File Nos. 333-63719
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. 1 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 44 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
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(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 347-6596
Name and Address of Agent for Service
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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, 1999 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
- - -------- --------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . Index of Terms
Item 3. Synopsis or Highlights. . . . . . . . . . . Profile
Item 4. Condensed Financial Information. . . . . . . Not Applicable
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . Other Information-
The Separate Account,
Allianz Life,
Investment Options
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . .The Franklin Valuemark
Charter Variable Annuity
Contract
Item 8. Annuity Period. . .. . . . . . . . . . . . . . Annuity Payments
(The Payout Phase)
Item 9. Death Benefit. . . . . . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value. . . . . . . . . .Purchase
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . Table of Contents
of the Statement of
Additional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
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PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . Insurance Company
Item 18. Services. . . . . . . . . . . . .. . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
Profile of the Franklin Valuemark Charter
Variable Annuity Contract
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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May 1, 1999
This profile is a summary of some of the more important points that you should
consider and know before purchasing the Franklin Valuemark Charter Variable
Annuity Contract with a fixed account option. The Contract is more fully
described in the prospectus which accompanies this profile. Please read the
prospectus carefully.
1. THE FRANKLIN VALUEMARK CHARTER VARIABLE ANNUITY CONTRACT
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The Franklin Valuemark Charter variable annuity contract with a fixed account
offered by Allianz Life Insurance Company of North America (Allianz Life) is a
contract between you, the owner, and Allianz Life, an insurance company. In this
profile and the prospectus, "we", "us" and "our" refers to Allianz Life. The
Contract provides a means for investing on a tax-deferred basis. The Contract is
intended for retirement savings or other long-term investment purposes. The
Contract provides for a death benefit and guaranteed annuity income options.
The Contract has 22 variable options -- each of which invests in a portfolio of
Franklin Valuemark Funds, and a fixed account of Allianz Life. The portfolios
are managed by Franklin Advisers, Inc. and its Templeton and Franklin
affiliates. A list of the available portfolios is contained in Section 4.
Depending upon market conditions, you can make or lose money in the Contract
based on the portfolios' investment performance. The portfolios are designed to
offer a better return than the fixed account, however, this is not guaranteed.
The fixed account offers an interest rate that is guaranteed by Allianz Life.
Your initial interest rate is set on the date when your money is invested in the
fixed account and remains effective for one year. Initial interest rates are
declared monthly. If you select the fixed account, your money will be held in
our general account with principal and interest backed by Allianz Life.
Currently, you can put your money in 10 investment choices at any one time
(which includes any of the 22 variable options and the Allianz Life fixed
account). Allianz Life has the right to limit the number of variable options
which you may invest in at any one time (now or in the future).
Like all deferred annuity contracts, your Contract has two phases: the
accumulation phase and the payout phase. During the accumulation phase, your
earnings accumulate on a tax-deferred basis and are based on the investment
performance of the portfolio(s) you select and/or the interest rate earned on
the money you have in the fixed account. During the accumulation phase, the
earnings are taxed as income only when you make a withdrawal. The payout phase
occurs when you begin receiving regular payments from your Contract. The amount
of the payments you may receive during the payout phase depends, in part, upon
the amount of money you are able to accumulate in your Contract during the
accumulation phase.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
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You can receive monthly annuity payments from your Contract by selecting one of
the following annuity options (all of these options assume you are the owner and
the annuitant):
(1) payments for your life;
(2) payments for your life, but if you die before payments have been made for
the guaranteed period you selected, payments will continue for the remainder of
the guaranteed period (5, 10, 15 or 20 years);
(3) payments during the joint lifetime of you and the joint annuitant -- when
either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you 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); and
(5) payments during your life ending with the last payment due prior to your
death with a guarantee that at your death Allianz Life will make a refund to
your beneficiary if the value of the payments made is less than the amount
applied to the annuity option.
Once you begin receiving regular annuity payments, you cannot change your
annuity option or surrender your Contract.
During the payout phase, you may select from the variable options available or
the fixed account for your investment choices. You may elect to receive annuity
payments as a variable payout, a fixed payout, or a combination of both. If you
choose to have any part of your payments based on portfolio performance (i.e.,
variable payout), the dollar amount of your annuity payments may go up or down,
depending on the investment performance of the portfolios you choose.
3. PURCHASE
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You can purchase the Contract with $25,000 or more. You can add $250 or more any
time you like during the accumulation phase. Your registered representative can
help you complete the proper forms. You and the annuitant cannot be older than
85 years old at the time you purchase the Contract. This product is not
appropriate for market timers.
4. INVESTMENT OPTIONS
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You may select the Allianz Life fixed account and/or the variable options which
invest in Class 2 shares of the portfolios of Franklin Valuemark Funds listed
below. Franklin Valuemark Funds has two classes of shares. You may only invest
in Class 2 shares with this Contract.
PORTFOLIO SEEKING CAPITAL
PRESERVATION AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
PORTFOLIOS SEEKING GROWTH AND INCOME:
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH:
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
The portfolios are fully described in the attached Franklin Valuemark Funds
prospectus. You can make or lose money based on the portfolios' performance.
5. EXPENSES
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The Contract has insurance features and investment features, and there are costs
related to each.
o The annual insurance charges for your Contract depend on the death benefit
(traditional or enhanced) that you select when you buy the Contract. The annual
insurance charges total 1.15% (traditional death benefit) or 1.35% (enhanced
death benefit) of the average daily value of your Contract allocated to the
variable options.
o Each year Allianz Life also deducts a $40 contract maintenance charge from
your Contract. Allianz Life currently waives this charge if the cumulative value
of all your Franklin Valuemark Charter Contracts (registered with the same
social security number) are at least $100,000.
o There are also annual portfolio operating expenses, which vary depending upon
the portfolios you select. These expenses range from .79 to 1.71% of the average
daily value of the portfolios' Class 2 shares.
o You can transfer between investment choices up to 12 times a year without
charge. After 12 transfers, the charge is $25 or 2% of the amount transferred,
whichever is less. Market timing transfers may not be permitted.
o Allianz Life does not assess a surrender charge or a contingent deferred sales
charge if you make a withdrawal (partial or total) from the Contract.
o Allianz Life may assess a state premium tax charge which ranges from 0%-3.5%
(depending upon the state) when you die, start receiving annuity payments, or
make a complete withdrawal.
We have provided the following charts to help you understand the expenses in
your Contract. Chart 1 is for Contracts with the traditional death benefit
option. Chart 2 is for Contracts with the enhanced death benefit option. The
column "Total Annual Insurance Charges" includes the $40 contract maintenance
charge which has been converted to a percentage and is represented as .10%
below. The column "Total Annual Expenses" shows the total of the $40 contract
maintenance charge (which has been converted to a percentage and is represented
as .10% below), the insurance charges (which either total 1.15% or 1.35%,
depending upon the death benefit you selected) and the total annual expenses 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 surrender your Contract: (1) at
the end of year 1, and (2) at the end of year 10.
The premium tax is assumed to be 0% in both examples.
<PAGE>
<TABLE>
<CAPTION>
These are just examples. They do not represent past or future expenses. Actual
expenses may be higher or lower than those shown.
CHART 1 - EXPENSES FOR CONTRACTS WITH TRADITIONAL DEATH BENEFIT:
EXAMPLES:
Total Annual Total Annual
Insurance Class 2 Portfolio Total Annual Expenses at end of:
Variable Option Charges Expenses Expenses 1 Year 10 Years
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<S> <C> <C> <C> <C> <C>
Capital Growth 1.25% 1.07% 2.32% $24 $265
Global Health Care Securities1 1.25% 1.14% 2.39% $24 $273
Global Utilities Securities 1.25% .80% 2.05% $21 $237
Growth and Income 1.25% .79% 2.04% $21 $236
High Income 1.25% .83% 2.08% $21 $241
Income Securities 1.25% .79% 2.04% $21 $236
Money Market 1.25% .83% 2.08% $21 $241
Mutual Discovery Securities 1.25% 1.30% 2.55% $26 $289
Mutual Shares Securities 1.25% 1.07% 2.32% $24 $265
Natural Resources Securities 1.25% .94% 2.19% $22 $252
Real Estate Securities 1.25% .84% 2.09% $21 $242
Rising Dividends 1.25% 1.02% 2.27% $23 $260
Small Cap 1.25% 1.07% 2.32% $24 $265
Templeton Developing Markets Equity 1.25% 1.71% 2.96% $30 $329
Templeton Global Asset Allocation 1.25% 1.14% 2.39% $24 $273
Templeton Global Growth 1.25% 1.18% 2.43% $25 $277
Templeton Global Income Securities 1.25% .93% 2.18% $22 $251
Templeton International Equity 1.25% 1.18% 2.43% $25 $277
Templeton International Smaller Companies1.25% 1.40% 2.65% $27 $299
Templeton Pacific Growth 1.25% 1.40% 2.65% $27 $299
U.S. Government Securities 1.25% .80% 2.05% $21 $237
Value Securities1 1.25% 1.13% 2.38% $24 $272
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<FN>
1. Estimated for 1999
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHART 2 - EXPENSES FOR CONTRACTS WITH ENHANCED DEATH BENEFIT:
EXAMPLES:
Total Annual Total Annual
Insurance Class 2 Portfolio Total Annual Expenses at end of:
Variable Option Charges Expenses Expenses 1 Year 10 Years
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<S> <C> <C> <C> <C> <C>
Capital Growth 1.45% 1.07% 2.52% $26 $286
Global Health Care Securities1 1.45% 1.14% 2.59% $26 $293
Global Utilities Securities 1.45% .80% 2.25% $23 $258
Growth and Income 1.45% .79% 2.24% $23 $257
High Income 1.45% .83% 2.28% $23 $261
Income Securities 1.45% .79% 2.24% $23 $257
Money Market 1.45% .83% 2.28% $23 $261
Mutual Discovery Securities 1.45% 1.30% 2.75% $28 $308
Mutual Shares Securities 1.45% 1.07% 2.52% $26 $286
Natural Resources Securities 1.45% .94% 2.39% $24 $273
Real Estate Securities 1.45% .84% 2.29% $23 $262
Rising Dividends 1.45% 1.02% 2.47% $25 $281
Small Cap 1.45% 1.07% 2.52% $26 $286
Templeton Developing Markets Equity 1.45% 1.71% 3.16% $32 $347
Templeton Global Asset Allocation 1.45% 1.14% 2.59% $26 $293
Templeton Global Growth 1.45% 1.18% 2.63% $27 $297
Templeton Global Income Securities 1.45% .93% 2.38% $24 $272
Templeton International Equity 1.45% 1.18% 2.63% $27 $297
Templeton International Smaller Companies1.45% 1.40% 2.85% $29 $318
Templeton Pacific Growth 1.45% 1.40% 2.85% $29 $318
U.S. Government Securities 1.45% .80% 2.25% $23 $258
Value Securities1 1.45% 1.13% 2.58% $26 $292
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<FN>
1. Estimated for 1999
</FN>
</TABLE>
The expenses for the newly formed Class 2 shares of each portfolio are based on
the Class 2 Rule 12b-1 Plan and each portfolio's Class 1 share expenses for the
most recent fiscal year or, for the new Global Health Care Securities and Value
Securities Funds, estimated Class 1 share expenses. For more detailed
information, see the Fee Table in the prospectus for the Contract.
<PAGE>
6. TAXES
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You do not have to pay taxes on any earnings until you withdraw money from your
Contract. In most cases, if you take money out, earnings come out first and are
taxed as income. If you are younger than 591/2 when you take money out, you may
be charged a 10% federal tax penalty on the taxable amounts withdrawn. Payments
during the payout phase are considered partly a return of your original
investment. That part of each payment is not taxable as income. If the Contract
is tax-qualified, the entire payment may be taxable.
7. ACCESS TO YOUR MONEY
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You may make a withdrawal at any time during the accumulation phase. Any partial
withdrawal must be for at least $500. You may request a withdrawal or elect the
Systematic Withdrawal Program or the Minimum Distribution Program which are
briefly described in Section 10 of this profile. Of course, you may also have to
pay income taxes and a tax penalty on any money you take out of the Contract.
8. PERFORMANCE
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The value of the Contract will vary up or down depending upon the performance of
the portfolio(s) you choose.
The following charts show total returns for the Contract for the periods shown.
Chart 1 shows the performance for Contracts with the traditional death benefit
and Chart 2 shows performance for Contracts with the enhanced death benefit.
Performance is not shown for the Global Health Care Securities Fund and the
Value Securities Fund because they began operations on May 1, 1998. These
numbers reflect the insurance charges, the contract maintenance charge and the
operating expenses of the portfolios. Although the Contracts are new, the
performance assumes your Contract was invested in the portfolios for the periods
shown. Because the portfolios' Class 2 shares are new, the performance is based
on the historical performance of the portfolios' Class 1 shares. Class 2 shares
have 12b-1 plan expenses currently equal to .30% per year of each portfolio's
average net assets which will affect future performance. Past performance is not
a guarantee of future results.
<PAGE>
<TABLE>
<CAPTION>
CHART 1
Calendar Year
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Variable Option 1998 1997 1996 1995 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 18.82% 16.86% N/A N/A N/A N/A N/A N/A N/A
Global Utilities Securities 9.82% 25.21% 5.74% 29.76% -12.67% 9.17% 7.37% 23.08% 0.59%
Growth and Income 6.99% 26.18% 12.78% 31.22% -3.24% 8.95% 5.39% 22.10% -3.56%
High Income -.33% 10.17% 12.49% 18.30% -3.47% 14.32% 14.82% 28.55% -9.81%
Income Securities 0.38% 15.65% 9.90% 20.90% -7.44% 17.15% 11.83% 38.23% -8.60%
Money Market 3.92% 3.94% 3.85% 4.45% 2.54% 1.27% 1.78% 4.18% 6.29%
Mutual Discovery Securities -6.18% 17.90% N/A N/A N/A N/A N/A N/A N/A
Mutual Shares Securities -1.16% 16.29% N/A N/A N/A N/A N/A N/A N/A
Natural Resources Securities -26.33% -20.00% 2.70% 1.08% -3.21% 53.75% -11.26% 2.54% -15.07%
Real Estate Securities -17.87% 19.22% 31.19% 16.08% 1.62% 17.55% 10.71% 31.88% -13.08%
Rising Dividends 5.60% 31.41% 22.65% 28.16% -5.27% -4.66% N/A N/A N/A
Small Cap -2.21% 15.98% 27.49% N/A N/A N/A N/A N/A N/A
Templeton Developing Markets Equity-22.61%-9.86% 20.09% 1.50% N/A N/A N/A N/A N/A
Templeton Global Asset Allocation-1.28% 10.34% 18.35% N/A N/A N/A N/A N/A N/A
Templeton Global Growth 7.63% 12.10% 19.79% 11.33% N/A N/A N/A N/A N/A
Templeton Global Income Securities5.76% 1.20% 8.28% 13.27% -6.17% 15.25% -1.62% 10.91% 8.43%
Templeton International Equity 4.26% 10.31% 21.46% 9.23% -0.38% 27.01% N/A N/A N/A
Templeton International
Smaller Companies -13.38% -2.73% N/A N/A N/A N/A N/A N/A N/A
Templeton Pacific Growth -14.23% -36.78% 9.72% 6.64% -9.93% 46.08% N/A N/A N/A
U.S. Government Securities 6.11% 7.96% 2.32% 18.00% -5.74% 8.36% 6.33% 14.46% 7.57%
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHART 2
Calendar Year
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Variable Option 1998 1997 1996 1995 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 18.58% 16.62% N/A N/A N/A N/A N/A N/A N/A
Global Utilities Securities 9.60% 24.96% 5.52% 29.50% -12.85% 8.96% 7.15% 22.84% 0.39%
Growth and Income 6.78% 25.93% 12.55% 30.95% -3.43% 8.73% 5.18% 21.86% -3.75%
High Income -.53% 9.95% 12.26% 18.06% -3.66% 14.10% 14.59% 28.30% -9.99%
Income Securities 0.18% 15.42% 9.67% 20.66% -7.62% 16.92% 11.61% 37.95% -8.78%
Money Market 3.71% 3.74% 3.64% 4.24% 2.34% 1.07% 1.57% 3.97% 6.08%
Mutual Discovery Securities -6.37% 17.67% N/A N/A N/A N/A N/A N/A N/A
Mutual Shares Securities -1.35% 16.05% N/A N/A N/A N/A N/A N/A N/A
Natural Resources Securities -26.48% -20.16% 2.49% 0.88% -3.40% 53.45% -11.44% 2.33% -15.24%
Real Estate Securities -18.03% 18.98% 30.92% 15.85% 1.42% 17.32% 10.48% 31.62% -13.25%
Rising Dividends 5.39% 31.14% 22.40% 27.91% -5.46% -4.85% N/A N/A N/A
Small Cap -2.41% 15.75% 27.23% N/A N/A N/A N/A N/A N/A
Templeton Developing Markets Equity-22.76%-10.04% 19.85% 1.30% N/A N/A N/A N/A N/A
Templeton Global Asset Allocation-1.48% 10.12% 18.12% N/A N/A N/A N/A N/A N/A
Templeton Global Growth 7.41% 11.88% 19.54% 11.11% N/A N/A N/A N/A N/A
Templeton Global Income Securities5.55% 1.00% 8.06% 13.04% -6.36% 15.02% -1.82% 10.69% 8.21%
Templeton International Equity 4.05% 10.09% 21.21% 9.01% -0.58% 26.75% N/A N/A N/A
Templeton International
Smaller Companies -13.55% -2.92% N/A N/A N/A N/A N/A N/A N/A
Templeton Pacific Growth -14.40% -36.91% 9.50% 6.43% -10.11% 45.79% N/A N/A N/A
U.S. Government Securities 5.90% 7.74% 2.11% 17.76% -5.93% 8.14% 6.12% 14.23% 7.36%
</TABLE>
<PAGE>
9. DEATH BENEFIT
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If you die during the accumulation phase, the person you have selected as your
beneficiary will receive a death benefit. At the time you purchase the Contract,
you must select either the traditional death benefit option or the enhanced
death benefit option. Once selected, you cannot change it.
If you select the traditional death benefit option, the amount of death benefit
will be the greater of:
(1) the value of your Contract, less any applicable premium taxes; or
(2) any payments you have made, less any withdrawals and applicable premium tax.
If you select the enhanced death benefit option, the amount of the death benefit
will be the greater of:
(1) the value of your Contract, less any applicable premium taxes; or
(2) the guaranteed minimum death benefit, less any applicable premium tax.
The guaranteed minimum death benefit is the greater of:
(a) the sum of all payments you have made, less any withdrawals; or
(b) the greatest value of your Contract Anniversaries prior to your 86th
birthday (your Contract Anniversaries equal the value of your Contract on a
Contract anniversary, increased by the amount of any payments you have made
since that anniversary, less the amount of any withdrawals you have made since
that anniversary).
10. OTHER INFORMATION
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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. This may be more or less
than your original payment. (Some states require that we return your payment.)
No Probate. In most cases, when you die, your beneficiary will receive the death
benefit without going through probate.
Purchasing Considerations. The Franklin Valuemark Charter Variable Annuity
Contract is designed for people seeking long-term tax deferred accumulation of
assets, generally for retirement or other long-term purposes. The tax deferred
feature is most attractive to people in high federal and state tax brackets. You
should not buy this Contract if you are looking for a short-term investment or
if you cannot accept the risk of getting back less money than you put in.
ADDITIONAL FEATURES
The Contract offers additional features which you might be interested in. These
include:
Automatic Investment Plan - You can automatically add to your Contract on a
monthly or quarterly basis for as little as $100. You can do this by
electronically transferring money from your savings or checking account.
Dollar Cost Averaging Program - You can arrange to have a regular amount of
money automatically transferred from selected variable options or the fixed
account to other variable options each month. Theoretically this can give you a
lower average cost per unit over time than a single one time purchase. However,
there are no guarantees that this will take place.
Flexible Rebalancing - Allianz Life will automatically readjust your Contract
value among the variable options to maintain your specified allocation mix. This
can be done quarterly, semi-annually or annually.
Systematic Withdrawal Program - You can elect to receive monthly or quarterly
payments from Allianz Life while your Contract is in the accumulation phase. Of
course, you may have to pay tax penalties and income taxes on the money you
receive.
Minimum Distribution Program - You can arrange to have money sent to you each
month or quarter to meet certain required distribution requirements imposed by
the Internal Revenue Code generally after age 701/2.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES
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If you have any questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
<PAGE>
THE FRANKLIN VALUEMARK CHARTER VARIABLE ANNUITY CONTRACT
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
This prospectus describes the Franklin Valuemark Charter Variable Annuity
Contract with a Fixed Account offered by Allianz Life Insurance Company of North
America (Allianz Life).
The annuity has 22 Variable Options, each of which invests in one of the
Portfolios of Franklin Valuemark Funds listed below, and a Fixed Account of
Allianz Life. You can select up to 10 investment choices (which includes any of
the Variable Options and the Fixed Account). The Fixed Account may not be
available in your state.
FRANKLIN VALUEMARK FUNDS:
PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME
Money Market Fund
PORTFOLIOS SEEKING INCOME
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Global Health Care Securities Fund
Mutual Discovery Securities Fund
Natural Resources Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Franklin Valuemark Charter Variable
Annuity Contract with a Fixed Account.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated May 1, 1999. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. The Table of Contents of the SAI is on page 19 of
this prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the SAI, material incorporated by reference and other information about
companies that file electronically with the SEC. For a free copy of the SAI,
call us at (800) 342-3863 or write us at:
1750 Hennepin Avenue, Minneapolis, Minnesota 55403-2195.
The Franklin Valuemark Charter Variable Annuity Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell these securities. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: May 1, 1999
<PAGE>
TABLE OF CONTENTS
Index of Terms 3
Fee Table 4
1. The Franklin Valuemark Charter
Variable Annuity Contract 8
Contract Owner 8
Joint Owner 8
Annuitant 8
Beneficiary 8
Assignment 8
2. Annuity Payments (The Payout Phase) 9
Annuity Options 9
3. Purchase 10
Purchase Payments 10
Automatic Investment Plan 10
Allocation of Purchase Payments 10
Free Look 10
Accumulation Units 11
4. Investment Options 11
Transfers 12
Dollar Cost Averaging Program 12
Flexible Rebalancing 13
Financial Advisers - Asset Allocation Programs 13
Voting Privileges 13
Substitution 13
5. Expenses 13
Insurance Charges 13
Mortality and Expense Risk Charge 13
Administrative Charge 14
Contract Maintenance Charge 14
Transfer Fee 14
Premium Taxes 14
Income Taxes 14
Portfolio Expenses 14
6. Taxes 14
Annuity Contracts in General 14
Qualified and Non-Qualified Contracts 15
Multiple Contracts 15
Withdrawals - Non-Qualified Contracts 15
Withdrawals - Qualified Contracts 15
Withdrawals - Tax-Sheltered Annuities 15
Diversification 16
7. Access to Your Money 16
Systematic Withdrawal Program 16
Minimum Distribution Program 16
Suspension of Payments or Transfers 16
8. Performance 17
9. Death Benefit 17
Upon Your Death 17
Death of Annuitant 18
10. Other Information 18
Allianz Life 18
Year 2000 18
The Separate Account 18
Distribution 19
Administration 19
Financial Statements 19
Table of Contents of the
Statement of Additional Information 19
<PAGE>
INDEX OF TERMS
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase 8
Accumulation Unit 11
Annuitant 8
Annuity Options 9
Annuity Payments 9
Annuity Unit 11
Beneficiary 8
Contract 8
Contract Owner 8
Fixed Account 8
Page
Income Date 9
Joint Owner 8
Non-Qualified 15
Payout Phase 8
Portfolios 11
Purchase Payment 10
Qualified 15
Tax Deferral 8
Variable Option 8
<PAGE>
FEE TABLE
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Variable Options under the Contract. The Fee
Table reflects expenses of the Separate Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Transfer Fee* First 12 transfers in a Contract year are free. Thereafter, the
fee is $25 or 2% of the amount transferred, if less. Dollar Cost Averaging
transfers and Flexible Rebalancing transfers are not counted.
CONTRACT MAINTENANCE CHARGE** $40 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Contracts withContracts with
Traditional Enhanced
Death BenefitDeath Benefit
------------------------------
Mortality and Expense Risk Charge 1.00% 1.20%
Administrative Charge .15% .15%
-----------------------------
Total Separate Account Annual Expenses 1.15% 1.35%
*The Contract provides that if more than three transfers have been made in a
Contract year, Allianz Life reserves the right to deduct a transfer fee. Market
timing transfers may not be permitted.
**During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $100,000. If you own more than one Franklin Valuemark
Charter Contract (registered with the same social security number), we will
determine the total value of all your Contracts. If the total value of all your
Contracts is at least $100,000, the charge is waived.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 2 SHARES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Portfolio Administration Fees and Total Annual Expenses for each Portfolio are based on a percentage of that
Portfolio's average net assets for the most recent fiscal year. Class 2 shares have a distribution plan which is referred to as a
Rule 12b-1 plan. See the accompanying prospectus for Franklin Valuemark Funds for a description of these fees and the Rule 12b-1
plan. While the maximum amount payable under each Portfolio's Class 2 Rule 12b-1 plan is .35% per year of the Portfolio's average
daily net assets, the Board of Trustees of Franklin Valuemark Funds has set the current rate at .30% per year. Because Class 2
shares are new, the figures below (other than 12b-1 fees) are based on the expenses of each Portfolio's Class 1 shares for the
most recent fiscal year, except as noted.
Management
and Portfolio Total Annual
Administration Fees1 12b-1 Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund .75% .30% .02% 1.07%
Global Health Care Securities Fund2 .75% .30% .09% 1.14%
Global Utilities Securities Fund .47% .30% .03% .80%
Growth and Income Fund .47% .30% .02% .79%
High Income Fund .50% .30% .03% .83%
Income Securities Fund .47% .30% .02% .79%
Money Market Fund .51% .30% .02% .83%
Mutual Discovery Securities Fund .95% .30% .05% 1.30%
Mutual Shares Securities Fund .74% .30% .03% 1.07%
Natural Resources Securities Fund .62% .30% .02% .94%
Real Estate Securities Fund .52% .30% .02% .84%
Rising Dividends Fund .70% .30% .02% 1.02%
Small Cap Fund .75% .30% .02% 1.07%
Templeton Developing Markets
Equity Fund 1.25% .30% .16% 1.71%
Templeton Global Asset
Allocation Fund .80% .30% .04% 1.14%
Templeton Global Growth Fund .83% .30% .05% 1.18%
Templeton Global Income
Securities Fund .57% .30% .06% .93%
Templeton International Equity Fund .80% .30% .08% 1.18%
Templeton International Smaller
Companies Fund 1.00% .30% .10% 1.40%
Templeton Pacific Growth Fund .99% .30% .11% 1.40%
U.S. Government Securities Fund .48% .30% .02% .80%
Value Securities Fund2 .75% .30% .08% 1.13%
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<FN>
1. The Portfolio Administration Fee is a direct expense for the Global Health Care Securities Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, and the Value Securities Fund; other Portfolios pay for similar services indirectly through the Management
Fee. See the accompanying Franklin Valuemark Funds prospectus for further information regarding these fees.
2. The Global Health Care Securities Fund and the Value Securities Fund commenced operations May 1, 1998. The expenses shown above
for these Portfolios are therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
EXAMPLES
o There are two sets of examples below. The examples in Chart 1 assume you have
selected the traditional death benefit. The examples in Chart 2 assume you have
selected the enhanced death benefit. The examples below should not be considered
a representation of past or future expenses. Actual expenses may be greater or
less than those shown.
o The $40 contract maintenance charge is included in the examples as a prorated
charge of $1. Since the average Contract size is greater than $1,000, the
contract maintenance charge is reduced accordingly.
o Premium taxes are not reflected in the tables. Premium taxes may apply.
o For additional information, see Section 5 - "Expenses" and the Franklin
Valuemark Funds prospectus.
<TABLE>
<CAPTION>
CHART 1 - CONTRACTS WITH TRADITIONAL DEATH BENEFIT OPTION
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money regardless of whether you
surrender your Contract at the end of each time period:
Variable Option 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth $24 $72 $124 $265
Global Health Care Securities* $24 $75 $128 $273
Global Utilities Securities $21 $64 $110 $237
Growth and Income $21 $64 $110 $236
High Income $21 $65 $112 $241
Income Securities $21 $64 $110 $236
Money Market $21 $65 $112 $241
Mutual Discovery Securities $26 $79 $136 $289
Mutual Shares Securities $24 $72 $124 $265
Natural Resources Securities $22 $68 $117 $252
Real Estate Securities $21 $65 $112 $242
Rising Dividends $23 $71 $121 $260
Small Cap $24 $72 $124 $265
Templeton Developing Markets Equity $30 $92 $156 $329
Templeton Global Asset Allocation $24 $75 $128 $273
Templeton Global Growth $25 $76 $130 $277
Templeton Global Income Securities $22 $68 $117 $251
Templeton International Equity $25 $76 $130 $277
Templeton International Smaller
Companies $27 $82 $141 $299
Templeton Pacific Growth $27 $82 $141 $299
U.S. Government Securities $21 $64 $110 $237
Value Securities* $24 $74 $127 $272
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHART 2 - CONTRACTS WITH ENHANCED DEATH BENEFIT OPTION
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money regardless of whether you
surrender your Contract at the end of each time period:
Variable Option 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth $26 $78 $134 $286
Global Health Care Securities* $26 $81 $138 $293
Global Utilities Securities $23 $70 $120 $258
Growth and Income $23 $70 $120 $257
High Income $23 $71 $122 $261
Income Securities $23 $70 $120 $257
Money Market $23 $71 $122 $261
Mutual Discovery Securities $28 $85 $146 $308
Mutual Shares Securities $26 $78 $134 $286
Natural Resources Securities $24 $75 $128 $273
Real Estate Securities $23 $72 $122 $262
Rising Dividends $25 $77 $132 $281
Small Cap $26 $78 $134 $286
Templeton Developing Markets Equity $32 $98 $166 $347
Templeton Global Asset Allocation $26 $81 $138 $293
Templeton Global Growth $27 $82 $140 $297
Templeton Global Income Securities $24 $74 $127 $272
Templeton International Equity $27 $82 $140 $297
Templeton International Smaller
Companies $29 $88 $150 $318
Templeton Pacific Growth $29 $88 $150 $318
U.S. Government Securities $23 $70 $120 $258
Value Securities* $26 $80 $137 $292
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
1. THE FRANKLIN VALUEMARK CHARTER VARIABLE ANNUITY CONTRACT
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This prospectus describes a variable deferred annuity contract with a Fixed
Account offered by Allianz Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Allianz Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is at least two years in the
future. Until you decide to begin receiving Annuity Payments, your annuity is in
the Accumulation Phase. Once you begin receiving Annuity Payments, your Contract
switches to the Payout Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
You have 23 investment choices - the 22 Variable Options each of which invests
in one of the Portfolios of Franklin Valuemark Funds and the Fixed Account of
Allianz Life. The Contract is called a variable annuity because you can choose
among 22 Variable Options and, depending upon market conditions, you can make or
lose money in the Contract based on the investment performance of the Portfolios
of Franklin Valuemark Funds. The Portfolios are designed to offer a better
return than the Fixed Account. However, this is not guaranteed. If you select
the variable annuity portion of the Contract, the amount of money you are able
to accumulate in your Contract during the Accumulation Phase depends in large
part upon the investment performance of the Portfolio(s) you select. The amount
of the Annuity Payments you receive during the Payout Phase from the variable
annuity portion of the Contract also depends in large part upon the investment
performance of the Portfolios you select for the Payout Phase.
The Contract also contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by Allianz Life for all deposits you make within a
twelve month period. Your initial interest rate is set on the date when your
money is invested in the Fixed Account and remains effective for one year.
Initial interest rates are declared monthly. Allianz Life guarantees that the
interest credited to the Fixed Account will not be less than 3% per year. If you
select the Fixed Account, your money will be placed with the other general
assets of Allianz Life. Allianz Life may change the terms of the Fixed Account
in the future - please contact Allianz Life for the most current terms.
If you select the Fixed Account, the amount of money you are able to accumulate
in your Contract during the Accumulation Phase depends upon the total interest
credited to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Any Joint Owner must be the spouse of
the other Contract Owner (except in Pennsylvania, Oregon and New Jersey). Upon
the death of either Joint Owner, the surviving Joint Owner will be the
designated Beneficiary. Any other Beneficiary designation at the time the
Contract was issued or as may have been later changed will be treated as a
contingent Beneficiary unless otherwise indicated.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership (assign) the Contract at any time during your
lifetime. Allianz Life will not be bound by the assignment until it receives the
written notice of the assignment. Allianz Life will not be liable for any
payment or other action we take in accordance with the Contract before we
receive notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. AN ASSIGNMENT MAY BE A
TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, you may be unable to
assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- --------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 years after you buy the Contract. You can also choose among income
plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the Annuitant's 85th birthday or 10 years (5 years in
Pennsylvania) from the date the Contract was issued, whichever is later. This
limitation may not apply when the Contract is issued to a charitable remainder
trust. You (or someone you designate) will receive the Annuity Payments. You
will receive tax reporting on those payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available Variable Options. If you do
not tell us otherwise, your Annuity Payments will be based on the investment
allocations that were in place on the Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Variable Option(s), the dollar amount of your
payments will depend upon three things:
1) the value of your Contract in the Variable Option(s) on the Income Date,
2) the assumed investment rate (AIR) used in the annuity table for the Contract,
and
3) the performance of the Variable Option(s) you selected.
You can choose a 3%, 5% or 7% AIR in most states. If the actual performance
exceeds the 3%, 5% or 7% AIR you selected, your Annuity Payments will increase.
Similarly, if the actual rate is less than 3%, 5% or 7% (you selected), your
Annuity Payments will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Allianz Life agrees to provide. After Annuity Payments begin,
you cannot change the Annuity Option. If you do not choose an Annuity Option
prior to the Income Date, we will assume that you selected Option 2 which
provides a life annuity with 5 years of guaranteed payments.
OPTION 1. Life Annuity. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. Life Annuity with 5, 10, 15 or 20 Year Payments Guaranteed. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if the Annuitant dies before the end of the selected guaranteed period,
we will continue to make Annuity Payments to you or any person you designate for
the rest of the guaranteed period. If you do not want to receive Annuity
Payments after the Annuitant's death, you can ask us for a single lump sum.
OPTION 3. Joint and Last Survivor Annuity. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments so long as the joint Annuitant
continues to live. The amount of the Annuity Payments we will make to the
Contract Owner can be equal to 100%, 75% or 50% of the amount that was being
paid when both Annuitants were alive. The monthly Annuity Payments will end when
the last surviving Annuitant dies.
OPTION 4. Joint and Last Survivor Annuity with 5, 10, 15 or 20 Year Payments
Guaranteed. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that was being paid when both were alive. If, when the last death occurs,
we have made Annuity Payments for less than the selected guaranteed period, we
will continue to make Annuity Payments to you or any person you designate for
the rest of the guaranteed period. If you do not want to receive Annuity
Payments after the Annuitant's death, you can ask us for a single lump sum.
OPTION 5. Refund Life Annuity. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies and if the value of the Annuity Payments made is less
than the value applied to the Annuity Option, then you will receive a refund as
set forth in the Contract.
3. PURCHASE
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PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. The minimum payment
Allianz Life will accept is $25,000. The maximum amount we will accept without
our prior approval is $1 million. You can make additional Purchase Payments of
$250 or more (or as low as $100 if you have selected the Automatic Investment
Plan). Allianz Life may, at its sole discretion, waive the minimum payment
requirements. We reserve the right to decline any Purchase Payment. At the time
you buy the Contract, you and the Annuitant cannot be older than 85 years old.
This product is not designed for professional market timing organizations, other
entities, or persons using programmed, large or frequent transfers.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Account and/or one or more of the Variable Options you have selected. We
ask that you allocate your money in either whole percentages or round dollars.
The Fixed Account may not be available in your state (check with your registered
representative). Transfers do not change the allocation instructions for
payments. You can instruct us how to allocate additional Purchase Payments you
make. If you do not instruct us, we will allocate them in the same way as your
previous instructions to us. You may change the allocation of future payments
without fee, penalty or other charge upon written notice or telephone
instructions to the Valuemark Service Center. A change will be effective for
payments received on or after we receive your notice or instructions. Allianz
Life reserves the right to limit the number of Variable Options that you may
invest in at one time. Currently, you may invest in up to 10 investment choices
at any one time (which includes any of the 22 Variable Options which invest in
the Portfolios of Franklin Valuemark Funds listed in Section 4 and the Allianz
Life Fixed Account). We may change this in the future. However, we will always
allow you to invest in at least five Variable Options.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not give us all of the information we need, we will contact you
or your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it (or the period required in your state). You will receive
back whatever your Contract is worth on the day we receive your request. In
certain states, or if you have purchased the Contract as an IRA, we may be
required to give you back your Purchase Payment if you decide to cancel your
Contract within 10 days after receiving it (or whatever period is required in
your state). If that is the case, we reserve the right to allocate your initial
Purchase Payment to the Money Market Fund for 15 days after we receive it. (In
some states, the period may be longer.) At the end of that period, we will
re-allocate your money as you selected. Currently, however, we will directly
allocate your money to the Variable Options and/or the Fixed Account as you have
selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down based upon the investment performance of the Variable Options you
choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract, we use a
measurement called an Accumulation Unit (which is like a share of a mutual
fund). During the Payout Phase of the Contract we call it an Annuity Unit.
Every business day we determine the value of an Accumulation Unit for each
Variable Option by multiplying the Accumulation Unit value for the previous
period by a factor for the current period. The factor is determined by:
1. dividing the value of a Portfolio at the end of the current period by the
value of a Portfolio for the previous period; and
2. multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation Units credited is determined by dividing the amount
of the Purchase Payment allocated to a Variable Option by the value of the
corresponding Accumulation Unit.
We calculate the value of each Accumulation Unit after the New York Stock
Exchange closes each day and then credit your Contract.
EXAMPLE:
On Wednesday we receive an additional Purchase Payment of $3,000 from you. You
have told us you want this to go to the Growth and Income Fund. When the New
York Stock Exchange closes on that Wednesday, we determine that the value of an
Accumulation Unit based on an investment in the Growth and Income Fund is
$12.50. We then divide $3,000 by $12.50 and credit your Contract on Wednesday
night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
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The Contract offers Variable Options, which invest in Class 2 shares of 22
Portfolios of Franklin Valuemark Funds. The Contract also offers a Fixed Account
of Allianz Life. Additional Portfolios may be available in the future.
You should read the Franklin Valuemark Funds prospectus (which is attached to
this prospectus) carefully before investing.
Franklin Valuemark Funds (Trust) is the mutual fund underlying your Contract.
Each Portfolio has its own investment objective. The Trust issues two classes of
shares which are described in the attached Trust prospectus. Only Class 2 shares
are available in connection with the Franklin Valuemark Charter Variable Annuity
Contract. Class 2 shares have Rule 12b-1 plan expenses. Investment managers for
each Portfolio are listed in the table below and are as follows: Franklin
Advisers, Inc. (FA), Franklin Advisory Services, LLC (FAS), Franklin Mutual
Advisers, LLC (FMA), Templeton Asset Management Ltd. (TAM), Templeton Global
Advisors Limited (TGA), and Templeton Investment Counsel, Inc. (TIC). Certain
managers have retained one or more affiliated subadvisers to help them manage
the Portfolios.
The following is a list of the Portfolios available under the Contract:
Investment
Available Portfolios Managers
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PORTFOLIO SEEKING
CAPITAL PRESERVATION AND INCOME
Money Market Fund FA
PORTFOLIOS SEEKING INCOME
High Income Fund FA
Templeton Global Income Securities Fund FA
U.S. Government Securities Fund FA
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund FA
Growth and Income Fund FA
Income Securities Fund FA
Mutual Shares Securities Fund FMA
Real Estate Securities Fund FA
Rising Dividends Fund FAS
Templeton Global Asset Allocation Fund TGA
Value Securities Fund FAS
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund FA
Global Health Care Securities Fund FA
Mutual Discovery Securities Fund FMA
Natural Resources Securities Fund FA
Small Cap Fund FA
Templeton Developing Markets Equity Fund TAM
Templeton Global Growth Fund TGA
Templeton International Equity Fund FA
Templeton International Smaller Companies Fund TIC
Templeton Pacific Growth Fund FA
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Allianz Life and other variable annuity contracts
offered by Allianz Life and its affiliates. Franklin Valuemark Funds believes
that offering its shares in this manner will not be disadvantageous to you.
TRANSFERS
You can transfer money among the 22 Variable Options and/or the Fixed Account.
Allianz Life currently allows you to make as many transfers as you want to each
year. Allianz Life may change this practice in the future. However, this product
is not designed for professional market timing organizations or other persons
using programmed, large, or frequent transfers. Such activity may be disruptive
to a Portfolio. We reserve the right to reject any specific Purchase Payment
allocation or transfer request from 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.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Allianz Life permits you to make 12 transfers every year
without charge. We measure a year from the anniversary of the day we issued your
Contract. You can make a transfer to or from the Fixed Account and to or from
any Variable Option. If you make more than 12 transfers in a year, there is a
transfer fee deducted. The fee is $25 per transfer or, if less, 2% of the amount
transferred. The following applies to any transfer:
1. The minimum amount which you can transfer is $1,000 or your entire value in
the Variable Option or Fixed Account, if less. This requirement is waived if the
transfer is in connection with the Dollar Cost Averaging Program or Flexible
Rebalancing (which are described below).
2. We may not allow you to make transfers during the free look period.
3. Your request for a transfer must clearly state which Variable Option(s) or
the Fixed Account is involved in the transfer.
4. Your request for a transfer must clearly state how much the transfer is for.
5. You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6. During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7. During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Allianz Life has reserved the right to modify the transfer provisions subject to
the guarantees described above and subject to applicable state law.
You can make transfers by telephone. We may allow you to authorize someone else
to make transfers by telephone on your behalf. If you own the Contract with a
Joint Owner, unless Allianz Life is instructed otherwise, Allianz Life will
accept instructions from either one of you. Allianz Life will use reasonable
procedures to confirm that instructions given to us by telephone are genuine. If
we do not use such procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions. Allianz Life tape records all telephone
instructions.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options. The Variable Option(s) you
transfer from may not be the Variable Option(s) you transfer to in this program.
By allocating amounts on a regularly scheduled basis, as opposed to allocating
the total amount at one particular time, you may be less susceptible to the
impact of market fluctuations. You may only participate in this program during
the Accumulation Phase.
Dollar Cost Averaging requires a $3,000 minimum investment and participation for
at least six months (or two quarters). All Dollar Cost Averaging transfers will
be made on the 10th day of the month unless that day is not a business day. If
it is not, then the transfer will be made the next business day. You may elect
this program by properly completing the Dollar Cost Averaging form provided by
Allianz Life.
Your participation in the program will end when any of the following occurs:
(1) the number of desired transfers have been made;
(2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be
transferred under the program and the program will end);
(3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
(4) the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the Variable Options may
cause your chosen allocation to shift. Flexible Rebalancing is designed to help
you maintain your specified allocation mix among the different Variable Options.
You can direct us to readjust your Contract value on a quarterly, semi-annual or
annual basis to return to your original Variable Option allocations. Flexible
Rebalancing transfers will be made on the 20th day of the month unless that day
is not a business day. If it is not, then the transfer will be made on the
previous day.
If you participate in Flexible Rebalancing, the transfers made under the program
are not taken into account in determining any transfer fee. The Fixed Account is
not permitted to be part of Flexible Rebalancing.
FINANCIAL ADVISERS -
ASSET ALLOCATION PROGRAMS
Allianz Life understands the importance of advice from a financial adviser
regarding your investments in the Contract (asset allocation program). Certain
investment advisers have made arrangements with us to make their services
available to you. Allianz Life has not made any independent investigation of
these advisers and is not endorsing such programs. You may be required to enter
into an advisory agreement with your investment adviser to have the fees paid
out of your Contract during the Accumulation Phase.
Allianz Life will, pursuant to an agreement with you, make a partial withdrawal
from the value of your Contract to pay for the services of the investment
adviser. If the Contract is Non-Qualified, the withdrawal will be treated like
any other distribution and may be included in gross income for federal tax
purposes and, if you are under age 591/2, may be subject to a tax penalty. If
the Contract is Qualified, the withdrawal for the payment of fees may not be
treated as a taxable distribution if certain conditions are met. You should
consult a tax adviser regarding the tax treatment of the payment of investment
adviser fees from your Contract.
VOTING PRIVILEGES
Allianz Life is the legal owner of the Trust's Class 2 Portfolio shares.
However, when a Portfolio solicits proxies in conjunction with a shareholder
vote which affects your investment, Allianz Life will obtain from you and other
affected Contract Owners instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares that Allianz Life owns
on its own behalf. Should Allianz Life determine that it is no longer required
to comply with the above, we will vote the shares in our own right.
SUBSTITUTION
Allianz Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
5. EXPENSES
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There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Allianz Life makes a deduction for its insurance charges. Allianz Life
does this as part of its calculation of the value of the Accumulation Units and
the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative charge.
Mortality and Expense Risk Charge. The amount of the Mortality and Expense Risk
Charge for your Contract depends upon the death benefit option you select when
you buy the Contract. If you choose the traditional death benefit option, this
charge is equal, on an annual basis, to 1.00% of the average daily value of the
Contract invested in a Variable Option, after the deduction of expenses. If you
choose the enhanced death benefit option, this charge is equal, on an annual
basis, to 1.20% of the average daily value of the Contract invested in a
Variable Option, after the deduction of expenses. This charge compensates us for
all the insurance benefits provided by your Contract (for example, our
contractual obligation to make Annuity Payments, the death benefits, certain
expenses related to the Contract, and for assuming the risk (expense risk) that
the current charges will be insufficient in the future to cover the cost of
administering the Contract).
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Variable Option, after the
deduction of expenses. This charge, together with the contract maintenance
charge (which is explained below), is for all the expenses associated with the
administration of the Contract. Some of these expenses include: preparation of
the Contract, confirmations, annual statements, maintenance of Contract records,
personnel costs, legal and accounting fees, filing fees, and computer and
systems costs.
CONTRACT MAINTENANCE CHARGE
Every year, at each Contract anniversary, Allianz Life deducts $40 from your
Contract as a contract maintenance charge. The fee is assessed on the last day
of each Contract year. (In South Carolina, if your Contract is in force on the
20th Contract anniversary, we will waive the contract maintenance charge that is
to be deducted after the 20th Contract anniversary). This charge is for
administrative expenses (see above). This charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $100,000 when the deduction for the charge is to be made, Allianz Life
will not deduct this charge. If you own more than one Franklin Valuemark Charter
Contract, Allianz Life will determine the total value of all your Franklin
Valuemark Charter Contracts. If the total value of all Franklin Valuemark
Charter Contracts registered under the same social security number is at least
$100,000, Allianz Life will not assess the contract maintenance charge. If the
Contract is owned by a non-natural person (e.g., a corporation), Allianz Life
will look to the Annuitant to determine if it will assess the charge.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, the charge will be
collected monthly out of each Annuity Payment.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer. If the transfer is part of the Dollar Cost
Averaging Program or Flexible Rebalancing, it will not count in determining the
transfer fee.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Allianz Life is responsible for the payment of
these taxes and will make a deduction from the value of the Contract for them.
Some of these taxes are due when the Contract is issued, others are due when
Annuity Payments begin. It is Allianz Life's current practice to not charge you
for these taxes until you die, Annuity Payments begin or you make a complete
withdrawal. Allianz Life may, some time in the future, discontinue this practice
and assess the charge when the tax is due. Premium taxes generally range from 0%
to 3.5% of the Purchase Payment, depending on the state.
INCOME TAXES
Allianz Life reserves the right to deduct from the Contract for any income taxes
which it may incur because of the Contract. Currently, Allianz Life is not
making any such deductions.
PORTFOLIO EXPENSES
There are deductions from the assets of the various Portfolios for operating
expenses (including management fees), which are described in the Fee Table in
this prospectus and the accompanying prospectus for Franklin Valuemark Funds.
6. TAXES
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Note: Allianz Life has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice. You should consult
your own tax adviser about your own circumstances. Allianz Life has included
additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity Payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes. This means that the Contract may not receive the
benefits of Tax Deferral. Income may be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts) and pension and profit-sharing plans, which include 401(k)
plans and H.R. 10 plans. If you do not purchase the Contract under a Qualified
plan, your Contract is referred to as a Non-Qualified Contract.
MULTIPLE CONTRACTS
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year period to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange. You
should consult a tax adviser prior to purchasing more than one Non-Qualified
annuity contract in any calendar year period.
WITHDRAWALS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Purchase Payments. In most
cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 591/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined in
the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of withdrawals from Qualified Contracts is
contained in the Statement of Additional Information.
WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of Purchase Payments made by Contract Owners from
certain Tax-Sheltered Annuities. Withdrawals can only be made when a Contract
Owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship. However, in the case of hardship, the Contract
Owner can only withdraw the Purchase Payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Allianz Life believes that the Portfolios are being managed so
as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Allianz Life,
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent under federal tax
law Contract Owners are permitted to select Portfolios, to make transfers among
the Portfolios or the number and type of Portfolios Contract Owners may select
from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
owner of the Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Allianz Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
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You can have access to the money in your Contract:
(1) by making a withdrawal (either a partial or a total withdrawal);
(2) by receiving Annuity Payments; or
(3) when a death benefit is paid to your Beneficiary.
Withdrawals can only be made during the Accumulation Phase.
When you make a complete withdrawal you will receive the value of the Contract
on the day you made the withdrawal, less any premium tax and less any contract
maintenance charge. (See Section 5 - "Expenses" for a discussion of the
charges.)
Any partial withdrawal must be for at least $500 and, unless you instruct
Allianz Life otherwise, will be made pro-rata from all the Variable Options and
the Fixed Account you selected. Allianz Life requires that after you make a
partial withdrawal the value of your Contract must be at least $5,000.
We will pay the amount of any withdrawal from the Variable Options within seven
(7) days of when we receive your request in good order unless the Suspension of
Payments or Transfers provision is in effect (see below).
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
There are limits to the amount you can withdraw from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6 - "Taxes" and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
Allianz Life offers a program which provides automatic monthly or quarterly
payments to you each year. All systematic withdrawals will be made on the 9th
day of the month unless that day is not a business day. If it is not, then the
withdrawal will be made the previous business day.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Allianz Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Allianz Life will make payments to you on a
monthly or quarterly basis.
SUSPENSION OF PAYMENTS OR TRANSFERS
Allianz Life may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio shares is
not reasonably practicable or Allianz Life cannot reasonably value the Portfolio
shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Allianz Life has reserved the right to defer payment for a withdrawal or
transfer from the Fixed Account for the period permitted by law but not for more
than six months.
8. PERFORMANCE
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Allianz Life periodically advertises performance of the Variable Options.
Allianz Life will calculate performance by determining the percentage change in
the value of an Accumulation Unit by dividing the increase (decrease) for that
unit by the value of the Accumulation Unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges and the
Portfolio expenses. It may not reflect the deduction of any applicable contract
maintenance charge. The deduction of any applicable contract maintenance charge
would reduce the percentage increase or make greater any percentage decrease.
Any advertisement will also include average annual total return figures which
reflect the deduction of the insurance charges, contract maintenance charge and
the expenses of the Portfolios. Allianz Life may also advertise cumulative total
return information. Cumulative total return is determined the same way except
that the results are not annualized. Performance information for the underlying
Portfolios may also be advertised; see the Franklin Valuemark Funds prospectus
for more information.
Certain Portfolios have been in existence for some time and have investment
performance history. However, the Contracts are new. In order to demonstrate how
the historical investment experience of the Portfolios may affect your
Accumulation Unit values, Allianz Life has prepared performance information
which can be found in the SAI. There is performance shown which is based on the
historical performance of the Portfolios' Class 1 shares, modified to reflect
the current charges and expenses of your Contract as if the Contract had been in
existence for the time periods shown. Class 2 shares are new and currently have
Rule 12b-1 plan expenses of .30% per year which will affect future performance.
The information is based upon the historical experience of the Portfolios' Class
1 shares and does not represent past performance or predict future performance.
Allianz Life may in the future also advertise yield information. If it does, it
will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data and does not
guarantee future results of the Portfolios.
9. DEATH BENEFIT
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UPON YOUR DEATH
If you die during the Accumulation Phase, Allianz Life will pay a death benefit
to your Beneficiary (see below). No death benefit is paid if you die during the
Payout Phase.
The amount of the death benefit depends upon which death benefit option you
select. You must choose a death benefit option (traditional death benefit or
enhanced death benefit) when you purchase the Contract. Once selected, you
cannot change the death benefit option. The Mortality and Expense Risk Charge
for Contracts with the enhanced death benefit option is higher than for
Contracts with the traditional death benefit option.
If you select the traditional death benefit option, the amount of the death
benefit will be the greater of:
(1) the value of your Contract, less any applicable premium taxes; or
(2) any payments you have made, less any withdrawals and applicable premium
taxes.
If you select the enhanced death benefit option, the amount of the death benefit
will be the greater of:
(1) the value of your Contract, less any applicable premium taxes; or
(2) the guaranteed minimum death benefit, less any applicable premium taxes.
The guaranteed minimum death benefit is the greater of:
(a) the sum of all payments you have made, less any withdrawals; or
(b) the greatest value of your Contract Anniversaries prior to your 86th
birthday (your Contract Anniversaries equal the value of your Contract on a
Contract anniversary, increased by the amount of any payments you have made
since that anniversary, less the amount of any withdrawals you have made since
that anniversary).
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts withdrawn after the date of death. If the
Contract is owned by a non-natural person, then all references to you mean the
Annuitant.
The death benefits described above may not be available in your state. In
addition, only one of the options may be approved in your state. If neither
death benefit is available, the death benefit will be equal to the value of your
Contract (less any premium taxes) on the close of the business day that Allianz
Life receives proof of the death and payment instructions.
In the case of Joint Owners, if a Joint Owner dies, the surviving Joint Owner
will be considered the Beneficiary. Joint Owners must be spouses (except in
Pennsylvania, Oregon and New Jersey).
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) payment of the entire death benefit within 5 years of the date of
death; or (2) payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. If the Beneficiary is
the spouse of the Contract Owner, he/she can choose to continue the Contract in
his/her own name at the then current value, or if greater, the death benefit
value. If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from some states, are met, the payment will
be made within 7 days. Payment of the death benefit may be delayed pending
receipt of any applicable tax consents and/or forms from a state.
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If a new Annuitant is not
named within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
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ALLIANZ LIFE
Allianz Life Insurance Company of North America (Allianz Life), 1750 Hennepin
Avenue, Minneapolis, Minnesota 55403, was organized under the laws of the state
of Minnesota in 1896. Allianz Life offers fixed and variable life insurance and
annuities and group life, accident and health insurance. Allianz Life is
licensed to do business in 49 states and the District of Columbia. Allianz Life
is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
YEAR 2000
Allianz Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. These costs are expensed as
incurred and total costs are not expected to have a significant effect on
Allianz Life's financial position or results of operations. Allianz Life
believes it is taking steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Allianz Life will be adequate to
avoid any adverse impact.
THE SEPARATE ACCOUNT
Allianz Life established a separate account named Allianz Life Variable Account
B (Separate Account), to hold the assets that underlie the Contracts, except
assets allocated to the Fixed Account. The Board of Directors of Allianz Life
adopted a resolution to establish the Separate Account under Minnesota insurance
law on May 31, 1985. Allianz Life has registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into Variable
Options (also known as sub-accounts). Each Variable Option invests in one Class
of shares of a Portfolio.
The assets of the Separate Account are held in Allianz Life's name on behalf of
the Separate Account and legally belong to Allianz Life. However, those assets
that underlie the variable Contracts are not chargeable with liabilities arising
out of any other business Allianz Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Allianz Life
may issue.
DISTRIBUTION
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is a wholly-owned subsidiary of
Allianz Life. NFP has subcontracted with Franklin Advisers, Inc. for it and/or
certain of its affiliates to provide certain marketing support services and NFP
compensates these entities for their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 2.00% of Purchase Payments and
quarterly trail commissions at an annual rate of 1% beginning 13 months after
the Contract is issued. In addition, Allianz Life and Franklin Advisers, Inc.
and/or their affiliates may pay certain sellers for other services not directly
related to the sale of the Contracts (such as special marketing support
allowances). Commissions may be recovered from a broker-dealer if a withdrawal
occurs within 12 months of a Purchase Payment.
ADMINISTRATION
Allianz Life has hired Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, to perform certain administrative services
regarding the Contracts. The administrative services include issuance of the
Contracts and maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The consolidated financial statements of Allianz Life and the Separate Account
have been included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Calculation of Performance Data 2
Federal Tax Status 6
Annuity Provisions 11
Mortality and Expense Risk Guarantee 11
Financial Statements 11
This page intentionally left blank
PART B
STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN VALUEMARK CHARTER
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
May 1, 1999
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT:
1750 Hennepin Avenue, Minneapolis, MN 55403-2195,
(800) 342-3863.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1999, AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
Contents Page
Insurance Company ............................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Calculation of Performance Data ................. 2
Federal Tax Status .............................. 6
Annuity Provisions .............................. 11
Mortality and Expense Risk Guarantee ............ 11
Financial Statements ............................ 11
SAI 05/99
Insurance Company
- -------------------------------------------------------------------------------
Allianz Life Insurance Company of North America (the "Insurance Company") is a
stock life insurance company organized under the laws of the state of Minnesota
in 1896. The Insurance Company is a wholly-owned subsidiary of Allianz
Versicherungs-AG Holding ("Allianz"). Allianz is headquartered in Munich,
Germany, and has sales outlets throughout the world. The Insurance Company
offers fixed and variable life insurance and annuities, and group life, accident
and health insurance. On April 1, 1993, the Insurance Company changed its name
from North American Life and Casualty Company to its present name.
The Insurance Company is rated A+ (Superior) by A.M. BEST, an independent
analyst of the insurance industry. The financial strength of an insurance
company may be relevant insofar as the ability of a company to make fixed
annuity payments from its general account.
Experts
- --------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the Insurance Company as of and for the year ended
December 31, 1998 included in this Statement of Additional Information have been
audited by KPMG Peat Marwick LLP, independent auditors, as indicated in their
reports included in this Statement of Additional Information and are included
herein in reliance upon such reports and upon the authority of said firm as
experts in accounting and auditing.
Legal Opinions
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
Distributor
- --------------------------------------------------------------------------------
NALAC Financial Plans, LLC, a subsidiary of the Insurance Company, acts as the
distributor. The offering is on a continuous basis.
Calculation of Performance Data
- --------------------------------------------------------------------------------
Total Return
From time to time, the Insurance Company may advertise the performance data for
the Contract's accumulation unit values in sales literature, advertisements,
personalized hypothetical illustrations, and Contract Owner communications. Such
data will show the percentage change in the value of an accumulation unit based
on the performance of a Portfolio over a stated period of time which is
determined by dividing the increase (or decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of the Mortality and Expense Risk Charge, the
Administrative Charge, the operating expenses of the underlying Portfolios'
Class 2 shares and any applicable Contract Maintenance Charge ("Standardized
Total Return"). Two sets of standardized total returns will be presented (one
calculated with a 1.00% Mortality and Expense Risk Charge and the other with a
1.20% Mortality and Expense Risk Charge). The Contract Maintenance Charge
deductions are calculated assuming a Contract is surrendered at the end of the
reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contract Maintenance
Charges to arrive at the ending hypothetical value. The average annual total
return is then determined by computing the fixed interest rate that a $1,000
purchase payment would have to earn annually, compounded annually, to grow to
the hypothetical value at the end of the time periods described. The formula
used in these calculations is:
P(1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the Contract Maintenance Charge. The Insurance Company may also
advertise cumulative and average total return information over different periods
of time. The Company may also present performance information computed on a
different basis ("Non-Standardized Total Return").
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
Yield
The Money Market Sub-Account. The Insurance 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 Charge, the Contract Maintenance Charge and the
expenses of the underlying Portfolios' Class 2 shares and, in certain instances,
the value of the underlying Portfolio's investment securities. The fact that the
Portfolio's current yield will fluctuate and that the principal is not
guaranteed should be taken into consideration when using the Portfolio's current
yield as a basis for comparison with savings accounts or other fixed-yield
investments. The yield at any particular time is not indicative of what the
yield may be at any other time.
The Money Market Sub-Account's current yield will be computed on a base period
return of a hypothetical Contract having a beginning balance of one accumulation
unit for a particular period of time (generally seven days). The return will be
determined by dividing the net change (exclusive of any capital changes) in such
accumulation unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change will reflect the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the Mortality and Expense Risk Charge, the Administrative
Charge and Contract Maintenance Charge. The effective yield will reflect 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 12/31/98, the Money Market Sub-Account had a
current yield of 3.63% and an effective yield of 3.70% for contracts with the
traditional death benefit and a current yield of 3.43% and an effective yield of
3.49% for contracts with the enhanced death benefit. The yield information
assumes that the Sub-Account was invested in the Money Market Fund for the time
period shown. Because the Portfolios' Class 2 shares are new, the yield is based
on the historical yield of the Portfolios' Class 1 shares. Class 2 shares have
12b-1 plan expenses currently equal to .30% per year which will affect future
yields.
Other Sub-Accounts. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Sub-Accounts. Each Sub-Account
(other than the Money Market Sub-Account) will publish standardized total return
information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
----
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements, if applicable);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume no sales load. The
Insurance Company does not currently advertise yield information for any
Portfolio (other than the Money Market Fund).
Performance Ranking
Total return may be compared to relevant indices, including U.S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS(R). From time to time, evaluation of performance by
independent sources may also be used.
Performance Information
Franklin Valuemark Funds - Existing Portfolios. The Portfolios of Franklin
Valuemark Funds have been in existence for some time and have investment
performance history. In order to show how investment performance of the
Portfolios affects accumulation unit values, the following performance
information was developed.
The charts below show accumulation unit performance which assume that the
accumulation units were invested in each of the Portfolios for the same periods.
Because the Portfolios' Class 2 shares (in which the Contract invests) are new,
the performance below is based on the historical performance of the Portfolios'
Class 1 shares. Class 2 shares have Rule 12b-1 plan expenses currently equal to
.30% per year, which will affect future performance. The performance figures in
Chart I represent performance figures for the accumulation units which reflect
the deduction of the Mortality and Expense Risk Charge of 1.00% (for Contracts
with the traditional death benefit option), the Administrative Charge, and the
operating expenses of the Portfolios. Chart II presents performance figures for
the accumulation units which are identical to Chart I except the Mortality and
Expense Risk Charge is calculated as 1.20% (for Contracts with the enhanced
death benefit option). Chart III represents performance figures for the
accumulation units which reflects the Mortality and Expense Risk Charge (of
1.00%), the Administrative Charge, the Contract Maintenance Charge and the
operating expenses of the Portfolios. Chart IV presents performance figures for
the accumulation units which are identical to Chart III except the Mortality and
Expense Risk Charge is calculated as 1.20%. Past performance does not guarantee
future results.
<PAGE>
<TABLE>
<CAPTION>
Total Return for the periods ended December 31, 1998:
Chart I - Contracts with traditional death benefit
(reflects mortality and expense risk charge, administrative charge and portfolio expenses.)
Portfolio
Inception Since
Variable Option Date One Year Three Years Five Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.92% N/A N/A 18.36%
Global Health Care Securities 5/1/98 N/A N/A N/A 9.54%
Global Utilities Securities 1/24/89 9.92% 13.39% 10.60% 11.31%
Growth and Income 1/24/89 7.09% 15.14% 14.19% 10.46%
High Income 1/24/89 -0.23% 7.39% 7.22% 8.12%
Income Securities 1/24/89 0.48% 8.56% 7.48% 9.98%
Money Market+ 1/24/89 4.02% 4.00% 3.84% 3.98%
Mutual Discovery Securities 11/8/96 -6.08% N/A N/A 5.80%
Mutual Shares Securities 11/8/96 -1.06% N/A N/A 8.45%
Natural Resources Securities 1/24/89 -26.23% -15.31% -9.85% -1.37%
Real Estate Securities 1/24/89 -17.77% 8.81% 8.77% 9.06%
Rising Dividends 1/27/92 5.70% 19.49% 15.72% 11.70%
Small Cap 11/1/95 -2.11% N/A N/A 12.97%
Templeton Developing Markets Equity 3/15/94 -22.51% -5.63% N/A -4.32%
Templeton Global Asset Allocation 5/1/95 -1.18% 8.93% N/A 8.98%
Templeton Global Growth 3/15/94 7.73% 13.16% N/A 11.00%
Templeton Global Income Securities 1/24/89 5.86% 5.14% 4.36% 6.30%
Templeton International Equity 1/27/92 4.36% 11.88% 8.83% 9.50%
Templeton International Smaller Companies 5/1/96 -13.28% N/A N/A -2.19%
Templeton Pacific Growth 1/27/92 -14.13% -15.79% -10.49% -2.79%
U.S. Government Securities 3/14/89 6.21% 5.54% 5.55% 7.04%
Value Securities 5/1/98 N/A N/A N/A -31.96%
<FN>
Calculated with waiver of fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Chart II - Contracts with enhanced death benefit
(reflects mortality and expense risk charge, administrative charge and portfolio expenses.)
Portfolio
Inception Since
Variable Option Date One Year Three Years Five Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.68% N/A N/A 18.12%
Global Health Care Securities 5/1/98 N/A N/A N/A 9.32%
Global Utilities Securities 1/24/89 9.70% 13.16% 10.38% 11.09%
Growth and Income 1/24/89 6.88% 14.91% 13.96% 10.24%
High Income 1/24/89 -0.43% 7.18% 7.01% 7.91%
Income Securities 1/24/89 0.28% 8.34% 7.27% 9.76%
Money Market+ 1/24/89 3.81% 3.80% 3.63% 3.78%
Mutual Discovery Securities 11/8/96 -6.27% N/A N/A 5.59%
Mutual Shares Securities 11/8/96 -1.25% N/A N/A 8.23%
Natural Resources Securities 1/24/89 -26.38% -15.48% -10.03% -1.57%
Real Estate Securities 1/24/89 -17.93% 8.59% 8.55% 8.84%
Rising Dividends 1/27/92 5.49% 19.25% 15.49% 11.48%
Small Cap 11/1/95 -2.31% N/A N/A 12.75%
Templeton Developing Markets Equity 3/15/94 -22.66% -5.82% N/A -4.51%
Templeton Global Asset Allocation 5/1/95 -1.38% 8.72% N/A 8.77%
Templeton Global Growth 3/15/94 7.51% 12.94% N/A 10.78%
Templeton Global Income Securities 1/24/89 5.65% 4.93% 4.15% 6.09%
Templeton International Equity 1/27/92 4.15% 11.66% 8.62% 9.28%
Templeton International Smaller Companies 5/1/96 -13.45% N/A N/A -2.38%
Templeton Pacific Growth 1/27/92 -14.30% -15.96% -10.66% -2.98%
U.S. Government Securities 3/14/89 6.00% 5.33% 5.34% 6.83%
Value Securities 5/1/98 N/A N/A N/A -32.10%
<FN>
Calculated with waiver of fees.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Chart III - Contracts with traditional death benefit
(reflects mortality and expense risk charge, administrative charge, contract
maintenance charge and portfolio expenses.)
Portfolio
Inception Since
Variable Option Date One Year Three Years Five Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.82% N/A N/A 18.26%
Global Health Care Securities 5/1/98 N/A N/A N/A 9.38%
Global Utilities Securities 1/24/89 9.82% 13.30% 10.51% 11.24%
Growth and Income 1/24/89 6.99% 15.06% 14.11% 10.38%
High Income 1/24/89 -0.33% 7.30% 7.13% 8.05%
Income Securities 1/24/89 0.38% 8.47% 7.39% 9.91%
Money Market+ 1/24/89 3.92% 3.91% 3.75% 3.90%
Mutual Discovery Securities 11/8/96 -6.18% N/A N/A 5.67%
Mutual Shares Securities 11/8/96 -1.16% N/A N/A 8.32%
Natural Resources Securities 1/24/89 -26.33% -15.42% -9.96% -1.46%
Real Estate Securities 1/24/89 -17.87% 8.73% 8.69% 8.99%
Rising Dividends 1/27/92 5.60% 19.41% 15.64% 11.61%
Small Cap 11/1/95 -2.21% N/A N/A 12.87%
Templeton Developing Markets Equity 3/15/94 -22.61% -5.72% N/A -4.42%
Templeton Global Asset Allocation 5/1/95 -1.28% 8.85% N/A 8.89%
Templeton Global Growth 3/15/94 7.63% 13.08% N/A 10.92%
Templeton Global Income Securities 1/24/89 5.76% 5.04% 4.26% 6.22%
Templeton International Equity 1/27/92 4.26% 11.80% 8.75% 9.42%
Templeton International Smaller Companies 5/1/96 -13.38% N/A N/A -2.29%
Templeton Pacific Growth 1/27/92 -14.23% -15.90% -10.60% -2.88%
U.S. Government Securities 3/14/89 6.11% 5.44% 5.45% 6.96%
Value Securities 5/1/98 N/A N/A N/A -32.09%
<FN>
Calculated with waiver of fees.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Chart IV - Contracts with enhanced death benefit
(reflects mortality and expense risk charge, administrative charge, contract
maintenance charge and portfolio expenses.)
Portfolio
Inception Since
Variable Option Date One Year Three Years Five Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.58% N/A N/A 18.02%
Global Health Care Securities 5/1/98 N/A N/A N/A 9.17%
Global Utilities Securities 1/24/89 9.60% 13.07% 10.29% 11.02%
Growth and Income 1/24/89 6.78% 14.83% 13.88% 10.16%
High Income 1/24/89 -0.53% 7.09% 6.92% 7.83%
Income Securities 1/24/89 0.18% 8.25% 7.18% 9.70%
Money Market+ 1/24/89 3.71% 3.70% 3.54% 3.69%
Mutual Discovery Securities 11/8/96 -6.37% N/A N/A 5.46%
Mutual Shares Securities 11/8/96 -1.35% N/A N/A 8.10%
Natural Resources Securities 1/24/89 -26.48% -15.59% -10.14% -1.65%
Real Estate Securities 1/24/89 -18.03% 8.51% 8.47% 8.77%
Rising Dividends 1/27/92 5.39% 19.17% 15.41% 11.39%
Small Cap 11/1/95 -2.41% N/A N/A 12.64%
Templeton Developing Markets Equity 3/15/94 -22.76% -5.91% N/A -4.62%
Templeton Global Asset Allocation 5/1/95 -1.48% 8.63% N/A 8.67%
Templeton Global Growth 3/15/94 7.41% 12.85% N/A 10.70%
Templeton Global Income Securities 1/24/89 5.55% 4.83% 4.05% 6.01%
Templeton International Equity 1/27/92 4.05% 11.58% 8.53% 9.20%
Templeton International Smaller Companies 5/1/96 -13.55% N/A N/A -2.48%
Templeton Pacific Growth 1/27/92 -14.40% -16.07% -10.78% -3.07%
U.S. Government Securities 3/14/89 5.90% 5.23% 5.24% 6.75%
Value Securities 5/1/98 N/A N/A N/A -32.23%
<FN>
Calculated with waiver of fees.
</FN>
</TABLE>
<PAGE>
Federal Tax Status
- --------------------------------------------------------------------------------
Note: The following description is based upon the Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance Company cannot predict the probability that any changes
in such laws will be made. Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes. The Insurance Company does not
guarantee the tax status of the Contracts. Purchasers bear the complete risk
that the Contracts may not be treated as "annuity contracts" under federal
income tax laws. It should be further understood that the following discussion
is not exhaustive and that special rules not described herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions. T he Insurance Company is taxed as a life
insurance company under the Code. For federal income tax purposes, the Separate
Account is not a separate entity from the Insurance Company, and its operations
form a part of the Insurance Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios of Franklin Valuemark Funds
underlying the Contracts will be managed by the investment managers for Franklin
Valuemark Funds in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Contract Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year period.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Contracts will be taxed currently to the Contract Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Contract Owners
should therefore consult competent tax advisers should they wish to assign or
pledge their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic 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.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, annuitants and beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Insurance Company's administrative procedures. Contract
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
the prospectus and this Statement of Additional Information. Generally,
Contracts issued pursuant to Qualified Plans are not transferable except upon
surrender or annuitization. Various penalty and excise taxes may apply to
contributions or distributions made in violation of applicable limitations.
Furthermore, certain withdrawal penalties and restrictions may apply to
withdrawals from Qualified Contracts. (See "Tax Treatment of Withdrawals -
Qualified Contracts.")
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's taxable income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRAs and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employee until distributed from the
Plan. The tax consequences to participants may vary, depending upon the
particular Plan design. However, the Code places imitations and restrictions on
all Plans, including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions and withdrawals.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Purchasers of Contracts for use with Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax Treatment of Withdrawals -
Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 591/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Contract Owner or Annuitant
(as applicable) or the joint lives (or joint life expectancies) of such Contract
Owner or Annuitant (as applicable) and his or her designated beneficiary; (d)
distributions to a Contract Owner or Annuitant (as applicable) who has separated
from service after he or she has attained age 55; (e) distributions made to the
Contract Owner or Annuitant (as applicable) to the extent such distributions do
not exceed the amount allowable as a deduction under Code Section 213 to the
Contract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; (f) distributions made to an alternate payee pursuant to
a qualified domestic relations order; (g) distributions from an Individual
Retirement Annuity for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for the Contract Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Contract Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception no longer applies after the Contract Owner or Annuitant
(as applicable) has been re-employed for at least 60 days); (h) distributions
from an Individual Retirement Annuity made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the qualified higher
education expenses (as defined in Section 72(t)(7) of the Code) of the Owner or
Annuitant (as applicable) for the taxable year; and (i) distributions from an
Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
which are qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code). The exceptions stated in items (d) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
item (c) applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first periodic 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.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 701/2, or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities -
Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Contract Owner: (1) attains age 591/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Annuity Provisions
- --------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the Annuitant and any
joint Annuitant and the sex of the Annuitant and joint Annuitant where allowed.
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Portfolio(s).
Annuity Unit Value
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio. The Annuity Payment in each Portfolio
is determined by multiplying the number of Annuity Units then allocated to such
Portfolio by the Annuity Unit value for that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. You may choose a 3%, 5% or
7% Assumed Investment Return. The Insurance Company may agree to use a different
value.
Mortality and Expense Risk Guarantee
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Insurance Company as of and
for the year ended December 31, 1998, included herein should be considered only
as bearing upon the ability of the Insurance Company to meet its obligations
under the Contracts. The audited financial statements of the Separate Account as
of and for the year ended December 31, 1998 are also included herein.
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Independent Auditors'Report
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account B as of December 31, 1998, 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, 1998, 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 29, 1999
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
Statements of Assets and Liabilities
December 31, 1998
(In thousands)
Global Global
Capital Health Care Utilities Growth High Income Money
Growth Securities Securities and Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund,
12,719 shares, cost $169,900 $204,526 - - - - - -
Global Health Care Securities Fund,
804 shares, cost $7,806 - 8,614 - - - - -
Global Utilities Securities Fund,
44,235 shares, cost $719,124 - - 904,165 - - - -
Growth and Income Fund,
59,093 shares, cost $919,277 - - - 1,203,140 - - -
High Income Fund,
30,610 shares, cost $409,488 - - - - 406,501 - -
Income Securities Fund,
65,116 shares, cost $996,447 - - - - - 1,101,768 -
Money Market Fund,
381,077 shares, cost $381,077 - - - - - - 381,077
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 204,526 8,614 904,165 1,203,140 406,501 1,101,768 381,077
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 35 6 60 62 14 144 120
Accrued mortality and expense risk charges -
Valuemark IV 8 10 6 10 8 9 7
Accrued administrative charges - Valuemark II & III 4 1 7 7 2 17 14
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 48 18 74 80 25 171 142
Net assets $204,478 8,596 904,091 1,203,060 406,476 1,101,597 380,935
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $131,652 6,215 873,319 1,061,658 317,865 990,325 316,921
Contracts in accumulation period -
Valuemark IV (note 5) 69,939 2,381 28,248 134,775 88,069 105,543 61,911
Contracts in annuity payment period (note 2) 2,887 - 2,524 6,627 542 5,729 2,103
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $204,478 8,596 904,091 1,203,060 406,476 1,101,597 380,935
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund,
18,731 shares, cost $218,767 $211,477 - - - - - -
Mutual Shares Securities Fund,
37,971 shares, cost $436,731 - 454,129 - - - - -
Natural Resources Securities Fund,
5,033 shares, cost $63,490 - - 42,223 - - - -
Real Estate Securities Fund,
13,312 shares, cost $242,989 - - - 265,318 - - -
Rising Dividends Fund,
37,739 shares, cost $509,182 - - - - 683,459 - -
Small Cap Fund,
21,854 shares, cost $292,317 - - - - - 299,835 -
Templeton Developing Markets Equity Fund,
22,551 shares, cost $226,538 - - - - - - 155,827
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 211,477 454,129 42,223 265,318 683,459 299,835 155,827
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 34 56 5 20 46 41 29
Accrued mortality and expense risk charges -
Valuemark IV 9 14 5 7 8 8 6
Accrued administrative charges - Valuemark II & III 4 7 1 3 5 5 3
Accrued administrative charges - Valuemark IV 1 2 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 48 79 12 31 60 55 39
Net assets $211,429 454,050 42,211 265,287 683,399 299,780 155,788
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $109,094 214,642 37,878 222,740 585,952 216,872 127,804
Contracts in accumulation period -
Valuemark IV (note 5) 98,842 234,337 4,332 41,773 93,151 79,977 27,259
Contracts in annuity payment period (note 2) 3,493 5,071 1 774 4,296 2,931 725
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $211,429 454,050 42,211 265,287 683,399 299,780 155,788
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Templeton Templeton
Templeton Templeton Global Templeton International Templeton U.S.
Global Asset Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
6,085 shares, cost $74,120 $77,102 - - - - - -
Templeton Global Growth Fund,
47,979 shares, cost $599,143 - 708,656 - - - - -
Templeton Global Income Securities Fund,
10,611 shares, cost $134,677 - - 136,570 - - - -
Templeton International Equity Fund,
57,966 shares, cost $803,532 - - - 899,633 - - -
Templeton International Smaller Companies Fund,
2,597 shares, cost $28,278 - - - - 23,890 - -
Templeton Pacific Growth Fund,
12,226 shares, cost $120,880 - - - - - 91,820 -
U.S. Government Securities Fund,
45,906 shares, cost $604,186 - - - - - - 637,639
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 77,102 708,656 136,570 899,633 23,890 91,820 637,639
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 31 122 9 120 7 14 24
Accrued mortality and expense risk charges -
Valuemark IV 6 10 5 8 5 5 7
Accrued administrative charges - Valuemark II & III 4 15 1 14 1 2 3
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 42 148 16 143 14 22 35
Net assets $77,060 708,508 136,554 899,490 23,876 91,798 637,604
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $55,102 558,162 124,899 815,915 14,354 86,200 579,909
Contracts in accumulation period -
Valuemark IV (note 5) 20,200 143,943 11,582 81,113 9,037 5,274 57,334
Contracts in annuity payment period (note 2) 1,758 6,403 73 2,462 485 324 361
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $77,060 708,508 136,554 899,490 23,876 91,798 637,604
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund, 1,117 shares, cost $9,106 $8,698 - - -
Zero Coupon Fund - 2000, 5,279 shares, cost $74,444 - 78,181 - -
Zero Coupon Fund - 2005, 4,244 shares, cost $64,849 - - 75,293 -
Zero Coupon Fund - 2010, 4,482 shares, cost $74,63 - - - 85,373
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 8,698 78,181 75,293 85,373 9,144,914
Liabilities:
Accrued mortality and expense risk charges - Valuemark II & III 15 6 8 8 1,036
Accrued mortality and expense risk charges - Valuemark IV 14 5 5 6 191
Accrued administrative charges - Valuemark II & III 2 1 1 1 125
Accrued administrative charges - Valuemark IV 2 1 1 1 27
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 33 13 15 16 1,379
Net assets $8,665 78,168 75,278 85,357 9,143,535
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III (note 5) $5,542 74,353 65,876 72,114 7,665,363
Contracts in accumulation period - Valuemark IV (note 5) 2,834 3,815 9,402 13,233 1,428,304
Contracts in annuity payment period (note 2) 289 - - 10 49,868
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $8,665 78,168 75,278 85,357 9,143,535
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations
For the year ended December 31, 1998
(In thousands)
Global Global
Capital Health Care Utilities Growth High Income Money
Growth Securitie Securities and Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 494 - 38,909 39,645 40,005 95,451 17,985
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges -
Valuemark II & III 1,170 29 11,766 13,988 4,633 14,586 3,861
Mortality and expense risk charges -
Valuemark IV 612 10 239 1,340 944 1,113 671
Administrative charges - Valuemark II & III 140 3 1,412 1,679 556 1,750 463
Administrative charges - Valuemark IV 69 0 27 150 106 125 75
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,991 42 13,444 17,157 6,239 17,574 5,070
Investment income (loss), net (1,497) (42) 25,465 22,488 33,766 77,877 12,915
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - 56,735 93,268 2,374 22,541 -
Realized gains (losses) on sales of
investments, net 3,101 (205) 42,510 35,118 2,328 25,848 -
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 3,101 (205) 99,245 128,386 4,702 48,389 -
Net change in unrealized appreciation
(depreciation) on investments 24,031 808 (40,032) (73,442) (38,630) (126,374) -
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 27,132 603 59,213 54,944 (33,928) (77,985) -
Net increase (decrease) in net assets
from operations $25,635 561 84,678 77,432 (162) (108) 12,915
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 3,108 4,806 878 14,421 7,816 191 6,715
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges -
Valuemark II & III 1,606 3,023 659 3,793 7,982 2,950 2,139
Mortality and expense risk charges -
Valuemark IV 1,235 2,685 58 544 922 828 366
Administrative charges - Valuemark II & III 193 363 79 455 958 354 257
Administrative charges - Valuemark IV 138 301 7 61 103 93 41
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 3,172 6,372 803 4,853 9,965 4,225 2,803
Investment income (loss), net (64) (1,566) 75 9,568 (2,149) (4,034) 3,912
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on
mutual funds 2,892 4,199 - 8,927 95,780 24,533 21,834
Realized gains (losses) on sales of
investments, net (1,124) 140 (13,600) 16,775 38,887 (141) (30,570)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 1,768 4,339 (13,600) 25,702 134,667 24,392 (8,736)
Net change in unrealized appreciation
(depreciation) on investments (23,026) (15,031) (3,804) (105,327) (101,514) (31,057) (51,993)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net(21,258) (10,692) (17,404) (79,625) 33,153 (6,665) (60,729)
Net increase (decrease) in net assets
from operations ($21,322) (12,258) (17,329) (70,057) 31,004 (10,699) (56,817)
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Templeton Templeton
Templeton Templeton Global Templeton International Templeton U.S.
Global Asset Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
Investment income:
Dividends reinvested in fund shares $3,077 19,141 11,179 32,633 706 4,948 45,330
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses:
Mortality and expense risk charges -
Valuemark II & III 821 7,655 1,770 12,067 241 1,291 7,622
Mortality and expense risk charges -
Valuemark IV 243 1,606 125 986 131 54 532
Administrative charges - Valuemark II & III 99 919 212 1,448 29 155 915
Administrative charges - Valuemark IV 27 180 14 110 15 6 60
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,190 10,360 2,121 14,611 416 1,506 9,129
Investment income (loss), net 1,887 8,781 9,058 18,022 290 3,442 36,201
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on
mutual funds 3,659 69,721 - 65,552 817 1,506 -
Realized gains (losses) on sales of
investments, net 737 12,774 263 46,548 (1,364) (67,544) 8,286
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 4,396 82,495 263 112,100 (547) (66,038) 8,286
Net change in unrealized appreciation
(depreciation) on investments (8,198) (44,136) (1,320) (88,725) (3,830) 39,890 (7,222)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (3,802) 38,359 (1,057) 23,375 (4,377) (26,148) 1,064
Net increase (decrease) in net assets from
operations ($1,915) 47,140 8,001 41,397 (4,087) (22,706) 37,265
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 6,413 4,263 4,432 402,546
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III 28 1,012 808 907 106,407
Mortality and expense risk charges - Valuemark IV 14 35 87 110 15,490
Administrative charges - Valuemark II & III 3 121 97 109 12,769
Administrative charges - Valuemark IV 2 4 10 12 1,736
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 47 1,172 1,002 1,138 136,402
Investment income (loss), net (47) 5,241 3,261 3,294 266,144
Realized gains (losses) and unrealized appreciation
(depreciation)on investments:
Realized capital gain distributions on mutual funds - 1,026 986 613 476,963
Realized gains (losses) on sales of investments, net (74) 1,370 1,499 4,830 126,392
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net (74) 2,396 2,485 5,443 603,355
Net change in unrealized appreciation (depreciation)
on investments (407) (2,765) 1,608 769 (699,727)
Total realized gains (losses) and unrealized appreciation
(depreciation)on investments, net (481) (369) 4,093 6,212 (96,372)
Net increase (decrease) in net assets from operations ($528) 4,872 7,354 9,506 169,772
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets
For the years ended December 31, 1998 and 1997
(In thousands)
Global Health Global Utilities
Capital Growth Fund Care Securities Fund Securities Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,497) (894) (42) - 25,465 35,651 22,488 20,007
Realized gains (losses) on
investments, net 3,101 2,092 (205) - 99,245 106,619 128,386 58,209
Net change in unrealized
appreciation (depreciation)
on investments 24,031 8,783 808 - (40,032) 76,100 (73,442) 173,409
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 25,635 9,981 561 - 84,678 218,370 77,432 251,625
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 3,713 11,652 194 - 7,461 14,377 16,130 50,544
Transfers between funds 55,930 18,490 5,818 - (39,931) (131,387) 20,093 23,747
Surrenders and terminations (17,886) (5,581) (190) - (198,959) (173,138) (195,983) (141,024)
Rescissions (8) (159) - - (241) (730) (276) (922)
Other transactions (note 2) (19) (89) (1) - 155 246 356 241
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III 41,730 24,313 5,821 - (231,515) (290,632) (159,680) (67,414)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 21,127 23,159 1,428 - 12,583 5,818 51,280 49,951
Transfers between funds 17,665 2,395 1,051 - 6,950 1,246 25,926 4,608
Surrenders and terminations (2,192) (174) (7) - (1,068) (70) (5,388) (685)
Rescissions (556) (754) (258) - (88) (60) (943) (859)
Other transactions (note 2) 1 38 - - 5 1 46 51
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 36,045 24,664 2,214 - 18,382 6,935 70,921 53,066
Increase (decrease) in
net assets 103,410 58,958 8,596 - (128,455) (65,327) (11,327) 237,277
Net assets at beginning
of year 101,068 42,110 - - 1,032,546 1,097,873 1,214,387 977,110
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $204,478 101,068 8,596 - 904,091 1,032,546 1,203,060 1,214,387
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Discovery
High Income Fund Income Securities Fund Money Market Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 33,766 27,707 77,877 74,684 12,915 13,801 (64) (1,520)
Realized gains (losses) on
investments, net 4,702 10,947 48,389 44,523 - - 1,768 591
Net change in unrealized
appreciation (depreciation)
on investments (38,630) 389 (126,374) 62,214 - - (23,026) 15,535
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (162) 39,043 (108) 181,421 12,915 13,801 (21,322) 14,606
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 4,834 22,772 13,275 50,873 11,342 70,286 6,337 28,591
Transfers between funds (19,142) 310 (51,375) (56,241) 207,647 (3,675) 18,856 74,361
Surrenders and terminations (71,048) (59,371) (219,332) (169,518) (204,171) (161,311) (22,824) (7,182)
Rescissions (154) (602) (278) (1,451) (341) (2,246) (132) (510)
Other transactions (note 2) 455 246 411 446 824 894 5 17
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (85,055) (36,645) (257,299) (175,891) 15,301 (96,052) 2,242 95,277
Contract transactions -
Valuemark IV (note 5):
Purchase payments 39,346 42,607 42,572 46,661 44,229 93,106 35,649 57,513
Transfers between funds 8,234 3,456 14,799 3,254 (20,238) (46,177) 12,085 6,028
Surrenders and terminations (4,106) (521) (3,538) (443) (6,316) (3,086) (3,935) (520)
Rescissions (1,327) (844) (530) (1,143) (1,952) (918) (577) (763)
Other transactions (note 2) 50 21 (5) 3 199 494 59 13
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 42,197 44,719 53,298 48,332 15,922 43,419 43,281 62,271
Increase (decrease) in net assets(43,020) 47,117 (204,109) 53,862 44,138 (38,832) 24,201 172,154
Net assets at beginning of year 449,496 402,379 1,305,706 1,251,844 336,797 375,629 187,228 15,074
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $406,476 449,496 1,101,597 1,305,706 380,935 336,797 211,429 187,228
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Shares Natural Resources
Securities Fund Securities Fund Real Estate Securities FundRising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,566) (2,774) 75 110 9,568 5,160 (2,149) 199
Realized gains (losses) on
investments, net 4,339 65 (13,600) (3,931) 25,702 16,329 134,667 43,845
Net change in unrealized
appreciation (depreciation)
on investments (15,031) 31,825 (3,804) (14,906) (105,327) 42,697 (101,514) 123,868
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (12,258) 29,116 (17,329) (18,727) (70,057) 64,186 31,004 167,912
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 11,748 55,149 899 3,818 4,373 25,139 10,801 23,594
Transfers between funds 28,224 136,704 (5,230) (11,395) (48,548) 28,062 17,226 20,217
Surrenders and terminations (42,653) (12,002) (7,877) (9,401) (49,929) (36,947) (135,412) (84,492)
Rescissions (194) (558) (49) (67) (148) (342) (207) (422)
Other transactions (note 2) 59 11 15 26 161 89 239 537
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (2,816) 179,304 (12,242) (17,019) (94,091) 16,001 (107,353) (40,566)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 85,482 113,173 1,717 3,783 16,008 29,207 36,972 32,143
Transfers between funds 28,604 18,844 841 290 1,947 2,787 17,333 5,752
Surrenders and terminations (8,498) (1,198) (188) (6) (1,625) (354) (3,213) (409)
Rescissions (1,549) (1,424) (52) (94) (202) (517) (691) (624)
Other transactions (note 2) 92 37 (15) 4 13 10 3 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 104,131 129,432 2,303 3,977 16,141 31,133 50,404 36,871
Increase (decrease) in
net assets 89,057 337,852 (27,268) (31,769) (148,007) 111,320 (25,945) 164,217
Net assets at beginning of year 364,993 27,141 69,479 101,248 413,294 301,974 709,344 545,127
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $454,050 364,993 42,211 69,479 265,287 413,294 683,399 709,344
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($4,034) (2,855) 3,912 (744) 1,887 379 8,781 1,105
Realized gains (losses) on
investments, net 24,392 16,256 (8,736) 11,272 4,396 1,109 82,495 8,777
Net change in unrealized
appreciation (depreciation)
on investments (31,057) 21,914 (51,993) (46,160) (8,198) 4,962 (44,136) 58,155
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (10,699) 35,315 (56,817) (35,632) (1,915) 6,450 47,140 68,037
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 6,424 29,239 4,084 29,184 1,787 11,196 10,586 58,703
Transfers between funds 4,845 50,164 (39,497) 5,324 (8,074) 9,847 (41,415) 4,664
Surrenders and terminations (36,786) (23,270) (26,039) (24,867) (8,859) (6,290) (79,015) (46,883)
Rescissions (186) (651) (68) (281) (7) (71) (300) (1,055)
Other transactions (note 2) (15) 71 (56) 2 30 186 78 54
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (25,718) 55,553 (61,576) 9,362 (15,123) 14,868 (110,066) 15,483
Contract transactions -
Valuemark IV (note 5):
Purchase payments 26,375 40,513 9,390 32,069 6,881 13,018 47,491 79,798
Transfers between funds 13,910 2,867 (1,057) 2,442 525 1,126 11,653 5,848
Surrenders and terminations (2,749) (266) (1,050) (253) (519) (107) (4,558) (652)
Rescissions (368) (589) (129) (302) (14) (260) (653) (1,079)
Other transactions (note 2) 32 26 (13) 8 11 2 (12) 12
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 37,200 42,551 7,141 33,964 6,884 13,779 53,921 83,927
Increase (decrease) in
net assets 783 133,419 (111,252) 7,694 (10,154) 35,097 (9,005) 167,447
Net assets at beginning of year 298,997 165,578 267,040 259,346 87,214 52,117 717,513 550,066
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $299,780 298,997 155,788 267,040 77,060 87,214 708,508 717,513
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Global Templeton Templeton International Templeton
Income Securities FundInternational Equity FundSmaller Companies Fund Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 9,058 10,527 18,022 14,487 290 (225) 3,442 1,743
Realized gains (losses) on
investments, net 263 1,131 112,100 91,429 (547) 545 (66,038) (6,660)
Net change in unrealized
appreciation (depreciation)
on investments (1,320) (10,041) (88,725) 1,618 (3,830) (1,688) 39,890 (91,510)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 8,001 1,617 41,397 107,534 (4,087) (1,368) (22,706) (96,427)
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 983 5,204 8,884 48,236 865 5,943 1,634 7,156
Transfers between funds (13,288) (17,682) (92,026) (33,305) (3,005) 2,953 (21,917) (55,954)
Surrenders and terminations (30,382) (27,867) (171,313) (126,296) (2,234) (1,856) (20,611) (36,981)
Rescissions (42) (283) (404) (1,041) (24) (91) (54) (144)
Other transactions (note 2) 154 193 252 282 10 32 48 398
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (42,575) (40,435) (254,607) (112,124) (4,388) 6,981 (40,900) (85,525)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 3,461 6,478 21,502 53,802 2,980 8,807 2,042 4,649
Transfers between funds 1,385 316 6,064 2,916 (467) 531 282 622
Surrenders and terminations (377) (83) (2,654) (259) (365) (128) (205) (98)
Rescissions (12) (207) (95) (629) (85) (50) (42) (52)
Other transactions (note 2) 2 15 45 15 (15) 3 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 4,459 6,519 24,862 55,845 2,048 9,163 2,076 5,121
Increase (decrease) in net assets(30,115) (32,299) (188,348) 51,255 (6,427) 14,776 (61,530) (176,831)
Net assets at beginning of year 166,669 198,968 1,087,838 1,036,583 30,303 15,527 153,328 330,159
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $136,554 166,669 899,490 1,087,838 23,876 30,303 91,798 153,328
<FN>
See accompanying notes to financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
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, 1998 and 1997
(In thousands)
U.S. Government Value
Securities Fund Securities Fund Zero Coupon Fund - 2000Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 36,201 28,049 (47) - 5,241 5,205 3,261 3,461
Realized gains (losses) on
investments, net 8,286 5,606 (74) - 2,396 1,677 2,485 1,510
Net change in unrealized
appreciation (depreciation)
on investments (7,222) 17,549 (407) - (2,765) (1,692) 1,608 1,476
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 37,265 51,204 (528) - 4,872 5,190 7,354 6,447
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 5,708 23,060 190 - 498 1,290 759 1,695
Transfers between funds 12,261 (47,874) 6,072 - (4,978) (6,415) 3,490 (6,814)
Surrenders and terminations (126,296) (115,692) (129) - (14,347) (15,927) (10,720) (8,976)
Rescissions (188) (756) - - (4) (43) (11) (1)
Other transactions (note 2) 860 775 (1) - 165 134 105 7
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (107,655) (140,487) 6,132 - (18,666) (20,961) (6,377) (14,089)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 20,857 22,408 916 - 864 1,862 3,307 3,410
Transfers between funds 12,943 1,524 2,211 - 1,107 (121) 2,192 34
Surrenders and terminations (2,139) (132) (62) - (68) (7) (284) (10)
Rescissions (701) (527) (4) - (23) - (68) (68)
Other transactions (note 2) 4 67 - - (6) - (4) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 30,964 23,340 3,061 - 1,874 1,734 5,143 3,366
Increase (decrease) in
net assets (39,426) (65,943) 8,665 - (11,920) (14,037) 6,120 (4,276)
Net assets at beginning
of year 677,030 742,973 - - 90,088 104,125 69,158 73,434
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $637,604 677,030 8,665 - 78,168 90,088 75,278 69,158
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,294 3,446 266,144 236,709
Realized gains (losses) on investments, net 5,443 1,575 603,355 413,516
Net change in unrealized appreciation (depreciation) on investments 769 5,123 (699,727) 479,620
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 9,506 10,144 169,772 1,129,845
Contract transactions - Valuemark II & III (note 5):
Purchase payments 682 3,822 134,191 581,523
Transfers between funds 4,057 (2,318) (3,907) 1,783
Surrenders and terminations (15,533) (8,063) (1,708,528)(1,302,935)
Rescissions (2) (17) (3,318) (12,443)
Other transactions (note 2) 49 (11) 4,339 4,787
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract transactions -
Valuemark II & III (10,747) (6,587) (1,577,223) (727,285)
Contract transactions - Valuemark IV (note 5):
Purchase payments 5,944 3,098 540,403 767,033
Transfers between funds 3,245 282 169,190 20,870
Surrenders and terminations (458) (11) (55,562) (9,472)
Rescissions (20) (6) (10,939) (11,769)
Other transactions (note 2) (2) - 489 829
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract transactions -
Valuemark IV 8,709 3,363 643,581 767,491
Increase (decrease) in net assets 7,468 6,920 (763,870)1,170,051
Net assets at beginning of year 77,889 70,969 9,907,405 8,737,354
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $85,357 77,889 9,143,535 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
Notes to Financial Statements
December 31, 1998
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 and gains on the sale of fund shares as determined by the
average cost method. Realized gain distributions are reinvested in the
respective funds. Dividend distributions received from the FVF are reinvested in
additional shares of the FVF and are recorded as income to the Variable Account
on the ex-dividend date.
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 on the Fixed Accounts is 3%.
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on May 1, 1998. The Utilities Equity Fund name was
changed to Templeton Global Utilities Securities Fund on May 1, 1998. The
Precious Metals Fund name was changed to Natural Resources Securities Fund on
May 1, 1997.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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%, 5% or 7%. 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, 1998 and 1997 were and $4,716,335 and $4,561,683,
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:
<TABLE>
<CAPTION>
Years Since Contingent Deferred Sales Charge
- ---------------------------------------------------------------------------------------------------------------------------
Payment Valuemark II Valuemark III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
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. 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
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses (cont.)
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, 1998 and 1997 were $8,535,795 and $8,999,290, 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, 1998 and 1997 were $159,282 and $126,072, respectively. Transfer charges are
reflected in the Statements of Changes in Net Assets as other transactions. Net
transfers from the Fixed Accounts for the years ended December 31, 1998 and 1997
were $165,283,144 and $22,652,962 respectively.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Allianz Life may, in its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Allianz Life
may have to deduct such amounts at a later date.
On 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, 1998:
<TABLE>
<CAPTION>
Capitalization Date of Market Value Date of
Fund Amount Capitalization at Withdrawal Withdrawal
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Health Care Securities Fund $250,000 5/1/98 $253,250 12/1/98
Value Securities Fund $250,000 5/1/98 $192,000 12/1/98
</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>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1998 and
1997 were as follows:
Global Global
Capital Health Care Utilities Growth High Income Money
Growth Securities Securities and Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at
December 31, 1996 3,722 - 53,086 50,027 20,736 57,504 28,060
Contract transactions:
Purchase payments 948 - 663 2,362 1,153 2,205 5,065
Transfers between funds 1,469 - (6,159) 1,043 (57) (2,484) (219)
Surrenders and terminations (445) - (7,944) (6,436) (2,943) (7,368) (11,824)
Rescissions (14) - (34) (44) (30) (65) (166)
Other transactions (7) - 11 10 12 19 66
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,951 - (13,463) (3,065) (1,865) (7,693) (7,078)
Accumulation units outstanding a
December 31, 1997 5,673 - 39,623 46,962 18,871 49,811 20,982
Contract transactions:
Purchase payments 160 20 241 538 223 459 566
Transfers between funds 3,882 586 (1,529) 699 (811) (2,088) 14,858
Surrenders and terminations (1,258) (20) (7,481) (7,722) (3,310) (8,767) (14,408)
Rescissions (1) - (9) (11) (7) (11) (24)
Other transactions (2) - 6 14 21 16 58
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 2,781 586 (8,772) (6,482) (3,884) (10,391) 1,050
Accumulation units outstanding at
December 31, 1998 8,454 586 30,851 40,480 14,987 39,420 22,032
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - - -
Contract transactions:
Purchase payments 1,839 - 263 2,241 2,100 2,022 6,870
Transfers between funds 188 - 53 200 168 140 (3,400)
Surrenders and terminations (13) - (3) (29) (25) (19) (225)
Rescissions (60) - (3) (38) (42) (49) (67)
Other transactions 3 - - 2 1 - 36
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,957 - 310 2,376 2,202 2,094 3,214
Accumulation units outstanding at December 31, 1997 1,957 - 310 2,376 2,202 2,0943,214
Contract transactions:
Purchase payments 1,503 147 477 2,027 1,834 1,710 3,217
Transfers between funds 1,238 106 262 1,031 409 599 (1,515)
Surrenders and terminations (156) (1) (40) (214) (195) (143) (448)
Rescissions (40) (28) (3) (37) (61) (21) (140)
Other transactions - - - 2 2 - 14
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 2,545 224 696 2,809 1,989 2,145 1,128
Accumulation units outstanding at
December 31, 1998 4,502 224 1,006 5,185 4,191 4,239 4,342
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at
December 31, 1996 1,471 2,613 6,998 12,757 35,569 12,784 22,423
Contract transactions:
Purchase payments 2,480 4,911 276 1,023 1,368 2,180 2,264
Transfers between funds 6,648 12,308 (861) 1,129 1,034 3,656 330
Surrenders and terminations (613) (1,037) (701) (1,453) (4,724) (1,652) (1,990)
Rescissions (47) (52) (5) (14) (26) (49) (22)
Other transactions 1 1 2 3 28 6 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 8,469 16,131 (1,289) 688 (2,320) 4,141 582
Accumulation units outstanding at
December 31, 1997 9,940 18,744 5,709 13,445 33,249 16,925 23,005
Contract transactions:
Purchase payments 402 795 86 147 415 348 429
Transfers between funds 1,284 2,150 (562) (1,976) 670 173 (4,481)
Surrenders and terminations (1,897) (3,544) (777) (1,978) (6,653) (2,575) (2,951)
Rescissions (11) (16) (5) (6) (10) (13) (7)
Other transactions - 4 2 7 12 (2) (6)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (222) (611) (1,256) (3,806) (5,566) (2,069) (7,016)
Accumulation units outstanding at
December 31, 1998 9,718 18,133 4,453 9,639 27,683 14,856 15,989
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - - -
Contract transactions:
Purchase payments 5,050 9,998 288 1,144 1,745 2,823 2,516
Transfers between funds 518 1,620 23 106 299 198 190
Surrenders and terminations (43) (101) - (13) (21) (18) (21)
Rescissions (65) (126) (7) (20) (33) (40) (23)
Other transactions 1 3 - - 1 2 1
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 5,461 11,394 304 1,217 1,991 2,965 2,663
Accumulation units outstanding at
December 31, 1997 5,461 11,394 304 1,217 1,991 2,965 2,663
Contract transactions:
Purchase payments 2,832 6,911 162 604 1,788 1,762 1,055
Transfers between funds 907 2,362 73 75 843 988 (154)
Surrenders and terminations (338) (718) (19) (66) (159) (199) (121)
Rescissions (45) (123) (5) (8) (35) (27) (16)
Other transactions 5 8 (1) 1 - 3 (2)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 3,361 8,440 210 606 2,437 2,527 762
Accumulation units outstanding at
December 31, 1998 8,822 19,834 514 1,823 4,428 5,492 3,425
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
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>
Valuemark II & III
Accumulation units outstanding at December 31, 1996 4,104 40,327 11,857 64,375 1,388 22,061
Contract transactions:
Purchase payments 819 3,970 314 2,786 517 501
Transfers between funds 755 334 (1,058) (1,782) 258 (4,037)
Surrenders and terminations (456) (3,127) (1,673) (7,156) (160) (2,707)
Rescissions (6) (74) (17) (59) (8) (10)
Other transactions 13 3 11 15 3 25
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,125 1,106 (2,423) (6,196) 610 (6,228)
Accumulation units outstanding at December 31, 1997 5,229 41,433 9,434 58,179 1,998 15,833
Contract transactions:
Purchase payments 69 569 57 449 35 204
Transfers between funds (598) (2,789) (773) (5,188) (288) (2,708)
Surrenders and terminations (646) (4,973) (1,749) (9,177) (211) (2,662)
Rescissions - (19) (2) (21) (2) (7)
Other transactions 2 5 9 14 1 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (1,173) (7,207) (2,458) (13,923) (465) (5,164)
Accumulation units outstanding at December 31, 1998 4,056 34,226 6,976 44,256 1,533 10,669
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - -
Contract transactions:
Purchase payments 952 5,261 391 3,008 761 346
Transfers between funds 82 375 19 162 46 47
Surrenders and terminations (8) (42) (5) (14) (11) (10)
Rescissions (18) (70) (13) (35) (4) (4)
Other transactions - 1 1 1 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,008 5,525 393 3,122 792 379
Accumulation units outstanding at December 31, 1997 1,008 5,525 393 3,122 792 379
Contract transactions:
Purchase payments 487 2,951 202 1,143 271 256
Transfers between funds 34 720 79 307 (52) 53
Surrenders and terminations (38) (290) (22) (143) (34) (28)
Rescissions (1) (41) (1) (5) (8) (5)
Other transactions 1 (1) - 3 (2) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 483 3,339 258 1,305 175 276
Accumulation units outstanding at December 31, 1998 1,491 8,864 651 4,427 967 655
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
U.S. Zero Zero Zero
Government Value Coupon Coupon Coupon Total
Securities Securities Fund - Fund - Fund - All
Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at December 31, 1996 44,598 - 5,636 3,579 3,297 508,972
Contract transactions:
Purchase payments 1,363 - 69 83 177 37,497
Transfers between funds (2,875) - (341) (328) (113) 8,650
Surrenders and terminations (6,740) - (846) (424) (362) (72,781)
Rescissions (44) - (2) - (1) (789)
Other transactions 45 - 7 - - 274
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (8,251) - (1,113) (669) (299) (27,149)
Accumulation units outstanding at December 31, 1997 36,347 - 4,523 2,910 2,998 481,823
Contract transactions:
Purchase payments 310 17 25 32 26 6,622
Transfers between funds 617 718 (249) 140 138 1,875
Surrenders and terminations (6,810) (16) (712) (451) (582) (91,330)
Rescissions (10) - - - - (192)
Other transactions 46 - 8 4 2 230
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (5,847) 719 (928) (275) (416) (82,795)
Accumulation units outstanding at December 31, 1998 30,500 719 3,595 2,635 2,582 399,028
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - -
Contract transactions:
Purchase payments 1,310 - 100 162 138 51,328
Transfers between funds 84 - (6) 2 12 1,126
Surrenders and terminations (8) - - - - (629)
Rescissions (31) - - (3) - (751)
Other transactions 4 - - - - 57
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,359 - 94 161 150 51,131
Accumulation units outstanding at December 31, 1997 1,359 - 94 161 150 51,131
Contract transactions:
Purchase payments 1,142 109 43 142 226 33,001
Transfers between funds 693 267 55 92 120 9,592
Surrenders and terminations (116) (8) (3) (12) (17) (3,528)
Rescissions (38) (1) (1) (3) (1) (694)
Other transactions - - - - - 33
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,681 367 94 219 328 38,404
Accumulation units outstanding at December 31, 1998 3,040 367 188 380 478 89,535
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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 of the five years in the period ended December 31,
1998 follows.
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets 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>
Capital Growth Fund
December 31,
1998 8,454 $15.574 $ 131,652 2.17% 4,502 $15.537 $ 69,939 2.26%
1997 5,673 13.130 74,473 2.17 1,967 13.110 25,654 2.26
19961 3,722 11.254 42,110 2.17+ - - - -
Global Health Care
Securities Fund
December 31,
19982 586 10.610 6,215 2.24+ 224 10.604 2,381 2.33+
Global Utilities
Securities Fund
December 31,
1998 30,851 28.308 873,319 1.90 1,006 28.082 28,248 1.99
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 - - - -
Growth and Income Fund
December 31,
1998 40,480 26.226 1,061,658 1.89 5,185 25.993 134,775 1.98
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 - - - -
High Income Fund
December 31,
1998 14,987 21.208 317,865 1.93 4,191 21.020 88,069 2.02
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 - - - -
Income Securities Fund
December 31,
1998 39,420 25.122 990,325 1.89 4,239 24.898 105,543 1.98
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 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets 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>
Money Market Fund
December 31,
1998 22,032 $14.386 $ 316,921 1.85% 4,342 $14.260 $ 61,911 1.94%
1997 20,892 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 - - - -
Mutual Discovery
Securities Fund
December 31,
1998 9,718 11.226 109,094 2.40 8,822 11.205 98,842 2.49
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,
1998 18,133 11.837 214,642 2.17 19,834 11.814 234,337 2.26
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,
1998 4,453 8.505 37,878 2.04 514 8.430 4,332 2.13
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 - - - -
Real Estate Securities Fund
December 31,
1998 9,639 23.107 222,740 1.94 1,823 22.901 41,773 2.03
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 - - - -
Rising Dividends Fund
December 31,
1998 27,683 21.165 585,952 2.12 4,428 21.034 93,151 2.21
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 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets 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>
Small Cap Fund
December 31,
1998 14,856 $14.600 $ 216,872 2.17% 5,492 $14.558 $ 79,977 2.26%
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,
1998 15,989 7.993 127,804 2.81 3,425 7.958 27,259 2.90
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,
1998 4,056 13.589 55,102 2.24 1,491 13.543 20,200 2.33
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,
1998 34,226 16.309 558,162 2.28 8,864 16.238 143,943 2.37
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,
1998 6,976 17.905 124,899 2.03 651 17.746 11,582 2.12
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 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets 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,
1998 44,256 $18.437 $ 815,915 2.28% 4,427 $18.322 $ 81,113 2.37%
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 - - - -
Templeton International
Smaller Companies Fund
December 31,
1998 1,533 9.364 14,354 2.50 967 9.342 9,037 2.59
1997 1,998 10.825 21,626 2.46 792 10.809 8,557 2.55
19961 1,388 11.145 15,527 2.18+ - - - -
Templeton Pacific
Growth Fund
December 31,
1998 10,669 8.078 86,200 2.50 655 8.028 5,274 2.59
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 - - - -
U.S. Government Securities Fund
December 31,
1998 30,500 19.014 579,909 1.90 3,040 18.847 57,334 1.99
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 - - - -
Value Securities Fund
December 31,
19982 719 7.717 5,542 2.52+ 367 7.713 2,834 2.61+
Zero Coupon Fund - 2000
December 31,
1998 3,595 20.684 74,353 1.80 188 20.502 3,815 1.89
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 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets 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 - 2005
December 31,
1998 2,635 $25.003 $ 65,876 1.80% 380 $24.786 $ 9,402 1.89%
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 - - - -
Zero Coupon Fund - 2010
December 31,
1998 2,582 27.920 72,114 1.80 478 27.674 13,233 1.89
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 - - - -
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1Period from May 1, 1996 (fund commencement) to December 31, 1996.
2Period from May 1, 1998 (fund commencement) to December 31, 1998.
3Period from November 8, 1996 (fund commencement) to December 31, 1996.
4Period from November 1, 1995 (fund commencement) to December 31, 1995.
5Period from March 15, 1994 (fund commencement) to December 31, 1994.
6Period 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, 1998 and 1997
<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, 1998 and
1997, 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,
1998. 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, 1998
and 1997, 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,
1998, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at fair value $ 2,538,291 2,705,210
Equity securities, at fair value 512,404 442,607
Mortgage loans on real estate 457,128 318,683
Certificates of deposit and short-term securities 166,366 117,124
Policy loans 7,118 5,695
Other invested assets 95,746 51,863
Investment in LifeUSA Holdings Inc. 80,928 0
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 3,857,981 3,641,182
Cash 67,195 26,871
Accrued investment income 36,649 38,345
Receivables (net of allowance for uncollectible accounts of $3,254 in 1998 and $3,122 in 1997) 323,971 262,676
Reinsurance receivable:
Funds held on deposit 1,170,170 1,145,210
Recoverable on future policy benefit reserves 1,191,098 1,120,663
Recoverable on unpaid claims 293,179 219,443
Receivable on paid claims 24,986 31,158
Deferred acquisition costs 930,059 927,080
Other assets 35,755 34,475
Federal income tax recoverable 4,060 20,761
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 7,935,103 7,467,864
Separate account assets 9,915,150 10,756,929
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $17,850,253 18,224,793
<FN>
See accompanying notes to consolidated 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, 1998 and 1997
(in thousands)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Future benefit reserves:
Life $ 1,445,844 1,297,269
Annuity 3,588,491 3,251,829
Policy and contract claims 770,846 607,011
Unearned premiums 53,778 50,168
Reinsurance payable 129,397 111,684
Deferred income on reinsurance 106,065 115,688
Deferred income taxes 257,903 228,861
Accrued expenses 91,631 93,341
Commissions due and accrued 41,000 39,517
Other policyholder funds 20,586 30,208
Other liabilities 89,038 424,696
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 6,594,579 6,250,272
Separate account liabilities 9,915,150 10,756,929
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 16,509,729 17,007,201
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,
No shares outstanding in 1998, 25 million shares outstanding in 1997 0 25,000
Additional paid-in capital 407,088 407,088
Retained earnings 673,857 574,447
Accumulated other comprehensive income 239,579 191,057
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,340,524 1,217,592
Commitments and contingencies (notes 6, 12 and 13)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $17,850,253 18,224,793
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated 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, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 416,199 339,841 284,084
Other life policy considerations 52,668 83,816 85,747
Annuity considerations 222,632 219,262 170,656
Accident and health premiums 773,570 747,718 603,230
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 1,465,069 1,390,637 1,143,717
Premiums and annuity considerations ceded 411,316 438,018 277,163
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 1,053,753 952,619 866,554
Investment income, net 217,066 162,350 222,622
Realized investment gains 89,226 61,488 28,561
Equity in earnings of LifeUSA Holdings Inc. 2,207 0 0
Other 75,967 53,760 6,193
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 1,438,219 1,230,217 1,123,930
Benefits and expenses:
Life insurance benefits 461,891 336,090 281,441
Annuity benefits 251,463 206,189 153,238
Accident and health insurance benefits 623,640 566,746 434,793
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 1,336,994 1,109,025 869,472
Benefit recoveries 501,719 426,607 249,552
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 835,275 682,418 619,920
Commissions and other agent compensation 322,697 310,665 267,714
General and administrative expenses 116,007 106,744 99,018
Taxes, licenses and fees 15,848 20,605 19,959
Increase in deferred acquisition costs, net (2,979) (63,742) (36,344)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,286,848 1,056,690 970,267
Income from operations before income taxes 151,371 173,527 153,663
Income tax expense:
Current 48,410 31,571 21,936
Deferred 2,822 28,283 30,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 51,232 59,854 52,495
Net income $ 100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $100,139 113,673 101,168
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax benefit of $949, $525, and $10 in
1998, 1997, and 1996 respectively (1,761) (975) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on fixed maturities and equity securities:
Unrealized holding gains (losses) arising during the period net of tax expense (benefit)
of $57,703, $71,594 and $(10,289) in 1998, 1997, and 1996 respectively 107,162 132,961 (19,107)
Reclassification adjustment for gains included in net income, net of tax expense of
$30,627, $21,588, and $9,401 in 1998, 1997, and 1996 respectively (56,879) (40,093) (17,460)
- ---------------------------------------------------------------------------------------------------------------------------
Total unrealized holding gains (losses) 50,283 92,868 (36,567)
Total other comprehensive income (loss) 48,522 91,893 (36,585)
Total comprehensive income $148,661 205,566 64,583
<FN>
See accompanying notes to consolidated 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, 1998,
1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<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 25,000
Redemption of stock during the year (25,000) 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 0 25,000 25,000
Additional paid-in capital:
Balance at beginning and end of year 407,088 407,088 407,088
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 574,447 462,925 363,357
Net income 100,139 113,673 101,168
Cash dividend to stockholder (729) (2,151) (1,600)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 673,857 574,447 462,925
Accumulated other comprehensive income:
Accumulated unrealized holding gain:
Balance at beginning of year 195,505 102,637 139,204
Net unrealized gain (loss) on investments during the year, net of deferred federal income taxes 50,283
92,868 (36,567)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 245,788 195,505 102,637
Accumulated unrealized foreign currency (loss):
Balance at beginning of year (4,448) (3,473) (3,455)
Net unrealized (loss) on foreign currency translation during the year,
net of deferred federal income taxes (1,761) (975) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (6,209) (4,448) (3,473)
Total accumulated comprehensive income 239,579 191,057 99,164
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $1,340,524 1,217,592 1,014,177
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Realized investment gains (89,226) (61,488) (28,561)
Deferred federal income tax expense 2,822 28,283 30,559
Charges to policy account balances (104,681) (148,159) (87,865)
Interest credited to policy account balances 262,956 251,182 202,243
Change in:
Accrued investment income 1,696 (2,215) 728
Receivables (61,295) (107,398) (30,578)
Reinsurance receivables (162,959) (1,205,410) (76,003)
Deferred acquisition costs (2,979) (63,742) (36,344)
Future benefit reserves 25,183 138,370 71,193
Policy and contract claims and other policyholder funds 154,213 92,230 37,055
Unearned premiums 3,610 17,992 (2,005)
Reinsurance payable 17,713 68,725 24,019
Current tax recoverable 16,701 (8,306) (8,508)
Accrued expenses and other liabilities 14,797 12,113 15,506
Commissions due and accrued 1,483 2,414 14,124
Depreciation and amortization (12,711) (13,312) (25,874)
Equity in earnings of LifeUSA Holdings Inc. (2,207) 0 0
Other, net 94 18 (1,568)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 65,210 (998,703) 98,121
Net cash provided by (used in) operating activities 165,349 (885,030) 199,289
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows (cont.)
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities 165,349 (885,030) 199,289
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities $(1,256,653) (1,748,950)(1,324,676)
Purchase of equity securities (1,518,096) (1,699,847) (137,304)
Purchase of stock in LifeUSA Holdings, Inc. (79,091) 0 0
Funding of mortgage loans (168,870) (103,626) (70,265)
Sale of fixed maturities 1,460,969 1,921,534 1,043,748
Matured fixed maturities 28,152 1,150 2,711
Sale of equity securities 1,560,695 1,691,789 122,788
Repayment of mortgage loans 29,105 29,520 23,317
Net change in certificates of deposit and short-term securities (49,242) 87,848 (173,471)
Other (46,256) 82,797 (20,566)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (39,287) 262,215 (533,718)
Cash flows provided by (used in) financing activities:
Policyholders' deposits to account balances $ 864,446 748,430 591,926
Policyholders' withdrawals from account balances (562,667) (524,579) (384,550)
Change in assets held under reinsurance agreements 7,876 150,526 0
Funds borrowed (repaid) on dollar reverse repurchase agreements, net (369,664) 239,468 130,196
Redemption of preferred stock (25,000) 0 0
Cash dividends paid (729) (2,151) (1,600)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (85,738) 611,694 335,972
Net change in cash 40,324 (11,121) 1,543
Cash at beginning of year 26,871 37,992 36,449
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 67,195 26,871 37,992
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(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 group and
individual life, annuity and accident and health policies in the United States,
Canada and several U.S. territories. Based on 1998 net revenues and
considerations, 36%, 16% and 48% 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 The
Franklin Templeton Group 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 LifeUSA Holding Inc.
(LifeUSA), a publicly traded insurance company in which it holds a 21.4%
ownership interest at December 31, 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.
Traditional Life, Group Life and Group Accident and Health Insurance
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.
Nontraditional and Variable Life and Annuity Business
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
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Deferred Acquisition Costs (cont.)
policies are deferred and amortized over the lives of the policies in the same
manner as premiums are earned. For interest sensitive products, acquisition
costs are amortized in relation to the present value of expected future gross
profits from investment margins and mortality, morbidity and expense charges.
Deferred acquisition costs amortized during 1998, 1997 and 1996 were $202,644,
$219,266, and $137,618, 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 range from 7.5% 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 fixed maturity and equity portfolio as
"available-for-sale" and, accordingly, the securities are carried at fair value.
Short-term investments are carried at amortized cost, which approximates market
value. 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.
The Company accounts for its investment in LifeUSA under the equity method of
accounting and carries its investment at cost, adjusted for its share of
LifeUSA's earnings, amortization of goodwill and dividends received. The
difference between the cost of the investment and underlying equity is amortized
into net income over ten years.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1998 and 1997, investments with a carrying value of $116,197
and $103,590, respectively, were held on deposit with various insurance
departments and in other trusts as required by statutory regulations.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Investments (cont.)
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.
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 fair
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 1998, the Company adopted Statement of Financial Accounting Standard (SFAS)
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. No adjustments were made to the
consolidated financial statements upon adoption of these pronouncements.
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. A
Consolidated Statement of ComprehensiveIncome is now included in these
financial statements.
Accounting Pronouncements to be Adopted
In December 1997, the AICPA issued Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments. The SOP
provides guidance for determining when to recognize a liability for guaranty
fund assessments, how to measure the liability and for determining when an asset
may be recognized for premium tax offset recoveries. The SOP is effective for
years beginning after December 15, 1998. The Company will adopt SOP 97-3 on
January 1, 1999. Adoption of this SOP is not expected to have a significant
impact on the consolidated financial statements.
In February 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The SOP provides
guidance for determining whether computer software is in fact internal-use
software and offers guidelines on accounting for the proceeds of computer
software originally developed or obtained for internal use and subsequently
marketed and sold to the public. The
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Accounting Pronouncements to be Adopted (cont.)
SOP applies to all non-government entities and is effective for years beginning
after December 15, 1998. The Company will adopt SOP 98-1 on January 1, 1999.
Adoption of this SOP is not expected to have a significant impact on the
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards for derivative financial
instruments and other similar financial instruments and for hedging activities.
The statement is effective for fiscal years beginning after June 15, 1999. The
Company will adopt SFAS No. 133 on January 1, 2000. Adoption of this statement
is not expected to have a significant impact on the consolidated financial
statements.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
<TABLE>
(2) Investments
Investments at December 31, 1998 consist of:
Amount
shown on
Amortized Estimated consolidated
cost fair balance
or cost value sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. government $ 274,813 311,296 311,296
States and political subdivisions 94,640 101,121 101,121
Foreign government 34,652 36,731 36,731
Public utilities 66,236 71,982 71,982
Corporate securities 1,441,359 1,498,702 1,498,702
Mortgage backed securities 401,505 428,304 428,304
Collateralized mortgage obligations 80,599 90,155 90,155
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $2,393,804 2,538,291 2,538,291
Equity securities:
Common stocks:
Banks, trusts and insurance companies 18,824 31,194 31,194
Industrial and miscellaneous 252,122 469,566 469,566
Nonredeemable preferred stocks 7,807 11,644 11,644
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 278,753 512,404 512,404
Other investments:
Mortgage loans on real estate 457,128 XXXXXXXXX 457,128
Certificates of deposit and short-term securities 166,366 XXXXXXXXX 166,366
Policy loans 7,118 XXXXXXXXX 7,118
Other invested assets 95,746 XXXXXXXXX 95,746
Investment in LifeUSA Holdings Inc. 80,928 XXXXXXXXX 80,928
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments $ 807,286 XXXXXXXXX 807,286
Total investments $3,479,843 XXXXXXXXX 3,857,981
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(2) Investments (cont.)
At December 31, 1998 and 1997, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. government $ 274,813 36,717 234 311,296
States and political subdivisions 94,640 6,481 0 101,121
Foreign government 34,652 2,079 0 36,731
Public utilities 66,236 5,948 202 71,982
Corporate securities 1,441,359 67,234 9,891 1,498,702
Mortgage backed securities 401,505 26,799 0 428,304
Collateralized mortgage obligations 80,599 10,141 585 90,155
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,393,804 155,399 10,912 2,538,291
Equity securities 278,753 245,913 12,262 512,404
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,672,557 401,312 23,174 3,050,695
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
- ---------------------------------------------------------------------------------------------------------------------------
The changes in unrealized gains on fixed maturity securities were $22,170,
$58,422, and $(97,973) in each of the years ended December 31, 1998, 1997 and
1996, respectively.
The changes in unrealized gains in equity investments, which include common
stocks and nonredeemable preferred stocks were $55,188, $84,718, and $40,895 for
the years ended December 31, 1998, 1997 and 1996, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1998, 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.
</TABLE>
<TABLE>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 19,578 19,831
Due after one year through five years 542,463 558,635
Due after five years through ten years 700,012 741,834
Due after ten years 649,647 699,532
Mortgage backed securities and collateralized mortgage obligations 482,104 518,459
- ---------------------------------------------------------------------------------------------------------------------------
Totals $2,393,804 2,538,291
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(2) Investments (cont.)
Gross gains of $105,723, $70,335, and $43,696 and gross losses of $18,217,
$8,654, and $16,834 were realized on sales of securities in 1998, 1997 and 1996,
respectively.
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $30,299 40,268 8,897
Equity securities 57,207 21,413 17,964
Mortgage loans (1,320) (982) (1,129)
Real estate 3,133 635 3,104
Other (93) 154 (275)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains before taxes 89,226 61,488 28,561
Tax expense on net realized gains 31,229 21,521 9,996
- ---------------------------------------------------------------------------------------------------------------------------
Net gains after taxes $57,997 39,967 18,565
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first two months of 1998 and all of 1997, the Company entered into
mortgage backed security reverse repurchase transactions ("dollar rolls") with
certain securities dealers. Under this program, the Company sold certain
securities for delivery in the current month and simultaneously contracted with
the same dealer to repurchase similar, but not identical, securities on a
specified future date. The Company gave up the right to receive principal and
interest on the securities sold. As of December 31, 1998 there were no
outstanding amounts under the Company's dollar roll program. As of December 31,
1997, mortgage backed securities underlying such agreements were carried at a
market value of $350,985 and other liabilities were $369,664 for funds received
under these agreements. Average balances outstanding for the first two months of
1998 and all of 1997, respectively were $120,525 and $183,530 and weighted
average interest rates were 6.5% and 7.2%. The maximum balance outstanding
during 1998 and 1997 was $120,525 and $369,664, respectively.
The valuation allowances on mortgage loans at December 31, 1998, 1997 and 1996
and the changes in the allowance for the years then ended are summarized as
follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Beginning of Year $8,279 7,279 10,487
Charged to operations 1,320 1,000 0
Recoveries 0 0 (3,208)
- ---------------------------------------------------------------------------------------------------------------------------
End of Year $9,599 8,279 7,279
- ---------------------------------------------------------------------------------------------------------------------------
Major categories of net investment income for the respective years ended
December 31 are:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest:
Fixed maturities $155,397 211,335 178,664
Mortgage loans 34,449 25,232 19,267
Policy loans 497 6,526 7,013
Short-term investments 15,022 12,804 10,688
Dividends:
Preferred stock 668 748 818
Common stock 5,190 4,603 4,527
Interest on assets held by reinsurers 8,272 8,858 9,709
Other invested assets 8,637 9,438 5,344
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 228,132 279,544 236,030
Investment expenses related to coinsurance agreement (note 6) 2,689 98,417 0
Investment expenses 8,377 18,777 13,408
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $217,066 162,350 222,622
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(3) Summary Table of Fair Value Disclosures
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 311,296 311,296 528,657 528,657
States and political subdivisions 101,121 101,121 85,829 85,829
Foreign governments 36,731 36,731 37,734 37,734
Public utilities 71,982 71,982 48,237 48,237
Corporate securities 1,546,342 1,546,342 1,250,532 1,250,532
Mortgage backed securities 380,664 380,664 663,891 663,891
Collateralized mortgage obligations 90,155 90,155 90,330 90,330
Equity securities 512,404 512,404 442,607 442,607
Mortgage loans 457,128 495,202 318,683 333,540
Short term investments 166,366 166,366 117,124 117,124
Policy loans 7,118 7,118 5,695 5,695
Other long term investments 95,746 95,746 51,863 51,863
Investment in LifeUSA Holdings Inc. 80,928 68,290 0 0
Receivables 323,971 323,971 262,676 262,676
Separate accounts assets 9,915,150 9,915,150 10,756,92910,756,929
Financial liabilities
Investment contracts 3,645,657 3,035,787 3,536,690 2,945,366
Separate account liabilities 9,915,150 9,765,791 10,756,92910,565,205
Dollar reverse repurchase agreements 0 0 369,664 369,664
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $270,657 207,293
Agents balances 10,088 3,186
Related party receivables 3,852 1,445
Reinsurance commission receivable 8,022 23,921
Scholarship enrollment fees 12,010 8,401
Due from administrators 13,271 13,630
Other 6,071 4,800
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $323,971 262,676
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on estimates which are 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, 1998 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 $9,918, $12,479, and $14,348 in
1998, 1997 and 1996, respectively, is summarized as follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $141,033,
$124,320, and $99,292 $312,886 273,813 240,602
Incurred related to:
Current year 417,042 346,901 279,717
Prior years (12,217) (12,087) (11,642)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 404,825 334,814 268,075
Paid related to:
Current year 204,100 150,942 107,842
Prior years 147,186 144,798 127,022
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 351,286 295,740 234,864
Balance at December 31, net of reinsurance recoverables of $128,764,
$141,033, and $124,320 $366,425 312,887 273,813
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
(6) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $1 million coverage per individual life. Reinsurance contracts do not
relieve the Company from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the Company. 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.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(6) Reinsurance (cont.)
<TABLE>
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
Percentage
Assumed Ceded of amount
Direct from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance in force $34,118,554 98,832,792 19,483,581 113,467,765 87.1%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 244,416 224,451 93,812 375,055 59.8%
Annuities 220,812 1,820 50,385 172,247 1.1%
Accident and health 479,237 294,333 267,119 506,451 58.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 944,465 520,604 411,316 1,053,753 49.4%
December 31, 1997:
Life insurance in force $32,234,241 72,682,842 19,873,094 85,043,989 85.5%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 252,859 170,798 110,579 313,078 54.6%
Annuities 217,353 1,910 30,789 188,474 1.0%
Accident and health 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 235,837 133,994 37,986 331,845 40.4%
Annuities 169,503 1,153 12,769 157,887 0.7%
Accident and health 396,051 207,179 226,408 376,822 55.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 801,391 342,326 277,163 866,554 39.5%
- ---------------------------------------------------------------------------------------------------------------------------
Included in reinsurance receivables at December 31, 1998 are $1,170,697,
$863,477 and $307,228 recoverable from three insurers who, as of December 31,
1998, were rated A+, A- and A+, respectively, by A.M. 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.
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. During 1998
and 1997, $15,965 and $22,647, respectively, was amortized and included in other
revenue in the consolidated statements of income. Effective January 1, 1998, the
coinsurance agreement was amended to include another block of business with
future benefit reserves of $66,000, capitalized deferred acquisition costs of
$1,935 and deferred income of $750.
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(6) Reinsurance (cont.)
Of the amounts ceded to others, the Company ceded life insurance inforce of
$2,067,664, $1,163,533, and $381,381 in 1998, 1997 and 1996, respectively, and
life insurance premiums earned of $4,165, $2,538, and $1,293 in 1998, 1997 and
1996, respectively, to its ultimate parent Allianz Aktiengesellshaft. The
Company also ceded accident and health premiums earned to Allianz
Aktiengesellshaft of $2,817, $2,467, and $1,922 in 1998, 1997 and 1996.
<TABLE>
(7) Income Taxes
Income Tax Expense
Total income tax expense (benefit) for the years ended December 31 are as
follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $48,410 31,571 21,936
Deferred tax expense 2,822 28,283 30,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $51,232 59,854 52,495
Income tax effect on equity:
Income tax allocated to stockholder's equity:
Attributable to unrealized gains and losses for the year 26,127 49,748 (19,967)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $77,359 109,602 32,528
- ---------------------------------------------------------------------------------------------------------------------------
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:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense computed at the statutory rate $52,980 60,735 53,782
Dividends received deductions and tax-exempt interest (3,294) (2,792) (650)
Foreign tax (133) 916 (2,723)
Interest on tax deficiency 900 1,100 261
Other 779 (105) 1,824
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $51,232 59,854 52,494
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
(7) Income Taxes (cont.)
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:
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for post retirement benefits $ 2,223 2,100
Allowance for uncollectible accounts 929 929
Policy reserves 173,414 177,442
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 176,566 180,471
Deferred tax liabilities:
Deferred acquisition costs 272,815 277,627
Net unrealized gain 128,883 102,756
Other 32,771 28,949
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 434,469 409,332
Net deferred tax liability $257,903 228,861
- ---------------------------------------------------------------------------------------------------------------------------
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company and each of its insurance subsidiaries generally will be paid for the
tax benefit on their losses, and any other tax attributes, to the extent they
could have obtained a benefit against their post-1990 separate return taxable
income or tax. Income taxes paid by the Company were $30,808, $39,914, and
$30,946 in 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997 the
Company had a tax recoverable from AZOA of $3,030 and $20,689, respectively.
(8) Related Party Transactions
The Company reimbursed AZOA $2,495, $2,519, and $1,743 in 1998, 1997 and 1996,
respectively, for certain administrative and investment management services
performed. The Company's liability to AZOA for such services was $490 and $437
at December 31, 1998 and 1997, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $1,019, $2,826, and $3,275
in 1998, 1997 and 1996, respectively. The Company's liability for data center
charges was $377
and $292 at December 31, 1998 and 1997, 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.
The Company had 25 million shares of Series A preferred stock outstanding held
by AZOA with a dividend rate of 6.4% and a book value of $25,000. In March 1998,
the Company redeemed and canceled the 25 million shares of Series A preferred
stock issued to AZOA.
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(8) Related Party Transactions (cont.)
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) Investment in LifeUSA
In 1995, in conjunction with an expanded marketing agreement, the Company
provided LifeUSA 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 converted its debenture
to equity, extended the existing marketing agreement between the two companies
to December 31, 2000, and agreed to acquire up to a 35% equity ownership in Life
USA. Two members of the Company's management were named to LifeUSA's board of
directors in January 1998. The Company also retains additional rights of
nomination to LifeUSA's board of directors in the future based on the Company's
proportional ownership.
Acquisition of the Company's equity ownership during 1998 was accomplished
through the following:
o Conversion of the $30,000 debenture for 2.43 million shares of common stock
(conversion price of $12.34 per share);
o Exercise of the Company's preemptive right to purchase 241,846 shares of
common stock at $12.36 per share;
o Purchase of 925,000 shares of common stock from certain members of LifeUSA
management at $16.44 per share;
o Acquisition of an additional 1.3 million shares of common stock in open
market purchases.
o Acquisition of 406,092 shares of common stock at $24.63 per share as part of
a commitment to purchase $100,000 in newly issued common stock in increments of
$10,000 semi-annually over a five year period beginning in August 1998.
As of December 31, 1998, the company held 21.41% of the outstanding common stock
of LifeUSA with an approximate market value of $68,290. The carrying value of
the LifeUSA investment at year-end 1998 is $80,928, which is $20,983 higher than
the current equity in net assets of $59,945.
In February 1999, the Company purchased 395,062 shares of LifeUSA common stock
at $25.31 per share. In addition, the stock purchase agreement was amended to
allow the Company to purchase an additional 300,000 shares on the open market
for one year beyond the original agreement date.
Effective April 1, 1998, the Company began assuming business from LifeUSA. Under
this arrangement, the Company assumes 12.5% of annuity business and 16.7% of
universal life business sold by LifeUSA. As of December 31, 1998, the Company
assumed $40,000 of life and annuity reserves from LifeUSA.
The company has also guaranteed a credit agreement between LTC America Holding,
Inc., a LifeUSA subsidiary, and Norwest Bank. The agreement is for a $15,000
revolving credit line with an interest rate of LIBOR +.75% per annum and a
maturity date of December 21, 2003.
(10) 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 $756, $810, and $808 in 1998, 1997 and 1996,
respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(10) 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 75% 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 75%, 90% and 100% in 1998, 1997 and
1996, respectively. All employees 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 $868,
$1,057, and $1,105 in 1998, 1997 and 1996, respectively, toward planned
contributions.
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, 1998 and 1997 was $6,352 and $6,001, respectively.
This liability is included in "Other liabilities" in the accompanying balance
sheet.
(11) 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>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Statutory basis $ 654,371 635,711 35,188 72,343 67,995
Adjustments:
Change in reserve basis (226,145) (255,816) 13,787 (85,110) 13,324
Deferred acquisition costs 930,059 927,080 2,979 63,742 36,344
Net deferred taxes (257,903) (228,861) (2,822) (28,283) (30,559)
Statutory asset valuation reserve 178,011 151,675 0 0 0
Statutory interest maintenance reserve 48,697 34,336 14,361 7,994 1,183
Modified coinsurance reinsurance (2,358) (31,953) 29,595 81,790 5,435
Unrealized gains on investments 158,391 124,754 0 0 0
Nonadmitted assets 14,943 14,824 0 0 0
Deferred income on reinsurance (105,465) (115,688) 0 0 0
Other (52,077) (38,470) 7,051 1,197 7,446
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying consolidated
financial statements $1,340,524 1,217,592 100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1998 and 1997 were in compliance with these requirements. The maximum amount of
dividends that 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,
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(11) Statutory Financial Data and Dividend Restrictions (cont.)
for the 12-month period ending the 31st day of the next preceding year. In 1998
and 1997, the Company paid AZOA dividends on preferred stock in the amount of
$729 and $1,600, respectively. A common stock dividend of $551 was paid in 1997.
Dividends of $63,678 could
be paid in 1999 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's adjusted capital is in excess of the Company action level as of
December 31, 1998 and 1997.
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 Company does not currently use permitted statutory
accounting practices that have a significant impact on its statutory financial
statements. Furthermore, the NAIC has completed a project to codify statutory
accounting practices, the result of which will constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project which is
currently in the process of state adoption, will 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.
(12) Commitments and Contingencies
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In the opinion of
management, the ultimate resolution of such litigation will not have a material
effect on the consolidated financial position of the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(13) Year 2000
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. Additional costs associated with this effort are not
expected to be material and will be expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(13) Year 2000 (cont.)
from third parties with whom the Company deals on financial transactions
worldwide. 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 data and funds
electronically.
(14) 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>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(4,448) (3,473) (3,455)
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate adjustment for the period resulting from translation adjustments (2,710) (1,500) (28)
Amount of income tax benefit for period related to aggregate adjustment 949 525 10
- ---------------------------------------------------------------------------------------------------------------------------
Net aggregate translation included in equity (1,761) (975) (18)
Ending amount of cumulative translation adjustments $(6,209) (4,448) (3,473)
Canadian foreign exchange rate at end of year 0.6535 0.6992 0.7297
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
(15) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1998, 1997 and 1996:
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
acquisitio claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a) expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life $217,262 1,445,844 3,859 97,647 375,055 34,731 306,318 (27,291) 141,705
Annuities 694,388 3,588,491 0 1,727 172,247 158,458 135,356 23,333 151,719
Accident and health 18,409 0 49,919 671,472 506,451 23,877 393,601 979
161,128
- ---------------------------------------------------------------------------------------------------------------------------
$930,059 5,034,335 53,778 770,846 1,053,753 217,066 835,275 (2,979) 454,552
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
<FN>
(a) See note 1 for total gross amortization.
</FN>
</TABLE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part B
hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1998 and 1997.
3. Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - December 31, 1998,
1997 and 1996.
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, 1998.
3. Statements of Operations for the year ended December 31, 1998.
4. Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997.
5. Notes to Financial Statements - December 31, 1998.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account(1)
2. Not Applicable
3. Principal Underwriter's Agreement(2)
4. Individual Variable Annuity Contract(3)
4. (i) Enhanced Death Benefit Endorsements(3)
4. (ii) Charitable Remainder Trust Endorsement(3)
5. Application for Individual Variable Annuity Contract(3)
6. (i) Copy of Articles of Incorporation of the Company(1)
(ii) Copy of the Bylaws of the Company(1)
7. Not Applicable
8. Form of Fund Participation Agreement(1)
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(2)
27. Not Applicable
(1) Incorporated by reference to Registrant's Form N-4 (File Nos. 333-06709
and 811-05618) electronically filed on June 24, 1996.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Form N-4 (File Nos. 333-06709 and 811-05618) electronically filed on December
13, 1996.
(3) Incorporated by reference to Registrant's Form N-4 (File Nos. 333-63719 and
811-5618) electronically filed on September 18, 1998.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Insurance Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- - - ---------------------------- ---------------------------------
Lowell C. Anderson Chairman, President, Chief
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Boulevard
Minneapolis, MN 55439
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Edward J. Bonach Executive Vice President, Chief
1750 Hennepin Avenue Financial Officer and Treasurer
Minneapolis, MN 55403
Robert S. James President - Individual
1750 Hennepin Avenue Division
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis Dease Director
c/o University of St. Thomas
215 Summit Avenue
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Corp.
Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0116
Robert M. Kimmitt Director
Wilmer, Cutler & Pickering
2445 M Street NW
Washington, DC 20037-1420
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is incorporated by reference to Pre-Effective
Amendment No. 1 (File Nos.333-06709 and 811-05618).
Item 27. Number of Contract Owners
As of February 26, 1999 there were no qualified Contract Owners and no non-
qualified Contract Owners with Contracts in the Separate Account.
Item 28. Indemnification
The Bylaws of the Insurance Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Insurance Company pursuant to the foregoing, or otherwise, the Insurance Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Insurance Company of expenses
incurred or paid by a director, officer or controlling person of the Insurance
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers (managers) and directors (Board of
Governors) of NALAC Financial Plans, LLC:
<TABLE>
<CAPTION>
<S> <C>
Positions and Offices
Business Address with Underwriter
- - - ---------------------- ----------------------
James P. Kelso Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford Chief Manager and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Allianz Life Insurance Company of North America ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Insurance Company hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 26th day of April, 1999.
ALLIANZ LIFE VARIABLE ACCOUNT B
(Registrant)
By: ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /s/ MICHAEL T. WESTERMEYER
--------------------------------
Michael T. Westermeyer
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /s/ MICHAEL T. WESTERMEYER
------------------------------
Michael T. Westermeyer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman of the Board, 04/26/99
Lowell C. Anderson* President
Lowell C. Anderson and Chief Executive Officer
Herbert F. Hansmeyer* Director 04/26/99
Herbert F. Hansmeyer
Michael P. Sullivan* Director 04/26/99
Michael P. Sullivan
Dr. Gerhard Rupprecht* Director 04/26/99
Dr. Gerhard Rupprecht
Edward J. Bonach* Chief Financial Officer 04/26/99
Edward J. Bonach
Rev. Dennis J. Dease* Director 04/26/99
Rev. Dennis J. Dease
James R. Campbell* Director 04/26/99
James R. Campbell
Robert M. Kimmitt* Director 04/26/99
Robert M. Kimmitt
</TABLE>
*By: Power of Attorney
By: /s/ MICHAEL T. WESTERMEYER
--------------------------------
Michael T. Westermeyer
Attorney-in-Fact
ALLIANZ LIFE VARIABLE ACCOUNT B
POST-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON FORM N-4
INDEX TO EXHIBITS
EXHIBIT PAGE
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Data
April 19, 1999
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
RE: Opinion and Consent of Counsel
Allianz Life Variable Account B
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Flexible
Payment Variable Annuity Contracts to be issued by Allianz Life Insurance
Company of North America and its separate account, Allianz Life Variable Account
B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term
is defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner
pursuant to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a Contract
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America
and Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 29, 1999 on the financial
statements of Allianz Life Variable Account B and our report dated February 5,
1999, 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 23, 1999
FRANKLIN VALUEMARK CHARTER - TRADITIONAL
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, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-97 Purchase $1,000.00 $13.18454906 75.846 75.846 $1,000.00
12-31-98 Contract Fee (1.00) 15.67842030 (0.064) 75.783 1,188.15
12-31-98 Value before Surr Chg 15.67842030 0.000 75.783 1,188.15
12-31-98 Surrender Charge 0.00 15.67842030 0.000 75.783 1,188.15
Cumulative and Average Annual Total Returns
without/with charges 18.92% A 18.82% B
Global Utilities Securities
12-31-97 Purchase $1,000.00 $26.39084592 37.892 37.892 $1,000.00
12-31-98 Contract Fee (1.00) 29.00796673 (0.034) 37.857 1,098.17
12-31-98 Value before Surr Chg 29.00796673 0.000 37.857 1,098.17
12-31-98 Surrender Charge 0.00 29.00796673 0.000 37.857 1,098.17
Cumulative and Average Annual Total Returns
without/with charges 9.92% A 9.82% B
Growth and Income
12-31-97 Purchase $1,000.00 $25.09521695 39.848 39.848 $1,000.00
12-31-98 Contract Fee (1.00) 26.87515706 (0.037) 39.811 1,069.93
12-31-98 Value before Surr Chg 26.87515706 0.000 39.811 1,069.93
12-31-98 Surrender Charge 0.00 26.87515706 0.000 39.811 1,069.93
Cumulative and Average Annual Total Returns
without/with charges 7.09% A 6.99% B
High Income
12-31-97 Purchase $1,000.00 $21.78419830 45.905 45.905 $1,000.00
12-31-98 Contract Fee (1.00) 21.73306367 (0.046) 45.859 996.65
12-31-98 Value before Surr Chg 21.73306367 0.000 45.859 996.65
12-31-98 Surrender Charge 0.00 21.73306367 0.000 45.859 996.65
Cumulative and Average Annual Total Returns
without/with charges -0.23% A -0.33% B
Income Securities
12-31-97 Purchase $1,000.00 $25.62042731 39.031 39.031 $1,000.00
12-31-98 Contract Fee (1.00) 25.74307193 (0.039) 38.993 1,003.79
12-31-98 Value before Surr Chg 25.74307193 0.000 38.993 1,003.79
12-31-98 Surrender Charge 0.00 25.74307193 0.000 38.993 1,003.79
Cumulative and Average Annual Total Returns
without/with charges 0.48% A 0.38% B
Money Market
12-31-97 Purchase $1,000.00 $14.17218301 70.561 70.561 $1,000.00
12-31-98 Contract Fee (1.00) 14.74136821 (0.068) 70.493 1,039.16
12-31-98 Value before Surr Chg 14.74136821 0.000 70.493 1,039.16
12-31-98 Surrender Charge 0.00 14.74136821 0.000 70.493 1,039.16
Cumulative and Average Annual Total Returns
without/with charges 4.02% A 3.92% B
Mutual Discovery Securities
12-31-97 Purchase $1,000.00 $12.01727611 83.214 83.214 $1,000.00
12-31-98 Contract Fee (1.00) 11.28636146 (0.089) 83.125 938.18
12-31-98 Value before Surr Chg 11.28636146 0.000 83.125 938.18
12-31-98 Surrender Charge 0.00 11.28636146 0.000 83.125 938.18
Cumulative and Average Annual Total Returns
without/with charges -6.08% A -6.18% B
Mutual Shares Securities
12-31-97 Purchase $1,000.00 $12.02710768 83.146 83.146 $1,000.00
12-31-98 Contract Fee (1.00) 11.90018520 (0.084) 83.061 988.45
12-31-98 Value before Surr Chg 11.90018520 0.000 83.061 988.45
12-31-98 Surrender Charge 0.00 11.90018520 0.000 83.061 988.45
Cumulative and Average Annual Total Returns
without/with charges -1.06% A -1.16% B
Natural Resources Securities
12-31-97 Purchase $1,000.00 $11.81546095 84.635 84.635 $1,000.00
12-31-98 Contract Fee (1.00) 8.71583999 (0.115) 84.520 736.66
12-31-98 Value before Surr Chg 8.71583999 0.000 84.520 736.66
12-31-98 Surrender Charge 0.00 8.71583999 0.000 84.520 736.66
Cumulative and Average Annual Total Returns
without/with charges -26.23% A -26.33% B
Real Estate Securities
12-31-97 Purchase $1,000.00 $28.79409821 34.729 34.729 $1,000.00
12-31-98 Contract Fee (1.00) 23.67830533 (0.042) 34.687 821.33
12-31-98 Value before Surr Chg 23.67830533 0.000 34.687 821.33
12-31-98 Surrender Charge 0.00 23.67830533 0.000 34.687 821.33
Cumulative and Average Annual Total Returns
without/with charges -17.77% A -17.87% B
Rising Dividends
12-31-97 Purchase $1,000.00 $20.37072965 49.090 49.090 $1,000.00
12-31-98 Contract Fee (1.00) 21.53179602 (0.046) 49.044 1,056.00
12-31-98 Value before Surr Chg 21.53179602 0.000 49.044 1,056.00
12-31-98 Surrender Charge 0.00 21.53179602 0.000 49.044 1,056.00
Cumulative and Average Annual Total Returns
without/with charges 5.70% A 5.60% B
Small Cap
12-31-97 Purchase $1,000.00 $15.03338283 66.519 66.519 $1,000.00
12-31-98 Contract Fee (1.00) 14.71584589 (0.068) 66.451 977.88
12-31-98 Value before Surr Chg 14.71584589 0.000 66.451 977.88
12-31-98 Surrender Charge 0.00 14.71584589 0.000 66.451 977.88
Cumulative and Average Annual Total Returns
without/with charges -2.11% A -2.21% B
Templeton Developing Markets Equity
12-31-97 Purchase $1,000.00 $10.43881873 95.796 95.796 $1,000.00
12-31-98 Contract Fee (1.00) 8.08913198 (0.124) 95.673 773.91
12-31-98 Value before Surr Chg 8.08913198 0.000 95.673 773.91
12-31-98 Surrender Charge 0.00 8.08913198 0.000 95.673 773.91
Cumulative and Average Annual Total Returns
without/with charges -22.51% A -22.61% B
Templeton Global Asset Allocation
12-31-97 Purchase $1,000.00 $13.87942981 72.049 72.049 $1,000.00
12-31-98 Contract Fee (1.00) 13.71521346 (0.073) 71.976 987.17
12-31-98 Value before Surr Chg 13.71521346 0.000 71.976 987.17
12-31-98 Surrender Charge 0.00 13.71521346 0.000 71.976 987.17
Cumulative and Average Annual Total Returns
without/with charges -1.18% A -1.28% B
Templeton Global Growth
12-31-97 Purchase $1,000.00 $15.32113624 65.269 65.269 $1,000.00
12-31-98 Contract Fee (1.00) 16.50542778 (0.061) 65.209 1,076.30
12-31-98 Value before Surr Chg 16.50542778 0.000 65.209 1,076.30
12-31-98 Surrender Charge 0.00 16.50542778 0.000 65.209 1,076.30
Cumulative and Average Annual Total Returns
without/with charges 7.73% A 7.63% B
Templeton Global Income Securities
12-31-97 Purchase $1,000.00 $17.33276007 57.694 57.694 $1,000.00
12-31-98 Contract Fee (1.00) 18.34802772 (0.055) 57.640 1,057.58
12-31-98 Value before Surr Chg 18.34802772 0.000 57.640 1,057.58
12-31-98 Surrender Charge 0.00 18.34802772 0.000 57.640 1,057.58
Cumulative and Average Annual Total Returns
without/with charges 5.86% A 5.76% B
Templeton International Equity
12-31-97 Purchase $1,000.00 $17.97281886 55.640 55.640 $1,000.00
12-31-98 Contract Fee (1.00) 18.75560582 (0.053) 55.586 1,042.55
12-31-98 Value before Surr Chg 18.75560582 0.000 55.586 1,042.55
12-31-98 Surrender Charge 0.00 18.75560582 0.000 55.586 1,042.55
Cumulative and Average Annual Total Returns
without/with charges 4.36% A 4.26% B
Templeton International Smaller Companies
12-31-97 Purchase $1,000.00 $10.87041523 91.993 91.993 $1,000.00
12-31-98 Contract Fee (1.00) 9.42712492 (0.106) 91.887 866.23
12-31-98 Value before Surr Chg 9.42712492 0.000 91.887 866.23
12-31-98 Surrender Charge 0.00 9.42712492 0.000 91.887 866.23
Cumulative and Average Annual Total Returns
without/with charges -13.28% A -13.38% B
Templeton Pacific Growth
12-31-97 Purchase $1,000.00 $9.57028335 104.490 104.490 $1,000.00
12-31-98 Contract Fee (1.00) 8.21827526 (0.122) 104.368 857.73
12-31-98 Value before Surr Chg 8.21827526 0.000 104.368 857.73
12-31-98 Surrender Charge 0.00 8.21827526 0.000 104.368 857.73
Cumulative and Average Annual Total Returns
without/with charges -14.13% A -14.23% B
U.S. Government Securities
12-31-97 Purchase $1,000.00 $18.34520358 54.510 54.510 $1,000.00
12-31-98 Contract Fee (1.00) 19.48468431 (0.051) 54.459 1,061.11
12-31-98 Value before Surr Chg 19.48468431 0.000 54.459 1,061.11
12-31-98 Surrender Charge 0.00 19.48468431 0.000 54.459 1,061.11
Cumulative and Average Annual Total Returns
without/with charges 6.21% A 6.11% B
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1998 - Accum. Value at
Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<PAGE>
FRANKLIN VALUEMARK CHARTER - TRADITIONAL
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Global Utilities Securities
12-31-95 Purchase $1,000.00 $19.89820872 50.256 50.256 $1,000.00
12-31-96 Contract Fee (1.00) 21.05969657 (0.047) 50.208 1,057.37
12-31-97 Contract Fee (1.00) 26.39084592 (0.038) 50.170 1,324.04
12-31-98 Contract Fee (1.00) 29.00796673 (0.034) 50.136 1,454.34
12-31-98 Value before Surr Chg 29.00796673 0.000 50.136 1,454.34
12-31-98 Surrender Charge 0.00 29.00796673 0.000 50.136 1,454.34
Cumulative Total Returns without/with chrgs. 45.78% A 45.43% C
Avg. Annual Total Returns without/with chrgs. 13.39% B 13.30% D
Growth and Income
12-31-95 Purchase $1,000.00 $17.60489243 56.802 56.802 $1,000.00
12-31-96 Contract Fee (1.00) 19.87204072 (0.050) 56.752 1,127.78
12-31-97 Contract Fee (1.00) 25.09521695 (0.040) 56.712 1,423.21
12-31-98 Contract Fee (1.00) 26.87515706 (0.037) 56.675 1,523.15
12-31-98 Value before Surr Chg 26.87515706 0.000 56.675 1,523.15
12-31-98 Surrender Charge 0.00 26.87515706 0.000 56.675 1,523.15
Cumulative Total Returns without/with chrgs. 52.66% A 52.31% C
Avg. Annual Total Returns without/with chrgs. 15.14% B 15.06% D
High Income
12-31-95 Purchase $1,000.00 $17.54605865 56.993 56.993 $1,000.00
12-31-96 Contract Fee (1.00) 19.75498357 (0.051) 56.942 1,124.89
12-31-97 Contract Fee (1.00) 21.78419830 (0.046) 56.896 1,239.44
12-31-98 Contract Fee (1.00) 21.73306367 (0.046) 56.850 1,235.53
12-31-98 Value before Surr Chg 21.73306367 0.000 56.850 1,235.53
12-31-98 Surrender Charge 0.00 21.73306367 0.000 56.850 1,235.53
Cumulative Total Returns without/with chrgs. 23.86% A 23.55% C
Avg. Annual Total Returns without/with chrgs. 7.39% B 7.30% D
Income Securities
12-31-95 Purchase $1,000.00 $20.12279936 49.695 49.695 $1,000.00
12-31-96 Contract Fee (1.00) 22.13425764 (0.045) 49.650 1,098.96
12-31-97 Contract Fee (1.00) 25.62042731 (0.039) 49.611 1,271.05
12-31-98 Contract Fee (1.00) 25.74307193 (0.039) 49.572 1,276.13
12-31-98 Value before Surr Chg 25.74307193 0.000 49.572 1,276.13
12-31-98 Surrender Charge 0.00 25.74307193 0.000 49.572 1,276.13
Cumulative Total Returns without/with chrgs. 27.93% A 27.61% C
Avg. Annual Total Returns without/with chrgs. 8.56% B 8.47% D
Money Market
12-31-95 Purchase $1,000.00 $13.10323440 76.317 76.317 $1,000.00
12-31-96 Contract Fee (1.00) 13.62137774 (0.073) 76.244 1,038.54
12-31-97 Contract Fee (1.00) 14.17218301 (0.071) 76.173 1,079.54
12-31-98 Contract Fee (1.00) 14.74136821 (0.068) 76.105 1,121.90
12-31-98 Value before Surr Chg 14.74136821 0.000 76.105 1,121.90
12-31-98 Surrender Charge 0.00 14.74136821 0.000 76.105 1,121.90
Cumulative Total Returns without/with chrgs. 12.50% A 12.19% C
Avg. Annual Total Returns without/with chrgs. 4.00% B 3.91% D
Natural Resources Securities
12-31-95 Purchase $1,000.00 $14.34930812 69.690 69.690 $1,000.00
12-31-96 Contract Fee (1.00) 14.75130887 (0.068) 69.622 1,027.02
12-31-97 Contract Fee (1.00) 11.81546095 (0.085) 69.537 821.62
12-31-98 Contract Fee (1.00) 8.71583999 (0.115) 69.423 605.08
12-31-98 Value before Surr Chg 8.71583999 0.000 69.423 605.08
12-31-98 Surrender Charge 0.00 8.71583999 0.000 69.423 605.08
Cumulative Total Returns without/with chrgs. -39.26% A -39.49% C
Avg. Annual Total Returns without/with chrgs. -15.31% B -15.42% D
Real Estate Securities
12-31-95 Purchase $1,000.00 $18.38107219 54.404 54.404 $1,000.00
12-31-96 Contract Fee (1.00) 24.13213472 (0.041) 54.362 1,311.88
12-31-97 Contract Fee (1.00) 28.79409821 (0.035) 54.328 1,564.31
12-31-98 Contract Fee (1.00) 23.67830533 (0.042) 54.285 1,285.39
12-31-98 Value before Surr Chg 23.67830533 0.000 54.285 1,285.39
12-31-98 Surrender Charge 0.00 23.67830533 0.000 54.285 1,285.39
Cumulative Total Returns without/with chrgs. 28.82% A 28.54% C
Avg. Annual Total Returns without/with chrgs. 8.81% B 8.73% D
Rising Dividends
12-31-95 Purchase $1,000.00 $12.61940064 79.243 79.243 $1,000.00
12-31-96 Contract Fee (1.00) 15.49018734 (0.065) 79.179 1,226.49
12-31-97 Contract Fee (1.00) 20.37072965 (0.049) 79.129 1,611.92
12-31-98 Contract Fee (1.00) 21.53179602 (0.046) 79.083 1,702.80
12-31-98 Value before Surr Chg 21.53179602 0.000 79.083 1,702.80
12-31-98 Surrender Charge 0.00 21.53179602 0.000 79.083 1,702.80
Cumulative Total Returns without/with chrgs. 70.62% A 70.28% C
Avg. Annual Total Returns without/with chrgs. 19.49% B 19.41% D
Small Cap
12-31-95 Purchase $1,000.00 $10.15055875 98.517 98.517 $1,000.00
12-31-96 Contract Fee (1.00) 12.95065785 (0.077) 98.440 1,274.86
12-31-97 Contract Fee (1.00) 15.03338283 (0.067) 98.373 1,478.88
12-31-98 Contract Fee (1.00) 14.71584589 (0.068) 98.305 1,446.64
12-31-98 Value before Surr Chg 14.71584589 0.000 98.305 1,446.64
12-31-98 Surrender Charge 0.00 14.71584589 0.000 98.305 1,446.64
Cumulative Total Returns without/with charges NA A NA C
Average Annual Total Returns without/with charges NA B NA D
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $9.62472211 103.899 103.899 $1,000.00
12-31-96 Contract Fee (1.00) 11.56794316 (0.086) 103.813 1,200.90
12-31-97 Contract Fee (1.00) 10.43881873 (0.096) 103.717 1,082.68
12-31-98 Contract Fee (1.00) 8.08913198 (0.124) 103.593 837.98
12-31-98 Value before Surr Chg 8.08913198 0.000 103.593 837.98
12-31-98 Surrender Charge 0.00 8.08913198 0.000 103.593 837.98
Cumulative Total Returns without/with chrgs. -15.95% A -16.20% C
Avg. Annual Total Returns without/with chrgs. -5.63% B -5.72% D
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.60981434 94.252 94.252 $1,000.00
12-31-96 Contract Fee (1.00) 12.56777212 (0.080) 94.173 1,183.54
12-31-97 Contract Fee (1.00) 13.87942981 (0.072) 94.101 1,306.06
12-31-98 Contract Fee (1.00) 13.71521346 (0.073) 94.028 1,289.61
12-31-98 Value before Surr Chg 13.71521346 0.000 94.028 1,289.61
12-31-98 Surrender Charge 0.00 13.71521346 0.000 94.028 1,289.61
Cumulative Total Returns without/with chrgs. 29.27% A 28.96% C
Avg. Annual Total Returns without/with chrgs. 8.93% B 8.85% D
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.38985811 87.797 87.797 $1,000.00
12-31-96 Contract Fee (1.00) 13.65479604 (0.073) 87.724 1,197.86
12-31-97 Contract Fee (1.00) 15.32113624 (0.065) 87.659 1,343.03
12-31-98 Contract Fee (1.00) 16.50542778 (0.061) 87.598 1,445.85
12-31-98 Value before Surr Chg 16.50542778 0.000 87.598 1,445.85
12-31-98 Surrender Charge 0.00 16.50542778 0.000 87.598 1,445.85
Cumulative Total Returns without/with chrgs. 44.91% A 44.58% C
Avg. Annual Total Returns without/with chrgs. 13.16% B 13.08% D
Templeton Global Income Securities
12-31-95 Purchase $1,000.00 $15.78722021 63.342 63.342 $1,000.00
12-31-96 Contract Fee (1.00) 17.10980700 (0.058) 63.284 1,082.78
12-31-97 Contract Fee (1.00) 17.33276007 (0.058) 63.226 1,095.89
12-31-98 Contract Fee (1.00) 18.34802772 (0.055) 63.172 1,159.08
12-31-98 Value before Surr Chg 18.34802772 0.000 63.172 1,159.08
12-31-98 Surrender Charge 0.00 18.34802772 0.000 63.172 1,159.08
Cumulative Total Returns without/with chrgs. 16.22% A 15.91% C
Avg. Annual Total Returns without/with chrgs. 5.14% B 5.04% D
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.39111819 74.676 74.676 $1,000.00
12-31-96 Contract Fee (1.00) 16.27814128 (0.061) 74.615 1,214.59
12-31-97 Contract Fee (1.00) 17.97281886 (0.056) 74.559 1,340.04
12-31-98 Contract Fee (1.00) 18.75560582 (0.053) 74.506 1,397.40
12-31-98 Value before Surr Chg 18.75560582 0.000 74.506 1,397.40
12-31-98 Surrender Charge 0.00 18.75560582 0.000 74.506 1,397.40
Cumulative Total Returns without/with chrgs. 40.06% A 39.74% C
Avg. Annual Total Returns without/with chrgs. 11.88% B 11.80% D
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.76237529 72.662 72.662 $1,000.00
12-31-96 Contract Fee (1.00) 15.11424511 (0.066) 72.596 1,097.23
12-31-97 Contract Fee (1.00) 9.57028335 (0.104) 72.491 693.76
12-31-98 Contract Fee (1.00) 8.21827526 (0.122) 72.370 594.75
12-31-98 Value before Surr Chg 8.21827526 0.000 72.370 594.75
12-31-98 Surrender Charge 0.00 8.21827526 0.000 72.370 594.75
Cumulative Total Returns without/with chrgs. -40.28% A -40.52% C
Avg. Annual Total Returns without/with chrgs. -15.79% B -15.90% D
U.S. Government Securities
12-31-95 Purchase $1,000.00 $16.57567304 60.329 60.329 $1,000.00
12-31-96 Contract Fee (1.00) 16.97690799 (0.059) 60.270 1,023.21
12-31-97 Contract Fee (1.00) 18.34520358 (0.055) 60.216 1,104.67
12-31-98 Contract Fee (1.00) 19.48468431 (0.051) 60.165 1,172.29
12-31-98 Value before Surr Chg 19.48468431 0.000 60.165 1,172.29
12-31-98 Surrender Charge 0.00 19.48468431 0.000 60.165 1,172.29
Cumulative Total Returns without/with chrgs. 17.55% A 17.23% C
Avg. Annual Total Returns without/with chrgs. 5.54% B 5.44% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/3 Years)]-1 C = (Accumulated Value as of December 31,
1998 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<PAGE>
FRANKLIN VALUEMARK CHARTER - TRADITIONAL
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1993
Valuation Date as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Global Utilities Securities
12-31-93 Purchase $1,000.00 $17.52656704 57.056 57.056 $1,000.00
12-31-94 Contract Fee (1.00) 15.32330871 (0.065) 56.991 873.29
12-31-95 Contract Fee (1.00) 19.89820872 (0.050) 56.941 1,133.02
12-31-96 Contract Fee (1.00) 21.05969657 (0.047) 56.893 1,198.15
12-31-97 Contract Fee (1.00) 26.39084592 (0.038) 56.855 1,500.46
12-31-98 Contract Fee (1.00) 29.00796673 (0.034) 56.821 1,648.26
12-31-98 Value before Surr Chg 29.00796673 0.000 56.821 1,648.26
12-31-98 Surrender Charge 0.00 29.00796673 0.000 56.821 1,648.26
Cumulative Total Returns without/with chrgs. 65.51% A 64.83% C
Avg. Annual Total Returns without/with chrgs. 10.60% B 10.51% D
Growth and Income
12-31-93 Purchase $1,000.00 $13.84102859 72.249 72.249 $1,000.00
12-31-94 Contract Fee (1.00) 13.40654873 (0.075) 72.174 967.61
12-31-95 Contract Fee (1.00) 17.60489243 (0.057) 72.118 1,269.62
12-31-96 Contract Fee (1.00) 19.87204072 (0.050) 72.067 1,432.12
12-31-97 Contract Fee (1.00) 25.09521695 (0.040) 72.027 1,807.54
12-31-98 Contract Fee (1.00) 26.87515706 (0.037) 71.990 1,934.75
12-31-98 Value before Surr Chg 26.87515706 0.000 71.990 1,934.75
12-31-98 Surrender Charge 0.00 26.87515706 0.000 71.990 1,934.75
Cumulative Total Returns without/with chrgs. 94.17% A 93.47% C
Avg. Annual Total Returns without/with chrgs. 14.19% B 14.11% D
High Income
12-31-93 Purchase $1,000.00 $15.33693382 65.202 65.202 $1,000.00
12-31-94 Contract Fee (1.00) 14.81974092 (0.067) 65.135 965.28
12-31-95 Contract Fee (1.00) 17.54605865 (0.057) 65.078 1,141.86
12-31-96 Contract Fee (1.00) 19.75498357 (0.051) 65.027 1,284.61
12-31-97 Contract Fee (1.00) 21.78419830 (0.046) 64.981 1,415.56
12-31-98 Contract Fee (1.00) 21.73306367 (0.046) 64.935 1,411.24
12-31-98 Value before Surr Chg 21.73306367 0.000 64.935 1,411.24
12-31-98 Surrender Charge 0.00 21.73306367 0.000 64.935 1,411.24
Cumulative Total Returns without/with chrgs. 41.70% A 41.12% C
Avg. Annual Total Returns without/with chrgs. 7.22% B 7.13% D
Income Securities
12-31-93 Purchase $1,000.00 $17.94713003 55.719 55.719 $1,000.00
12-31-94 Contract Fee (1.00) 16.62977746 (0.060) 55.659 925.60
12-31-95 Contract Fee (1.00) 20.12279936 (0.050) 55.609 1,119.02
12-31-96 Contract Fee (1.00) 22.13425764 (0.045) 55.564 1,229.87
12-31-97 Contract Fee (1.00) 25.62042731 (0.039) 55.525 1,422.58
12-31-98 Contract Fee (1.00) 25.74307193 (0.039) 55.486 1,428.39
12-31-98 Value before Surr Chg 25.74307193 0.000 55.486 1,428.39
12-31-98 Surrender Charge 0.00 25.74307193 0.000 55.486 1,428.39
Cumulative Total Returns without/with chrgs. 43.44% A 42.84% C
Avg. Annual Total Returns without/with chrgs. 7.48% B 7.39% D
Money Market
12-31-93 Purchase $1,000.00 $12.21054920 81.896 81.896 $1,000.00
12-31-94 Contract Fee (1.00) 12.53340422 (0.080) 81.817 1,025.44
12-31-95 Contract Fee (1.00) 13.10323440 (0.076) 81.740 1,071.06
12-31-96 Contract Fee (1.00) 13.62137774 (0.073) 81.667 1,112.42
12-31-97 Contract Fee (1.00) 14.17218301 (0.071) 81.596 1,156.40
12-31-98 Contract Fee (1.00) 14.74136821 (0.068) 81.528 1,201.84
12-31-98 Value before Surr Chg 14.74136821 0.000 81.528 1,201.84
12-31-98 Surrender Charge 0.00 14.74136821 0.000 81.528 1,201.84
Cumulative Total Returns without/with chrgs. 20.73% A 20.18% C
Avg. Annual Total Returns without/with chrgs. 3.84% B 3.75% D
Natural Resources Securities
12-31-93 Purchase $1,000.00 $14.63706626 68.320 68.320 $1,000.00
12-31-94 Contract Fee (1.00) 14.18181168 (0.071) 68.249 967.90
12-31-95 Contract Fee (1.00) 14.34930812 (0.070) 68.179 978.33
12-31-96 Contract Fee (1.00) 14.75130887 (0.068) 68.112 1,004.74
12-31-97 Contract Fee (1.00) 11.81546095 (0.085) 68.027 803.77
12-31-98 Contract Fee (1.00) 8.71583999 (0.115) 67.912 591.91
12-31-98 Value before Surr Chg 8.71583999 0.000 67.912 591.91
12-31-98 Surrender Charge 0.00 8.71583999 0.000 67.912 591.91
Cumulative Total Returns without/with chrgs. -40.45% A -40.81% C
Avg. Annual Total Returns without/with chrgs. -9.85% B -9.96% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.55336194 64.295 64.295 $1,000.00
12-31-94 Contract Fee (1.00) 15.82054834 (0.063) 64.232 1,016.18
12-31-95 Contract Fee (1.00) 18.38107219 (0.054) 64.177 1,179.65
12-31-96 Contract Fee (1.00) 24.13213472 (0.041) 64.136 1,547.73
12-31-97 Contract Fee (1.00) 28.79409821 (0.035) 64.101 1,845.73
12-31-98 Contract Fee (1.00) 23.67830533 (0.042) 64.059 1,516.80
12-31-98 Value before Surr Chg 23.67830533 0.000 64.059 1,516.80
12-31-98 Surrender Charge 0.00 23.67830533 0.000 64.059 1,516.80
Cumulative Total Returns without/with chrgs. 52.24% A 51.68% C
Avg. Annual Total Returns without/with chrgs. 8.77% B 8.69% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.37534691 96.382 96.382 $1,000.00
12-31-94 Contract Fee (1.00) 9.83877840 (0.102) 96.281 $947.28
12-31-95 Contract Fee (1.00) 12.61940064 (0.079) 96.201 $1,214.00
12-31-96 Contract Fee (1.00) 15.49018734 (0.065) 96.137 1,489.18
12-31-97 Contract Fee (1.00) 20.37072965 (0.049) 96.088 1,957.38
12-31-98 Contract Fee (1.00) 21.53179602 (0.046) 96.041 2,067.94
12-31-98 Value before Surr Chg 21.53179602 0.000 96.041 2,067.94
12-31-98 Surrender Charge 0.00 21.53179602 0.000 96.041 2,067.94
Cumulative Total Returns without/with chrgs. 107.53% A 106.79% C
Avg. Annual Total Rtns. without/with chrgs. 15.72% B 15.64% D
Templeton Global Income Securities
12-31-93 Purchase $1,000.00 $14.82560094 67.451 67.451 $1,000.00
12-31-94 Contract Fee (1.00) 13.92564759 (0.072) 67.379 938.30
12-31-95 Contract Fee (1.00) 15.78722021 (0.063) 67.316 1,062.73
12-31-96 Contract Fee (1.00) 17.10980700 (0.058) 67.257 1,150.76
12-31-97 Contract Fee (1.00) 17.33276007 (0.058) 67.200 1,164.75
12-31-98 Contract Fee (1.00) 18.34802772 (0.055) 67.145 1,231.98
12-31-98 Value before Surr Chg 18.34802772 0.000 67.145 1,231.98
12-31-98 Surrender Charge 0.00 18.34802772 0.000 67.145 1,231.98
Cumulative Total Returns without/with chrgs. 23.76% A 23.20% C
Avg. Annual Total Returns without/with chrgs. 4.36% B 4.26% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.28264627 81.416 81.416 $1,000.00
12-31-94 Contract Fee (1.00) 12.24851497 (0.082) 81.334 996.22
12-31-95 Contract Fee (1.00) 13.39111819 (0.075) 81.259 1,088.15
12-31-96 Contract Fee (1.00) 16.27814128 (0.061) 81.198 1,321.75
12-31-97 Contract Fee (1.00) 17.97281886 (0.056) 81.142 1,458.36
12-31-98 Contract Fee (1.00) 18.75560582 (0.053) 81.089 1,520.87
12-31-98 Value before Surr Chg 18.75560582 0.000 81.089 1,520.87
12-31-98 Surrender Charge 0.00 18.75560582 0.000 81.089 1,520.87
Cumulative Total Returns without/with chrgs. 52.70% A 52.09% C
Avg. Annual Total Rtns. without/with chrgs. 8.83% B 8.75% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.29965910 69.932 69.932 $1,000.00
12-31-94 Contract Fee (1.00) 12.89352035 (0.078) 69.854 900.67
12-31-95 Contract Fee (1.00) 13.76237529 (0.073) 69.782 960.36
12-31-96 Contract Fee (1.00) 15.11424511 (0.066) 69.715 1,053.69
12-31-97 Contract Fee (1.00) 9.57028335 (0.104) 69.611 666.20
12-31-98 Contract Fee (1.00) 8.21827526 (0.122) 69.489 571.08
12-31-98 Value before Surr Chg 8.21827526 0.000 69.489 571.08
12-31-98 Surrender Charge 0.00 8.21827526 0.000 69.489 571.08
Cumulative Total Returns without/with chrgs. -42.53% A -42.89% C
Avg. Annual Total Rtns. without/with chrgs. -10.49% B -10.60% D
U.S. Government Securities
12-31-93 Purchase $1,000.00 $14.87459625 67.229 67.229 $1,000.00
12-31-94 Contract Fee (1.00) 14.03583603 (0.071) 67.157 942.61
12-31-95 Contract Fee (1.00) 16.57567304 (0.060) 67.097 1,112.18
12-31-96 Contract Fee (1.00) 16.97690799 (0.059) 67.038 1,138.10
12-31-97 Contract Fee (1.00) 18.34520358 (0.055) 66.984 1,228.83
12-31-98 Contract Fee (1.00) 19.48468431 (0.051) 66.932 1,304.16
12-31-98 Value before Surr Chg 19.48468431 0.000 66.932 1,304.16
12-31-98 Surrender Charge 0.00 19.48468431 0.000 66.932 1,304.16
Cumulative Total Returns without/with chrgs. 30.99% A 30.42% C
Avg. Annual Total Returns without/with chrgs. 5.55% B 5.45% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of December 31,
1998 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<PAGE>
FRANKLIN VALUEMARK CHARTER - TRADITIONAL
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.21033305 (0.089) 99.911 $1,120.03
5-1-98 Contract Fee (1.00) $14.71990053 (0.068) 99.843 $1,469.68
12-31-98 Contract Fee (1.00) $15.67842030 (0.064) 99.779 $1,564.38
12-31-98 Value before Surr Chg $15.67842030 0.000 99.779 $1,564.38
12-31-98 Surrender Charge 0.00 $15.67842030 0.000 99.779 $1,564.38
Cumulative Total Returns without/with chgs. 56.78% A 56.44% C
Avg. Annual Total Returns without/with chgs. 18.36% B 18.26% D
Global Health Care Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr Chg 10.62797818 0.000 100.000 1,062.80
12-31-98 Contract Fee (1.00) 10.62797818 (0.094) 99.906 1,061.80
12-31-98 Surrender Charge 0.00 10.62797818 0.000 99.906 1,061.80
Cumulative Total Returns without/with chgs. 6.28% A 6.18% C
Avg. Annual Total Returns without/with chgs. 9.54% B 9.38% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.50790622 (0.087) 99.913 1,149.79
1-24-91 Contract Fee (1.00) 12.02755131 (0.083) 99.830 1,200.71
1-24-92 Contract Fee (1.00) 14.34100842 (0.070) 99.760 1,430.66
1-24-93 Contract Fee (1.00) 16.12931554 (0.062) 99.698 1,608.06
1-24-94 Contract Fee (1.00) 16.70611204 (0.060) 99.638 1,664.57
1-24-95 Contract Fee (1.00) 15.79967410 (0.063) 99.575 1,573.25
1-24-96 Contract Fee (1.00) 20.15959504 (0.050) 99.525 2,006.39
1-24-97 Contract Fee (1.00) 21.37945936 (0.047) 99.479 2,126.80
1-24-98 Contract Fee (1.00) 25.74908010 (0.039) 99.440 2,560.49
12-31-98 Value before Surr Chg 29.00796673 0.000 99.440 2,884.55
12-31-98 Contract Fee (1.00) 29.00796673 (0.034) 99.405 2,883.55
12-31-98 Surrender Charge 0.00 29.00796673 0.000 99.405 2,883.55
Cumulative Total Returns without/with chgs. 190.08% A 188.35% C
Avg. Annual Total Returns without/with chgs. 11.31% B 11.24% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.62623481 (0.104) 99.896 961.62
1-24-91 Contract Fee (1.00) 10.09527329 (0.099) 99.797 1,007.48
1-24-92 Contract Fee (1.00) 12.28128171 (0.081) 99.716 1,224.64
1-24-93 Contract Fee (1.00) 12.74339470 (0.078) 99.637 1,269.72
1-24-94 Contract Fee (1.00) 14.33475402 (0.070) 99.567 1,427.27
1-24-95 Contract Fee (1.00) 13.54572423 (0.074) 99.494 1,347.71
1-24-96 Contract Fee (1.00) 17.66231606 (0.057) 99.437 1,756.29
1-24-97 Contract Fee (1.00) 20.33223015 (0.049) 99.388 2,020.78
1-24-98 Contract Fee (1.00) 24.57573546 (0.041) 99.347 2,441.53
12-31-98 Value before Surr Chg 26.87515706 0.000 99.347 2,669.97
12-31-98 Contract Fee (1.00) 26.87515706 (0.037) 99.310 2,668.97
12-31-98 Surrender Charge 0.00 26.87515706 0.000 99.310 2,668.97
Cumulative Total Returns without/with chgs. 168.75% A 166.90% C
Avg. Annual Total Returns without/with chgs. 10.46% B 10.38% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.01247263 (0.100) 99.900 1,000.25
1-24-91 Contract Fee (1.00) 9.03854711 (0.111) 99.789 901.95
1-24-92 Contract Fee (1.00) 11.97271866 (0.084) 99.706 1,193.75
1-24-93 Contract Fee (1.00) 13.57642606 (0.074) 99.632 1,352.65
1-24-94 Contract Fee (1.00) 15.54710866 (0.064) 99.568 1,547.99
1-24-95 Contract Fee (1.00) 14.94147808 (0.067) 99.501 1,486.69
1-24-96 Contract Fee (1.00) 17.81404590 (0.056) 99.445 1,771.52
1-24-97 Contract Fee (1.00) 19.85157648 (0.050) 99.395 1,973.14
1-24-98 Contract Fee (1.00) 21.97917663 (0.045) 99.349 2,183.61
12-31-98 Value before Surr Chg 21.73306367 0.000 99.349 2,159.16
12-31-98 Contract Fee (1.00) 21.73306367 (0.046) 99.303 2,158.16
12-31-98 Surrender Charge 0.00 21.73306367 0.000 99.303 2,158.16
Cumulative Total Returns without/with chgs. 117.33% A 115.82% C
Avg. Annual Total Returns without/with chgs. 8.12% B 8.05% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.73543059 (0.093) 99.907 1,072.54
1-24-91 Contract Fee (1.00) 9.99815906 (0.100) 99.807 997.88
1-24-92 Contract Fee (1.00) 14.13321220 (0.071) 99.736 1,409.59
1-24-93 Contract Fee (1.00) 15.50840939 (0.064) 99.672 1,545.75
1-24-94 Contract Fee (1.00) 17.94491410 (0.056) 99.616 1,787.60
1-24-95 Contract Fee (1.00) 16.60507143 (0.060) 99.556 1,653.13
1-24-96 Contract Fee (1.00) 20.55801167 (0.049) 99.507 2,045.67
1-24-97 Contract Fee (1.00) 22.33600279 (0.045) 99.462 2,221.59
1-24-98 Contract Fee (1.00) 25.29525819 (0.040) 99.423 2,514.92
12-31-98 Value before Surr Chg 25.74307193 0.000 99.423 2,559.45
12-31-98 Contract Fee (1.00) 25.74307193 (0.039) 99.384 2,558.45
12-31-98 Surrender Charge 0.00 25.74307193 0.000 99.384 2,558.45
Cumulative Total Returns without/with chgs. 157.43% A 155.84% C
Avg. Annual Total Returns without/with chgs. 9.98% B 9.91% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70205023 (0.093) 99.907 1,069.21
1-24-91 Contract Fee (1.00) 11.38081213 (0.088) 99.819 1,136.02
1-24-92 Contract Fee (1.00) 11.84234028 (0.084) 99.734 1,181.09
1-24-93 Contract Fee (1.00) 12.05609140 (0.083) 99.651 1,201.41
1-24-94 Contract Fee (1.00) 12.22281087 (0.082) 99.569 1,217.02
1-24-95 Contract Fee (1.00) 12.57035300 (0.080) 99.490 1,250.62
1-24-96 Contract Fee (1.00) 13.14301293 (0.076) 99.414 1,306.60
1-24-97 Contract Fee (1.00) 13.65590257 (0.073) 99.341 1,356.59
1-24-98 Contract Fee (1.00) 14.20873494 (0.070) 99.270 1,410.50
12-31-98 Value before Surr Chg 14.74136821 0.000 99.270 1,463.38
12-31-98 Contract Fee (1.00) 14.74136821 (0.068) 99.202 1,462.38
12-31-98 Surrender Charge 0.00 14.74136821 0.000 99.202 1,462.38
Cumulative Total Returns without/with chgs. 47.41% A 46.24% C
Avg. Annual Total Returns without/with chgs. 3.98% B 3.90% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.86958749 (0.084) 99.916 1,185.96
11-8-98 Contract Fee (1.00) 11.01552755 (0.091) 99.825 1,099.62
12-31-98 Contract Fee (1.00) 11.28636146 (0.089) 99.736 1,125.66
12-31-98 Value before Surr Chg 11.28636146 0.000 99.736 1,125.66
12-31-98 Surrender Charge 0.00 11.28636146 0.000 99.736 1,125.66
Cumulative Total Returns without/with chgs. 12.86% A 12.57% C
Avg. Annual Total Returns without/with chgs. 5.80% B 5.67% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) $11.79041481 (0.085) 99.915 1,178.04
11-8-98 Contract Fee (1.00) $11.65170967 (0.086) 99.829 1,163.18
12-31-98 Value before Surr Chg 11.90018520 0.000 99.829 1,187.99
12-31-98 Contract Fee (1.00) 11.90018520 (0.084) 99.745 1,186.99
12-31-98 Surrender Charge 0.00 11.90018520 0.000 99.745 1,186.99
Cumulative Total Returns without/with chgs. 19.00% A 18.70% C
Avg. Annual Total Returns without/with chgs. 8.45% B 8.32% D
Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.92411155 (0.077) 99.923 1,291.41
1-24-91 Contract Fee (1.00) 9.83089178 (0.102) 99.821 981.33
1-24-92 Contract Fee (1.00) 11.02021358 (0.091) 99.730 1,099.05
1-24-93 Contract Fee (1.00) 9.24294212 (0.108) 99.622 920.80
1-24-94 Contract Fee (1.00) 14.65634646 (0.068) 99.554 1,459.09
1-24-95 Contract Fee (1.00) 13.22526493 (0.076) 99.478 1,315.62
1-24-96 Contract Fee (1.00) 16.26213065 (0.061) 99.417 1,616.73
1-24-97 Contract Fee (1.00) 14.10062734 (0.071) 99.346 1,400.84
1-24-98 Contract Fee (1.00) 10.84455116 (0.092) 99.254 1,076.36
12-31-98 Value before Surr Chg 8.71583999 0.000 99.254 865.08
12-31-98 Contract Fee (1.00) 8.71583999 (0.115) 99.139 864.08
12-31-98 Surrender Charge 0.00 8.71583999 0.000 99.139 864.08
Cumulative Total Returns without/with chgs. -12.84% A -13.59% C
Avg. Annual Total Returns without/with chgs. -1.37% B -1.46% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.16102563 (0.098) 99.902 1,015.10
1-24-91 Contract Fee (1.00) 9.42013692 (0.106) 99.795 940.09
1-24-92 Contract Fee (1.00) 12.37158964 (0.081) 99.715 1,233.63
1-24-93 Contract Fee (1.00) 13.67511407 (0.073) 99.641 1,362.61
1-24-94 Contract Fee (1.00) 15.56227214 (0.064) 99.577 1,549.65
1-24-95 Contract Fee (1.00) 15.22987254 (0.066) 99.512 1,515.55
1-24-96 Contract Fee (1.00) 18.47157231 (0.054) 99.457 1,837.13
1-24-97 Contract Fee (1.00) 24.42960560 (0.041) 99.416 2,428.71
1-24-98 Contract Fee (1.00) 28.67208329 (0.035) 99.382 2,849.48
12-31-98 Value before Surr Chg 23.67830533 0.000 99.382 2,353.19
12-31-98 Contract Fee (1.00) 23.67830533 (0.042) 99.339 2,352.19
12-31-98 Surrender Charge 0.00 23.67830533 0.000 99.339 2,352.19
Cumulative Total Returns without/with chgs. 136.78% A 135.22% C
Avg. Annual Total Returns without/with chgs. 9.06% B 8.99% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.72333397 (0.093) 99.907 1,071.33
1-27-94 Contract Fee (1.00) 10.43517673 (0.096) 99.811 1,041.54
1-27-95 Contract Fee (1.00) 10.04701524 (0.100) 99.711 1,001.80
1-27-96 Contract Fee (1.00) 12.65806816 (0.079) 99.632 1,261.15
1-27-97 Contract Fee (1.00) 15.46696526 (0.065) 99.568 1,540.01
1-27-98 Contract Fee (1.00) 20.13622160 (0.050) 99.518 2,003.92
12-31-98 Value before Surr Chg 21.53179602 0.000 99.518 2,142.80
12-31-98 Contract Fee (1.00) 21.53179602 (0.046) 99.472 2,141.80
12-31-98 Surrender Charge 0.00 21.53179602 0.000 99.472 2,141.80
Cumulative Total Returns without/with chgs. 115.32% A 114.18% C
Avg. Annual Total Returns without/with chgs. 11.70% B 11.61% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00013699 99.999 99.999 $1,000.00
11-1-96 Contract Fee (1.00) 12.18879026 (0.082) 99.917 1,217.86
11-1-97 Contract Fee (1.00) 15.64277862 (0.064) 99.853 1,561.97
11-1-98 Contract Fee (1.00) 12.62749993 (0.079) 99.773 1,259.89
12-31-98 Value before Surr Chg 14.71584589 0.000 99.773 1,468.25
12-31-98 Contract Fee (1.00) 14.71584589 (0.068) 99.706 1,467.25
12-31-98 Surrender Charge 0.00 14.71584589 0.000 99.706 1,467.25
Cumulative Total Returns without/with chgs. 47.16% A 46.73% C
Avg. Annual Total Returns without/with chgs. 12.97% B 12.87% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.64994828 (0.116) 99.884 863.99
3-15-96 Contract Fee (1.00) 10.34752088 (0.097) 99.788 1,032.56
3-15-97 Contract Fee (1.00) 12.54712854 (0.080) 99.708 1,251.05
3-15-98 Contract Fee (1.00) 10.65808371 (0.094) 99.614 1,061.70
12-31-98 Value before Surr Chg 8.08913198 0.000 99.614 805.79
12-31-98 Contract Fee (1.00) 8.08913198 (0.124) 99.491 804.79
12-31-98 Surrender Charge 0.00 8.08913198 0.000 99.491 804.79
Cumulative Total Returns without/with chgs. -19.11% A -19.52% C
Avg. Annual Total Returns without/with chgs. -4.32% B -4.42% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00095901 99.990 99.990 $1,000.00
5-1-96 Contract Fee (1.00) 11.28171238 (0.089) 99.902 1,127.06
5-1-97 Contract Fee (1.00) 12.83816890 (0.078) 99.824 1,281.56
5-1-98 Contract Fee (1.00) 15.10648489 (0.066) 99.758 1,506.99
12-31-98 Value before Surr Chg 13.71521346 0.000 99.758 1,368.20
12-31-98 Contract Fee (1.00) 13.71521346 (0.073) 99.685 1,367.20
12-31-98 Surrender Charge 0.00 13.71521346 0.000 99.685 1,367.20
Cumulative Total Returns without/with chgs. 37.14% A 36.72% C
Avg. Annual Total Returns without/with chgs. 8.98% B 8.89% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.12890456 (0.099) 99.901 1,011.89
3-15-96 Contract Fee (1.00) 11.87476901 (0.084) 99.817 1,185.30
3-15-97 Contract Fee (1.00) 14.20587593 (0.070) 99.747 1,416.99
3-15-98 Contract Fee (1.00) 16.91072518 (0.059) 99.688 1,685.79
12-31-98 Value before Surr Chg 16.50542778 0.000 99.688 1,645.39
12-31-98 Contract Fee (1.00) 16.50542778 (0.061) 99.627 1,644.39
12-31-98 Surrender Charge 0.00 16.50542778 0.000 99.627 1,644.39
Cumulative Total Returns without/with chgs. 65.05% A 64.44% C
Avg. Annual Total Returns without/with chgs. 11.00% B 10.92% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.88398360 (0.092) 99.908 1,087.40
1-24-91 Contract Fee (1.00) 11.83869981 (0.084) 99.824 1,181.78
1-24-92 Contract Fee (1.00) 13.05248195 (0.077) 99.747 1,301.95
1-24-93 Contract Fee (1.00) 12.91910072 (0.077) 99.670 1,287.64
1-24-94 Contract Fee (1.00) 15.01473916 (0.067) 99.603 1,495.51
1-24-95 Contract Fee (1.00) 13.77770469 (0.073) 99.530 1,371.30
1-24-96 Contract Fee (1.00) 15.71569560 (0.064) 99.467 1,563.19
1-24-97 Contract Fee (1.00) 16.90858213 (0.059) 99.408 1,680.84
1-24-98 Contract Fee (1.00) 17.45374440 (0.057) 99.350 1,734.04
12-31-98 Value before Surr Chg 18.34802772 0.000 99.350 1,822.88
12-31-98 Contract Fee (1.00) 18.34802772 (0.055) 99.296 1,821.88
12-31-98 Surrender Charge 0.00 18.34802772 0.000 99.296 1,821.88
Cumulative Total Returns without/with chgs. 83.48% A 82.19% C
Avg. Annual Total Returns without/with chgs. 6.30% B 6.22% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.56592616 (0.105) 99.895 955.59
1-27-94 Contract Fee (1.00) 12.93980952 (0.077) 99.818 1,291.63
1-27-95 Contract Fee (1.00) 12.03228459 (0.083) 99.735 1,200.04
1-27-96 Contract Fee (1.00) 13.71077886 (0.073) 99.662 1,366.45
1-27-97 Contract Fee (1.00) 16.42220499 (0.061) 99.601 1,635.67
1-27-98 Contract Fee (1.00) 17.80157689 (0.056) 99.545 1,772.06
12-31-98 Value before Surr Chg 18.75560582 0.000 99.545 1,867.03
12-31-98 Contract Fee (1.00) 18.75560582 (0.053) 99.492 1,866.03
12-31-98 Surrender Charge 0.00 18.75560582 0.000 99.492 1,866.03
Cumulative Total Returns without/with chgs. 87.56% A 86.60% C
Avg. Annual Total Returns without/with chgs. 9.50% B 9.42% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.35861787 (0.088) 99.912 1,134.86
5-1-98 Contract Fee (1.00) $12.11635223 (0.083) 99.829 1,209.57
12-31-98 Value before Surr Chg $9.42712492 0.000 99.829 941.10
12-31-98 Contract Fee (1.00) $9.42712492 (0.106) 99.723 940.10
12-31-98 Surrender Charge 0.00 $9.42712492 0.000 99.723 940.10
Cumulative Total Returns without/with chgs. -5.73% A -5.99% C
Avg. Annual Total Returns without/with chgs. -2.19% B -2.29% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.95172877 (0.100) 99.900 994.17
1-27-94 Contract Fee (1.00) 14.17014828 (0.071) 99.829 1,414.59
1-27-95 Contract Fee (1.00) 12.03566472 (0.083) 99.746 1,200.51
1-27-96 Contract Fee (1.00) 14.63990240 (0.068) 99.678 1,459.27
1-27-97 Contract Fee (1.00) 14.83537903 (0.067) 99.610 1,477.75
1-27-98 Contract Fee (1.00) 8.59356587 (0.116) 99.494 855.01
12-31-98 Value before Surr Chg 8.21827526 0.000 99.494 817.67
12-31-98 Contract Fee (1.00) 8.21827526 (0.122) 99.372 816.67
12-31-98 Surrender Charge 0.00 8.21827526 0.000 99.372 816.67
Cumulative Total Returns without/with chgs. -17.82% A -18.33% C
Avg. Annual Total Returns without/with chgs. -2.79% B -2.88% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.33322715 (0.097) 99.903 1,032.32
3-14-91 Contract Fee (1.00) 11.51900672 (0.087) 99.816 1,149.79
3-14-92 Contract Fee (1.00) 12.49298132 (0.080) 99.736 1,246.00
3-14-93 Contract Fee (1.00) 14.24234227 (0.070) 99.666 1,419.48
3-14-94 Contract Fee (1.00) 14.44595766 (0.069) 99.597 1,438.77
3-14-95 Contract Fee (1.00) 14.89435916 (0.067) 99.530 1,482.43
3-14-96 Contract Fee (1.00) 16.20530790 (0.062) 99.468 1,611.91
3-14-97 Contract Fee (1.00) 17.06365018 (0.059) 99.409 1,696.29
3-14-98 Contract Fee (1.00) 18.60606418 (0.054) 99.356 1,848.62
12-31-98 Value before Surr Chg 19.48468431 0.000 99.356 1,935.92
12-31-98 Contract Fee (1.00) 19.48468431 (0.051) 99.304 1,934.92
12-31-98 Surrender Charge 0.00 19.48468431 0.000 99.304 1,934.92
Cumulative Total Returns without/with chgs. 94.85% A 93.49% C
Avg. Annual Total Returns without/with chgs. 7.04% B 6.96% D
Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr Chg 7.73034081 0.000 100.000 773.03
12-31-98 Contract Fee (1.00) 7.73034081 (0.129) 99.871 772.03
12-31-98 Surrender Charge 0.00 7.73034081 0.000 99.871 772.03
Cumulative Total Returns without/with chgs. -22.70% A -22.80% C
Avg. Annual Total Returns without/with chgs. -31.96% B -32.09% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/Years since Inception)]-1 C = (Accumulated Value as of
December 31, 1998 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
FRANKLIN VALUEMARK CHARTER - ENHANCED
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, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-97 Purchase $1,000.00 $13.14062281 76.100 76.100 $1,000.00
12-31-98 Contract Fee (1.00) 15.59496210 (0.064) 76.036 1,185.77
12-31-98 Value before Surr Chg 15.59496210 0.000 76.036 1,185.77
12-31-98 Surrender Charge 0.00 15.59496210 0.000 76.036 1,185.77
Cumulative and Average Annual Total Returns
without/with charges 18.68% A 18.58% B
Global Utilities Securities
12-31-97 Purchase $1,000.00 $25.93182095 38.563 38.563 $1,000.00
12-31-98 Contract Fee (1.00) 28.44646754 (0.035) 38.528 1,095.97
12-31-98 Value before Surr Chg 28.44646754 0.000 38.528 1,095.97
12-31-98 Surrender Charge 0.00 28.44646754 0.000 38.528 1,095.97
Cumulative and Average Annual Total Returns
without/with charges 9.70% A 9.60% B
Growth and Income
12-31-97 Purchase $1,000.00 $24.65872729 40.554 40.554 $1,000.00
12-31-98 Contract Fee (1.00) 26.35494208 (0.038) 40.516 1,067.79
12-31-98 Value before Surr Chg 26.35494208 0.000 40.516 1,067.79
12-31-98 Surrender Charge 0.00 26.35494208 0.000 40.516 1,067.79
Cumulative and Average Annual Total Returns
without/with charges 6.88% A 6.78% B
High Income
12-31-97 Purchase $1,000.00 $21.40529831 46.717 46.717 $1,000.00
12-31-98 Contract Fee (1.00) 21.31238277 (0.047) 46.670 994.66
12-31-98 Value before Surr Chg 21.31238277 0.000 46.670 994.66
12-31-98 Surrender Charge 0.00 21.31238277 0.000 46.670 994.66
Cumulative and Average Annual Total Returns
without/with charges -0.43% A -0.53% B
Income Securities
12-31-97 Purchase $1,000.00 $25.17480249 39.722 39.722 $1,000.00
12-31-98 Contract Fee (1.00) 25.24477041 (0.040) 39.683 1,001.78
12-31-98 Value before Surr Chg 25.24477041 0.000 39.683 1,001.78
12-31-98 Surrender Charge 0.00 25.24477041 0.000 39.683 1,001.78
Cumulative and Average Annual Total Returns
without/with charges 0.28% A 0.18% B
Money Market
12-31-97 Purchase $1,000.00 $13.92568140 71.810 71.810 $1,000.00
12-31-98 Contract Fee (1.00) 14.45602362 (0.069) 71.741 1,037.08
12-31-98 Value before Surr Chg 14.45602362 0.000 71.741 1,037.08
12-31-98 Surrender Charge 0.00 14.45602362 0.000 71.741 1,037.08
Cumulative and Average Annual Total Returns
without/with charges 3.81% A 3.71% B
Mutual Discovery Securities
12-31-97 Purchase $1,000.00 $11.98997838 83.403 83.403 $1,000.00
12-31-98 Contract Fee (1.00) 11.23822357 (0.089) 83.314 936.30
12-31-98 Value before Surr Chg 11.23822357 0.000 83.314 936.30
12-31-98 Surrender Charge 0.00 11.23822357 0.000 83.314 936.30
Cumulative and Average Annual Total Returns
without/with charges -6.27% A -6.37% B
Mutual Shares Securities
12-31-97 Purchase $1,000.00 $11.99978762 83.335 83.335 $1,000.00
12-31-98 Contract Fee (1.00) 11.84942927 (0.084) 83.250 986.47
12-31-98 Value before Surr Chg 11.84942927 0.000 83.250 986.47
12-31-98 Surrender Charge 0.00 11.84942927 0.000 83.250 986.47
Cumulative and Average Annual Total Returns
without/with charges -1.25% A -1.35% B
Natural Resources Securities
12-31-97 Purchase $1,000.00 $11.60995061 86.133 86.133 $1,000.00
12-31-98 Contract Fee (1.00) 8.54712989 (0.117) 86.016 735.19
12-31-98 Value before Surr Chg 8.54712989 0.000 86.016 735.19
12-31-98 Surrender Charge 0.00 8.54712989 0.000 86.016 735.19
Cumulative and Average Annual Total Returns
without/with charges -26.38% A -26.48% B
Real Estate Securities
12-31-97 Purchase $1,000.00 $28.29327265 35.344 35.344 $1,000.00
12-31-98 Contract Fee (1.00) 23.21997093 (0.043) 35.301 819.69
12-31-98 Value before Surr Chg 23.21997093 0.000 35.301 819.69
12-31-98 Surrender Charge 0.00 23.21997093 0.000 35.301 819.69
Cumulative and Average Annual Total Returns
without/with charges -17.93% A -18.03% B
Rising Dividends
12-31-97 Purchase $1,000.00 $20.13324105 49.669 49.669 $1,000.00
12-31-98 Contract Fee (1.00) 21.23824945 (0.047) 49.622 1,053.88
12-31-98 Value before Surr Chg 21.23824945 0.000 49.622 1,053.88
12-31-98 Surrender Charge 0.00 21.23824945 0.000 49.622 1,053.88
Cumulative and Average Annual Total Returns
without/with charges 5.49% A 5.39% B
Small Cap
12-31-97 Purchase $1,000.00 $14.96819706 66.808 66.808 $1,000.00
12-31-98 Contract Fee (1.00) 14.62276020 (0.068) 66.740 975.92
12-31-98 Value before Surr Chg 14.62276020 0.000 66.740 975.92
12-31-98 Surrender Charge 0.00 14.62276020 0.000 66.740 975.92
Cumulative and Average Annual Total Returns
without/with charges -2.31% A -2.41% B
Templeton Developing Markets Equity
12-31-97 Purchase $1,000.00 $10.35977913 96.527 96.527 $1,000.00
12-31-98 Contract Fee (1.00) 8.01184269 (0.125) 96.402 772.36
12-31-98 Value before Surr Chg 8.01184269 0.000 96.402 772.36
12-31-98 Surrender Charge 0.00 8.01184269 0.000 96.402 772.36
Cumulative and Average Annual Total Returns
without/with charges -22.66% A -22.76% B
Templeton Global Asset Allocation
12-31-97 Purchase $1,000.00 $13.80441315 72.441 72.441 $1,000.00
12-31-98 Contract Fee (1.00) 13.61382762 (0.073) 72.367 985.19
12-31-98 Value before Surr Chg 13.61382762 0.000 72.367 985.19
12-31-98 Surrender Charge 0.00 13.61382762 0.000 72.367 985.19
Cumulative and Average Annual Total Returns
without/with charges -1.38% A -1.48% B
Templeton Global Growth
12-31-97 Purchase $1,000.00 $15.20512920 65.767 65.767 $1,000.00
12-31-98 Contract Fee (1.00) 16.34772325 (0.061) 65.706 1,074.15
12-31-98 Value before Surr Chg 16.34772325 0.000 65.706 1,074.15
12-31-98 Surrender Charge 0.00 16.34772325 0.000 65.706 1,074.15
Cumulative and Average Annual Total Returns
without/with charges 7.51% A 7.41% B
Templeton Global Income Securities
12-31-97 Purchase $1,000.00 $17.03128547 58.715 58.715 $1,000.00
12-31-98 Contract Fee (1.00) 17.99287003 (0.056) 58.660 1,055.46
12-31-98 Value before Surr Chg 17.99287003 0.000 58.660 1,055.46
12-31-98 Surrender Charge 0.00 17.99287003 0.000 58.660 1,055.46
Cumulative and Average Annual Total Returns
without/with charges 5.65% A 5.55% B
Templeton International Equity
12-31-97 Purchase $1,000.00 $17.76328590 56.296 56.296 $1,000.00
12-31-98 Contract Fee (1.00) 18.49990751 (0.054) 56.242 1,040.47
12-31-98 Value before Surr Chg 18.49990751 0.000 56.242 1,040.47
12-31-98 Surrender Charge 0.00 18.49990751 0.000 56.242 1,040.47
Cumulative and Average Annual Total Returns
without/with charges 4.15% A 4.05% B
Templeton International Smaller Companies
12-31-97 Purchase $1,000.00 $10.83419885 92.300 92.300 $1,000.00
12-31-98 Contract Fee (1.00) 9.37694315 (0.107) 92.194 864.49
12-31-98 Value before Surr Chg 9.37694315 0.000 92.194 864.49
12-31-98 Surrender Charge 0.00 9.37694315 0.000 92.194 864.49
Cumulative and Average Annual Total Returns
without/with charges -13.45% A -13.55% B
Templeton Pacific Growth
12-31-97 Purchase $1,000.00 $9.45870987 105.723 105.723 $1,000.00
12-31-98 Contract Fee (1.00) 8.10623414 (0.123) 105.599 856.01
12-31-98 Value before Surr Chg 8.10623414 0.000 105.599 856.01
12-31-98 Surrender Charge 0.00 8.10623414 0.000 105.599 856.01
Cumulative and Average Annual Total Returns
without/with charges -14.30% A -14.40% B
U.S. Government Securities
12-31-97 Purchase $1,000.00 $18.02611921 55.475 55.475 $1,000.00
12-31-98 Contract Fee (1.00) 19.10752467 (0.052) 55.423 1,058.99
12-31-98 Value before Surr Chg 19.10752467 0.000 55.423 1,058.99
12-31-98 Surrender Charge 0.00 19.10752467 0.000 55.423 1,058.99
Cumulative and Average Annual Total Returns
without/with charges 6.00% A 5.90% B
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1998 - Accum. Value at
Purch.)/Accum. Value at Purch. </FN> </TABLE> <PAGE>
FRANKLIN VALUEMARK CHARTER - ENHANCED
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Global Utilities Securities
12-31-95 Purchase $1,000.00 $19.63080545 50.940 50.940 $1,000.00
12-31-96 Contract Fee (1.00) 20.73482908 (0.048) 50.892 1,055.24
12-31-97 Contract Fee (1.00) 25.93182095 (0.039) 50.854 1,318.73
12-31-98 Contract Fee (1.00) 28.44646754 (0.035) 50.818 1,445.60
12-31-98 Value before Surr Chg 28.44646754 0.000 50.818 1,445.60
12-31-98 Surrender Charge 0.00 28.44646754 0.000 50.818 1,445.60
Cumulative Total Returns without/with chrgs. 44.91% A 44.56% C
Avg. Annual Total Returns without/with chrgs. 13.16% B 13.07% D
Growth and Income
12-31-95 Purchase $1,000.00 $17.36830803 57.576 57.576 $1,000.00
12-31-96 Contract Fee (1.00) 19.56549403 (0.051) 57.525 1,125.51
12-31-97 Contract Fee (1.00) 24.65872729 (0.041) 57.484 1,417.49
12-31-98 Contract Fee (1.00) 26.35494208 (0.038) 57.447 1,514.00
12-31-98 Value before Surr Chg 26.35494208 0.000 57.447 1,514.00
12-31-98 Surrender Charge 0.00 26.35494208 0.000 57.447 1,514.00
Cumulative Total Returns without/with chrgs. 51.74% A 51.40% C
Avg. Annual Total Returns without/with chrgs. 14.91% B 14.83% D
High Income
12-31-95 Purchase $1,000.00 $17.31026489 57.769 57.769 $1,000.00
12-31-96 Contract Fee (1.00) 19.45024262 (0.051) 57.718 1,122.62
12-31-97 Contract Fee (1.00) 21.40529831 (0.047) 57.671 1,234.47
12-31-98 Contract Fee (1.00) 21.31238277 (0.047) 57.624 1,228.11
12-31-98 Value before Surr Chg 21.31238277 0.000 57.624 1,228.11
12-31-98 Surrender Charge 0.00 21.31238277 0.000 57.624 1,228.11
Cumulative Total Returns without/with chrgs. 23.12% A 22.81% C
Avg. Annual Total Returns without/with chrgs. 7.18% B 7.09% D
Income Securities
12-31-95 Purchase $1,000.00 $19.85237791 50.372 50.372 $1,000.00
12-31-96 Contract Fee (1.00) 21.79281394 (0.046) 50.326 1,096.74
12-31-97 Contract Fee (1.00) 25.17480249 (0.040) 50.286 1,265.94
12-31-98 Contract Fee (1.00) 25.24477041 (0.040) 50.247 1,268.46
12-31-98 Value before Surr Chg 25.24477041 0.000 50.247 1,268.46
12-31-98 Surrender Charge 0.00 25.24477041 0.000 50.247 1,268.46
Cumulative Total Returns without/with chrgs. 27.16% A 26.85% C
Avg. Annual Total Returns without/with chrgs. 8.34% B 8.25% D
Money Market
12-31-95 Purchase $1,000.00 $12.92714580 77.357 77.357 $1,000.00
12-31-96 Contract Fee (1.00) 13.41125397 (0.075) 77.282 1,036.45
12-31-97 Contract Fee (1.00) 13.92568140 (0.072) 77.210 1,075.20
12-31-98 Contract Fee (1.00) 14.45602362 (0.069) 77.141 1,115.15
12-31-98 Value before Surr Chg 14.45602362 0.000 77.141 1,115.15
12-31-98 Surrender Charge 0.00 14.45602362 0.000 77.141 1,115.15
Cumulative Total Returns without/with chrgs. 11.83% A 11.52% C
Avg. Annual Total Returns without/with chrgs. 3.80% B 3.70% D
Natural Resources Securities
12-31-95 Purchase $1,000.00 $14.15647409 70.639 70.639 $1,000.00
12-31-96 Contract Fee (1.00) 14.52375475 (0.069) 70.570 1,024.94
12-31-97 Contract Fee (1.00) 11.60995061 (0.086) 70.484 818.32
12-31-98 Contract Fee (1.00) 8.54712989 (0.117) 70.367 601.44
12-31-98 Value before Surr Chg 8.54712989 0.000 70.367 601.44
12-31-98 Surrender Charge 0.00 8.54712989 0.000 70.367 601.44
Cumulative Total Returns without/with chrgs. -39.62% A -39.86% C
Avg. Annual Total Returns without/with chrgs. -15.48% B -15.59% D
Real Estate Securities
12-31-95 Purchase $1,000.00 $18.13405705 55.145 55.145 $1,000.00
12-31-96 Contract Fee (1.00) 23.75987171 (0.042) 55.103 1,309.23
12-31-97 Contract Fee (1.00) 28.29327265 (0.035) 55.067 1,558.04
12-31-98 Contract Fee (1.00) 23.21997093 (0.043) 55.024 1,277.66
12-31-98 Value before Surr Chg 23.21997093 0.000 55.024 1,277.66
12-31-98 Surrender Charge 0.00 23.21997093 0.000 55.024 1,277.66
Cumulative Total Returns without/with chrgs. 28.05% A 27.77% C
Avg. Annual Total Returns without/with chrgs. 8.59% B 8.51% D
Rising Dividends
12-31-95 Purchase $1,000.00 $12.52247781 79.856 79.856 $1,000.00
12-31-96 Contract Fee (1.00) 15.34024959 (0.065) 79.791 1,224.02
12-31-97 Contract Fee (1.00) 20.13324105 (0.050) 79.742 1,605.46
12-31-98 Contract Fee (1.00) 21.23824945 (0.047) 79.694 1,692.57
12-31-98 Value before Surr Chg 21.23824945 0.000 79.694 1,692.57
12-31-98 Surrender Charge 0.00 21.23824945 0.000 79.694 1,692.57
Cumulative Total Returns without/with chrgs. 69.60% A 69.26% C
Avg. Annual Total Returns without/with chrgs. 19.25% B 19.17% D
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $9.59029073 104.272 104.272 $1,000.00
12-31-96 Contract Fee (1.00) 11.50333939 (0.087) 104.185 1,198.48
12-31-97 Contract Fee (1.00) 10.35977913 (0.097) 104.089 1,078.34
12-31-98 Contract Fee (1.00) 8.01184269 (0.125) 103.964 832.94
12-31-98 Value before Surr Chg 8.01184269 0.000 103.964 832.94
12-31-98 Surrender Charge 0.00 8.01184269 0.000 103.964 832.94
Cumulative Total Returns without/with chrgs. -16.46% A -16.71% C
Avg. Annual Total Returns without/with chrgs. -5.82% B -5.91% D
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.59494098 94.385 94.385 $1,000.00
12-31-96 Contract Fee (1.00) 12.52487119 (0.080) 94.305 1,181.16
12-31-97 Contract Fee (1.00) 13.80441315 (0.072) 94.232 1,300.82
12-31-98 Contract Fee (1.00) 13.61382762 (0.073) 94.159 1,281.86
12-31-98 Value before Surr Chg 13.61382762 0.000 94.159 1,281.86
12-31-98 Surrender Charge 0.00 13.61382762 0.000 94.159 1,281.86
Cumulative Total Returns without/with chrgs. 28.49% A 28.19% C
Avg. Annual Total Returns without/with chrgs. 8.72% B 8.63% D
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.34911216 88.113 88.113 $1,000.00
12-31-96 Contract Fee (1.00) 13.57853778 (0.074) 88.039 1,195.44
12-31-97 Contract Fee (1.00) 15.20512920 (0.066) 87.973 1,337.64
12-31-98 Contract Fee (1.00) 16.34772325 (0.061) 87.912 1,437.16
12-31-98 Value before Surr Chg 16.34772325 0.000 87.912 1,437.16
12-31-98 Surrender Charge 0.00 16.34772325 0.000 87.912 1,437.16
Cumulative Total Returns without/with chrgs. 44.04% A 43.72% C
Avg. Annual Total Returns without/with chrgs. 12.94% B 12.85% D
Templeton Global Income Securities
12-31-95 Purchase $1,000.00 $15.57506271 64.205 64.205 $1,000.00
12-31-96 Contract Fee (1.00) 16.84587061 (0.059) 64.146 1,080.59
12-31-97 Contract Fee (1.00) 17.03128547 (0.059) 64.087 1,091.49
12-31-98 Contract Fee (1.00) 17.99287003 (0.056) 64.032 1,152.11
12-31-98 Value before Surr Chg 17.99287003 0.000 64.032 1,152.11
12-31-98 Surrender Charge 0.00 17.99287003 0.000 64.032 1,152.11
Cumulative Total Returns without/with chrgs. 15.52% A 15.21% C
Avg. Annual Total Returns without/with chrgs. 4.93% B 4.83% D
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.28826821 75.254 75.254 $1,000.00
12-31-96 Contract Fee (1.00) 16.12057650 (0.062) 75.192 1,212.14
12-31-97 Contract Fee (1.00) 17.76328590 (0.056) 75.136 1,334.66
12-31-98 Contract Fee (1.00) 18.49990751 (0.054) 75.082 1,389.01
12-31-98 Value before Surr Chg 18.49990751 0.000 75.082 1,389.01
12-31-98 Surrender Charge 0.00 18.49990751 0.000 75.082 1,389.01
Cumulative Total Returns without/with chrgs. 39.22% A 38.90% C
Avg. Annual Total Returns without/with chrgs. 11.66% B 11.58% D
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.65667389 73.224 73.224 $1,000.00
12-31-96 Contract Fee (1.00) 14.96794630 (0.067) 73.157 1,095.02
12-31-97 Contract Fee (1.00) 9.45870987 (0.106) 73.052 690.98
12-31-98 Contract Fee (1.00) 8.10623414 (0.123) 72.928 591.17
12-31-98 Value before Surr Chg 8.10623414 0.000 72.928 591.17
12-31-98 Surrender Charge 0.00 8.10623414 0.000 72.928 591.17
Cumulative Total Returns without/with chrgs. -40.64% A -40.88% C
Avg. Annual Total Returns without/with chrgs. -15.96% B -16.07% D
U.S. Government Securities
12-31-95 Purchase $1,000.00 $16.35291986 61.151 61.151 $1,000.00
12-31-96 Contract Fee (1.00) 16.71502171 (0.060) 61.091 1,021.14
12-31-97 Contract Fee (1.00) 18.02611921 (0.055) 61.036 1,100.24
12-31-98 Contract Fee (1.00) 19.10752467 (0.052) 60.984 1,165.24
12-31-98 Value before Surr Chg 19.10752467 0.000 60.984 1,165.24
12-31-98 Surrender Charge 0.00 19.10752467 0.000 60.984 1,165.24
Cumulative Total Returns without/with chrgs. 16.84% A 16.52% C
Avg. Annual Total Returns without/with chrgs. 5.33% B 5.23% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/3 Years)]-1 C = (Accumulated Value as of December 31,
1998 - Accum. Value at Purch.)/Accum. Value at Purch. D = [(C+1)^(1/3 Years)]-1
</FN> </TABLE> <PAGE>
FRANKLIN VALUEMARK CHARTER - ENHANCED
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1993
Valuation Date as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Global Utilities Securities
12-31-93 Purchase $1,000.00 $17.36015229 57.603 57.603 $1,000.00
12-31-94 Contract Fee (1.00) 15.14756957 (0.066) 57.537 871.55
12-31-95 Contract Fee (1.00) 19.63080545 (0.051) 57.486 1,128.50
12-31-96 Contract Fee (1.00) 20.73482908 (0.048) 57.438 1,190.97
12-31-97 Contract Fee (1.00) 25.93182095 (0.039) 57.399 1,488.47
12-31-98 Contract Fee (1.00) 28.44646754 (0.035) 57.364 1,631.81
12-31-98 Value before Surr Chg 28.44646754 0.000 57.364 1,631.81
12-31-98 Surrender Charge 0.00 28.44646754 0.000 57.364 1,631.81
Cumulative Total Returns without/with chrgs. 63.86% A 63.18% C
Avg. Annual Total Returns without/with chrgs. 10.38% B 10.29% D
Growth and Income
12-31-93 Purchase $1,000.00 $13.70960803 72.942 72.942 $1,000.00
12-31-94 Contract Fee (1.00) 13.25279242 (0.075) 72.866 965.68
12-31-95 Contract Fee (1.00) 17.36830803 (0.058) 72.809 1,264.56
12-31-96 Contract Fee (1.00) 19.56549403 (0.051) 72.757 1,423.53
12-31-97 Contract Fee (1.00) 24.65872729 (0.041) 72.717 1,793.10
12-31-98 Contract Fee (1.00) 26.35494208 (0.038) 72.679 1,915.45
12-31-98 Value before Surr Chg 26.35494208 0.000 72.679 1,915.45
12-31-98 Surrender Charge 0.00 26.35494208 0.000 72.679 1,915.45
Cumulative Total Returns without/with chrgs. 92.24% A 91.54% C
Avg. Annual Total Returns without/with chrgs. 13.96% B 13.88% D
High Income
12-31-93 Purchase $1,000.00 $15.19130964 65.827 65.827 $1,000.00
12-31-94 Contract Fee (1.00) 14.64977707 (0.068) 65.759 963.35
12-31-95 Contract Fee (1.00) 17.31026489 (0.058) 65.701 1,137.30
12-31-96 Contract Fee (1.00) 19.45024262 (0.051) 65.650 1,276.90
12-31-97 Contract Fee (1.00) 21.40529831 (0.047) 65.603 1,404.25
12-31-98 Contract Fee (1.00) 21.31238277 (0.047) 65.556 1,397.16
12-31-98 Value before Surr Chg 21.31238277 0.000 65.556 1,397.16
12-31-98 Surrender Charge 0.00 21.31238277 0.000 65.556 1,397.16
Cumulative Total Returns without/with chrgs. 40.29% A 39.72% C
Avg. Annual Total Returns without/with chrgs. 7.01% B 6.92% D
Income Securities
12-31-93 Purchase $1,000.00 $17.77672203 56.253 56.253 $1,000.00
12-31-94 Contract Fee (1.00) 16.43905476 (0.061) 56.193 923.75
12-31-95 Contract Fee (1.00) 19.85237791 (0.050) 56.142 1,114.55
12-31-96 Contract Fee (1.00) 21.79281394 (0.046) 56.096 1,222.50
12-31-97 Contract Fee (1.00) 25.17480249 (0.040) 56.057 1,411.21
12-31-98 Contract Fee (1.00) 25.24477041 (0.040) 56.017 1,414.13
12-31-98 Value before Surr Chg 25.24477041 0.000 56.017 1,414.13
12-31-98 Surrender Charge 0.00 25.24477041 0.000 56.017 1,414.13
Cumulative Total Returns without/with chrgs. 42.01% A 41.41% C
Avg. Annual Total Returns without/with chrgs. 7.27% B 7.18% D
Money Market
12-31-93 Purchase $1,000.00 $12.09461004 82.681 82.681 $1,000.00
12-31-94 Contract Fee (1.00) 12.38966179 (0.081) 82.601 1,023.40
12-31-95 Contract Fee (1.00) 12.92714580 (0.077) 82.523 1,066.79
12-31-96 Contract Fee (1.00) 13.41125397 (0.075) 82.449 1,105.74
12-31-97 Contract Fee (1.00) 13.92568140 (0.072) 82.377 1,147.16
12-31-98 Contract Fee (1.00) 14.45602362 (0.069) 82.308 1,189.84
12-31-98 Value before Surr Chg 14.45602362 0.000 82.308 1,189.84
12-31-98 Surrender Charge 0.00 14.45602362 0.000 82.308 1,189.84
Cumulative Total Returns without/with chrgs. 19.52% A 18.98% C
Avg. Annual Total Returns without/with chrgs. 3.63% B 3.54% D
Natural Resources Securities
12-31-93 Purchase $1,000.00 $14.49808732 68.975 68.975 $1,000.00
12-31-94 Contract Fee (1.00) 14.01916408 (0.071) 68.903 965.97
12-31-95 Contract Fee (1.00) 14.15647409 (0.071) 68.833 974.43
12-31-96 Contract Fee (1.00) 14.52375475 (0.069) 68.764 998.71
12-31-97 Contract Fee (1.00) 11.60995061 (0.086) 68.678 797.34
12-31-98 Contract Fee (1.00) 8.54712989 (0.117) 68.561 586.00
12-31-98 Value before Surr Chg 8.54712989 0.000 68.561 586.00
12-31-98 Surrender Charge 0.00 8.54712989 0.000 68.561 586.00
Cumulative Total Returns without/with chrgs. -41.05% A -41.40% C
Avg. Annual Total Returns without/with chrgs. -10.03% B -10.14% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.40568277 64.911 64.911 $1,000.00
12-31-94 Contract Fee (1.00) 15.63910649 (0.064) 64.847 1,014.15
12-31-95 Contract Fee (1.00) 18.13405705 (0.055) 64.792 1,174.94
12-31-96 Contract Fee (1.00) 23.75987171 (0.042) 64.750 1,538.45
12-31-97 Contract Fee (1.00) 28.29327265 (0.035) 64.715 1,830.99
12-31-98 Contract Fee (1.00) 23.21997093 (0.043) 64.672 1,501.67
12-31-98 Value before Surr Chg 23.21997093 0.000 64.672 1,501.67
12-31-98 Surrender Charge 0.00 23.21997093 0.000 64.672 1,501.67
Cumulative Total Returns without/with chrgs. 50.72% A 50.17% C
Avg. Annual Total Returns without/with chrgs. 8.55% B 8.47% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.33681407 96.742 96.742 $1,000.00
12-31-94 Contract Fee (1.00) 9.78270571 (0.102) 96.639 $945.39
12-31-95 Contract Fee (1.00) 12.52247781 (0.080) 96.560 $1,209.16
12-31-96 Contract Fee (1.00) 15.34024959 (0.065) 96.494 1,480.25
12-31-97 Contract Fee (1.00) 20.13324105 (0.050) 96.445 1,941.74
12-31-98 Contract Fee (1.00) 21.23824945 (0.047) 96.398 2,047.32
12-31-98 Value before Surr Chg 21.23824945 0.000 96.398 2,047.32
12-31-98 Surrender Charge 0.00 21.23824945 0.000 96.398 2,047.32
Cumulative Total Returns without/with chrgs. 105.46% A 104.73% C
Avg. Annual Total Rtns. without/with chrgs. 15.49% B 15.41% D
Templeton Global Income Securities
12-31-93 Purchase $1,000.00 $14.68483186 68.097 68.097 $1,000.00
12-31-94 Contract Fee (1.00) 13.76593787 (0.073) 68.025 936.43
12-31-95 Contract Fee (1.00) 15.57506271 (0.064) 67.961 1,058.49
12-31-96 Contract Fee (1.00) 16.84587061 (0.059) 67.901 1,143.86
12-31-97 Contract Fee (1.00) 17.03128547 (0.059) 67.843 1,155.45
12-31-98 Contract Fee (1.00) 17.99287003 (0.056) 67.787 1,219.68
12-31-98 Value before Surr Chg 17.99287003 0.000 67.787 1,219.68
12-31-98 Surrender Charge 0.00 17.99287003 0.000 67.787 1,219.68
Cumulative Total Returns without/with chrgs. 22.53% A 21.97% C
Avg. Annual Total Returns without/with chrgs. 4.15% B 4.05% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.23702994 81.719 81.719 $1,000.00
12-31-94 Contract Fee (1.00) 12.17870882 (0.082) 81.637 994.23
12-31-95 Contract Fee (1.00) 13.28826821 (0.075) 81.562 1,083.82
12-31-96 Contract Fee (1.00) 16.12057650 (0.062) 81.500 1,313.82
12-31-97 Contract Fee (1.00) 17.76328590 (0.056) 81.443 1,446.70
12-31-98 Contract Fee (1.00) 18.49990751 (0.054) 81.389 1,505.70
12-31-98 Value before Surr Chg 18.49990751 0.000 81.389 1,505.70
12-31-98 Surrender Charge 0.00 18.49990751 0.000 81.389 1,505.70
Cumulative Total Returns without/with chrgs. 51.18% A 50.57% C
Avg. Annual Total Rtns. without/with chrgs. 8.62% B 8.53% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.24655181 70.192 70.192 $1,000.00
12-31-94 Contract Fee (1.00) 12.82003822 (0.078) 70.114 898.87
12-31-95 Contract Fee (1.00) 13.65667389 (0.073) 70.041 956.53
12-31-96 Contract Fee (1.00) 14.96794630 (0.067) 69.974 1,047.37
12-31-97 Contract Fee (1.00) 9.45870987 (0.106) 69.869 660.87
12-31-98 Contract Fee (1.00) 8.10623414 (0.123) 69.745 565.37
12-31-98 Value before Surr Chg 8.10623414 0.000 69.745 565.37
12-31-98 Surrender Charge 0.00 8.10623414 0.000 69.745 565.37
Cumulative Total Returns without/with chrgs. -43.10% A -43.46% C
Avg. Annual Total Rtns. without/with chrgs. -10.66% B -10.78% D
U.S. Government Securities
12-31-93 Purchase $1,000.00 $14.73336196 67.873 67.873 $1,000.00
12-31-94 Contract Fee (1.00) 13.87486259 (0.072) 67.801 940.73
12-31-95 Contract Fee (1.00) 16.35291986 (0.061) 67.740 1,107.75
12-31-96 Contract Fee (1.00) 16.71502171 (0.060) 67.680 1,131.27
12-31-97 Contract Fee (1.00) 18.02611921 (0.055) 67.625 1,219.01
12-31-98 Contract Fee (1.00) 19.10752467 (0.052) 67.572 1,291.14
12-31-98 Value before Surr Chg 19.10752467 0.000 67.572 1,291.14
12-31-98 Surrender Charge 0.00 19.10752467 0.000 67.572 1,291.14
Cumulative Total Returns without/with chrgs. 29.69% A 29.11% C
Avg. Annual Total Returns without/with chrgs. 5.34% B 5.24% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of December 31,
1998 - Accum. Value at Purch.)/Accum. Value at Purch. D = [(C+1)^(1/5 Years)]-1
</FN> </TABLE> <PAGE>
FRANKLIN VALUEMARK CHARTER - ENHANCED
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1998
<TABLE>
<CAPTION>
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.18793330 (0.089) 99.911 $1,117.79
5-1-98 Contract Fee (1.00) $14.66113460 (0.068) 99.842 $1,463.80
12-31-98 Contract Fee (1.00) $15.59496210 (0.064) 99.778 $1,556.04
12-31-98 Value before Surr Chg $15.59496210 0.000 99.778 $1,556.04
12-31-98 Surrender Charge 0.00 $15.59496210 0.000 99.778 $1,556.04
Cumulative Total Returns without/with chgs. 55.95% A 55.60% C
Avg. Annual Total Returns without/with chgs. 18.12% B 18.02% D
Global Health Care Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr Chg 10.61377726 0.000 100.000 1,061.38
12-31-98 Contract Fee (1.00) 10.61377726 (0.094) 99.906 1,060.38
12-31-98 Surrender Charge 0.00 10.61377726 0.000 99.906 1,060.38
Cumulative Total Returns without/with chgs. 6.14% A 6.04% C
Avg. Annual Total Returns without/with chgs. 9.32% B 9.17% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.48875157 (0.087) 99.913 1,147.88
1-24-91 Contract Fee (1.00) 11.98353907 (0.083) 99.830 1,196.31
1-24-92 Contract Fee (1.00) 14.25998017 (0.070) 99.759 1,422.57
1-24-93 Contract Fee (1.00) 16.00622439 (0.062) 99.697 1,595.77
1-24-94 Contract Fee (1.00) 16.54531139 (0.060) 99.636 1,648.52
1-24-95 Contract Fee (1.00) 15.61633211 (0.064) 99.572 1,554.96
1-24-96 Contract Fee (1.00) 19.88584565 (0.050) 99.522 1,979.08
1-24-97 Contract Fee (1.00) 21.04689103 (0.048) 99.475 2,093.63
1-24-98 Contract Fee (1.00) 25.29802890 (0.040) 99.435 2,515.51
12-31-98 Value before Surr Chg 28.44646754 0.000 99.435 2,828.58
12-31-98 Contract Fee (1.00) 28.44646754 (0.035) 99.400 2,827.58
12-31-98 Surrender Charge 0.00 28.44646754 0.000 99.400 2,827.58
Cumulative Total Returns without/with chgs. 184.46% A 182.76% C
Avg. Annual Total Returns without/with chgs. 11.09% B 11.02% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.61021216 (0.104) 99.896 960.02
1-24-91 Contract Fee (1.00) 10.05833180 (0.099) 99.797 1,003.79
1-24-92 Contract Fee (1.00) 12.21189114 (0.082) 99.715 1,217.70
1-24-93 Contract Fee (1.00) 12.64614327 (0.079) 99.636 1,260.01
1-24-94 Contract Fee (1.00) 14.19677831 (0.070) 99.565 1,413.50
1-24-95 Contract Fee (1.00) 13.38853744 (0.075) 99.490 1,332.03
1-24-96 Contract Fee (1.00) 17.42247750 (0.057) 99.433 1,732.37
1-24-97 Contract Fee (1.00) 20.01595200 (0.050) 99.383 1,989.25
1-24-98 Contract Fee (1.00) 24.14523794 (0.041) 99.342 2,398.63
12-31-98 Value before Surr Chg 26.35494208 0.000 99.342 2,618.14
12-31-98 Contract Fee (1.00) 26.35494208 (0.038) 99.304 2,617.14
12-31-98 Surrender Charge 0.00 26.35494208 0.000 99.304 2,617.14
Cumulative Total Returns without/with chgs. 163.55% A 161.71% C
Avg. Annual Total Returns without/with chgs. 10.24% B 10.16% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.99580710 (0.100) 99.900 998.58
1-24-91 Contract Fee (1.00) 9.00547248 (0.111) 99.789 898.65
1-24-92 Contract Fee (1.00) 11.90507150 (0.084) 99.705 1,186.99
1-24-93 Contract Fee (1.00) 13.47281733 (0.074) 99.631 1,342.31
1-24-94 Contract Fee (1.00) 15.39746372 (0.065) 99.566 1,533.06
1-24-95 Contract Fee (1.00) 14.76809475 (0.068) 99.498 1,469.40
1-24-96 Contract Fee (1.00) 17.57214698 (0.057) 99.441 1,747.39
1-24-97 Contract Fee (1.00) 19.54277515 (0.051) 99.390 1,942.36
1-24-98 Contract Fee (1.00) 21.59416349 (0.046) 99.344 2,145.24
12-31-98 Value before Surr Chg 21.31238277 0.000 99.344 2,117.25
12-31-98 Contract Fee (1.00) 21.31238277 (0.047) 99.297 2,116.25
12-31-98 Surrender Charge 0.00 21.31238277 0.000 99.297 2,116.25
Cumulative Total Returns without/with chgs. 113.12% A 111.62% C
Avg. Annual Total Returns without/with chgs. 7.91% B 7.83% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.71756171 (0.093) 99.907 1,070.76
1-24-91 Contract Fee (1.00) 9.96157294 (0.100) 99.806 994.23
1-24-92 Contract Fee (1.00) 14.05335803 (0.071) 99.735 1,401.61
1-24-93 Contract Fee (1.00) 15.39005670 (0.065) 99.670 1,533.93
1-24-94 Contract Fee (1.00) 17.77218967 (0.056) 99.614 1,770.36
1-24-95 Contract Fee (1.00) 16.41238348 (0.061) 99.553 1,633.90
1-24-96 Contract Fee (1.00) 20.27885214 (0.049) 99.504 2,017.82
1-24-97 Contract Fee (1.00) 21.98855494 (0.045) 99.458 2,186.94
1-24-98 Contract Fee (1.00) 24.85215666 (0.040) 99.418 2,470.75
12-31-98 Value before Surr Chg 25.24477041 0.000 99.418 2,509.78
12-31-98 Contract Fee (1.00) 25.24477041 (0.040) 99.378 2,508.78
12-31-98 Surrender Charge 0.00 25.24477041 0.000 99.378 2,508.78
Cumulative Total Returns without/with chgs. 152.45% A 150.88% C
Avg. Annual Total Returns without/with chgs. 9.76% B 9.70% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.68423690 (0.094) 99.906 1,067.42
1-24-91 Contract Fee (1.00) 11.33916649 (0.088) 99.818 1,131.86
1-24-92 Contract Fee (1.00) 11.77542978 (0.085) 99.733 1,174.40
1-24-93 Contract Fee (1.00) 11.96408514 (0.084) 99.650 1,192.22
1-24-94 Contract Fee (1.00) 12.10516316 (0.083) 99.567 1,205.28
1-24-95 Contract Fee (1.00) 12.42448458 (0.080) 99.487 1,236.07
1-24-96 Contract Fee (1.00) 12.96454249 (0.077) 99.409 1,288.80
1-24-97 Contract Fee (1.00) 13.44347808 (0.074) 99.335 1,335.41
1-24-98 Contract Fee (1.00) 13.95983801 (0.072) 99.263 1,385.70
12-31-98 Value before Surr Chg 14.45602362 0.000 99.263 1,434.95
12-31-98 Contract Fee (1.00) 14.45602362 (0.069) 99.194 1,433.95
12-31-98 Surrender Charge 0.00 14.45602362 0.000 99.194 1,433.95
Cumulative Total Returns without/with chgs. 44.56% A 43.40% C
Avg. Annual Total Returns without/with chgs. 3.78% B 3.69% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.84613011 (0.084) 99.916 1,183.61
11-8-98 Contract Fee (1.00) 10.97185112 (0.091) 99.824 1,095.26
12-31-98 Contract Fee (1.00) 11.23822357 (0.089) 99.735 1,120.85
12-31-98 Value before Surr Chg 11.23822357 0.000 99.735 1,120.85
12-31-98 Surrender Charge 0.00 11.23822357 0.000 99.735 1,120.85
Cumulative Total Returns without/with chgs. 12.38% A 12.08% C
Avg. Annual Total Returns without/with chgs. 5.59% B 5.46% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.76711390 (0.085) 99.915 1,175.71
11-8-98 Contract Fee (1.00) 11.60551078 (0.086) 99.829 1,158.56
12-31-98 Value before Surr Chg 11.84942927 0.000 99.829 1,182.91
12-31-98 Contract Fee (1.00) 11.84942927 (0.084) 99.744 1,181.91
12-31-98 Surrender Charge 0.00 11.84942927 0.000 99.744 1,181.91
Cumulative Total Returns without/with chgs. 18.49% A 18.19% C
Avg. Annual Total Returns without/with chgs. 8.23% B 8.10% D
Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.90259966 (0.078) 99.922 1,289.26
1-24-91 Contract Fee (1.00) 9.79491774 (0.102) 99.820 977.73
1-24-92 Contract Fee (1.00) 10.95794818 (0.091) 99.729 1,092.83
1-24-93 Contract Fee (1.00) 9.17240445 (0.109) 99.620 913.76
1-24-94 Contract Fee (1.00) 14.51527534 (0.069) 99.551 1,445.01
1-24-95 Contract Fee (1.00) 13.07179681 (0.077) 99.475 1,300.31
1-24-96 Contract Fee (1.00) 16.04130537 (0.062) 99.412 1,594.70
1-24-97 Contract Fee (1.00) 13.88128493 (0.072) 99.340 1,378.97
1-24-98 Contract Fee (1.00) 10.65458523 (0.094) 99.246 1,057.43
12-31-98 Value before Surr Chg 8.54712989 0.000 99.246 848.27
12-31-98 Contract Fee (1.00) 8.54712989 (0.117) 99.129 847.27
12-31-98 Surrender Charge 0.00 8.54712989 0.000 99.129 847.27
Cumulative Total Returns without/with chgs. -14.53% A -15.27% C
Avg. Annual Total Returns without/with chgs. -1.57% B -1.65% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.14411284 (0.099) 99.901 1,013.41
1-24-91 Contract Fee (1.00) 9.38566595 (0.107) 99.795 936.64
1-24-92 Contract Fee (1.00) 12.30168882 (0.081) 99.714 1,226.65
1-24-93 Contract Fee (1.00) 13.57075221 (0.074) 99.640 1,352.19
1-24-94 Contract Fee (1.00) 15.41248125 (0.065) 99.575 1,534.70
1-24-95 Contract Fee (1.00) 15.05314262 (0.066) 99.509 1,497.92
1-24-96 Contract Fee (1.00) 18.22074477 (0.055) 99.454 1,812.12
1-24-97 Contract Fee (1.00) 24.04959070 (0.042) 99.412 2,390.82
1-24-98 Contract Fee (1.00) 28.16982932 (0.035) 99.377 2,799.42
12-31-98 Value before Surr Chg 23.21997093 0.000 99.377 2,307.52
12-31-98 Contract Fee (1.00) 23.21997093 (0.043) 99.334 2,306.52
12-31-98 Surrender Charge 0.00 23.21997093 0.000 99.334 2,306.52
Cumulative Total Returns without/with chgs. 132.20% A 130.65% C
Avg. Annual Total Returns without/with chgs. 8.84% B 8.77% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.70331485 (0.093) 99.907 1,069.33
1-27-94 Contract Fee (1.00) 10.39488360 (0.096) 99.810 1,037.52
1-27-95 Contract Fee (1.00) 9.98822311 (0.100) 99.710 995.93
1-27-96 Contract Fee (1.00) 12.55892121 (0.080) 99.631 1,251.25
1-27-97 Contract Fee (1.00) 15.31498618 (0.065) 99.565 1,524.84
1-27-98 Contract Fee (1.00) 19.89852265 (0.050) 99.515 1,980.20
12-31-98 Value before Surr Chg 21.23824945 0.000 99.515 2,113.53
12-31-98 Contract Fee (1.00) 21.23824945 (0.047) 99.468 2,112.53
12-31-98 Surrender Charge 0.00 21.23824945 0.000 99.468 2,112.53
Cumulative Total Returns without/with chgs. 112.38% A 111.25% C
Avg. Annual Total Returns without/with chgs. 11.48% B 11.39% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00002740 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.16423544 (0.082) 99.918 1,215.42
11-1-97 Contract Fee (1.00) 15.58015755 (0.064) 99.853 1,555.73
11-1-98 Contract Fee (1.00) 12.55188793 (0.080) 99.774 1,252.35
12-31-98 Value before Surr Chg 14.62276020 0.000 99.774 1,458.97
12-31-98 Contract Fee (1.00) 14.62276020 (0.068) 99.705 1,457.97
12-31-98 Surrender Charge 0.00 14.62276020 0.000 99.705 1,457.97
Cumulative Total Returns without/with chgs. 46.23% A 45.80% C
Avg. Annual Total Returns without/with chgs. 12.75% B 12.64% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.63266450 (0.116) 99.884 862.27
3-15-96 Contract Fee (1.00) 10.30615420 (0.097) 99.787 1,028.42
3-15-97 Contract Fee (1.00) 12.47206614 (0.080) 99.707 1,243.55
3-15-98 Contract Fee (1.00) 10.57321144 (0.095) 99.612 1,053.22
12-31-98 Value before Surr Chg 8.01184269 0.000 99.612 798.08
12-31-98 Contract Fee (1.00) 8.01184269 (0.125) 99.488 797.08
12-31-98 Surrender Charge 0.00 8.01184269 0.000 99.488 797.08
Cumulative Total Returns without/with chgs. -19.88% A -20.29% C
Avg. Annual Total Returns without/with chgs. -4.51% B -4.62% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00019180 99.998 99.998 $1,000.00
5-1-96 Contract Fee (1.00) 11.25824456 (0.089) 99.909 1,124.80
5-1-97 Contract Fee (1.00) 12.78586437 (0.078) 99.831 1,276.43
5-1-98 Contract Fee (1.00) 15.01487709 (0.067) 99.764 1,497.95
12-31-98 Value before Surr Chg 13.61382762 0.000 99.764 1,358.18
12-31-98 Contract Fee (1.00) 13.61382762 (0.073) 99.691 1,357.18
12-31-98 Surrender Charge 0.00 13.61382762 0.000 99.691 1,357.18
Cumulative Total Returns without/with chgs. 36.14% A 35.72% C
Avg. Annual Total Returns without/with chgs. 8.77% B 8.67% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.10866562 (0.099) 99.901 1,009.87
3-15-96 Contract Fee (1.00) 11.82729680 (0.085) 99.817 1,180.56
3-15-97 Contract Fee (1.00) 14.12089018 (0.071) 99.746 1,408.50
3-15-98 Contract Fee (1.00) 16.77606198 (0.060) 99.686 1,672.34
12-31-98 Value before Surr Chg 16.34772325 0.000 99.686 1,629.64
12-31-98 Contract Fee (1.00) 16.34772325 (0.061) 99.625 1,628.64
12-31-98 Surrender Charge 0.00 16.34772325 0.000 99.625 1,628.64
Cumulative Total Returns without/with chgs. 63.48% A 62.86% C
Avg. Annual Total Returns without/with chgs. 10.78% B 10.70% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.86586745 (0.092) 99.908 1,085.59
1-24-91 Contract Fee (1.00) 11.79537863 (0.085) 99.823 1,177.45
1-24-92 Contract Fee (1.00) 12.97873402 (0.077) 99.746 1,294.58
1-24-93 Contract Fee (1.00) 12.82050839 (0.078) 99.668 1,277.80
1-24-94 Contract Fee (1.00) 14.87021842 (0.067) 99.601 1,481.09
1-24-95 Contract Fee (1.00) 13.61782596 (0.073) 99.527 1,355.35
1-24-96 Contract Fee (1.00) 15.50229042 (0.065) 99.463 1,541.90
1-24-97 Contract Fee (1.00) 16.64556056 (0.060) 99.403 1,654.62
1-24-98 Contract Fee (1.00) 17.14800406 (0.058) 99.345 1,703.56
12-31-98 Value before Surr Chg 17.99287003 0.000 99.345 1,787.49
12-31-98 Contract Fee (1.00) 17.99287003 (0.056) 99.289 1,786.49
12-31-98 Surrender Charge 0.00 17.99287003 0.000 99.289 1,786.49
Cumulative Total Returns without/with chgs. 79.93% A 78.65% C
Avg. Annual Total Returns without/with chgs. 6.09% B 6.01% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.54806777 (0.105) 99.895 953.81
1-27-94 Contract Fee (1.00) 12.88984530 (0.078) 99.818 1,286.63
1-27-95 Contract Fee (1.00) 11.96187526 (0.084) 99.734 1,193.01
1-27-96 Contract Fee (1.00) 13.60338634 (0.074) 99.661 1,355.72
1-27-97 Contract Fee (1.00) 16.26083969 (0.061) 99.599 1,619.56
1-27-98 Contract Fee (1.00) 17.59143736 (0.057) 99.542 1,751.09
12-31-98 Value before Surr Chg 18.49990751 0.000 99.542 1,841.52
12-31-98 Contract Fee (1.00) 18.49990751 (0.054) 99.488 1,840.52
12-31-98 Surrender Charge 0.00 18.49990751 0.000 99.488 1,840.52
Cumulative Total Returns without/with chgs. 85.00% A 84.05% C
Avg. Annual Total Returns without/with chgs. 9.28% B 9.20% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.33592183 (0.088) 99.912 1,132.59
5-1-98 Contract Fee (1.00) $12.06798039 (0.083) 99.829 1,204.73
12-31-98 Value before Surr Chg $9.37694315 0.000 99.829 936.09
12-31-98 Contract Fee (1.00) $9.37694315 (0.107) 99.722 935.09
12-31-98 Surrender Charge 0.00 $9.37694315 0.000 99.722 935.09
Cumulative Total Returns without/with chgs. -6.23% A -6.49% C
Avg. Annual Total Returns without/with chgs. -2.38% B -2.48% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.93315014 (0.101) 99.899 992.32
1-27-94 Contract Fee (1.00) 14.11543337 (0.071) 99.828 1,409.12
1-27-95 Contract Fee (1.00) 11.96523561 (0.084) 99.745 1,193.47
1-27-96 Contract Fee (1.00) 14.52523233 (0.069) 99.676 1,447.82
1-27-97 Contract Fee (1.00) 14.68960595 (0.068) 99.608 1,463.20
1-27-98 Contract Fee (1.00) 8.49212273 (0.118) 99.490 844.88
12-31-98 Value before Surr Chg 8.10623414 0.000 99.490 806.49
12-31-98 Contract Fee (1.00) 8.10623414 (0.123) 99.367 805.49
12-31-98 Surrender Charge 0.00 8.10623414 0.000 99.367 805.49
Cumulative Total Returns without/with chgs. -18.94% A -19.45% C
Avg. Annual Total Returns without/with chgs. -2.98% B -3.07% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.31325813 (0.097) 99.903 1,030.33
3-14-91 Contract Fee (1.00) 11.47377413 (0.087) 99.816 1,145.26
3-14-92 Contract Fee (1.00) 12.41905952 (0.081) 99.735 1,238.62
3-14-93 Contract Fee (1.00) 14.12985706 (0.071) 99.665 1,408.25
3-14-94 Contract Fee (1.00) 14.30307053 (0.070) 99.595 1,424.51
3-14-95 Contract Fee (1.00) 14.71757023 (0.068) 99.527 1,464.79
3-14-96 Contract Fee (1.00) 15.98087500 (0.063) 99.464 1,589.52
3-14-97 Contract Fee (1.00) 16.79370654 (0.060) 99.405 1,669.37
3-14-98 Contract Fee (1.00) 18.27523069 (0.055) 99.350 1,815.64
12-31-98 Value before Surr Chg 19.10752467 0.000 99.350 1,898.33
12-31-98 Contract Fee (1.00) 19.10752467 (0.052) 99.298 1,897.33
12-31-98 Surrender Charge 0.00 19.10752467 0.000 99.298 1,897.33
Cumulative Total Returns without/with chgs. 91.08% A 89.73% C
Avg. Annual Total Returns without/with chgs. 6.83% B 6.75% D
Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr Chg 7.72001166 0.000 100.000 772.00
12-31-98 Contract Fee (1.00) 7.72001166 (0.130) 99.870 771.00
12-31-98 Surrender Charge 0.00 7.72001166 0.000 99.870 771.00
Cumulative Total Returns without/with chgs. -22.80% A -22.90% C
Avg. Annual Total Returns without/with chgs. -32.10% B -32.23% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/Years since Inception)]-1 C = (Accumulated Value as of
December 31, 1998 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
