on market conditions,
your variable option payments may go up or down, and you may make or lose money,
based on the investment performance of the portfolios you choose. No minimum
payment is guaranteed under a variable payout option. Payments based on the
portfolios are designed to offer a better return than from a fixed payment
annuity, however this is not guaranteed. (Sometimes a portfolio may be referred
to as a contract sub-account in the prospectus and the Contract.)
The fixed payment annuity offers fixed annuity payments that are guaranteed by
Allianz Life. Any portion of your purchase payment allocated to the fixed
payment annuity will be temporarily allocated to the Money Market Fund on the
day we allocate your purchase payment and will be allocated to the fixed payment
annuity when you begin receiving annuity payments from your Contract (if you
choose a fixed payout).
Allianz Life reserves the right to limit the number of portfolios which you may
invest in at any one time (except in Texas) now or in the future. Currently, you
can put your money in up to nine portfolios and the fixed payment annuity
initially and may only be invested in a maximum of ten investment options at any
one time throughout the life of the Contract. The requested allocation to each
portfolio and the fixed payment annuity must be made in whole percentages and
each must be at least 10%.
Under this Contract, you are the owner and the annuitant. You may name a joint
annuitant. Unlike a deferred annuity contract, there is no accumulation phase
for this immediate annuity Contract. You select an income date when you buy the
Contract which must not be later than 60 days after we allocate your purchase
payment.
2. ANNUITY PAYMENTS
You can receive annuity payments from your Contract by selecting one of the
following annuity options:
(1) payments for your life;
(2) payments for your life, but if you die before payments have been made for
the guaranteed period you selected, payments will continue to the
beneficiary for the remainder of the guaranteed period (5, 10, 15, 20
years);
(3) payments during the joint lifetime of you and the joint annuitant - when
either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you and the joint annuitant die before payments have been made for the
guaranteed period you selected, payments will continue for the remainder of
the guaranteed period (5, 10, 15 or 20 years);
(5) payments for your life and ending with the last payment due prior to your
death with a guarantee that at your death, the beneficiary will receive a
single cash payment as set forth in the Contract; and
(6) payments for a specified period of time (5 - 30 years) with payments
continuing to the beneficiary for the remainder of the period certain if
you and any joint annuitant die before the end of the specified period.
Under certain circumstances, if you selected annuity option 6, you can exchange
it for a life contingent payout (options 1-5). Annuity payments can be based
upon the available portfolios (variable payout) and/or the fixed payment annuity
(fixed payout) under all annuity options except annuity payments under Option 6
which may only come from the portfolios (variable payout). If you choose to have
any part of your payments based on the performance of the portfolios (i.e.,
variable payout), the dollar amount of your annuity payments may go up or down,
depending on the investment performance of the portfolio(s) you choose.
3. PURCHASE
You can buy the Contract with $35,000 or more under most circumstances. You
cannot add to your Contract (i.e., it is a single purchase payment contract).
Contact your registered representative to help you fill out the proper forms.
4. INVESTMENT OPTIONS
You may invest in the Allianz Life fixed payment annuity and the following
portfolios of Franklin Valuemark Funds:
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund
(formerly, Utility Equity Fund)
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
PORTFOLIOS SEEKING
CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International
Smaller Companies Fund
Templeton Pacific Growth Fund
Value Securities Fund
The portfolios are fully described in the attached prospectus for Franklin
Valuemark Funds. Your income will fluctuate up or down based on the portfolios'
performance; no minimum dollar payment is guaranteed. IN CALIFORNIA, THE VALUE
SECURITIES FUND IS NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE
DEPARTMENT. CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY.
5. EXPENSES
The Contract has insurance features and investment features, and there are costs
related to each.
The annual insurance charges consist of the Mortality and Expense Risk Charge
and the Administrative Expense Charge which together total 1.40% of the average
daily value of your Contract allocated to the portfolios. If you choose Annuity
Options 2 or 4 and make a liquidation, a commutation fee of 5% in Contract year
2, reducing by 1% each year until it is 1% for Contract year 6 and thereafter
will apply. If you choose Annuity Option 6 and make a liquidation, a commutation
fee of 5% in Contract years 1 and 2, reducing by 1% each year until it is 1% for
Contract year 6 and thereafter will apply. There are also annual portfolio
operating expenses, which vary depending upon the portfolios you select and from
year to year. In 1997, these expenses ranged from .49% to 1.42% of the average
daily value of the portfolios.
Allianz Life may assess a state premium tax charge which ranges from 0% to 3.5%
of your purchase payment (depending upon the state).
<TABLE>
<CAPTION>
We have provided the following chart to help you understand the expenses in your Contract. The
column "Total Annual Expenses" shows the 1.40% insurance charges and the total annual portfolio
expenses for 1997 for each portfolio. The next two columns show you two examples of the expenses,
in dollars, you would pay under a Contract. The examples assume that you invested $1,000 in a
Contract which earns 5% annually and that you liquidate all your money: (1) at the end of year 1,
and (2) at the end of year 10. The examples assume that you selected Annuity Option 6 and chose a
15 year Specified Period Certain and a 5% assumed investment return. For year 1, the Total Annual
Expenses are assessed as well as the commutation fee. For year 10, the example shows the aggregate
of all the annual expenses assessed for the 10 years, but there is no commutation fee. The premium
tax is assumed to be 0% in both examples. THE EXAMPLES ARE PURELY HYPOTHETICAL. THEY SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
EXAMPLES:
1997
TOTAL TOTAL TOTAL ANNUUAL
ANNUAL ANNUAL TOTAL EXPENSES AT END OF
INSURANCE PORTFOLIO ANNUAL (1) (2)
PORTFOLIO CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- --------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Capital Growth 1.40% .77% 2.17% $67 $140
- --------------------------------------------------------------------------------------------------
Global Utilities Securities 1.40% .50% 1.90% $64 $124
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Growth and Income 1.40% .49% 1.89% $64 $124
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Income Securities 1.40% .50% 1.90% $64 $124
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Money Market 1.40% .53% 1.93% $65 $126
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Mutual Discovery Securities 1.40% 1.06% 2.46% $69 $156
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Mutual Shares Securities 1.40% .80% 2.20% $67 $141
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Real Estate Securities 1.40% .54% 1.94% $65 $126
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Rising Dividends 1.40% .74% 2.14% $66 $138
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Small Cap 1.40% .77% 2.17% $67 $140
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Templeton Developing Markets Equity 1.40% 1.42% 2.82% $72 $176
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Templeton Global Asset Allocation 1.40% .94% 2.34% $68 $149
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Templeton Global Growth 1.40% .88% 2.28% $68 $146
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Templeton International Equity 1.40% .89% 2.29% $68 $146
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Templeton International Smaller
Companies 1.40% 1.06% 2.46% $69 $156
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Templeton Pacific Growth 1.40% 1.03% 2.43% $69 $154
- --------------------------------------------------------------------------------------------------
Value Securities 1.40% .81% 2.21% $67 $142
- --------------------------------------------------------------------------------------------------
The expenses for the Value Securities Fund, a newly formed portfolio, have been estimated. For more
detailed information, see the Fee Table in the prospectus for the Contract.
</TABLE>
6. TAXES
Annuity payments will be treated for federal tax purposes as partly a return of
your ori-ginal investment. That part of each payment is not taxable as income.
If the Contract is tax-qualified, the entire payment may be taxable. If you make
a partial liquidation, the earnings come out first and are taxed as income. If
you are younger than 591/2 when you make a liquidation, you may be charged a 10%
federal tax penalty on the taxable amount withdrawn. Contract owners should
consult their own tax counsel or other tax adviser regarding any liquidations.
7. ACCESS TO YOUR MONEY
The Contract is generally irrevocable; that is, you can't "cash out." That's why
you should have other money set aside for non-routine expenses. Under certain
circumstances, however, you may make one liquidation (withdrawal) per Contract
year once you begin receiving annuity payments if you selected annuity options
2, 4 or 6. The amount that you may liquidate is set forth in your Contract and
is described in the prospectus for the Contract. There may be a commutation fee
assessed on liquidations; there may be adverse tax consequences, and your
annuity payments will be lower than they would have been without the partial
liquidation (during the period certain). You may not make any liquidations
before your income date.
8. PERFORMANCE OF
THE PORTFOLIOS
<TABLE>
<CAPTION>
The income you receive will vary up or down depending upon the performance of the portfolios you
choose. The following chart shows total returns for the portfolios for the periods shown.
Performance is not shown for the Value Securities Fund because it was first offered for sale on May
1, 1998. These numbers reflect the insurance charges and the operating expenses of the portfolios.
Past performance is not a guarantee of future results.
CALENDAR YEAR
PORTFOLIO 1997 1996 1995 1994 1993 1992 1991 1990
<C> <S> <S> <S> <S> <S> <S> <S> <S>
Capital Growth 16.66% 12.54% NA NA NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Global Utilities Securities 25.00% 5.57% 29.53% -12.79% 9.00% 7.20% 22.87% 0.44%
- ----------------------------------------------------------------------------------------------------------------------
Growth and Income 25.97% 12.59% 30.99% -3.38% 8.77% 5.22% 21.09% -3.70%
- ----------------------------------------------------------------------------------------------------------------------
Income Securities 15.46% 9.72% 20.70% -7.57% 16.96% 11.65% 37.98% -8.73%
- ----------------------------------------------------------------------------------------------------------------------
Money Market 3.78% 3.69% 4.29% 2.39% 1.12% 1.62% 4.02% 6.12%
- ----------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities 17.71% 1.80% NA NA NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities 16.10% 3.30% NA NA NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Real Estate Securities 19.02% 30.96% 15.90% 1.46% 17.36% 10.53% 31.65% -13.20%
- ----------------------------------------------------------------------------------------------------------------------
Rising Dividends 31.18% 22.44% 27.94% -5.41% -4.80% 8.48% NA NA
- ----------------------------------------------------------------------------------------------------------------------
Small Cap 15.79% 27.26% 1.46% NA NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Templeton Developing
Markets Equity -9.99% 19.89% 1.35% -5.46% NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Templeton Global
Asset Allocation 10.16% 18.16% 5.91% NA NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Templeton Global Growth 11.92% 19.58% 11.16% 2.01% NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Templeton
International Equity 10.14% 21.25% 9.06% -0.53% 26.79% -3.58% NA NA
- ----------------------------------------------------------------------------------------------------------------------
Templeton International
Smaller Companies -2.87% 11.45% NA NA NA NA NA NA
- ----------------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth -36.84% 9.55% 6.47% -10.06% 45.82% -2.39% NA NA
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
9. DEATH BENEFIT
If you die before the income date and there is no joint annuitant, the Contract
will be treated as if it had never been issued and we will return your purchase
payment to your estate. If you have chosen an option with a joint annuitant and
either you or the joint annuitant dies before the income date, the annuity
option will be changed to option 2 (with 120 monthly payments guaranteed or 60
monthly payments guaranteed if the survivor's life expectancy is less than 120
months).
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after receiving it (or
whatever period is required in your state), you will receive whatever your
Contract is worth on the day we receive your request, less any benefits paid in
states where permitted (this may be more or less than your original payment). In
certain states or if you have purchased the Contract as an IRA, we may be
required to give you back your purchase payment if you decide to cancel your
Contract within 10 days after receiving it (or whatever period is required in
your state).
PURCHASING CONSIDERATIONS. The immediate variable annuity contract is designed
for people seeking a medium to long-term periodic payment plan. Many options
provide for payments guaranteed for as long as you live. We recommend that you
do not buy this Contract if you cannot accept the risk of getting back less
money than you put in. Since certain payment options do not permit you to
liquidate (withdraw) money, and all options limit payments to your heirs, we
generally recommend you have other money set aside for non-routine expenses and
bequests.
11. INQUIRIES
If you have any questions about your Contract or need more information, please
contact us at:
VIP Service Center
P.O. Box 30343
Tampa, Florida 33630-3343
(800) 774-5001
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
HOME OFFICE: VIP SERVICE CENTER:
1750 Hennepin Avenue P.O. Box 30343
Minneapolis, MN 55403-2195 Tampa, FL 33630-3343
(800) 542-5427 (800) 774-5001
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
MAY 1, 1998
The Individual Immediate Variable Annuity Contracts (the "Contracts") described
in this Prospectus provide lifetime income to the Annuitant and Joint Annuitant,
if any, under the Annuity Option selected. The Annuitant is the Contract Owner.
The Contract Owner selects the Annuity Option and the frequency of payment
(e.g., monthly, quarterly, semi-annual, annual).
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 Contracts"). They can also be purchased as a "Qualified
Contract" that is an Individual Retirement Annuity with contributions
rolled-over from tax-qualified plans such as 403(b) plans, 401 plans, or IRAs.
The Contracts are acquired by the payment of a single purchase payment. Some
states assess premium taxes (see "Charges and Deductions - Premium Taxes"). The
Single Purchase Payment less the premium tax is referred to as the Net Purchase
Payment. The Single Purchase Payment 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 Payment Annuity. Any
portion of the Net Purchase Payment selected to be allocated to the Fixed
Payment Annuity will temporarily be allocated to the Money Market Sub-Account on
the Effective Date and will be allocated to the Fixed Payment Annuity on the
Annuity Calculation Date.
The Variable Account invests in shares of Franklin Valuemark Funds (the
"Trust"). The Trust is a series fund with twenty-five Portfolios, seventeen of
which are currently available in connection with the Contracts offered under
this Prospectus: the Capital Growth Fund, the Global Utilities Securities Fund,
the Growth and Income Fund, the Income Securities Fund, the Money Market Fund,
the Mutual Discovery Securities Fund, the Mutual Shares 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 International Equity Fund,
the Templeton International Smaller Companies Fund, the Templeton Pacific Growth
Fund, and the Value Securities Fund. Prior to May 1, 1998, the Global Utilities
Securities Fund was known as the Utility Equity Fund. IN CALIFORNIA, THE VALUE
SECURITIES FUND IS NOT AVAILABLE UNTIL APPROVED BY THE CALIFORNIA INSURANCE
DEPARTMENT. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY).
See "Federal Tax Status" for a discussion of owner control of the underlying
investments in a variable annuity contract.
Under certain circumstances, Contract Owners may make liquidations after the
Income Date other than the Annuity Payments they will receive under the
Contract. See "Annuity Provisions - Contract Liquidations (Withdrawals)" for
more information regarding the ability to make liquidations under the 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 CONTRACT IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
CONTRACT OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE RETURNED
WITHIN THE FREE LOOK PERIOD, THE REFUND MAY BE HIGHER OR LOWER THAN THE PURCHASE
PAYMENT.
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
VIP Service Center address shown above.
INQUIRIES: Any inquiries can be made by telephone or in writing to the Company
at the VIP Service Center 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 Templeton Valuemark R Income
Plus" refer to "Valuemark Income Plus."
TABLE OF CONTENTS PAGE
DEFINITIONS ...................................... 3
FEE TABLE ........................................ 4
CONDENSED FINANCIAL
INFORMATION ..................................... 7
THE COMPANY ...................................... 9
THE VARIABLE ACCOUNT ............................. 9
FRANKLIN VALUEMARK FUNDS ......................... 9
General ......................................... 10
Substitution of Securities ...................... 10
Voting Privileges ............................... 10
CHARGES AND DEDUCTIONS ........................... 10
Deduction for Mortality and
Expense Risk Charge ............................ 10
Deduction for Administrative
Expense Charge ................................. 11
Deduction for Premium Taxes ..................... 11
Deduction for Income Taxes ...................... 11
Deduction for Trust Expenses .................... 11
ANNUITY PROVISIONS ............................... 11
Income Date ..................................... 11
Annuity Options ................................. 11
Contract Liquidations
(Withdrawals) ................................... 12
Determination of Variable
Annuity Payments ............................... 13
Determination of Fixed
Annuity Payments ............................... 14
THE CONTRACTS .................................... 14
Ownership ....................................... 14
Assignment ...................................... 15
Beneficiary ..................................... 15
Change of Beneficiary ........................... 15
Death of Beneficiary ............................ 15
Annuitant ....................................... 15
PROCEEDS PAYABLE AT DEATH ........................ 15
PURCHASE PAYMENTS AND
CONTRACT VALUE .................................. 15
Single Purchase Payment ......................... 15
Net Purchase Payment ............................ 15
Allocation of Net Purchase
Payment ......................................... 15
Contract Value .................................. 16
VIP Unit ........................................ 16
Transfers ....................................... 16
DISTRIBUTOR ...................................... 17
Delay of Payments ............................... 17
ADMINISTRATION OF THE CONTRACTS .................. 17
PERFORMANCE DATA ................................. 18
Money Market Sub-Account ........................ 18
Other Contract Sub-Accounts ..................... 18
Performance Ranking ............................. 18
FEDERAL TAX STATUS ................................ 19
General ......................................... 19
Diversification ................................. 19
Multiple Contracts .............................. 20
Tax Treatment of Distributions -
Non-Qualified Contracts ......................... 20
Qualified Plans ................................. 21
Tax Treatment of Distributions -
IRA Contracts ................................... 21
Tax Treatment of Assignments .................... 22
Income Tax Withholding .......................... 22
FINANCIAL STATEMENTS ............................. 22
LEGAL PROCEEDINGS ................................ 22
APPENDIX - ILLUSTRATION
OF VALUES ....................................... 22
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION .......................... 30
DEFINITIONS
- --------------------------------------------------------------------------------
Age - Age to the nearest month unless otherwise specified.
Annuitant - The primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. See also, Joint Annuitant.
Annuity Calculation Date - The date on which the first annuity payment is
calculated which will be no more than 10 business days prior to the Income Date.
Annuity Option - An arrangement under which annuity payments are made under the
Contract.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Calculation Date.
Assumed Investment Return - The investment return upon which the annuity
payments in the Contract are based.
Company - Allianz Life Insurance Company of North America at its VIP Service
Center shown on the cover page of this Prospectus.
Contract Anniversary - An anniversary of the Effective Date of the Contract.
Contract Owner - The person or entity who own the Contract as named in the
Company's records. The Annuitant is the Contract Owner.
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 prior to the Annuity
Calculation Date of all amounts accumulated under the Contract.
Effective Date - The date on which the Net Purchase Payment is allocated to the
Variable Account.
Eligible Investment(s) - An investment entity which can be selected by the
Contract Owner to be the underlying investment of the Contract.
Fixed Payment Annuity (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 .
Income Date - The date on which annuity payments are to begin.
Joint Annuitant - A person other than the Annuitant on whose life annuity
payments may also be based.
Joint Owner - If there is more than one Contract Owner, each Contract Owner
shall be a Joint Owner of the Contract. Joint Owners have equal ownership rights
and must both authorize any exercising of those ownership rights unless
otherwise allowed by the Company. Each Joint Owner must be either an Annuitant
or Joint Annuitant.
Net Asset Value - The total value of the shares of the Eligible Investment or
Portfolio less the liabilities of the Eligible Investment or Portfolio held by
the Contract Sub-Account, as of the close of trading on a Valuation Date.
Non-Qualified Contracts - As used herein, Contracts issued under Non-Qualified
Plans which do not receive favorable tax treatment under Section 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 - As used herein, Contracts issued under Qualified Plans
which receive favorable tax treatment under Section 408 of the Code.
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 beginning 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, in which a portion of the Company's assets has
been allocated for the Contracts and certain other contracts.
VIP Unit - An accounting unit of measure used to calculate the Contract Value
prior to the Annuity Calculation Date.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION FEES
NONE
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%
The effects of the charges shown above are reflected in the illustrations of
annuity income contained in the Appendix on Page 20. The illustrations are
intended to assist the purchaser in assessing the effects of these charges and
the effect of investment performance on the amount of variable annuity income.
<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 by each Portfolio for the
1997 calendar year except for 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. Actual expenses may be higher or lower than those shown.
MANAGEMENT TOTAL
AND PORTFOLIO OTHER ANNUAL
ADMINISTRATION FEES1 EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S>
Capital Growth Fund ........................................................... .75% .02% .77%
Global Utilities Securities Fund2 ............................................. .47% .03% .50%
Growth and Income Fund ........................................................ .47% .02% .49%
Income Securities Fund ........................................................ .47% .03% .50%
Money Market Fund3 ............................................................ .51% .02% .53%
Mutual Discovery Securities Fund .............................................. .80% .26% 1.06%
Mutual Shares Securities Fund ................................................. .60% .20% .80%
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 International Equity Fund ........................................... .80% .09% .89%
Templeton International Smaller Companies Fund ................................ .85% .21% 1.06%
Templeton Pacific Growth Fund ................................................. .92% .11% 1.03%
Value Securities Fund4 ........................................................ .75% .06% .81%
<FN>
1The Portfolio Administration Fee is a direct expense for 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.
2Prior to May 1, 1998, the Global Utilities Securities Fund was known as the Utility Equity Fund.
3Franklin 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.
4The Value Securities Fund commenced operations May 1, 1998. The expenses shown above for this Portfolio is therefore
estimated for 1998.
</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
examples assume a $1,000 investment with annual payments based on a 15 year Specified Period Certain Annuity under
Annuity Option 6 and 5% Assumed Investment Return. For additional Information, see "Charges and Deductions" and "Annuity
Provisions" in this prospectus and "Management" in the Trust Prospectus.
Premium taxes are not reflected in the tables. Premium taxes may apply.
EXAMPLES
If the contract is fully surrendered under Annuity Option 6 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, including
any applicable commutation fee, assuming a 5% annual return on assets compounded annually:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------
<C> <S> <S> <S> <S>
Capital Growth Fund ........................................................... $67 $ 88 $ 99 $140
Global Utilities Securities Fund .............................................. $64 $ 81 $ 89 $124
Growth and Income Fund ........................................................ $64 $ 81 $ 89 $124
Income Securities Fund ........................................................ $64 $ 81 $ 89 $124
Money Market Fund ............................................................. $65 $ 82 $ 90 $126
Mutual Discovery Securities Fund .............................................. $69 $ 95 $110 $156
Mutual Shares Securities Fund ................................................. $67 $ 89 $100 $141
Real Estate Securities Fund ................................................... $65 $ 82 $ 91 $126
Rising Dividends Fund ......................................................... $66 $ 87 $ 98 $138
Small Cap Fund ................................................................ $67 $ 88 $ 99 $140
Templeton Developing Markets Equity Fund ...................................... $72 $103 $123 $176
Templeton Global Asset Allocation Fund ........................................ $68 $ 92 $105 $149
Templeton Global Growth Fund .................................................. $68 $ 90 $103 $146
Templeton International Equity Fund ........................................... $68 $ 91 $104 $146
Templeton International Smaller Companies Fund ................................ $69 $ 95 $110 $156
Templeton Pacific Growth Fund ................................................. $69 $ 94 $109 $154
Value Securities Fund*......................................................... $67 $ 89 $101 $142
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If the contract is not surrendered under Annuity Option 6 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
-------------------------------------
<C> <S> <S> <S> <S>
Capital Growth Fund ........................................................... $20 $56 $ 86 $136
Global Utilities Securities Fund .............................................. $18 $49 $ 76 $121
Growth and Income Fund ........................................................ $17 $49 $ 75 $120
Income Securities Fund ........................................................ $18 $49 $ 76 $121
Money Market Fund ............................................................. $18 $50 $ 77 $122
Mutual Discovery Securities Fund .............................................. $23 $63 $ 97 $153
Mutual Shares Securities Fund ................................................. $20 $56 $ 87 $138
Real Estate Securities Fund ................................................... $18 $50 $ 77 $123
Rising Dividends Fund ......................................................... $20 $55 $ 85 $135
Small Cap Fund ................................................................ $20 $56 $ 86 $136
Templeton Developing Markets Equity Fund ...................................... $26 $72 $110 $173
Templeton Global Asset Allocation Fund ........................................ $22 $60 $ 92 $146
Templeton Global Growth Fund .................................................. $21 $58 $ 90 $143
Templeton International Equity Fund ........................................... $21 $59 $ 90 $143
Templeton International Smaller Companies Fund ................................ $23 $63 $ 97 $153
Templeton Pacific Growth Fund ................................................. $22 $62 $ 96 $151
Value Securities Fund*......................................................... $20 $57 $ 87 $139
<FN>
*Estimated
</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)
CONTRACT SUB-ACCOUNTS: GLOBAL MUTUAL MUTUAL
CAPITAL UTILITIES GROWTH AND INCOME MONEY DISCOVERY SHARES REAL ESTATE RISING
GROWTH SECURITIES* INCOME SECURITIES MARKET SECURITIES SECURITIES SECURITIES DIVIDENDS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period.. $11.254 $20.654 $19.490 $21.708 $13.359 $10.180 $10.330 $23.668 $15.303
Unit value at end of period ....... $13.130 $25.818 $24.551 $25.065 $13.865 $11.983 $11.993 $28.169 $20.074
Number of units outstanding
at end of period ................. 5,673 39,623 46,962 49,812 20,982 9,940 18,744 13,445 33,250
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period.. $10.000** $19.565 $17.310 $19.785 $12.883 $10.000** $10.000** $18.073 $12.498
Unit value at end of period ....... $11.254 $20.654 $19.490 $21.708 $13.359 $10.180 $10.330 $23.668 $15.303
Number of units outstanding
at end of period ................. 3,722 53,086 50,027 57,504 28,060 1,471 2,613 12,757 35,569
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period.. NA $15.104 $13.215 $16.392 $12.354 NA NA $15.594 $9.769
Unit value at end of period ....... NA $19.565 $17.310 $19.785 $12.883 NA NA $18.073 $12.498
Number of units outstanding
at end of period ................. NA 66,669 46,893 59,309 31,040 NA NA 10,998 33,789
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period.. NA $17.319 $13.677 $17.734 $12.066 NA NA $15.369 $10.327
Unit value at end of period ....... NA $15.104 $13.215 $16.392 $12.354 NA NA $15.594 $9.769
Number of units outstanding
at end of period ................. NA 70,082 35,695 56,569 39,437 NA NA 11,645 28,778
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period.. NA $15.889 $12.574 $15.163 $11.932 NA NA $13.095 $10.848
Unit value at end of period ....... NA $17.319 $13.677 $17.734 $12.066 NA NA $15.369 $10.327
Number of units outstanding
at end of period ................. NA 84,217 24,719 38,967 10,247 NA NA 5,589 26,256
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period.. NA $14.821 $11.949 $13.580 $11.742 NA NA $11.848 $10.000**
Unit value at end of period ....... NA $15.889 $12.574 $15.163 $11.932 NA NA $13.095 $10.848
Number of units outstanding
at end of period ................. NA 39,387 17,144 11,397 6,951 NA NA 1,052 8,388
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period.. NA $12.062 $ 9.803 $9.842 $11.288 NA NA $ 9.000 NA
Unit value at end of period ....... NA $14.821 $11.949 $13.580 $11.742 NA NA $11.848 NA
Number of units outstanding
at end of period ................. NA 16,188 9,671 4,472 5,682 NA NA 394 NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period.. NA $12.010 $10.180 $10.783 $10.637 NA NA $10.368 NA
Unit value at end of period ....... NA $12.062 $9.803 $9.842 $11.288 NA NA $ 9.000 NA
Number of units outstanding
at end of period ................. NA 6,300 5,356 3,011 5,768 NA NA 200 NA
PERIOD FROM INCEPTION**
TO DEC. 31, 1989
Unit value at beginning of period.. NA $10.000 $10.000 $10.000 $10.000 NA NA $10.000 NA
Unit value at end of period ....... NA $12.010 $10.180 $10.783 $10.637 NA NA $10.368 NA
Number of units outstanding
at end of period ................. NA 1,173 1,662 1,508 1,199 NA NA 57 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(NUMBER OF UNITS IN THOUSANDS)
TEMPLETON TEMPLETON TEMPLETON TEMPLETON TEMPLETON TEMPLETON
SMALL DEVELOPING GLOBAL ASSET GLOBAL INTERNATIONAL INTERNATIONAL PACIFIC VALUE
CONTRACT SUB-ACCOUNTS: CAP MARKETS EQUITY ALLOCATION GROWTH EQUITY SMALLER COS GROWTH SECURITIES+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period ...... $12.913 $11.487 $12.514 $13.560 $16.081 $11.145 $14.932 NA
Unit value at end of period ............ $14.952 $10.340 $13.786 $15.176 $17.711 $10.825 $ 9.431 NA
Number of units outstanding
at end of period ...................... 16,924 23,007 5,229 41,432 58,179 1,998 15,833 NA
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period ...... $10.146 $ 9.582 $10.591 $11.339 $13.263 $10.000** $13.630 NA
Unit value at end of period ............ $12.913 $11.487 $12.514 $13.560 $16.081 $11.145 $14.932 NA
Number of units outstanding
at end of period ...................... 12,784 22,423 4,104 40,327 64,375 1,388 22,061 NA
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period ...... $10.000** $ 9.454 $10.000** $10.201 $12.161 NA $12.802 NA
Unit value at end of period ............ $10.146 $ 9.582 $10.591 $11.339 $13.263 NA $13.630 NA
Number of units outstanding
at end of period ...................... 1,302 15,618 1,338 28,309 59,883 NA 22,483 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period ...... NA $10.000** NA $10.000** $12.226 NA $14.233 NA
Unit value at end of period ............ NA $ 9.454 NA $10.201 $12.161 NA $12.802 NA
Number of units outstanding
at end of period ...................... NA 9,774 NA 14,637 60,464 NA 27,231 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period ...... NA NA NA NA $ 9.642 NA $ 9.761 NA
Unit value at end of period ............ NA NA NA NA $12.226 NA $14.233 NA
Number of units outstanding
at end of period ...................... NA NA NA NA 24,026 NA 14,240 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period ...... NA NA NA NA $10.000** NA $10.000** NA
Unit value at end of period ............ NA NA NA NA $ 9.642 NA $ 9.761 NA
Number of units outstanding
at end of period ...................... NA NA NA NA 1,329 NA 534 NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period ...... NA NA NA NA NA NA NA NA
Unit value at end of period ............ NA NA NA NA NA NA NA NA
Number of units outstanding
at end of period ...................... NA NA NA NA NA NA NA NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period ...... NA NA NA NA NA NA NA NA
Unit value at end of period ............ NA NA NA NA NA NA NA NA
Number of units outstanding
at end of period ...................... NA NA NA NA NA NA NA NA
PERIOD FROM INCEPTION**
TO DEC. 31, 1989
Unit value at beginning of period ...... NA NA NA NA NA NA NA NA
Unit value at end of period ............ NA NA NA NA NA NA NA NA
Number of units outstanding
at end of period ...................... NA NA NA NA NA NA NA NA
<FN>
+The Value Securities Sub-Account 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 inception was $10.00 for each Contract
Sub-Account. Inception was 1/24/89 for the Global Utilities Securities, Growth
and Income, Income Securities, Money Market, and Real Estate Securities
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 Value Securities Sub-Account.
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 Contract is provided at the Company's VIP Service Center:
P.O. Box 30343, Tampa, FL 33630-3343, (800) 774-5001.
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.
FRANKLIN VALUEMARK FUNDS
- --------------------------------------------------------------------------------
Seventeen of the twenty-five Portfolios currently constituting the Franklin
Valuemark Funds are available under the Contracts described in this Prospectus.
IN CALIFORNIA, THE VALUE SECURITIES FUND IS NOT AVAILABLE UNTIL APPROVED BY THE
CALIFORNIA INSURANCE DEPARTMENT. (CHECK WITH YOUR REGISTERED REPRESENTATIVE
REGARDING AVAILABILITY). Franklin Valuemark Funds (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.
PURCHASERS SHOULD READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS FOR THE
TRUST CAREFULLY BEFORE INVESTING.
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.
<PAGE>
<TABLE>
<CAPTION>
The following is a list of the Portfolios available under the Contract:
INVESTMENT
AVAILABLE PORTFOLIOS MANAGERS
- -------------------------------------------------------
<C> <S>
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund ........................... 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
Mutual Discovery Securities Fund ............ FMA
Small Cap Fund .............................. FA
Templeton Developing
Markets Equity Fund ........................ TAM
Templeton Global Growth Fund ................ TGA
Templeton International Equity Fund ......... FA
Templeton International
Smaller Companies Fund ..................... TIC
Templeton Pacific Growth Fund ............... FA
- -------------------------------------------------------
</TABLE>
GENERAL
There is no assurance that the investment objectives of any of the Portfolios
will be met. Contract Owners bear the complete investment risk.
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 Net Purchase Payment.")
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 the Single Purchase Payment and the
Variable Account. These charges and deductions are:
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 risks assumed by the Company arise from its
contractual obligation to make annuity payments for the life of the Annuitant in
accordance with annuity rates guaranteed in the Contracts. 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 Administrative
Expense Charge.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
The Mortality and Expense Risk Charge is assessed both before and after the
Income Date. The Company will continue to assess the Mortality and Expense Risk
Charge during payment of an Annuity Option that does not involve a life
contingency even though it no longer bears any mortality risk on such payment
obligation.
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 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
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 servicing, and all
accounting, valuation, regulatory and reporting requirements.
DEDUCTION FOR PREMIUM TAXES
Premium taxes or other taxes payable to a state, municipality or other
governmental entity will be charged against the Single Purchase Payment. Premium
taxes currently imposed by certain states on the Contracts range from 0% to 3.5%
of premiums paid. For information regarding a particular state's premium tax a
purchaser should contact his or her agent or the Company's VIP Service Center.
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.
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.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
INCOME DATE
The Income Date is the date on which annuity payments begin. The Contract Owner
selects an Income Date at the time of issue. The Income Date must be the first
or fifteenth day of a calendar month and not later than 60 days from the
Effective Date. Upon state approval, the Income Date may be no later than one
year from the date of the Purchase Payment and must be the first or fifteenth
day of a calendar month. (Check with your registered representative regarding
availability).
ANNUITY OPTIONS
The Contract provides for an Annuity under any of the Annuity Options described
below, provided the Annuitant or any Joint Annuitant is alive on the Income
Date. Except for Annuity Option 6, once selected the Option is irrevocable. The
amount of each payment depends upon the Annuity Option chosen and for Annuity
Options 1-5, the Annuitant's and any Joint Annuitant's Age on the Annuity
Calculation Date. Annuity payments from the Variable Account will vary with the
investment experience of the Contract Sub-Accounts and may be higher or lower
than the first payment. Annuity payments from the Fixed Payment Annuity will be
equal payments unless otherwise specified by the Annuity Option selected.
Annuity payments may come from the Fixed and/or the Variable Account under all
Annuity Options (except annuity payments under Option 6 may only come from the
Variable Account).
The Annuity Options currently available are:
Option 1 - Life Annuity. Monthly annuity payments are paid during the life of
the Annuitant ceasing with the last annuity payment due prior to the Annuitant's
death.
Option 2 - Life Annuity with 60, 120, 180, or 240 Monthly Payments Guaranteed.
Monthly annuity payments are paid during the life of an Annuitant with a
guarantee that if, at the Annuitant's death, annuity payments have been made for
less than a 60, 120, 180 or 240 month period as elected, then annuity payments
will be continued thereafter to the Beneficiary for the remainder of the
guaranteed period. The Beneficiary may elect to have the present value
(determined as set forth in the Contract) of the guaranteed annuity payments
remaining commuted and paid in a lump sum, less the applicable commutation fee
of 5% of the proceeds in Contract Years 1 and 2 reducing by 1% per year until it
is 1% for Contract Year 6 and thereafter (subject to applicable state law and
regulation). Variable payments will be commuted at the Assumed Investment
Return. Fixed payments will be commuted using an indexed rate. The Company will
require the return of the Contract and proof of death prior to the payment of
any commuted values.
Option 3 - Joint and Last Survivor Annuity. Monthly annuity payments are paid
during the joint lifetime of the Annuitant and the Joint Annuitant. Upon the
death of the Annuitant, if the Joint Annuitant is then living, payments will be
paid thereafter during the remaining lifetime of the Joint Annuitant at a level
of 100%, 75% or 50% of the original level as elected. Monthly payments 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
Payments Guaranteed. Monthly annuity payments are paid during the joint lifetime
of the Annuitant and the Joint Annuitant. Monthly payments are paid thereafter
during the remaining lifetime of the Joint Annuitant at 100% of the original
level. If, after the death of both the Annuitant and the Joint Annuitant,
annuity payments have been made for less than a 60, 120, 180 or 240 month period
as elected, then annuity payments will be continued thereafter to the
Beneficiary for the remainder of the guaranteed period. The Beneficiary may
elect to have the present value (determined as set forth in the Contract) of the
guaranteed annuity payments remaining commuted and paid in a lump sum, less the
applicable commutation fee of 5% of the proceeds in Contract Years 1 and 2
reducing by 1% per year until it is 1% for Contract Year 6 and thereafter
(subject to applicable state law and regulation). Variable payments will be
commuted at the Assumed Investment Return. Fixed payments will be commuted using
an indexed rate. The Company will require the return of the Contract and proof
of death prior to the payment of any commuted values.
Option 5 - Refund Life Annuity. Monthly annuity payments are paid during the
life of the Annuitant ceasing with the last annuity payment due prior to the
Annuitant's death with a guarantee that at the Annuitant's death, the
Beneficiary will receive a single cash payment (refund) equal to the sum of (a)
and (b) (if positive), where (a) is the dollar value of the number of Annuity
Units equal to the total Annuity Units purchased in the Variable Account on the
Effective Date, minus the total number of Annuity Units which have been
transferred to the Fixed Payment Annuity or paid as annuity payments; and (b) is
the dollar value of the portion of the Net Purchase Payment allocated to the
Fixed Payment Annuity, plus the amounts transferred from the Variable Account to
the Fixed Payment Annuity, minus the sum of the annuity payments made from the
Fixed Payment Annuity. This calculation assumes that the allocation of Annuity
Units actually in force at the time of the Annuitant's death had been the
allocation of Annuity Units at issue and at all times thereafter.
Option 6 - Specified Period Certain Annuity. Monthly annuity payments are paid
for a specified period of time. The Specified Period Certain is elected by the
Contract Owner and must be specified as a whole number of years from 5 to 30. If
at the time of the death of the last Annuitant and any Joint Annuitant, the
annuity payments actually made have been for less than the Specified Period
Certain, then annuity payments will be continued thereafter to the Beneficiary
for the remainder of the Specified Period Certain. OPTION 6 MAY NOT BE AVAILABLE
IN ALL STATES. Option 6 is only available when the entire annuity payment is
allocated to the Variable Account.
After the first Contract Anniversary, an Option 6 payout can be exchanged for a
life contingent payout (Options 1-5) if the Total Liquidation Value is at least
$25,000 and in the case of a Non-Qualified Contract the Contract Owner has
attained age 591/2 and in the case of a Qualified Contract the exchange is made
after the later of the Contract Owner attaining age 591/2 or 5 years from the
date of the first annuity payment, and prior to the year in which the Contract
Owner reaches age 701/2. The annuity purchase rates used will be those that were
in effect as of the original Effective Date of the Option 6 Contract. A new
Contract will be exchanged for the existing Contract which must be returned to
the Company. The Contract Owner/Annuitant and Joint Annuitant, if any, must be
the same under both Contracts.
CONTRACT LIQUIDATIONS (WITHDRAWALS)
Annuity Options 2 and 4
If the Contract Owner has selected Annuity Option 2 or 4 and has a portion of
the annuity payments coming from the Variable Account, partial liquidations
(withdrawals) from the Contract may be made after the first Contract Year as
follows. During the lifetime of the Annuitant(s) and while the number of annuity
payments made is less than the guaranteed number of payments elected, the
Contract Owner may once each Contract Year request a liquidation representing a
partial liquidation of the Total Liquidation Value. (Total Liquidation Value is
referred to as "Total Withdrawal Value" in your Contract and endorsement.) The
Total Liquidaton Value is equal to the present value of the remaining guaranteed
annuity payments from the Variable Account, to the end of the period certain,
commuted at the Assumed Investment Return less a commutation fee of 5% of the
amount liquidated in Contract Year 2 and reducing by 1% per year until it is 1%
for Contract Year 6 and thereafter. The commutation fee is a charge collected by
the Company equal to a percentage of the Total Liquidation Value liquidated.
Partial liquidations will be processed on the next Annuity Calculation Date
following the Contract Owner's written request. After a partial liquidation, the
subsequent monthly annuity payment during the guaranteed period certain
originating from the Variable Account will be reduced by the percentage of the
variable portion of the Total Liquidation Value liquidated, including the
commutation fee. After the guaranteed number of payments has been paid, the
number of Annuity Units used in calculating the monthly payments will be
restored to their original value as if no liquidations had taken place. The
total amount allowed to be liquidated as a cumulative percentage of the Total
Liquidation Value is guaranteed to be not less than 25%. Currently, you may
liquidate up to 75% of the Total Liquidation Value, which amount may be changed
by the Company. The minimum allowable partial liquidation is the lesser of
$2,500 or the remaining portion of the Total Liquidation Value available to be
liquidated. PARTIAL LIQUIDATIONS MAY NOT BE AVAILABLE IN ALL STATES.
Annuity Option 6
If the Contract Owner has selected Annuity Option 6, liquidations (withdrawals)
from the Contract may be made as follows. Currently, Contract Owners are
permitted one liquidation per Contract Year up to the Total Liquidation Value in
the Contract. For Contracts issued on or after May 1, 1998, the Total
Liquidation Value is equal to the present value of the remaining annuity
payments, to the end of the Specified Period Certain, commuted at the Assumed
Investment Return, less a commutation fee of 5% of the amount liquidated in
Contract Years 1 and 2 and reducing by 1% per year until it is 1% for Contract
Year 6 and thereafter. For Contracts issued prior to May 1, 1998, the Total
Liquidation Value is equal to the present value of the remaining annuity
payments, to the end of the Specified Period Certain, commuted at the Assumed
Investment Return, less a commutation fee of 1% of the amount liquidated in the
first Contract Year. The Company reserves the right to restrict the amount of a
partial liquidation to a minimum of $2,500. The Company may require a complete
liquidation if the remaining Total Liquidation Value after a requested partial
liquidation would be less than $35,000. Partial liquidations will be processed
on the next Annuity Calculation Date following the Contract Owner's written
request. The Company will require the return of the Contract prior to the
payment of the entire commuted value.
See "Federal Tax Status - Tax Treatment of Distributions - Non-Qualified
Contracts" and "Federal Tax Status - Tax Treatment of Distributions - IRA
Contracts" for a discussion of the tax treatment of liquidations from the
Contracts.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
On the Annuity Calculation Date, a fixed number of Annuity Units will be
purchased, determined as follows:
The first annuity payment is equal to the Contract Value allocated to the
Variable Account divided first by $1,000 and then multiplied by the appropriate
annuity payment amount for each $1,000 of value for the Annuity Option selected.
In each Contract Sub-Account, the fixed number of Annuity Units is determined by
dividing the amount of the initial annuity payment determined for each Contract
Sub-Account by the Annuity Unit value on the Annuity Calculation Date.
Thereafter, the number of Annuity Units in each Contract Sub-Account remains
unchanged unless the Contract Owner elects to transfer between Contract
Sub-Accounts. All calculations will appropriately reflect the annuity payment
frequency selected.
On each subsequent annuity payment date, the total annuity payment is the sum of
the annuity payments determined for each Contract Sub-Account. The annuity
payment in each Contract Sub-Account is determined by multiplying the number of
Annuity Units then allocated to such Contract Sub-Account by the Annuity Unit
value for that Contract Sub-Account.
For each Contract Sub-Account, the value of an Annuity Unit was initially
established at $1.00. On each subsequent Valuation Date the value of an Annuity
Unit is determined in the following way:
FIRST: The Net Investment Factor is determined by dividing (a) by (b) and adding
(c) to the result, where:
a. is the net increase or decrease in the Net Asset Value per share of
the Portfolio (or other Eligible Investment) plus the per share amount
of any dividend or capital gain distribution paid by the Portfolio (or
Eligible Investment) during the Valuation Period, plus or minus a per
share charge or credit for any taxes incurred by or reserved for in
the Contract Sub-Account as of the end of the current Valuation Period
which the Company determines to have resulted from maintenance of the
Contract Sub-Account; and
b. is the Net Asset Value per share of the Portfolio (or other Eligible
Investment) at the beginning of the Valuation Period, plus or minus a
per share charge or credit for any taxes incurred by or reserved for
in the Contract Sub-Account as of the end of the immediately preceding
Valuation Period which the Company determines to have resulted from
maintenance of the Contract Sub-Account; and
c. is the net result of 1.000 less the Valuation Period deduction for the
charges to the Contract Sub-Account.
The Net Investment Factor may be more or less than one.
SECOND: The value of an Annuity Unit for a Valuation Date is equal to:
a. the value of the Annuity Unit on the immediately preceding Valuation
Date;
b. multiplied by the Net Investment Factor for the Valuation Period
ending on the current Valuation Date;
c. divided by the Assumed Net Investment Factor (see below) for the
Valuation Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. For example, with a 5%
Assumed Investment Return, the Assumed Net Investment Factor for a one-year
Valuation Period would be 1.05. For a one-day Valuation Period, the Assumed Net
Investment Factor would be 1.00013368062.
The Assumed Investment Return is the investment return upon which annuity
payments are based. Income will increase from one annuity Income Date to the
next if the annualized Net Rate of Return during that time is greater than the
Assumed Investment Return and will decrease if the annualized Net Rate of Return
is less than the Assumed Investment Return.
A Contract Owner may choose either a 7%, 5% or a 3% Assumed Investment Return.
If the Contract Owner does not choose one, the 5% Assumed Investment Return
automatically applies. Choosing a higher Assumed Investment Return will result
in a higher initial amount of income, but income will increase more slowly
during periods of good investment performance of the Trust and decrease more
rapidly during periods of poor investment performance. THE 7% ASSUMED INVESTMENT
RETURN IS NOT AVAILABLE IN ALL STATES UNTIL APPROVED BY THE STATE INSURANCE
DEPARTMENTS. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY).
The variable annuity benefits provided for under the Contract are based upon:
(a) the 1983(a) Blended Unisex Mortality Table with 50% female content,
projected to the year 2000 with Projection Scale G; (b) the Assumed Investment
Return, and (c) any applicable taxes.
DETERMINATION OF FIXED ANNUITY PAYMENTS
On the Annuity Calculation Date, a stream of annuity payments is purchased. The
amount of the fixed annuity payment will be the value in the Contract allocated
to the Fixed Payment Annuity, divided by $1,000, then multiplied by the
appropriate factor for the Annuity Option selected.
THE CONTRACTS
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OWNERSHIP
The Annuitant is the Contract Owner. The Contract Owner exercises all the rights
of the Contract, subject to the rights of (1) any assignee under an assignment
filed with the Company's VIP Service Center, and (2) any irrevocably named
Beneficiary.
Upon the death of the Contract Owner, the Joint Annuitant, if not already a
Joint Owner, will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or upon the death of the Joint Annuitant, the
Beneficiary(ies) become the Owner(s) of their respective shares.
IF THE CONTRACT OWNER DIES BEFORE THE INCOME DATE AND THERE IS NO JOINT
ANNUITANT, THE CONTRACT WILL BE TREATED AS IF IT HAD NEVER BEEN ISSUED AND THE
COMPANY WILL RETURN THE SINGLE PURCHASE PAYMENT TO THE CONTRACT OWNER'S ESTATE.
ASSIGNMENT
The Contract Owner may assign the Contract. A copy of any assignment must be
filed with the Company's VIP Service Center. The Company is not responsible for
the validity of any assignment. If the Contract is assigned, 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 it may take before such assignment has been recorded at its VIP Service
Center.
If the Contract is issued pursuant to a qualified plan, it may not be assigned,
pledged or otherwise transferred except as may be allowed under applicable law.
BENEFICIARY
One or more Beneficiaries and/or Contingent Beneficiaries are named by the
Contract Owner and are entitled to receive any death benefits to be paid.
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary or Contingent Beneficiary by filing
a written request with the Company at its VIP 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 VIP Service Center after the Contract Owner dies but before
any payment to a Beneficiary 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.
DEATH OF BENEFICIARY
Unless the Contract Owner provided otherwise, any amount payable after his/her
death and that of any Joint Annuitant will be payable:
(1) in equal shares to such Beneficiaries as are then living;
(2) if no Beneficiary is then living, payment will be made in equal shares
to such Contingent Beneficiaries as are then living;
(3) if no Beneficiary or Contingent Beneficiary is then living, payment
will be made to the Contract Owner's estate.
ANNUITANT
The Annuitant is the primary person upon whose continuation of life any annuity
payment involving life contingencies depends. The Contract Owner is the
Annuitant. A Joint Annuitant is a person other than the Annuitant on whose life
annuity payments may also be based. The Annuitant, and any Joint Annuitant, must
be a natural person.
PROCEEDS PAYABLE AT DEATH
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IF THE CONTRACT OWNER DIES BEFORE THE INCOME DATE AND THERE IS NO JOINT
ANNUITANT, THE CONTRACT WILL BE TREATED AS IF IT HAD NEVER BEEN ISSUED AND THE
COMPANY WILL RETURN THE SINGLE PURCHASE PAYMENT TO THE CONTRACT OWNER'S ESTATE.
If the Contract Owner has chosen either Option 3, Option 4 or Option 6 with a
Joint Annuitant and either the Contract Owner or the Joint Annuitant dies before
the Income Date, the Annuity Option will be changed to Option 2 with 120 monthly
payments guaranteed. If the life expectancy of the survivor is less than 120
months, the period of guaranteed payments will be 60 months.
If the Contract Owner or Joint Annuitant dies on or after the Income Date, the
death benefit, if any, will be payable under the selected Annuity Option. The
Company will require proof of death. Payment of the death benefit may be delayed
pending receipt of any applicable tax consents and/or forms from a state.
PURCHASE PAYMENTS AND CONTRACT VALUE
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SINGLE PURCHASE PAYMENT
The Single Purchase Payment is paid to the Company at its VIP Service Center.
The minimum purchase payment the Company will accept is $35,000. Contract Owners
can acquire more than one Contract and the Single Purchase Payment for each need
not be $35,000 if the average purchase payment for each Contract is $35,000 or
more. Neither the Variable Account nor the Trust is designed for professional
market timing organizations, other entities, or persons using programmed, large,
or frequent transfers.
NET PURCHASE PAYMENT
The Net Purchase Payment is equal to the Single Purchase Payment less any taxes
levied on the purchase payment.
ALLOCATION OF NET PURCHASE PAYMENT
The Net Purchase Payment is allocated to one or more of the Contract
Sub-Accounts of the Variable Account on the Effective Date. Any portion of the
Net Purchase Payment selected to be allocated to the Fixed Payment Annuity will
temporarily be allocated to the Money Market Sub-Account on the Effective Date
and will be allocated to the Fixed Payment Annuity on the Annuity Calculation
Date. The requested allocation to each Contract Sub-Account and the Fixed
Payment Annuity is made in percentages of the Net Purchase Payment. Whole
percentages must be used and each must be at least 10%. The Company has the
right to allocate the Net Purchase Payment to the Money Market Sub-Account until
the expiration of the Free-Look Period. Thereafter, the allocations will be made
to one or more of the Contract Sub-Accounts as selected by the Contract Owner.
The Company reserves the right to limit the number of Contract Sub-Accounts that
a Contract Owner may invest in at any one time (except in Texas). Currently, the
Contract Owner may initially select up to nine Contract Sub-Accounts, and may
only be invested in a maximum of ten Contract Sub-Accounts at any one time
throughout the life of the Contract.
When all forms required to issue the Contract are received and in good order,
the Company will apply the Net Purchase Payment to the Variable Account and
credit the Contract with VIP Units 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). The Company requires proof,
satisfactory to it, of the Age of the Annuitant and any Joint Annuitant. The
Company will not issue a Contract if either the Annuitant or the Joint Annuitant
are over Age 90. If the required forms for the Contract are not in good order,
the Company will attempt to get them in good order or the Company will return
the form(s) and the purchase payment within five business days. The Company will
not retain the Net Purchase Payment for more than five business days while
processing incomplete forms unless it has been so authorized by the purchaser.
CONTRACT VALUE
The Net Purchase Payment is allocated among the various Contract Sub-Accounts
within the Variable Account. For each Contract Sub-Account, the Net Purchase
Payment is converted into VIP Units. The Contract Value on or before the Annuity
Calculation Date is the sum of the values for the Contract within each Contract
Sub-Account. The value within each Contract Sub-Account is determined by
multiplying the number of VIP Units attributable to the Contract in the Contract
Sub-Account by the VIP Unit value for the Contract Sub-Account. On the Annuity
Calculation Date, the Contract Value is converted to annuity payments.
VIP UNIT
When the Net Purchase Payment is allocated to the Variable Account, the amount
allocated to each Contract Sub-Account is converted to VIP Units. The number of
VIP Units credited to each Contract Sub-Account is determined by dividing the
portion of the Net Purchase Payment that is allocated to the Contract
Sub-Account by the value of the VIP Unit for the Contract Sub-Account as of the
Effective Date. The VIP Unit value for each Contract Sub-Account was arbitrarily
set initially. The VIP Unit value for any later Valuation Period on or before
the Annuity Calculation Date 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 VIP 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 VIP Units outstanding at the end of such Valuation
Period.
The VIP Unit value may increase or decrease from Valuation Period to Valuation
Period.
TRANSFERS
The Contract Owner may transfer all or part of the Contract Owner's interest in
a Contract Sub-Account to another Contract Sub-Account without the imposition of
any fee or charge. No transfers may take place from the Fixed Payment Annuity to
the Variable Account.
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.
All transfers are subject to the following:
a. no partial transfer will be made if it would result in any selected
Contract Sub-Account or the Fixed Payment Annuity providing less than
10% of the benefits under the Contract.
b. 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. No transfers may
occur until the end of the Free-Look Period.
c. any transfer direction must clearly specify the new allocation
percentage(s) and the Contract Sub-Accounts and/or the Fixed Payment
Annuity which are to be re-allocated.
d. at least one allocation to the Fixed Payment Annuity is permitted.
Both the initial allocation to the Fixed Payment Annuity and each
transfer to the Fixed Payment Annuity will be treated as an
allocation.
e. the Company reserves the right to limit the number of transfers among
Contract Sub-Accounts to not fewer than 6 transfers per calendar year.
The Company also reserves the right at any time and without prior
notice to any party to modify the transfer provisions 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.
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 at the time of purchase up to 4% of the
Single Purchase Payment. Broker-dealers are also paid a trail commission of up
to 40 basis points on the portion of net single premium reserve invested in the
Variable Account for the Contract. 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 4%
of the Single Purchase Payment). 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.
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 postpone liquidations from the Fixed Payment
Annuity for a period of up to six months.
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 Templeton Funds Annuity Company
("TFAC" or "VIP Service Center") (in California d.b.a. Templeton Funds Life &
Annuity Insurance Company) 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 TFAC. TFAC is
an indirect wholly-owned subsidiary of Franklin Resources, Inc. which is also
the ultimate parent of all managers to the Trust. TFAC has also entered into a
reinsurance agreement with the Company with respect to certain risks under the
Contracts.
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 and
Administrative Expense 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 VIP 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, and, for Contract Sub-Accounts in existence for
five years or more, for five years and since the Contract Sub-Account's
inception. The average annual total return is based upon the value of the VIP
Units acquired through a hypothetical $1,000 investment of the VIP Unit value at
the beginning of the specified period and the value of the VIP Unit at the end
of such period, assuming reinvestment of all distributions and the deduction of
the Mortality and Expense Risk Charge and the Administrative Expense Charge.
Each Contract Sub-Account may also advertise cumulative and total return
information over different periods of time. The performance of the Contract
Sub-Accounts reflects results achieved prior to the date the Contracts first
invested in the Contract Sub-Accounts. 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 will fluctuate over time, and any presentation
of 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 based on each or all of the Contract Sub-Accounts of the
Variable Account may be compared in its advertising 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 comparison, such as CDA/Weisenberger and Morningstar.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (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 Annuity Option elected.
For annuity payments, the portion of a payment includable in income equals the
excess of the payment over the exclusion amount. The exclusion amount for
payments based on a variable annuity option is determined by dividing the
investment in the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid (determined
by Treasury Regulations). 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 guarantee)
bears to the expected return under the Contract. Payments received after the
investment in the Contract has been recovered (i.e. the total of the excludable
amounts equal the investment in the Contract) are fully taxable. The taxable
portion of an annuity payment 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 the 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
Section 72(e)(11) of 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. The legislative history
of Section 72(e)(11) indicates that it was not intended to apply to immediate
annuities. However, the legislative history also states that no inference is
intended as to whether the Treasury Department, under its authority to prescribe
rules to enforce the tax laws, may treat the combination purchase of a deferred
annuity contract with an immediate annuity contract as a single contract for
purposes of determining the tax consequences of any distribution.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer and his Beneficiary; (e) as an annuity payment under
an immediate annuity; or (f) which are allocable to purchase payments made prior
to August 14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address the
issue of whether the making of a withdrawal would adversely affect the favorable
tax treatment of annuity payments made before or after such partial withdrawal
because of the requirement that all immediate annuity payments must be
"substantially equal." The loss of favorable tax treatment would mean that the
income portion of each annuity payment received prior to the taxpayer's
attaining age 591/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes that
such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
QUALIFIED PLANS
The Contracts offered by this Prospectus may also be used with a plan qualified
under Section 408(b) of the Code ("IRA Contracts"). Contract Owners, Annuitants
and Beneficiaries are cautioned that benefits under an IRA Contract 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. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing IRA
Contracts.
IRA Contracts include special provisions restricting Contract provisions that
may otherwise be available as described in this Prospectus. Generally, IRA
Contracts are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts. (See
"Tax Treatment of Distributions - IRA Contracts.")
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. IRA Contracts will utilize annuity tables which do
not differentiate on the basis of sex because of the use of the IRA Contracts in
a Simplified Employee Pension. Such annuity tables will also be available for
use in connection with certain non-qualified deferred compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Distributions - IRA 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 Contract.
Sales of Contracts for use as IRA Contracts 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.
TAX TREATMENT OF DISTRIBUTIONS - IRA CONTRACTS
In the case of a withdrawal under an IRA 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 IRA Contracts. To
the extent amounts are not includible in gross income because they have been
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 Annuitant reaches age
591/2; (b) distributions following the death or disability of the Annuitant (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
distributions that are part of a series of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
his or her designated Beneficiary; (d) distributions made to the Annuitant to
the extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Annuitant for amounts paid during the taxable year
for medical care; (e) distributions from an IRA Contract for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Annuitant and his or her spouse and dependents if the Annuitant has received
unemployment compensation for at least 12 weeks (this exception will no longer
apply after the Annuitant has been re-employed for at least 60 days.); (f)
distributions from an Individual Retirement Annuity made to the Annuitant 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 Annuitant for the taxable
year; and (g) distributions from an Individual Retirement Annuity made to the
Annuitant which are qualified first-time home buyer distributions (as defined in
Section 72(t)(8) of the Code). With respect to (c) above, if the series of
substantially equal periodic payments is modified before the later of the
Annuitant attaining age 591/2 or 5 years from the date of the first annuity
payment, then the tax for the year of the modification is increased by an amount
equal to the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception was used. A
partial withdrawal may result in the modification of the series of annuity
payments made after such withdrawal and therefore could result in the imposition
of the 10% penalty tax and interest for the period as described above. Competent
tax advice should be obtained prior to making any withdrawals from an IRA
Contract. Any amounts distributed will only be paid to the Annuitant, Joint
Annuitant or Beneficiary. The Company will not transfer or pay such amounts to
another IRA or tax qualified plan.
Generally, distributions from an IRA Contract 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. Generally, 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 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.
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.
APPENDIX
- --------------------------------------------------------------------------------
ILLUSTRATION OF VALUES
The following tables have been prepared to show how investment performance
affects variable annuity income over time. The variable annuity income amounts
reflect three different assumptions for a constant investment return before all
expenses: 0%, 6% and 12%. These are hypothetical rates of return and, of course,
the Company does not guarantee that the Contract will earn these returns for any
one year or any sustained period of time. The tables are for illustrative
purposes only and do not represent past or future investment returns.
The variable annuity income may be more or less than the income shown if the
actual returns of the Eligible Investments are different than those illustrated.
Since it is very likely that investment returns will fluctuate over time, the
amount of variable annuity income will also fluctuate. The total amount of
annuity income ultimately received will depend on cumulative investment returns
and how long the Annuitant lives and the option chosen.
Another factor which determines the amount of variable annuity income is the
Assumed Investment Return. Income will increase from one annuity Income Date to
the next if the annualized Net Rate of Return during that time is greater than
the Assumed Investment Return, and will decrease if the annualized Net Rate of
Return is less than the Assumed Investment Return.
Three illustrations follow. The first is based on a 3% Assumed Investment
Return, the second is based on a 5% Assumed Investment Return, and the third is
based on a 7% Assumed Investment Return. THE 7% ASSUMED INVESTMENT RETURN IS NOT
AVAILABLE IN ALL STATES UNTIL APPROVED BY THE STATE INSURANCE DEPARTMENTS.
(CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY).
The income amounts shown reflect the deduction of all fees and expenses. Actual
Trust fees and expenses will vary from year to year and from Portfolio to
Portfolio and may thus be higher or lower than the assumed rate. The
illustrations assume that each Portfolio of the Trust will incur expenses at an
annual rate of 0.77% of the average daily net assets of the Portfolio. This is
the average in 1997, weighted by Portfolio net assets as of 12/31/97. The
Mortality and Expense Risk Charge and Administrative Expense Charge are
calculated, in the aggregate, at an annual rate of 1.40% of the average daily
net assets of the Variable Account. After taking these expenses and charges into
consideration, the illustrated gross investment returns of 0%, 6% and 12% are
approximately equal to net rates of -2.15%, 3.72% and 9.60%, respectively.
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/98
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/99
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the graph that
follows assumes a constant annual investment return. The amount of variable annuity income that
is actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 3% Assumed Investment Return.
Income will remain constant at $625 per month when the annualized net rate of return after
expenses is 3%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.15% 3.72% 9.60%
- -------------------- ---- -------------------------------------- ------- ------ -------
<C> <S> <S> <S> <S> <S>
January 1, 1999 70 $622 $625 $ 628
January 1, 2000 71 591 629 668
January 1, 2001 72 561 634 711
January 1, 2002 73 533 638 757
January 1, 2003 74 507 643 805
January 1, 2008 79 392 666 1,098
January 1, 2013 84 303 689 1,498
January 1, 2018 89 235 714 2,043
January 1, 2023 94 182 740 2,786
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/98
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/99
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the graph that
follows assumes a constant annual investment return. The amount of variable annuity income that
is actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 5% Assumed Investment Return.
Income will remain constant at $742 per month when the annual rate of return after expenses is
5%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.15% 3.72% 9.60%
- -------------------- ---- -------------------------------------- ------- ------ ------
<C> <S> <S> <S> <S> <S>
January 1, 1999 70 $738 $741 $ 745
January 1, 2000 71 687 732 778
January 1, 2001 72 641 723 812
January 1, 2002 73 597 715 847
January 1, 2003 74 556 706 884
January 1, 2008 79 391 664 1,096
January 1, 2013 84 275 625 1,357
January 1, 2018 89 193 588 1,682
January 1, 2023 94 136 553 2,083
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/29 EFFECTIVE DATE: 12/1/98
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/99
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 7%
The amount of monthly variable annuity income shown in the table below and the graph that
follows assumes a constant annual investment return. The amount of variable annuity income that
is actually received will depend on the investment performance of the underlying Portfolio(s)
selected. The variable annuity income can go up or down and no minimum dollar amount of variable
annuity income is guaranteed. The amounts shown are based on a 7% Assumed Investment Return.
Income will remain constant at $861 per month when the annual rate of return after expenses is
7%.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.15% 3.72% 9.60%
- -------------------- ---- -------------------------------------- ------- ------ -------
<C> <S> <S> <S> <S> <S>
January 1, 1999 70 $859 $864 $ 868
January 1, 2000 71 786 837 889
January 1, 2001 72 719 812 911
January 1, 2002 73 657 787 933
January 1, 2003 74 601 763 955
January 1, 2008 79 385 653 1,077
January 1, 2013 84 246 559 1,214
January 1, 2018 89 157 478 1,369
January 1, 2023 94 101 410 1,543
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS.
</TABLE>
<PAGE>
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 Income .................................. 4
Annuity Provisions ............................... 4
Variable Annuity Payout ......................... 4
Fixed Annuity Payout ............................ 5
Financial Statements ............................. 5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
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 IMMEDIATE 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.
TABLE OF CONTENTS
CONTENTS PAGE
Company.......................................... 2
Experts.......................................... 2
Legal Opinions................................... 2
Distributor...................................... 2
Calculation of Performance Data.................. 2
Total Return.................................... 2
Yield........................................... 2
Performance Ranking............................. 3
Performance Information......................... 3
Annuity Income.................................. 5
Annuity Provisions............................... 5
Variable Annuity Payout......................... 5
Fixed Annuity Payout............................ 5
Financial Statements............................. 5
<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 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 a VIP 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 VIP 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 and the operating expenses of the
underlying Portfolios.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual VIP Unit Values for an initial $1,000
purchase payment. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise cumulative and total return information over
different periods of time. Cumulative total return is calculated in a similar
manner as described above except that the results are not annualized.
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, 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 VIP 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 VIP 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 and the Administrative Expense 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
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP 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 VIP Units outstanding during the period;
d = the maximum offering price per VIP 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. 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 bond
indices and data from Lipper Analytical Services, Inc., Standard & Poor's
Indices, or VARDS R.
From time to time, evaluation of performance by independent sources may also be
used.
Performance Information
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 performance of the Contract Sub-Accounts reflects results achieved prior to
the date the Contracts first invested in the Contract Sub-Accounts.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio. Past
performance does not guarantee future results.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
Average Annual Total Return for the periods ended December 31, 1997
Inception One Five Since
Contract Sub-Account Date Year Years Inception
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S>
Capital Growth ........................................................ 5/1/96 16.66% NA 17.73%
Global Utilities Securities1 .......................................... 1/24/89 25.00% 10.20% 11.19%
Growth and Income ..................................................... 1/24/89 25.97% 14.32% 10.57%
Income Securities ..................................................... 1/24/89 15.46% 10.58% 10.83%
Money Market .......................................................... 1/24/89 3.78% 3.05% 3.72%
Mutual Discovery Securities ........................................... 11/8/96 17.71% NA 17.11%
Mutual Shares Securities .............................................. 11/8/96 16.10% NA 17.20%
Real Estate Securities ................................................ 1/24/89 19.02% 16.56% 12.28%
Rising Dividends ...................................................... 1/27/92 31.18% 13.10% 12.47%
Small Cap ............................................................. 11/1/95 15.79% NA 20.40%
Templeton Developing Markets Equity ................................... 3/15/94 -9.99% NA .88%
Templeton Global Asset Allocation ..................................... 5/1/95 10.16% NA 12.77%
Templeton Global Growth ............................................... 3/15/94 11.92% NA 11.60%
Templeton International Equity ........................................ 1/27/92 10.14% 12.93% 10.12%
Templeton International Smaller Companies ............................. 5/1/96 -2.87% NA 4.87%
Templeton Pacific Growth .............................................. 1/27/92 -36.84% -.69% -.98%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
</FN>
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
Total Return for the periods ended December 31, 1997
Annual Total Return Cumulative Total Return
____________________________________ ___________________________
Inception One Three Five Since Three Five Since
Contract Sub-Account Date Year Years Years Inception Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S> <S> <S>
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%
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%
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 3.4%
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 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%
<FN>
1Prior to May 1, 1998, the Global Utilities Securities Sub-Account was known as the Utility Equity Sub-Account.
</FN>
</TABLE>
The Company may also present performance information computed on a different
basis.
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 Income
Periodic annuity income amounts may be illustrated using the historical
performance of the Contract Sub-Accounts, the Standard & Poor's 500 Composite
Stock Price Index or other recognized investment benchmark portfolios. All
illustrations will reflect the 1.25% annual Mortality and Expense Risk Charge
and the 0.15% Administrative Expense Charge and actual or assumed Portfolio
expenses.
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. Annuity
payments also depend upon the Age of the Annuitant and any Joint Annuitant and
the Assumed Net Investment Factor utilized. On the Annuity Calculation 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. Unisex Annuity Tables are utilized by the Company. 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 Annuity Calculation 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. For each Contract Sub-Account, the fixed number of Annuity Units is
multiplied by the Annuity Unit value on each subsequent annuity payment date.
This result is the dollar amount of the payment for each Contract Sub-Account.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Contract Sub-Account Variable Annuity payments.
Fixed Annuity Payout
Annuity payments from the Fixed Payment Annuity will be equal payments unless
otherwise specified by the Annuity Option selected.
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.
VIP 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 Immediate Variable Annuity Contract***
4. (i) Individual Immediate Variable Annuity Contract
Endorsements***
5. Application for Individual Immediate Variable Annuity**
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 Registrant's Post-Effective Amendment No.
2 to Form N-4 which was electronically filed on November 1, 1995.
** Incorporated by reference to Registrant's Post-Effective Amendment No.
3 to Form N-4 which was electronically filed on April 24, 1996.
*** Incorporated by reference to Registrant's Post-Effective Amendment No.
5 to Form N-4 which was electronically filed on April 29, 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
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Blvd.
Minneapolis, MN 55439
Dr. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 17
D - 70178
Stuttgart, Germany
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
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Reverend Dennis J. Dease Director
c/o University of St.Thomas
2115 Summit Avenue
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
The Company organizational chart is incorporated by reference to Post-Effective
Amendment No. 5 to Form N-4 which was electronically filed on April 29, 1997
(File No. 811-05618).
Item 27. Number of Contract Owners
As of February 19, 1998, there were 229 qualified Contract Owners and 139
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>
Alan A. Grove Director
1750 Hennepin Avenue
Minneapolis, MN 55403
James P. Kelso 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.
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>
<TABLE>
<CAPTION>
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
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board,
Lowell C. Anderson President and Chief 04/24/98
Executive Officer Date
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
Dr. Gerhard Rupprecht* Director 04/24/98
Dr. 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
*By Power of Attorney
By: /s/ MICHAEL T. WESTERMEYER
-----------------------------
Michael T. Westermeyer
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Herbert F. Hansmeyer, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 29th day of September 1997.
WITNESS
/s/ Kathleen Doolwith /s/ Herbert Hansmeyer
- --------------------------- -----------------------------
Herbert Hansmeyer
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Michael P Sullivan, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 5th day of September 1997.
WITNESS
/s/ Karen M Amundson /s/ Michael P. Sullivan
- --------------------------- -----------------------------
Michael P. Sullivan
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Jerry E. Robertson, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 4th day of September 1997.
WITNESS
/s/ Jerry E. Robertson
- --------------------------- -----------------------------
Jerry E. Robertson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Gerhard G. Rupprecht, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a 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 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
</TABLE>
<PAGE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 7
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 Immediate
Variable Annuity Contracts to be issued by Allianz Life Insurance Company of
North America and its separate account, Allianz Life Variable Account B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 30, 1998, on the financial
statements of Allianz Life Variable Account B and our report dated February 4,
1998, on the consolidated financial statements of Allianz Life Insurance Company
of North America and subsidiaries included herein and to the reference to our
Firm under the heading "EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1998
<TABLE>
<CAPTION>
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
ALLIANZ LIFE VARIABLE ACCOUNT B
CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
ORIGINAL PURCHASE AS OF DECEMBER 31, 1997
VALUATION DATE AS OF DECEMBER 31, 1996
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH
12-31-96 Purchase $1,000.00 $11.25417490 88.856 88.856 $1,000.00
12-31-97 Current Value 13.12966406 0.000 88.856 1,166.65
Cumulative and Average Annual Total Returns 16.66% A
GLOBAL UTILITIES SECURITIES
12-31-96 Purchase $1,000.00 $20.65439774 48.416 48.416 $1,000.00
12-31-97 Current Value 25.81831690 0.000 48.416 1,250.02
Cumulative and Average Annual Total Returns 25.00% A
GROWTH AND INCOME
12-31-96 Purchase $1,000.00 $19.48959860 51.309 51.309 $1,000.00
12-31-97 Current Value 24.55079561 0.000 51.309 1,259.69
Cumulative and Average Annual Total Returns 25.97% A
INCOME SECURITIES
12-31-96 Purchase $1,000.00 $21.70827863 46.065 46.065 $1,000.00
12-31-97 Current Value 25.06461193 0.000 46.065 1,154.61
Cumulative and Average Annual Total Returns 15.46% A
MONEY MARKET
12-31-96 Purchase $1,000.00 $13.35923111 74.855 74.855 $1,000.00
12-31-97 Current Value 13.86472844 0.000 74.855 1,037.84
Cumulative and Average Annual Total Returns 3.78% A
MUTUAL DISCOVERY SECURITIES
12-31-96 Purchase $1,000.00 $10.18045638 8.227 98.227 $1,000.00
12-31-97 Current Value 11.98316359 0.000 98.227 1,177.08
Cumulative and Average Annual Total Returns 17.71% A
MUTUAL SHARES SECURITIES
12-31-96 Purchase $1,000.00 $10.33016898 96.804 96.804 $1,000.00
12-31-97 Current Value 11.99296726 0.000 96.804 1,160.97
Cumulative and Average Annual Total Returns 16.10% A
REAL ESTATE SECURITIES
12-31-96 Purchase $1,000.00 $23.66770609 42.252 42.252 $1,000.00
12-31-97 Current Value 28.16943249 0.000 42.252 1,190.21
Cumulative and Average Annual Total Returns 19.02% A
RISING DIVIDENDS
12-31-96 Purchase $1,000.00 $15.30299222 65.347 65.347 $1,000.00
12-31-97 Current Value 20.07430239 0.000 65.347 1,311.79
Cumulative and Average Annual Total Returns 31.18% A
SMALL CAP
12-31-96 Purchase $1,000.00 $12.91274591 77.443 77.443 $1,000.00
12-31-97 Current Value 14.95194471 0.000 77.443 1,157.92
Cumulative and Average Annual Total Returns 15.79% A
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-96 Purchase $1,000.00 $11.48724479 87.053 87.053 $1,000.00
12-31-97 Current Value 10.34011278 0.000 87.053 900.14
Cumulative and Average Annual Total Returns (9.99%) A
TEMPLETON GLOBAL ASSET ALLOCATION
12-31-96 Purchase $1,000.00 $12.51416879 79.909 79.909 $1,000.00
12-31-97 Current Value 13.78572229 0.000 79.909 1,101.61
Cumulative and Average Annual Total Returns 10.16% A
TEMPLETON GLOBAL GROWTH
12-31-96 Purchase $1,000.00 $13.55953972 73.749 73.749 $1,000.00
12-31-97 Current Value 15.17626475 0.000 73.749 1,119.23
Cumulative and Average Annual Total Returns 11.92% A
TEMPLETON INTERNATIONAL EQUITY
12-31-96 Purchase $1,000.00 $16.08142393 62.184 62.184 $1,000.00
12-31-97 Current Value 17.71128511 0.000 62.184 1,101.35
Cumulative and Average Annual Total Returns 10.14% A
TEMPLETON INTERNATIONAL SMALLER COMPANIES
12-31-96 Purchase $1,000.00 $11.14519961 89.725 89.725 $1,000.00
12-31-97 Current Value 10.82516357 0.000 89.725 971.28
Cumulative and Average Annual Total Returns (2.87%) A
TEMPLETON PACIFIC GROWTH
12-31-96 Purchase $1,000.00 $14.93159316 66.972 66.972 $1,000.00
12-31-97 Current Value 9.43102016 0.000 66.972 631.62
Cumulative and Average Annual Total Returns (36.84%) A
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1994
VALUATION DATE AS OF DECEMBER 31, 1997
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GLOBAL UTILITIES SECURITIES
12-31-94 Purchase $1,000.00 $15.10395032 66.208 66.208 $1,000.00
12-31-95 Current Value 19.56451758 0.000 66.208 1,295.32
12-31-96 Current Value 20.65439774 0.000 66.208 1,367.48
12-31-97 Current Value 25.81831690 0.000 66.208 1,709.38
Cumulative Total Return 70.94% A
Average Annual Total Return 19.57% B
GROWTH AND INCOME
12-31-94 Purchase $1,000.00 $13.21462941 75.674 75.674 $1,000.00
12-31-95 Current Value 17.30965999 0.000 75.674 1,309.89
12-31-96 Current Value 19.48959860 0.000 75.674 1,474.85
12-31-97 Current Value 24.55079561 0.000 75.674 1,857.85
Cumulative Total Return 85.78% A
Average Annual Total Return 22.93% B
INCOME SECURITIES
12-31-94 Purchase $1,000.00 $16.39171653 61.006 61.006 $1,000.00
12-31-95 Current Value 19.78534185 0.000 61.006 1,207.03
12-31-96 Current Value 21.70827863 0.000 61.006 1,324.34
12-31-97 Current Value 25.06461193 0.000 61.006 1,529.10
Cumulative Total Return 52.91% A
Average Annual Total Return 15.21% B
MONEY MARKET
12-31-94 Purchase $1,000.00 $12.35398427 80.946 80.946 $1,000.00
12-31-95 Current Value 12.88349436 0.000 80.946 1,042.86
12-31-96 Current Value 13.35923111 0.000 80.946 1,081.37
12-31-97 Current Value 13.86472844 0.000 80.946 1,122.29
Cumulative Total Return 12.23% A
Average Annual Total Return 3.92% B
REAL ESTATE SECURITIES
12-31-94 Purchase $1,000.00 $15.59407180 64.127 64.127 $1,000.00
12-31-95 Current Value 18.07282328 0.000 64.127 1,158.95
12-31-96 Current Value 23.66770609 0.000 64.127 1,517.74
12-31-97 Current Value 28.16943249 0.000 64.127 1,806.42
Cumulative Total Return 80.64% A
Average Annual Total Return 21.79% B
RISING DIVIDENDS
12-31-94 Purchase $1,000.00 $9.76873744 102.367 102.367 $1,000.00
12-31-95 Current Value 12.49836348 0.000 102.367 1,279.42
12-31-96 Current Value 15.30299222 0.000 102.367 1,566.53
12-31-97 Current Value 20.07430239 0.000 102.367 2,054.95
Cumulative Total Return 105.50% A
Average Annual Total Return 27.14% B
TEMPLETON DEVELOPING MARKETS EQUITY
12-31-94 Purchase $1,000.00 $9.45424664 105.773 105.773 $1,000.00
12-31-95 Current Value 13.26267921 0.000 105.773 1,013.48
12-31-96 Current Value 16.08142393 0.000 105.773 1,215.04
12-31-97 Current Value 17.71128511 0.000 105.773 1,093.70
Cumulative Total Return 9.37% A
Average Annual Total Return 3.03% B
TEMPLETON GLOBAL GROWTH
12-31-94 Purchase $1,000.00 $10.20085584 98.031 98.031 $1,000.00
12-31-95 Current Value 11.33894840 0.000 98.031 1,111.57
12-31-96 Current Value 13.55953972 0.000 98.031 1,329.26
12-31-97 Current Value 15.17626475 0.000 98.031 1,487.74
Cumulative Total Return 48.77% A
Average Annual Total Return 14.16% B
TEMPLETON INTERNATIONAL EQUITY
12-31-94 Purchase $1,000.00 $12.16131942 82.228 82.228 $1,000.00
12-31-95 Current Value 13.26267921 0.000 82.228 1,090.56
12-31-96 Current Value 16.08142393 0.000 82.228 1,322.34
12-31-97 Current Value 17.71128511 0.000 82.228 1,456.36
Cumulative Total Return 45.64% A
Average Annual Total Return 13.35% B
TEMPLETON PACIFIC GROWTH
12-31-94 Purchase $1,000.00 $12.80173310 78.114 78.114 $1,000.00
12-31-95 Current Value 13.63037545 0.000 78.114 1,064.73
12-31-96 Current Value 14.93159316 0.000 78.114 1,166.37
12-31-97 Current Value 9.43102016 0.000 78.114 736.70
Cumulative Total Return -26.33% A
Average Annual Total Return -9.68% B
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+1)^(1/3 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL PURCHASE AS OF DECEMBER 31, 1992
VALUATION DATE AS OF DECEMBER 31, 1997
Dollar Units This Accum Accum
Date Transaction Amount Unit Value Trans Units Value
---- ----------- ------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
GLOBAL UTILITIES SECURITIES
12-31-92 Purchase $1,000.00 $15.88865152 62.938 62.938 $1,000.00
12-31-93 Current Value 17.31879581 0.000 62.938 1,090.01
12-31-94 Current Value 15.10395032 0.000 62.938 950.61
12-31-95 Current Value 19.56451758 0.000 62.938 1,231.35
12-31-96 Current Value 20.65439774 0.000 62.938 1,299.95
12-31-97 Current Value 25.81831690 0.000 62.938 1,624.95
Cumulative Total Return 62.50% A
Average Annual Total Return 10.20% B
GROWTH AND INCOME
12-31-92 Purchase $1,000.00 $12.57361730 79.532 79.532 $1,000.00
12-31-93 Current Value 13.67694811 0.000 79.532 1,087.75
12-31-94 Current Value 13.21462941 0.000 79.532 1,050.98
12-31-95 Current Value 17.30965999 0.000 79.532 1,376.67
12-31-96 Current Value 19.48959860 0.000 79.532 1,550.04
12-31-97 Current Value 24.55079561 0.000 79.532 1,952.56
Cumulative Total Return 95.26% A
Average Annual Total Return 14.32% B
INCOME SECURITIES
12-31-92 Purchase $1,000.00 $15.16252410 65.952 65.952 $1,000.00
12-31-93 Current Value 17.73437317 0.000 65.952 1,169.62
12-31-94 Current Value 16.39171653 0.000 65.952 1,081.07
12-31-95 Current Value 19.78534185 0.000 65.952 1,304.88
12-31-96 Current Value 21.70827863 0.000 65.952 1,431.71
12-31-97 Current Value 25.06461193 0.000 65.952 1,653.06
Cumulative Total Return 65.31% A
Average Annual Total Return 10.58% B
MONEY MARKET
12-31-92 Purchase $1,000.00 $11.93209752 83.808 83.808 $1,000.00
12-31-93 Current Value 12.06579747 0.000 83.808 1,011.21
12-31-94 Current Value 12.35398427 0.000 83.808 1,035.36
12-31-95 Current Value 12.88349436 0.000 83.808 1,079.73
12-31-96 Current Value 13.35923111 0.000 83.808 1,119.60
12-31-97 Current Value 13.86472844 0.000 83.808 1,161.97
Cumulative Total Return 16.20% A
Average Annual Total Return 3.05% B
REAL ESTATE SECURITIES
12-31-92 Purchase $1,000.00 $13.09547341 76.362 76.362 $1,000.00
12-31-93 Current Value 15.36898235 0.000 76.362 1,173.61
12-31-94 Current Value 15.59407180 0.000 76.362 1,190.80
12-31-95 Current Value 18.07282328 0.000 76.362 1,380.08
12-31-96 Current Value 23.66770609 0.000 76.362 1,807.32
12-31-97 Current Value 28.16943249 0.000 76.362 2,151.08
Cumulative Total Return 115.11% A
Average Annual Total Return 16.56% B
RISING DIVIDENDS
12-31-92 Purchase $1,000.00 $10.84771473 92.185 92.185 $1,000.00
12-31-93 Current Value 15.36898235 0.000 92.185 952.05
12-31-94 Current Value 15.59407180 0.000 92.185 900.53
12-31-95 Current Value 18.07282328 0.000 92.185 1,152.17
12-31-96 Current Value 23.66770609 0.000 92.185 1,410.71
12-31-97 Current Value 28.16943249 0.000 92.185 1,850.56
Cumulative Total Return 85.06% A
Average Annual Total Return 13.10% B
TEMPLETON INTERNATIONAL EQUITY
12-31-92 Purchas $1,000.00 $9.64241309 103.708 103.708 $1,000.00
12-31-93 Current Value 12.22565227 0.000 103.708 1,267.90
12-31-94 Current Value 12.16131942 0.000 103.708 1,261.23
12-31-95 Current Value 13.26267921 0.000 103.708 1,375.45
12-31-96 Current Value 16.08142393 0.000 103.708 1,667.78
12-31-97 Current Value 17.71128511 0.000 103.708 1,836.81
Cumulative Total Return 83.68% A
Average Annual Total Return 12.93% B
TEMPLETON PACIFIC GROWTH
12-31-92 Purchase $1,000.00 $9.76096735 102.449 102.449 $1,000.00
12-31-93 Current Value 14.23330574 0.000 102.449 1,458.19
12-31-94 Current Value 12.80173310 0.000 102.449 1,311.52
12-31-95 Current Value 13.63037545 0.000 102.449 1,396.42
12-31-96 Current Value 14.93159316 0.000 102.449 1,529.72
12-31-97 Current Value 9.43102016 0.000 102.449 966.20
Cumulative Total Return -3.38% A
Average Annual Total Return -0.69% B
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+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
12-31-97 Current Value 13.12966406 0.000 100.000 1,312.97
Cumulative Total Return 31.30% A
Average Annual Total Return 17.73% B
GLOBAL UTILITIES SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 11.48396786 0.000 100.000 1,148.40
1-24-91 Current Value 11.97256112 0.000 100.000 1,197.26
1-24-92 Current Value 14.23979461 0.000 100.000 1,423.98
1-24-93 Current Value 15.97559846 0.000 100.000 1,597.56
1-24-94 Current Value 16.50535338 0.000 100.000 1,650.54
1-24-95 Current Value 15.57082971 0.000 100.000 1,557.08
1-24-96 Current Value 19.81799066 0.000 100.000 1,981.80
12-31-97 Current Value 25.81831690 0.000 100.000 2,581.83
Cumulative Total Return 158.18% A
Average Annual Total Return 11.19% B
GROWTH AND INCOME
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 9.60621064 0.000 100.000 960.62
1-24-91 Current Value 10.04911751 0.000 100.000 1,004.91
1-24-92 Current Value 12.19460473 0.000 100.000 1,219.46
1-24-93 Current Value 12.62194644 0.000 100.000 1,262.19
1-24-94 Current Value 14.16249217 0.000 100.000 1,416.25
1-24-95 Current Value 13.34952632 0.000 100.000 1,334.95
1-24-96 Current Value 17.36302808 0.000 100.000 1,736.30
12-31-97 Current Value 24.55079561 0.000 100.000 2,455.08
Cumulative Total Return 145.51% A
Average Annual Total Return 10.57% B
INCOME SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.71309911 0.000 100.000 1,071.31
1-24-91 Current Value 9.95244729 0.000 100.000 995.24
1-24-92 Current Value 14.03346495 0.000 100.000 1,403.35
1-24-93 Current Value 15.36060973 0.000 100.000 1,536.06
1-24-94 Current Value 17.72926867 0.000 100.000 1,772.93
1-24-95 Current Value 16.36456157 0.000 100.000 1,636.46
1-24-96 Current Value 20.20965612 0.000 100.000 2,020.97
12-31-97 Current Value 25.06461193 0.000 100.000 2,506.46
Cumulative Total Return 150.65% A
Average Annual Total Return 10.83% B
MONEY MARKET
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.67978818 0.000 100.000 1,067.98
1-24-91 Current Value 11.32877884 0.000 100.000 1,132.88
1-24-92 Current Value 11.75876120 0.000 100.000 1,175.88
1-24-93 Current Value 11.94119334 0.000 100.000 1,194.12
1-24-94 Current Value 12.07592840 0.000 100.000 1,207.59
1-24-95 Current Value 12.38828249 0.000 100.000 1,238.83
1-24-96 Current Value 12.92030455 0.000 100.000 1,292.03
12-31-97 Current Value 13.86472844 0.000 100.000 1,386.47
Cumulative Total Return 38.65% A
Average Annual Total Return 3.72% B
MUTUAL DISCOVERY SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-97 Current Value 11.98316359 0.000 100.000 1,198.32
Cumulative Total Return 19.83% A
Average Annual Total Return 17.11% B
MUTUAL SHARES SECURITIES
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-97 Current Value 11.99296726 0.000 100.000 1,199.30
Cumulative Total Return 19.93% A
Average Annual Total Return 17.20% B
REAL ESTATE SECURITIES
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Current Value 10.13988901 0.000 100.000 1,013.99
1-24-91 Current Value 9.37706788 0.000 100.000 937.71
1-24-92 Current Value 12.28427530 0.000 100.000 1,228.43
1-24-93 Current Value 13.54478625 0.000 100.000 1,354.48
1-24-94 Current Value 15.37525910 0.000 100.000 1,537.53
1-24-95 Current Value 15.00928122 0.000 100.000 1,500.93
1-24-96 Current Value 18.15857148 0.000 100.000 1,815.86
12-31-97 Current Value 28.16943249 0.000 100.000 2,816.94
Cumulative Total Return 181.69% A
Average Annual Total Return 12.28% B
RISING DIVIDENDS
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 10.69831588 0.000 100.000 1,069.83
1-27-94 Current Value 10.38483458 0.000 100.000 1,038.48
1-27-95 Current Value 9.97357882 0.000 100.000 997.36
1-27-96 Current Value 12.53425589 0.000 100.000 1,253.43
12-31-97 Current Value 20.07430239 0.000 100.000 2,007.43
Cumulative Total Return 100.74% A
Average Annual Total Return 12.47% B
SMALL CAP
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Current Value 12.15810442 0.000 100.000 1,215.81
12-31-97 Current Value 14.95194471 0.000 100.000 1,495.19
Cumulative Total Return 49.52% A
Average Annual Total Return 20.40% B
TEMPLETON DEVELOPING MARKETS EQUITY
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Current Value 8.62834892 0.000 100.000 862.83
3-15-96 Current Value 10.29583833 0.000 100.000 1,029.58
12-31-97 Current Value 10.34011278 0.000 100.000 1,034.01
Cumulative Total Return 3.40% A
Average Annual Total Return .88% B
TEMPLETON GLOBAL ASSET ALLOCATION
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 1,000.00
5-1-96 Current Value 11.25238520 0.000 100.000 1,125.24
12-31-97 Current Value 13.78572229 0.000 100.000 1,378.57
Cumulative Total Return 37.86% A
Average Annual Total Return 12.77% B
TEMPLETON GLOBAL GROWTH
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Current Value 10.10361218 0.000 100.000 1,010.36
3-15-96 Current Value 11.81545835 0.000 100.000 1,181.55
12-31-97 Current Value 15.17626475 0.000 100.000 1,517.63
Cumulative Total Return 51.76% A
Average Annual Total Return 11.60% B
TEMPLETON INTERNATIONAL EQUITY
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 9.54360836 0.000 100.000 954.36
1-27-94 Current Value 12.87738433 0.000 100.000 1,287.74
1-27-95 Current Value 11.94433728 0.000 100.000 1,194.43
1-27-96 Current Value 13.57666972 0.000 100.000 1,357.67
12-31-97 Current Value 17.71128511 0.000 100.000 1,771.13
Cumulative Total Return 77.11% A
Average Annual Total Return 10.12% B
TEMPLETON INTERNATIONAL SMALLER COMPANIES
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-97 Current Value 10.82516357 0.000 100.000 1,082.52
Cumulative Total Return 8.25% A
Average Annual Total Return 4.87% B
TEMPLETON PACIFIC GROWTH
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Current Value 9.92851087 0.000 100.000 992.85
1-27-94 Current Value 14.10178760 0.000 100.000 1,410.18
1-27-95 Current Value 11.94769270 0.000 100.000 1,194.77
1-27-96 Current Value 14.49670523 0.000 100.000 1,449.67
12-31-97 Current Value 9.43102016 0.000 100.000 943.10
Cumulative Total Return -5.69% A
Average Annual Total Return -0.98% B
<FN>
A = (Accumulated Value as of December 31, 1997 - Accum. Value at Purch.)/Accum. Value at Purch.
B = [(A+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
