File Nos. 33-72046
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. 9 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 46 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
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(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 347-6596
Name and Address of Agent for Service
-------------------------------------
Michael T. Westermeyer
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 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>
Item No. Location
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<S> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . . Index of Terms
Item 3. Synopsis or Highlights. . . . . . . . . . . . Summary
Item 4. Condensed Financial Information. . . . . . . . Appendix - Condensed
Financial Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . The Separate Account;
Allianz Life; Invest-
ment Options
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . The Franklin Valuemark
II and Franklin
Valuemark III Variable
Annuity Contracts
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. . . . . . . . . . . . . . . Not Applicable
Item 14. Table of Contents of the Statement of Table of Contents of
Additional Information. . . . . . . . . . . . the Statement of
Additional Informa-
tion
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
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<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . The Company
Item 18. Services. . . . . . . . . . . . .. . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE FRANKLIN VALUEMARK(R) II AND THE FRANKLIN VALUEMARK(R) III
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTHAMERICA
This prospectus describes the Franklin Valuemark II and the Franklin Valuemark
III Variable Annuity Contracts, each with a Fixed Account (Contracts) offered by
Allianz Life Insurance Company of North America (Allianz Life). All references
to "we," "us" and "our" refer to Allianz Life. This prospectus describes two
variable annuity contracts. All references to the Contract refer to both
contracts except where noted otherwise.
The Contract has 25 Variable Options, each of which invests in one of the
Portfolios of Franklin Valuemark Funds listed below and the Fixed Account of
Allianz Life. You can select up to 10 investment choices for additional Purchase
Payments you make (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
Zero Coupon Funds - 2000, 2005 and 2010
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 II and the
Franklin Valuemark III Variable Annuity Contracts each with a Fixed Account.
To learn more about the Contracts 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 24 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 II AND FRANKLIN VALUEMARK III 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 the Contracts. 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.
In the State of Oregon, all references to Franklin Valuemark II(R) refer to
Valuemark II and all references to Franklin Valuemark III(R) refer to Valuemark
III.
Dated: May 1, 1999
TABLE OF CONTENTS
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Index of Terms 3
Summary 4
Fee Table 7
The Franklin Valuemark II
and the Franklin Valuemark III
Variable Annuity Contracts 12
Contract Owner 12
Contingent Owner
(Franklin Valuemark II Contracts only) 12
Joint Owner 12
Annuitant 12
Beneficiary 13
Assignment 13
Annuity Payments (The Payout Phase) 13
Annuity Options 13
Purchase 14
Purchase Payments 14
Automatic Investment Plan 14
Allocation of Purchase Payments 14
Accumulation Units 14
Investment Options 15
Transfers 15
Dollar Cost Averaging Program 16
Flexible Rebalancing 17
Voting Privileges 17
Substitution 17
Expenses 17
Insurance Charges 17
Mortality and Expense Risk Charge 17
Administrative Expense Charge 17
Contract Maintenance Charge 17
Contingent Deferred Sales Charge 18
Reduction or Elimination of the
Contingent Deferred Sales Charge 18
Transfer Fee 18
Premium Taxes 18
Income Taxes 19
Portfolio Expenses 19
Taxes 19
Annuity Contracts in General 19
Qualified and Non-Qualified Contracts 19
Multiple Contracts 19
Withdrawals - Non-Qualified Contracts 19
Withdrawals - Qualified Contracts 20
Withdrawals - Tax-Sheltered Annuities 20
Diversification 20
Access to Your Money 20
Systematic Withdrawal Program 21
Minimum Distribution Program 21
Suspension of Payments or Transfers 21
Performance 21
Death Benefit 22
Death of Contract Owner 22
Death of Annuitant 23
Other Information 23
Allianz Life 23
Year 2000 23
The Separate Account 23
Distribution 23
Administration 24
Financial Statements 24
Table of Contents of the
Statement of Additional Information 24
Appendix 25
INDEX OF TERMS
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This prospectus is written in plain English. 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 12
Accumulation Unit 14
Annuitant 12
Annuity Options 13
Annuity Payments 13
Annuity Unit 14
Beneficiary 13
Contract 12
Contract Owner 12
Fixed Account 12
Income Date 13
Joint Owner 12
Non-Qualified 19
Payout Phase 13
Portfolios 15
Purchase Payment 14
Qualified 19
Tax Deferral 19
Variable Option 12
SUMMARY
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The sections in the summary correspond to sections in this prospectus which
discuss the topics in more detail.
THE FRANKLIN VALUEMARK II AND
THE FRANKLIN VALUEMARK III
VARIABLE ANNUITY CONTRACTS
The Franklin Valuemark II and the Franklin Valuemark III variable annuity
contracts offered by Allianz Life are each a Contract between you, the owner and
Allianz Life. The Contracts are no longer offered for sale. However, you can
make additional Purchase Payments to your Contract.
The Contract provides a means for investing on a tax-deferred basis. It 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 25 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. 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 for a year at a time.
Currently, you can put your money in up to 10 investment choices for additional
Purchase Payments you make (which includes any of the 25 Variable Options and
the Allianz Life Fixed Account). Allianz Life has the right to limit the number
of Variable Options and the Fixed Account to 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.
ANNUITY PAYMENTS (THE PAYOUT PHASE)
You can receive monthly annuity payments from your Contract by selecting one of
the Annuity Options we offer. 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.
PURCHASE
You can add $250 ($100 if you select the automatic investment plan) or more for
additional purchases any time during the Accumulation Phase. This product is not
appropriate for market timers.
o 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.
INVESTMENT OPTIONS
You may select the Allianz Life Fixed Account and/or the Variable Options which
invest in Class 1 shares of the Portfolios of Franklin Valuemark Funds listed
below. Franklin Valuemark Funds has two classes of shares. You may only invest
in Class 1 shares with the Contract.
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
Zero Coupon Funds - 2000, 2005 and 2010
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
You can make or lose money based on the Portfolios' performance.
EXPENSES
The Contract has insurance and investment features, and there are costs related
to each.
o The mortality and expense risk charge is equal, on an annual basis, to
1.25% total of the average daily value of your Contract allocated to the
Variable Options.
o The administrative expense charge is equal, on an annual basis, to .15% of
the average daily value of your Contract allocated to the Variable Options.
Together, we refer to the mortality and expense risk charge and the
administrative expense charge as the insurance charges.
o During the Accumulation Phase, every year, at each Contract anniversary,
Allianz Life deducts a $30 contract maintenance charge from your Contract.
The fee is assessed on the last day of each Contract year. Allianz Life
currently waives this charge if the value of your Contract or your Purchase
Payments less withdrawals is at least $100,000. Currently, Allianz Life
also waives the charge during the Payout Phase if your Contract value at
the Income Date is at least $100,000.
o There are also annual Portfolio operating expenses, which vary depending
upon the Portfolio(s) you select. These expenses range from .49% to 1.41%
of the average daily value of the Portfolios' Class 1 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 If you make a withdrawal from the Contract, Allianz Life may assess a
contingent deferred sales charge (withdrawal charge). The amount of the
charge depends upon the length of time since you made your Purchase
Payment. Each Purchase Payment you add to your Contract has its own 5 year
contingent deferred sales charge period. The charge may be different
depending upon whether you own a Franklin Valuemark II Contract or a
Franklin Valuemark III Contract. The charge is:
FRANKLIN VALUEMARK II: FRANKLIN VALUEMARK III:
----------------------- -----------------------
CHARGE (AS A CHARGE (AS A
YEARS SINCE PERCENTAGE YEARS SINCE PERCENTAGE
PURCHASE OF PURCHASE PURCHASE OF PURCHASE
PAYMENT PAYMENTS) PAYMENT PAYMENTS)
----------------------- -----------------------
0-1 5% 0-1 6%
1-2 5% 1-2 5%
2-3 4% 2-3 4%
3-4 3% 3-4 3%
4-5 1.5% 4-5 1.5%
5+ 0% 5+ 0%
Once each Contract year, you can make a partial withdrawal of up to 15% of
the Purchase Payments you have made less prior withdrawals and Allianz Life
will not deduct the contingent deferred sales charge. If you do not make a
withdrawal in a Contract year, you may take that 15% in future years.
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.
TAXES
You do not have to pay taxes on any earnings until you withdraw money from your
Contract. In most cases, if you make a withdrawal, earnings come out first and
are taxed as income. If you are younger than 591/2 when you make a withdrawal,
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.
ACCESS TO YOUR MONEY
You may make a withdrawal at any time during the Accumulation Phase. You may
request a withdrawal or elect the Systematic Withdrawal Program or Minimum
Distribution Program, which are briefly described below. Of course, you may also
have to pay income tax and a tax penalty on any money you take out of the
Contract.
o 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.
o 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 for IRAs (generally after age 701/2).
PERFORMANCE
The value of the Contract will vary up or down depending upon the performance of
the Portfolio(s) you choose. From time to time, Allianz Life may advertise
performance. The SAI contains performance information. Past performance is not a
guarantee of future results.
DEATH BENEFIT
If you die during the Accumulation Phase, the person you have selected as your
Beneficiary will receive a death benefit.
OTHER INFORMATION
NO PROBATE. In most cases, when you die, your Beneficiary will receive the death
benefit without going through probate.
ADDITIONAL FEATURES:
The Contract offers additional features, which you might be interested in. These
include:
O 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 or each quarter (but it does
not have to be a calendar quarter.) 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.
O FLEXIBLE REBALANCING - Allianz Life will automatically readjust your
Contract value among the Variable Options that you have chosen to maintain
your specified allocation mix. This can be done quarterly, semi-annually or
annually.
These features may not be suitable for your particular situation.
INQUIRIES
If you have any questions about your Contract or need more information, please
contact us at:
Valuemark Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
<PAGE>
FEE TABLE
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The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Contract. It reflects expenses of the Separate
Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
FRANKLIN VALUEMARK II: FRANKLIN VALUEMARK III:
----------------------- -------------------------
YEARS SINCE YEARS SINCE
PURCHASE PURCHASE
PAYMENT CHARGE PAYMENT CHARGE
----------------------- -------------------------
0-1 5% 0-1 6%
1-2 5% 1-2 5%
2-3 4% 2-3 4%
3-4 3% 3-4 3%
4-5 1.5% 4-5 1.5%
5+ 0% 5+ 0%
Transfer Fee** .................... First 12 transfers in a Contract year are
free. Thereafter, the fee is $25 (or 2% of
the amount transferred, if less). Dollar
Cost Averaging transfers and Flexible
Rebalancing transfers are not counted.
CONTRACT MAINTENANCE CHARGE***..... $30 per Contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge .15%
------
Total Separate Account Annual Expenses 1.40%
*Once each Contract year, you may make a partial withdrawal of up to 15% of the
Purchase Payments you have made (less prior withdrawals) and no contingent
deferred sales charge will be assessed. If you do not make a withdrawal in a
Contract year, you may take that 15% in future years. See "Access to Your Money"
for additional options.
**The Contract provides that if more than three transfers have been made in a
Contract year, Allianz Life may deduct a transfer fee. Currently, Allianz Life
permits you to make 12 free transfers each year. Market timing transfers may not
be permitted.
***During the Accumulation Phase, the charge is waived if the value of your
Contract or the Purchase Payments you have made (less withdrawals) is at least
$100,000. Currently, the charge is also waived during the Payout Phase if the
value of your Contract at the Income Date is at least $100,000.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 1 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. See the prospectus for Franklin Valuemark Funds
for more information.
MANAGEMENT
AND PORTFOLIO OTHER TOTAL ANNUAL
ADMINISTRATION FEES1 EXPENSES EXPENSES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund .75% .02% .77%
Global Health Care Securities Fund2 .75% .09% .84%
Global Utilities Securities Fund .47% .03% .50%
Growth and Income Fund .47% .02% .49%
High Income Fund .50% .03% .53%
Income Securities Fund .47% .02% .49%
Money Market Fund .51% .02% .53%
Mutual Discovery Securities Fund .95% .05% 1.00%
Mutual Shares Securities Fund .74% .03% .77%
Natural Resources Securities Fund .62% .02% .64%
Real Estate Securities Fund .52% .02% .54%
Rising Dividends Fund .70% .02% .72%
Small Cap Fund .75% .02% .77%
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
Templeton Global Asset Allocation Fund .80% .04% .84%
Templeton Global Growth Fund .83% .05% .88%
Templeton Global Income Securities Fund .57% .06% .63%
Templeton International Equity Fund .80% .08% .88%
Templeton International Smaller Companies Fund 1.00% .10% 1.10%
Templeton Pacific Growth Fund .99% .11% 1.10%
U.S. Government Securities Fund .48% .02% .50%
Value Securities Fund2 .75% .08% .83%
Zero Coupon Fund - 2000 .63% .03% .66%
Zero Coupon Fund - 2005 .63% .03% .66%
Zero Coupon Fund - 2010 .62% .04% .66%
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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 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 for these Portfolios are
therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
o 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 $30 contract maintenance charge is included in the examples as a
prorated charge of $1. Since the average Contract size is greater than
$1,000, the contract maintenance charge is reduced accordingly.
o Premium taxes are not reflected in the tables. Premium taxes may apply.
o For additional information, see "Expenses" and the Franklin Valuemark Funds
prospectus.
FRANKLIN VALUEMARK II CONTRACTS:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if you surrender your Contract at the end of each
time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $66 $ 93 $125 $260
Global Health Care Securities Fund* $66 $ 95 $129 $267
Global Utilities Securities Fund $63 $ 85 $111 $232
Growth and Income Fund $63 $ 84 $111 $231
High Income Fund $63 $ 86 $113 $235
Income Securities Fund $63 $ 84 $111 $231
Money Market Fund $63 $ 86 $113 $235
Mutual Discovery Securities Fund $68 $100 $137 $284
Mutual Shares Securities Fund $66 $ 93 $125 $260
Natural Resources Securities Fund $64 $ 89 $119 $247
Real Estate Securities Fund $63 $ 86 $113 $236
Rising Dividends Fund $65 $ 91 $123 $255
Small Cap Fund $66 $ 93 $125 $260
Templeton Developing Markets Equity Fund $72 $112 $157 $324
Templeton Global Asset Allocation Fund $66 $ 95 $129 $267
Templeton Global Growth Fund $67 $ 96 $131 $272
Templeton Global Income Securities Fund $64 $ 89 $118 $246
Templeton International Equity Fund $67 $ 96 $131 $272
Templeton International Smaller Companies Fund $69 $103 $142 $294
Templeton Pacific Growth Fund $69 $103 $142 $294
U.S. Government Securities Fund $63 $ 85 $111 $232
Value Securities Fund* $66 $ 95 $128 $266
Zero Coupon Fund - 2000 $64 $ 90 $120 $249
Zero Coupon Fund - 2005 $64 $ 90 $120 $249
Zero Coupon Fund - 2010 $64 $ 90 $120 $249
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK III CONTRACTS:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if you surrender your Contract at the end of each
time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $74 $ 93 $125 $260
Global Health Care Securities Fund* $75 $ 95 $129 $267
Global Utilities Securities Fund $71 $ 85 $111 $232
Growth and Income Fund $71 $ 84 $111 $231
High Income Fund $72 $ 86 $113 $235
Income Securities Fund $71 $ 84 $111 $231
Money Market Fund $72 $ 86 $113 $235
Mutual Discovery Securities Fund $76 $100 $137 $284
Mutual Shares Securities Fund $74 $ 93 $125 $260
Natural Resources Securities Fund $73 $ 89 $119 $247
Real Estate Securities Fund $72 $ 86 $113 $236
Rising Dividends Fund $74 $ 91 $123 $255
Small Cap Fund $74 $ 93 $125 $260
Templeton Developing Markets Equity Fund $80 $112 $157 $324
Templeton Global Asset Allocation Fund $75 $ 95 $129 $267
Templeton Global Growth Fund $75 $ 96 $131 $272
Templeton Global Income Securities Fund $73 $ 89 $118 $246
Templeton International Equity Fund $75 $ 96 $131 $272
Templeton International Smaller Companies Fund $77 $103 $142 $294
Templeton Pacific Growth Fund $77 $103 $142 $294
U.S. Government Securities Fund $71 $ 85 $111 $232
Value Securities Fund* $75 $ 95 $128 $266
Zero Coupon Fund - 2000 $73 $ 90 $120 $249
Zero Coupon Fund - 2005 $73 $ 90 $120 $249
Zero Coupon Fund - 2010 $73 $ 90 $120 $249
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK II AND FRANKLIN VALUEMARK III CONTRACTS:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if you do not surrender your Contract or if you
apply the Contract value to an Annuity Option:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $23 $71 $121 $260
Global Health Care Securities Fund* $24 $73 $125 $267
Global Utilities Securities Fund $20 $63 $108 $232
Growth and Income Fund $20 $62 $107 $231
High Income Fund $21 $64 $109 $235
Income Securities Fund $20 $62 $107 $231
Money Market Fund $21 $64 $109 $235
Mutual Discovery Securities Fund $25 $78 $133 $284
Mutual Shares Securities Fund $23 $71 $121 $260
Natural Resources Securities Fund $22 $67 $115 $247
Real Estate Securities Fund $21 $64 $110 $236
Rising Dividends Fund $23 $69 $119 $255
Small Cap Fund $23 $71 $121 $260
Templeton Developing Markets Equity Fund $29 $90 $153 $324
Templeton Global Asset Allocation Fund $24 $73 $125 $267
Templeton Global Growth Fund $24 $74 $127 $272
Templeton Global Income Securities Fund $22 $67 $114 $246
Templeton International Equity Fund $24 $74 $127 $272
Templeton International Smaller Companies Fund $26 $81 $138 $294
Templeton Pacific Growth Fund $26 $81 $138 $294
U.S. Government Securities Fund $20 $63 $108 $232
Value Securities Fund* $24 $73 $124 $266
Zero Coupon Fund -2000 $22 $68 $116 $249
Zero Coupon Fund -2005 $22 $68 $116 $249
Zero Coupon Fund - 2010 $22 $68 $116 $249
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
</TABLE>
<PAGE>
THE FRANKLIN VALUEMARK II AND
THE FRANKLIN VALUEMARK III
VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
This prospectus describes two variable deferred annuity contracts, each with a
Fixed Account which are issued by Allianz Life. The Contracts are no longer
offered for sale. However, you can make additional Purchase Payments to your
Contract.
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 one month after we
issue your Contract. 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 26 investment choices - the 25 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 25 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 made within the
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. The
Contract Owner remains the Contract Owner after the Income Date. You may change
Contract Owners (or Contingent Owners with respect to Franklin Valuemark II
Contracts) at any time. This may be a taxable event. You should consult with
your tax adviser before doing this.
CONTINGENT OWNER
(FRANKLIN VALUEMARK II CONTRACTS ONLY)
In Contracts containing Contingent Owner provisions, you can name a Contingent
Owner. Any Contingent Owner must be the spouse of the other Contract Owner.
JOINT OWNER
In Contracts containing Joint Owner provisions, the Contract can be owned by
Joint Owners. Any Joint Owner must be the spouse of the other Contract Owner
(except in Pennsylvania). 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.
With respect to Franklin Valuemark II Contracts, if a Contingent Owner is named,
upon the death of the Contract Owner before the Income Date, the Contingent
Owner, if any, becomes the designated Beneficiary and we will treat any other
Beneficiary named 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. The Annuitant cannot be older than 85 years old when we issue
a Contract. Joint Annuitants are allowed during the Payout Phase. 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 it takes in accordance with the Contract before it
receives 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.
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. The
Income Date cannot be later than the month following the Annuitant's 85th
birthday or 10 years (8 years in Pennsylvania) from the day we issue your
Contract, if later. With respect to Franklin Valuemark II Contracts, if you do
not select an Income Date, the Income Date will be the later of the Annuitant's
65th birthday (or 85th birthday for certain Contracts) or 10 years from the day
we issue your 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. You (or
someone you designate) will receive the Annuity Payments. You will receive tax
reporting on those payments.
If you do not choose an Annuity Option prior to the Income Date, we will assume
that you selected Option 2, which provides a life annuity with 5 years of
guaranteed payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available 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 5% assumed investment rate used in the annuity table for the Contract,
and
3) the performance of the Variable Option(s) you selected.
If the actual performance exceeds the 5% assumed investment rate, your Annuity
Payments will increase. Similarly, if the actual rate is less than 5%, your
Annuity Payments will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Allianz Life agrees to provide. After Annuity Payments begin,
you cannot change the Annuity Option.
OPTION 1. LIFE ANNUITY. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if the Annuitant dies before the end of the selected guaranteed period,
we will continue to make Annuity Payments to you for the rest of the guaranteed
period. If you do not want to receive Annuity Payments 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 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.
PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. You can make
additional Purchase Payments of $250 or more (or as low as $100 if you have
selected the Automatic Investment Plan). We reserve the right to decline any
Purchase Payments. 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 that 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
We ask that you allocate your money in either whole percentages or round
dollars. 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 for the
additional Purchase Payments you make at any one time (which includes any of the
25 Variable Options which invest in a Portfolio of Franklin Valuemark Funds and
the Allianz Life Fixed Account). In Washington, the Fixed Account is not
available. We may change this in the future. However, we will always allow you
to invest in at least five Variable Options.
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.
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 Option(s)
you choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract, we use a
measurement called an Accumulation Unit (which is like a share of a mutual
fund). During the Payout Phase of the Contract we call it an Annuity Unit.
Every business day we determine the value of an Accumulation Unit for each
Variable Option. We do this by:
1. determining the total amount of money invested in the particular Variable
Option;
2. subtracting from that amount the mortality and expense risk charge and the
administrative expense charge and any other charges such as taxes we have
deducted; and
3. dividing this amount by the number of outstanding Accumulation Units.
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 we credit your Contract with 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.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers Variable Options which invest in Class 1 shares of 25
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 1 shares
are available with your Contract. 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
- ---------------------------------------------------------
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
Zero Coupon Funds - 2000, 2005, 2010 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 25 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 managers'
judgment, a Portfolio would be unable to invest effectively in accordance with
its investment objectives and policies, or would otherwise potentially be
adversely affected.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Allianz Life permits you to make 12 transfers every year
without charge. We measure a year from the anniversary of the day we issued your
Contract. You can make a transfer to or from the Fixed 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. After the Income Date, if you selected a variable payout, you can
make transfers. Allianz Life reserves the right to charge for transfers after
the Income Date.
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 and/or the Fixed Account, if less.
2. You cannot make a partial transfer if the value remaining in the Variable
Option or the Fixed Account would be less than $1,000.
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.
8. During the Payout Phase, you cannot make a transfer if it would result in
any Variable Option or the Fixed Account providing less than 10% of the
annuity benefits under the Contract.
Allianz Life reserves the right at any time and without prior notice to any
party to modify, terminate or suspend the transfer provisions above, 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 you instruct Allianz Life otherwise, we 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.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option. It is available for additional Purchase Payments you
make to your existing Contract. You will receive a special fixed rate guaranteed
for one year by Allianz Life. Dollar cost averaging will take place over twelve
months from the DCA Fixed Account into the target Portfolio of your choice. The
required minimum investment is $6,000. The Dollar Cost Averaging Fixed Option
may not be available in your state.
The second option is the Standard Dollar Cost Averaging Option. It requires a
$3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day. You may elect either program by properly completing
the Dollar Cost Averaging form provided by Allianz Life.
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
dollar cost averaged and the program will end);
3. you request to terminate the program (your request must be received by us
by the first of the month to terminate that month); or
4. the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
FLEXIBLE REBALANCING
Once your money has been invested, the performance of the 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 are done on calendar quarters only and 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. We must receive a request to
participate in the program by the 8th of the month for Flexible Rebalancing to
begin that month. 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.
VOTING PRIVILEGES
Allianz Life is the legal owner of the Trust's Class 1 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.
EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Allianz Life makes a deduction for its insurance charges. Allianz Life
does this as part of its calculation of the value of the Accumulation Units and
the Annuity Units. The insurance charge has two parts: 1) the mortality and
expense risk charge, and 2) the administrative expense charge.
MORTALITY AND EXPENSE RISK CHARGE. This charge is equal, on an annual basis, to
1.25% 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 EXPENSE 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 on the anniversary of the date when your Contract was issued, Allianz
Life deducts $30 from your Contract as a contract maintenance charge. 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 or
Purchase Payments (less withdrawals) is at least $100,000 when the deduction for
the charge is to be made, Allianz Life will not deduct this charge. Currently,
Allianz Life also waives the charge during the Payout Phase if the value of your
Contract at the Income Date is at least $100,000.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
If you make a withdrawal, it may be subject to a contingent deferred sales
charge. During the Accumulation Phase, you can make withdrawals from your
Contract. Allianz Life keeps track of each Purchase Payment you make. The amount
of the contingent deferred sales charge depends upon the length of time since
you made your Purchase Payment. This charge reimburses Allianz Life for expenses
associated with the promotion, sale and distribution of the Contracts.
For a partial withdrawal, we will deduct the charge from the amount remaining in
the Contract, if sufficient. Otherwise, we will deduct it from the amount you
withdraw. We will deduct the charge pro-rata from the Variable Options and/or
the Fixed Account unless you instruct us otherwise. The charge may be different
depending upon whether you own a Franklin Valuemark II Contract or a Franklin
Valuemark III Contract. The charge is:
FRANKLIN VALUEMARK II: FRANKLIN VALUEMARK III:
- ---------------------- ------------------------
YEARS SINCE CONTINGENT YEARS SINCE CONTINGENT
PURCHASE DEFERRED PURCHASE DEFERRED
PAYMENT SALES CHARGE PAYMENT SALES CHARGE
- ---------------------- ------------------------
0-1 5% 0-1 6%
1-2 5% 1-2 5%
2-3 4% 2-3 4%
3-4 3% 3-4 3%
4-5 1.5% 4-5 1.5%
5+ 0% 5+ 0%
However, after Allianz Life has had a Purchase Payment for 5 full years, there
is no charge when you withdraw that Purchase Payment. For purposes of the
contingent deferred sales charge, Allianz Life treats withdrawals as coming from
the oldest Purchase Payments first.
Note: For tax purposes, withdrawals are considered to have come from the last
money you put into the Contract. Thus, for tax purposes, earnings are considered
to come out first.
Free Withdrawal Amount. Once each Contract year, you can make a withdrawal of up
to 15% of Purchase Payments you have made (less any prior withdrawals) and no
contingent deferred sales charge will be deducted from the 15% you take out. If
you make a withdrawal of more than the free withdrawal amount, it will be
subject to the contingent deferred sales charge. If you do not withdraw the full
15% in any one Contract year, you may not carry over the remaining percentage
amount to another year. You may only carry over to the next year the full 15% if
you do not make any withdrawal in a Contract year. Allianz Life does not assess
the contingent deferred sales charge from Purchase Payments which have been held
under the Contract for more than 5 years or as paid out as Annuity Payment.
You may also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program. These programs allow you to make withdrawals
without the deduction of the contingent deferred sales charge under certain
circumstances. See "Access to Your Money" for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
Allianz Life will reduce or eliminate the amount of the contingent deferred
sales charge when the Contract is sold under circumstances which reduce its
sales expenses. Some examples are: if there is a large group of individuals that
will be purchasing the Contract or a prospective purchaser already had a
relationship with Allianz Life. Allianz Life may not deduct a contingent
deferred sales charge under a Contract issued to an officer, director or
employee of Allianz Life or any of its affiliates. Also, Allianz Life may reduce
or not deduct a contingent deferred sales charge when a Contract is sold by an
agent of Allianz Life to any members of his or her immediate family and the
commission is waived. We require our prior approval for any reduction or
elimination of the contingent deferred sales charge.
TRANSFER FEE
Prior to the Income Date, 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.
Allianz Life reserves the right to charge a fee for all transfers you make after
the Income Date.
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. We 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 discontinue this practice in the future 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.
TAXES
- --------------------------------------------------------------------------------
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.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
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 applicable contingent deferred
sales charge, less any premium tax and less any contract maintenance charge.
(See "Expenses" for a discussion of the charges.)
Unless you instruct Allianz Life otherwise, the partial withdrawal will be made
pro-rata from all the Variable Options and the Fixed Account you selected.
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 "Taxes" and the
discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $25,000, Allianz Life offers a program
which provides automatic monthly or quarterly payments to you each year. The
total systematic withdrawals which you can make each year without Allianz Life
deducting a contingent deferred sales charge is limited to 9% of the value of
your Contract. However, we may increase the 9% limit to allow you to make
systematic withdrawals to meet the applicable minimum distribution requirements
for Qualified Contracts. If you make withdrawals under this program, you may not
also use the 15% free withdrawal amount that year. For a discussion of the
contingent deferred sales charge and the 15% free withdrawal amount, see
"Expenses." Allianz Life reserves the right to modify the eligibility rules of
this program at any time without notice.
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 less than $25,000, Allianz Life will make payments to you on an
annual basis. If the value of your Contract is at least $25,000, Allianz Life
will make payments to you on a monthly or quarterly basis. The payments will not
be subject to the contingent deferred sales charge and will be instead of the
15% free withdrawal amount.
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
are 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.
PERFORMANCE
- --------------------------------------------------------------------------------
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
expenses of the Portfolios. It may not reflect the deduction of any applicable
contingent deferred sales charge and contract maintenance charge. The deduction
of any applicable contract maintenance charge and contingent deferred sales
charges would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include average annual total return
figures, which reflect the deduction of the insurance charges, contract
maintenance charge, contingent deferred sales charges and the expenses of the
Portfolios. Allianz Life may also advertise cumulative total return information.
Cumulative total return is determined the same way except that the results are
not annualized. Performance information for the underlying Portfolios may also
be advertised; see the Franklin Valuemark Funds prospectus for more information.
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. It does not
guarantee future results of the Portfolios.
DEATH BENEFIT
- --------------------------------------------------------------------------------
DEATH OF CONTRACT OWNER
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. We will determine the value of the death benefit as of the end of
the business day we receive both due proof of death and a payment election at
our Valuemark Service Center.
The value of the death benefit at the time we process the election option is
guaranteed to be at least the larger of the surrender value or the guaranteed
minimum death benefit (described below).
o The surrender value is the Contract value as of the end of the business day
when we receive the written request for a withdrawal which is reduced by
the sum of: (i) any applicable premium taxes which we have not previously
deducted; (ii) any applicable contract maintenance charge; and (iii) any
applicable contingent deferred sales charge.
o The guaranteed minimum death benefit will be the greater of (a) or (b)
below:
(a) the sum of all Purchase Payments you have made, less any withdrawals
(and any contingent deferred sales charge paid on the withdrawals),
increased by 5% each Contract anniversary prior to the earlier of your
81st birthday or the date of death.
(b) the greatest sixth Contract anniversary value for Contract
anniversaries prior to the earlier of your 81st birthday or the date
of death. The sixth Contract anniversary value is equal to the
Contract value on a sixth Contract anniversary, plus any Purchase
Payments you have made since that anniversary, less the amount of any
withdrawals (and applicable contingent deferred sales charges paid on
the withdrawals) since that anniversary.
On the earlier of your 81st birthday or the date of death and
thereafter, the guaranteed minimum death benefit will only be
increased by subsequent Purchase Payments and decreased by
subsequent withdrawals (and applicable contingent deferred sales
charges paid on the withdrawals).
If there are Joint Owners, the age of the oldest Owner will be used to determine
the guaranteed minimum death benefit.
The Beneficiary may, at any time before the end of a sixty (60) day period after
Allianz Life receives proof of death, elect the death benefit to be paid under
one of the following options:
A. Lump sum payment of the death benefit. The value of the death benefit is
equal to the greater of the guaranteed minimum death benefit or the
surrender value as of the end of the business day we receive both due proof
of death and a payment election. We will reduce any distribution of such
death benefit by the sum of any applicable premium taxes, contract
maintenance charges and contingent deferred sales charges.
B. The payment of the entire death benefit within 5 years of the date of the
Contract Owner's death. We determine the value of the death benefit under
Option B by comparing the guaranteed minimum death benefit to the Contract
value as of the end of the business day we receive both due proof of death
and a payment election. If the Contract value is greater, it will be the
death benefit. We will reduce any distribution of such death benefit by the
sum of any applicable premium taxes, contract maintenance charges and
contingent deferred sales charges. If the guaranteed minimum death benefit
is greater, it will be the death benefit. After the death benefit is
calculated, it will be subject to market risk. We will not accept any
additional Purchase Payments after the Contract Owner dies.
C. Payment over the lifetime of the designated Beneficiary or over a period
not extending beyond the life expectancy of the designated Beneficiary with
distribution beginning within one year of the date of death of the Contract
Owner (see "Annuity Payments (The Payout Phase) - Annuity Options"). We
determine the value of the death benefit under Option C by comparing the
guaranteed death benefit to the Contract value as of the end of the
business day we receive both due proof of death and a payment election. We
will reduce any distribution of such death benefit by the sum of any
applicable premium taxes, contract maintenance charges and contingent
deferred sales charges. If the Contract value is greater, we will treat it
as the death benefit. If the guaranteed minimum death benefit is greater,
it will be the death benefit.
D. If the Beneficiary is your spouse, he/she can continue the Contract in
his/her own name. We determine the value of the death benefit under Option
D by comparing the guaranteed minimum death benefit to the Contract value
as of the end of the business day we receive both due proof of death and a
payment election. If the Contract value is greater, it will remain the
Contract value. If the guaranteed minimum death benefit is greater, it will
become the new Contract value. Any distribution to the new Contract Owner
will be reduced by the sum of any applicable premium taxes, contract
maintenance charges and contingent deferred sales charges.
Upon the death of the Contract Owner, the Contingent Owner or surviving Joint
Owner, as applicable, may elect to keep the Contract in force and become the new
Contract Owner (if they are the spouse of the Contract Owner).
If the Beneficiary does not elect a payment option, we will make a single sum
settlement at the end of the sixty (60) day period following the date we receive
proof of death. We may delay paying a death benefit pending receipt of any
applicable tax consents and/or forms from a state.
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).
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 before the
Income Date, you will become the Annuitant unless you designate a new Annuitant
(subject to our underwriting rules then in effect). 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 on or after the Income Date, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid at least as rapidly as they were being
paid at the Annuitant's death.
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 6.0% of Purchase Payments.
Sometimes, Allianz Life enters into an agreement with the broker-dealer to pay
the broker-dealer commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which when totaled could
exceed 6.0% of Purchase Payments). In addition, Allianz Life and Franklin
Advisers, Inc. and/or its affiliates may pay certain sellers for other services
not directly related to the sale of the Contracts (such as special marketing
support allowances). Commissions may be recovered from a broker-dealer if a
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
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 6
Annuity Provisions 11
Financial Statements 11
<PAGE>
<TABLE>
<CAPTION>
APPENDIX
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CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Allianz Life Insurance Company of North
America and the financial statements of Allianz Life Variable Account B may be
found in the Statement of Additional Information.
The table below includes Accumulation Unit values for the periods indicated.
This information should be read in conjunction with the financial statements and
related notes of the Separate Account included in the Statement of Additional
Information.
(Number of units in thousands)
GLOBAL GLOBAL GROWTH MUTUAL
CAPITAL HEALTH CARE UTILITIES AND HIGH INCOME MONEY DISCOVERY
VARIABLE OPTIONS: GROWTH SECURITIES SECURITIES INCOME INCOME SECURITIES MARKET SECURITIES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $13.130 $10.000* $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Unit value at end of period $15.574 $10.610 $28.308 $26.226 $21.208 $25.122 $14.386 $11.226
Number of units outstanding at end of period 8,454 586 30,851 40,480 14,987 39,420 22,032 9,718
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Unit value at end of period $13.130 NA $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Number of units outstanding at end of period 5,673 NA 39,623 46,962 18,871 49,812 20,982 9,940
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $10.000* NA $19.565 $17.310 $17.252 $19.785 $12.883 $10.000*
Unit value at end of period $11.254 NA $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Number of units outstanding at end of period 3,722 NA 53,086 50,027 20,736 57,504 28,060 1,471
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Unit value at end of period NA NA $19.565 $17.310 $17.252 $19.785 $12.883 NA
Number of units outstanding at end of period NA NA 66,669 46,893 18,756 59,309 31,040 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Unit value at end of period NA NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Number of units outstanding at end of period NA NA 70,082 35,695 15,679 56,569 39,437 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Unit value at end of period NA NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Number of units outstanding at end of period NA NA 84,217 24,719 11,787 38,967 10,247 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Unit value at end of period NA NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Number of units outstanding at end of period NA NA 39,387 17,144 4,780 11,397 6,951 NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period NA NA $12.062 $ 9.803 $ 9.026 $ 9.842 $11.288 NA
Unit value at end of period NA NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Number of units outstanding at end of period NA NA 16,188 9,671 1,923 4,472 5,682 NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period NA NA $12.010 $10.180 $10.021 $10.783 $10.637 NA
Unit value at end of period NA NA $12.062 $ 9.803 $ 9.026 $ 9.842 $11.288 NA
Number of units outstanding at end of period NA NA 6,300 5,356 1,056 3,011 5,768 NA
PERIOD FROM INCEPTION* TO DEC. 31, 1989
Unit value at beginning of period NA NA $10.000 $10.000 $10.000 $10.000 $10.000 NA
Unit value at end of period NA NA $12.010 $10.180 $10.021 $10.783 $10.637 NA
Number of units outstanding at end of period NA NA 1,173 1,662 612 1,508 1,199 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Number of units in thousands)
TEMPLETON TEMPLETON
MUTUAL NATURAL REAL DEVELOPING GLOBAL TEMPLETON
SHARES RESOURCES ESTATE RISING SMALL MARKETS ASSET GLOBAL
VARIABLE OPTIONS: SECURITIES SECURITIES SECURITIES DIVIDENDS CAP EQUITY ALLOCATION GROWTH
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $11.993 $11.559 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Unit value at end of period $11.837 $ 8.505 $23.107 $21.165 $14.600 $ 7.993 $13.589 $16.309
Number of units outstanding at end of period 18,133 4,453 9,639 27,683 14,856 15,989 4,056 34,226
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $10.330 $14.467 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Unit value at end of period $11.993 $11.559 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Number of units outstanding at end of period 18,744 5,709 13,445 33,249 16,925 23,005 5,229 41,433
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $10.000* $14.109 $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Unit value at end of period $10.330 $14.467 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Number of units outstanding at end of period 2,613 6,998 12,757 35,569 12,784 22,423 4,104 40,327
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA $13.979 $15.594 $ 9.769 $10.000*$ 9.454 $10.000* $10.201
Unit value at end of period NA $14.109 $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Number of units outstanding at end of period NA 6,919 10,998 33,789 1,302 15,618 1,338 28,309
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA $14.464 $15.369 $10.327 NA $10.000* NA $10.000*
Unit value at end of period NA $13.979 $15.594 $ 9.769 NA $ 9.454 NA $10.201
Number of units outstanding at end of period NA 8,285 11,645 28,778 NA 9,774 NA 14,637
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA $ 9.424 $13.095 $10.848 NA NA NA NA
Unit value at end of period NA $14.464 $15.369 $10.327 NA NA NA NA
Number of units outstanding at end of period NA 4,685 5,589 26,256 NA NA NA NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA $10.635 $11.848 $10.000* NA NA NA NA
Unit value at end of period NA $ 9.424 $13.095 $10.848 NA NA NA NA
Number of units outstanding at end of period NA 1,419 1,052 8,388 NA NA NA NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period NA $10.387 $ 9.000 NA NA NA NA NA
Unit value at end of period NA $10.635 $11.848 NA NA NA NA NA
Number of units outstanding at end of period NA 833 394 NA NA NA NA NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period NA $12.247 $10.368 NA NA NA NA NA
Unit value at end of period NA $10.387 $ 9.000 NA NA NA NA NA
Number of units outstanding at end of period NA 1,015 200 NA NA NA NA NA
PERIOD FROM INCEPTION* TO DEC. 31, 1989
Unit value at beginning of period NA $10.000 $10.000 NA NA NA NA NA
Unit value at end of period NA $12.247 $10.368 NA NA NA NA NA
Number of units outstanding at end of period NA 167 57 NA NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Number of units in thousands)
TEMPLETON
GLOBAL TEMPLETON TEMPLETON TEMPLETON U.S. ZERO ZERO ZERO
INCOME INTERNAT'L INTERNAT'L PACIFIC GOVERNMENT VALUE COUPON COUPON COUPON
VARIABLE OPTIONS: SECURITIES EQUITY SMALLER COS. GROWTH SECURITIES SECURITIES 2000 2005 2010
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $16.957 $17.711 $10.825 $ 9.431 $17.947 $10.000* $19.512 $22.532 $24.740
Unit value at end of period $17.905 $18.437 $ 9.364 $ 8.078 $19.014 $ 7.717 $20.684 $25.003 $27.920
Number of units outstanding at end
of period 6,976 44,256 1,533 10,669 30,500 719 3,595 2,635 2,582
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $16.780 $16.081 $11.145 $14.932 $16.650 NA $18.475 $20.517 $21.522
Unit value at end of period $16.957 $17.711 $10.825 $ 9.431 $17.947 NA $19.512 $22.532 $24.740
Number of units outstanding at end
of period 9,434 58,179 1,998 15,833 36,347 NA 4,523 2,910 2,998
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $15.522 $13.263 $10.000* $13.630 $16.298 NA $18.294 $20.914 $22.431
Unit value at end of period $16.781 $16.081 $11.145 $14.932 $16.650 NA $18.475 $20.517 $21.522
Number of units outstanding at end
of period 11,857 64,375 1,388 22,061 44,598 NA 5,636 3,579 3,297
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period $13.726 $12.161 NA $12.802 $13.835 NA $15.373 $16.096 $15.930
Unit value at end of period $15.522 $13.263 NA $13.630 $16.298 NA $18.294 $20.914 $22.431
Number of units outstanding at end
of period 14,181 59,883 NA 22,483 34,313 NA 6,066 3,504 3,437
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period $14.650 $12.226 NA $14.233 $14.698 NA $16.717 $18.050 $18.144
Unit value at end of period $13.726 $12.161 NA $12.802 $13.835 NA $15.373 $16.096 $15.930
Number of units outstanding at end
of period 16,855 60,464 NA 27,231 36,490 NA 4,953 2,780 2,589
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period $12.733 $ 9.642 NA $ 9.761 $13.586 NA $14.595 $14.975 $14.670
Unit value at end of period $14.650 $12.226 NA $14.233 $14.698 NA $16.717 $18.050 $18.144
Number of units outstanding at end
of period 13,054 24,026 NA 14,240 40,402 NA 3,787 2,020 1,405
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period $12.962 $10.000* NA $10.000* $12.798 NA $13.570 $13.705 $13.482
Unit value at end of period $12.733 $ 9.642 NA $ 9.761 $13.586 NA $14.595 $14.975 $14.670
Number of units outstanding at end
of period 5,487 1,329 NA 534 25,054 NA 2,886 1,090 849
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period $11.706 NA NA NA $11.199 NA $11.446 $11.545 $11.390
Unit value at end of period $12.962 NA NA NA $12.798 NA $13.57 $13.705 $13.482
Number of units outstanding at end
of period 2,979 NA NA NA 14,426 NA 2,012 795 1,150
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period $10.813 NA NA NA $10.427 NA $10.961 $11.406 $11.486
Unit value at end of period $11.706 NA NA NA $11.199 NA $11.446 $11.545 $11.390
Number of units outstanding at end
of period 1,322 NA NA NA 5,450 NA 1,041 406 581
PERIOD FROM INCEPTION* TO DEC. 31, 1989
Unit value at beginning of period $10.000 NA NA NA $10.000 NA $10.000 $10.000 $10.000
Unit value at end of period $10.813 NA NA NA $10.427 NA $10.961 $11.406 $11.486
Number of units outstanding at end
of period 278 NA NA NA 1,102 NA 162 86 194
<FN>
*Unit Value at inception was $10.00.
Accumulation Unit Value at the inception was $10.00 for each Variable Option.
Inception was 1/24/89 for the Growth and Income, High Income, Income Securities,
Money Market, Natural Resources Securities, Real Estate Securities, Templeton
Global Income Securities, and Global Utilities Securities Sub-Accounts; 3/14/89
for the U.S. Government Securities and the three Zero Coupon Sub-Accounts;
1/27/92 for the Rising Dividends, Templeton International Equity and Templeton
Pacific Growth Sub-Accounts; 3/15/94 for the Templeton Developing Markets Equity
and Templeton Global Growth Sub-Accounts; 5/1/95 for the Templeton Global Asset
Allocation Sub-Account; 11/1/95 for the Small Cap Sub-Account; 5/1/96 for the
Capital Growth and Templeton International Smaller Companies Sub-Accounts;
11/8/96 for the Mutual Discovery Securities and Mutual Shares Securities
Sub-Accounts; and 5/1/98 for the Global Health Care Securities and Value
Securities Sub-Accounts.
</FN>
</TABLE>
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
FRANKLIN VALUEMARK II AND FRANKLIN VALUEMARK III
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
COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800) 542-5427.
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
Company ......................................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Reduction or Elimination of the Contingent
Deferred Sales Charge .......................... 2
Calculation of Performance Data ................. 2
Federal Tax Status .............................. 6
Annuity Provisions .............................. 11
Financial Statements ............................ 11
VMB SAI 05/99
<PAGE>
COMPANY
- --------------------------------------------------------------------------------
Information regarding Allianz Life Insurance Company of North America (the
"Company") and its ownership is contained in the Prospectus. On April 1, 1993,
the Company changed its name from North American Life and Casualty Company to
its present name. The Company is rated A+ (Superior) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the Company as of and for the year ended December 31,
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 wholly-owned subsidiary of the Company, acts as
the distributor. The offering is on a continuous basis.
REDUCTION OR ELIMINATION OF THE
CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Insurance Company after examination of the following factors:
1) the size of the group; 2) the total amount of purchase payments expected to
be received from the group; 3) the nature of the group for which the Contracts
are purchased, and the persistency expected in that group; 4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of the Company or any of its
affiliates. The Contingent Deferred Sales Charge may be reduced or eliminated
when the Contract is sold by an agent of the Company to any members of his or
her immediate family and the commission is waived. In no event will any
reduction or elimination of the Contingent Deferred Sales Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Company may advertise the performance data for the
Variable Options (also known as Sub-Accounts) in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications. Such data will show the percentage change in the value of an
accumulation unit based on the performance of a Variable Option over a stated
period of time which is determined by dividing the increase (or decrease) in
value for that unit by the accumulation unit value at the beginning of the
period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge, the operating expenses of the underlying
Portfolios and any applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge ("Standardized Total Return"). The Contingent Deferred Sales
Charge and Contract Maintenance Charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contingent Deferred Sales
Charge and Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
Contingent Deferred Sales Charge and the Contract Maintenance Charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
YIELD
The Money Market Sub-Account. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge and, in
certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Sub-Account's current yield will fluctuate and
that the principal is not guaranteed should be taken into consideration when
using the Sub-Account's current yield as a basis for comparison with savings
accounts or other fixed-yield investments. The yield at any particular time is
not indicative of what the yield may be at any other time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one accumulation unit
for a particular period of time (generally seven days). The return is determined
by dividing the net change (exclusive of any capital changes) in such
accumulation unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the Mortality and Expense Risk Charge, Administrative
Expense Charge and Contract Maintenance Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7] -1.)
For the seven-day period ending on 12/31/98, the Money Market Sub-Account had a
current yield of 3.38% and an effective yield of 3.44%.
Other Sub-Accounts. The Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications for the other Sub-Accounts. Each Sub-Account (other than the
Money Market Sub-Account) will publish standardized total return information
with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [(a-b) + 1)6 - 1]
---
cd
where:
a = net investment income earned during the period by the Portfolio
attributable to shares owned by the 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 that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any Sub-Account (other than the Money Market
Sub-Account).
PERFORMANCE RANKING
Total return information for the Sub-Accounts and the Portfolios may be compared
to relevant indices, including U.S. domestic and international indices and data
from Lipper Analytical Services, Inc., Standard & Poor's Indices, or VARDS R.
From time to time, evaluation of performance by independent sources may also be
used.
<PAGE>
PERFORMANCE INFORMATION
Total returns reflect all aspects of a Sub-Account's return, including the
automatic reinvestment by Allianz Life Variable Account B of all distributions
and any change in a Sub-Account's value over the period
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio and
are shown both with and without the deduction of the Contingent Deferred Sales
Charge and Contract Maintenance Charge. Past performance does not guarantee
future results.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN FRANKLIN VALUEMARK II/III
Average Annual Total Return for the periods ended December 31, 1998: with Contingent Deferred Sales Charge and other
charges
FRANKLIN VALUEMARK II FRANKLIN VALUEMARK III
------------------------------------- --------------------------
INCEPTION ONE FIVE SINCE ONE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS INCEPTION YEAR YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 14.27% NA 17.33% 13.42% NA 17.33%
Global Health Care Securities 5/1/98 NA NA 2.63% NA NA 1.35%
Global Utilities Securities 1/24/89 5.29% 10.18% 10.97% 4.44% 10.18% 10.97%
Growth and Income 1/24/89 2.48% 13.78% 10.11% 1.63% 13.78% 10.11%
High Income 1/24/89 -4.83% 6.81% 7.78% -5.68% 6.81% 7.78%
Income Securities 1/24/89 -4.12% 7.07% 9.64% -4.97% 7.07% 9.64%
Money Market1 1/24/89 -0.59% 3.42% 3.64% -1.44% 3.42% 3.64%
Mutual Discovery Securities 11/8/96 -10.67% NA 4.44% -11.52% NA 4.44%
Mutual Shares Securities 11/8/96 -5.65% NA 7.11% -6.50% NA 7.11%
Natural Resources Securities 1/24/89 -30.77% -10.30% -1.70% -31.62% -10.30% -1.70%
Real Estate Securities 1/24/89 -22.32% 8.36% 8.72% -23.17% 8.36% 8.72%
Rising Dividends 1/27/92 1.09% 15.31% 11.34% 0.24% 15.31% 11.34%
Small Cap 11/1/95 -6.71% NA 12.29% -7.56% NA 12.29%
Templeton Developing Markets Equity 3/15/94 -27.05% NA -4.76% -27.90% NA -4.76%
Templeton Global Asset Allocation 5/1/95 -5.78% NA 8.36% -6.63% NA 8.36%
Templeton Global Growth 3/15/94 3.11% NA 10.59% 2.26% NA 10.59%
Templeton Global Income Securities 1/24/89 1.24% 3.94% 5.96% 0.39% 3.94% 5.96%
Templeton International Equity 1/27/92 -0.26% 8.42% 9.15% -1.11% 8.42% 9.15%
Templeton International Smaller Companies 5/1/96 -17.84% NA -3.40% -18.69% NA -3.40%
Templeton Pacific Growth 1/27/92 -18.69% -10.94% -3.12% -19.54% -10.94% -3.12%
U.S. Government Securities 3/14/89 1.60% 5.13% 6.70% 0.75% 5.13% 6.70%
Value Securities 5/1/98 NA NA -37.77% NA NA -38.86%
Zero Coupon - 20001 3/14/89 1.66% 4.19% 7.62% 0.81% 4.19% 7.62%
Zero Coupon - 20051 3/14/89 6.62% 6.58% 9.73% 5.77% 6.58% 9.73%
Zero Coupon - 20101 3/14/89 8.51% 8.86% 10.97% 7.66% 8.86% 10.97%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN FRANKLIN VALUEMARK II/III
Total Return for the periods ended December 31, 1998: without Contingent Deferred Sales Charge or Contract Maintenance
Charge
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
----------------------------------------------- --------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS YEARS INCEPTION YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.62% NA NA 18.06% NA NA 55.74%
Global Health Care Securities 5/1/98 NA NA NA 9.27% NA NA 6.10%
Global Utilities Securities 1/24/89 9.64% 13.10% 10.33% 11.04% 44.69% 63.45% 183.08%
Growth and Income 1/24/89 6.83% 14.86% 13.91% 10.19% 51.51% 91.76% 162.26%
High Income 1/24/89 -0.48% 7.13% 6.95% 7.86% 22.93% 39.94% 112.08%
Income Securities 1/24/89 0.23% 8.29% 7.21% 9.71% 26.97% 41.66% 151.22%
Money Market1 1/24/89 3.76% 3.74% 3.58% 3.73% 11.66% 19.23% 43.86%
Mutual Discovery Securities 11/8/96 -6.32% NA NA 5.54% NA NA 12.26%
Mutual Shares Securities 11/8/96 -1.30% NA NA 8.18% NA NA 18.37%
Natural Resources Securities 1/24/89 -26.42% -15.52% -10.07% -1.62% -39.71% -41.19% -14.95%
Real Estate Securities 1/24/89 -17.97% 8.54% 8.50% 8.79% 27.85% 50.35% 131.07%
Rising Dividends 1/27/92 5.44% 19.20% 15.43% 11.42% 69.35% 104.95% 111.65%
Small Cap 11/1/95 -2.36% 12.90% NA 12.69% 43.89% NA 46.00%
Templeton Developing Markets Equity 3/15/94 -22.70% -5.87% NA -4.56% -16.58% NA -20.07%
Templeton Global Asset Allocation 5/1/95 -1.43% 8.66% NA 8.71% 28.30% NA 35.89%
Templeton Global Growth 3/15/94 7.46% 12.88% NA 10.73% 43.83% NA 63.09%
Templeton Global Income Securities 1/24/89 5.59% 4.88% 4.09% 6.04% 15.35% 22.22% 79.05%
Templeton International Equity 1/27/92 4.09% 11.60% 8.56% 9.23% 39.01% 50.80% 84.37%
Templeton International Smaller Companies 5/1/96 -13.49% NA NA -2.43% NA NA -6.36%
Templeton Pacific Growth 1/27/92 -14.34% -16.00% -10.71% -3.03% -40.73% -43.24% -19.22%
U.S. Government Securities 3/14/89 5.95% 5.27% 5.28% 6.77% 16.67% 29.36% 90.14%
Value Securities 5/1/98 NA NA NA -32.13% NA NA -22.83%
Zero Coupon - 20001 3/14/89 6.01% 4.18% 4.35% 7.69% 13.07% 23.73% 106.84%
Zero Coupon - 20051 3/14/89 10.97% 6.13% 6.73% 9.80% 19.55% 38.52% 150.03%
Zero Coupon - 20101 3/14/89 12.86% 7.57% 9.00% 11.04% 24.47% 53.88% 179.20%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN FRANKLIN VALUEMARK III
Total Return for the periods ended December 31, 1998: with Contingent Deferred Sales Charge and other charges
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
----------------------------------------------- -------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS YEARS INCEPTION YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 13.42% NA NA 17.33% NA NA 53.20%
Global Health Care Securities 5/1/98 NA NA NA 1.35% NA NA 0.90%
Global Utilities Securities 1/24/89 4.44% 12.44% 10.18% 10.97% 42.14% 62.40% 181.38%
Growth and Income 1/24/89 1.63% 14.21% 13.78% 10.11% 48.97% 90.69% 160.43%
High Income 1/24/89 -5.68% 6.39% 6.81% 7.78% 20.43% 38.99% 110.59%
Income Securities 1/24/89 -4.97% 7.57% 7.07% 9.64% 24.46% 40.68% 149.65%
Money Market1 1/24/89 -1.44% 2.96% 3.42% 3.64% 9.15% 18.31% 42.69%
Mutual Discovery Securities 11/8/96 -11.52% NA NA 4.44% NA NA 9.76%
Mutual Shares Securities 11/8/96 -6.50% NA NA 7.11% NA NA 15.87%
Natural Resources Securities 1/24/89 -31.62% -16.68% -10.30% -1.70% -42.15% -41.92% -15.69%
Real Estate Securities 1/24/89 -23.17% 7.83% 8.36% 8.72% 25.37% 49.42% 129.52%
Rising Dividends 1/27/92 0.24% 18.60% 15.31% 11.34% 66.80% 103.84% 110.53%
Small Cap 11/1/95 -7.56% 12.23% NA 12.29% 41.38% NA 44.37%
Templeton Developing Markets Equity 3/15/94 -27.90% -6.80% NA -4.76% -19.03% NA -20.86%
Templeton Global Asset Allocation 5/1/95 -6.63% 7.95% NA 8.36% 25.79% NA 34.27%
Templeton Global Growth 3/15/94 2.26% 12.21% NA 10.59% 41.30% NA 62.10%
Templeton Global Income Securities 1/24/89 0.39% 4.11% 3.94% 5.96% 12.84% 21.29% 77.78%
Templeton International Equity 1/27/92 -1.11% 10.93% 8.42% 9.15% 36.49% 49.82% 83.42%
Templeton International Smaller Companies 5/1/96 -18.69% NA NA -3.40% NA NA -8.82%
Templeton Pacific Growth 1/27/92 -19.54% -17.17% -10.94% -3.12% -43.17% -43.98% -19.73%
U.S. Government Securities 3/14/89 0.75% 4.51% 5.13% 6.70% 14.15% 28.42% 88.80%
Value Securities 5/1/98 NA NA NA -38.86% NA NA -28.03%
Zero Coupon - 20001 3/14/89 0.81% 3.40% 4.19% 7.62% 10.55% 22.79% 105.48%
Zero Coupon - 20051 3/14/89 5.77% 5.38% 6.58% 9.73% 17.02% 37.54% 148.47%
Zero Coupon - 20101 3/14/89 7.66% 6.83% 8.86% 10.97% 21.93% 52.86% 177.47%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN FRANKLIN VALUEMARK II
Total Return for the periods ended December 31, 1998: with Contingent Deferred Sales Charge and other charges
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
----------------------------------------------- --------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS YEARS INCEPTION YEARS YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 14.27% NA NA 17.33% NA NA 53.20%
Global Health Care Securities 5/1/98 NA NA NA 2.63% NA NA 1.75%
Global Utilities Securities 1/24/89 5.29% 12.4% 10.18% 10.97% 42.14% 62.40% 181.38%
Growth and Income 1/24/89 2.48% 14.21% 13.78% 10.11% 48.97% 90.69% 160.43%
High Income 1/24/89 -4.83% 6.39% 6.81% 7.78% 20.43% 38.99% 110.59%
Income Securities 1/24/89 -4.12% 7.57% 7.07% 9.64% 24.46% 40.68% 149.65%
Money Market1 1/24/89 -0.59% 2.96% 3.42% 3.64% 9.15% 18.31% 42.69%
Mutual Discovery Securities 11/8/96 -10.67% NA NA 4.44% NA NA 9.76%
Mutual Shares Securities 11/8/96 -5.65% NA NA 7.11% NA NA 15.87%
Natural Resources Securities 1/24/89 -30.77% -16.68% -10.30% -1.70% -42.15% -41.92% -15.69%
Real Estate Securities 1/24/89 -22.32% 7.83% 8.36% 8.72% 25.37% 49.42% 129.52%
Rising Dividends 1/27/92 1.09% 18.60% 15.31% 11.34% 66.80% 103.84% 110.53%
Small Cap 11/1/95 -6.71% 12.23% NA 12.29% 41.38% NA 44.37%
Templeton Developing Markets Equity 3/15/94 -27.05% -6.80% NA -4.76% -19.03% NA -20.86%
Templeton Global Asset Allocation 5/1/95 -5.78% 7.95% NA 8.36% 25.79% NA 34.27%
Templeton Global Growth 3/15/94 3.11% 12.21% NA 10.59% 41.30% NA 62.10%
Templeton Global Income Securities 1/24/89 1.24% 4.11% 3.94% 5.96% 12.84% 21.29% 77.78%
Templeton International Equity 1/27/92 -0.26% 10.93% 8.42% 9.15% 36.49% 49.82% 83.42%
Templeton International Smaller Companies 5/1/96 -17.84% NA NA -3.40% NA NA -8.82%
Templeton Pacific Growth 1/27/92 -18.69% -17.17% -10.94% -3.12% -43.17% -43.98% -19.73%
U.S. Government Securities 3/14/89 1.60% 4.51% 5.13% 6.70% 14.15% 28.42% 88.80%
Value Securities 5/1/98 NA NA NA -37.77% NA NA -27.18%
Zero Coupon - 20001 3/14/89 1.66% 3.40% 4.19% 7.62% 10.55% 22.79% 105.48%
Zero Coupon - 20051 3/14/89 6.62% 5.38% 6.58% 9.73% 17.02% 37.54% 148.47%
Zero Coupon - 20101 3/14/89 8.51% 6.83% 8.86% 10.97% 21.93% 52.86% 177.47%
<FN>
1 Calculated with waiver of fees
</FN>
</TABLE>
You 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 your total return may be
in any future period.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
Note: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described 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 excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of 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 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 Company's administrative procedures. Contract Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this 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 IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 591/2, on the individual's death or disability, or as
a qualified first-time home purchase, subject to a $10,000 lifetime maximum, for
the individual, a spouse, child, grandchild, or ancestor. Any distribution which
is not a qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year 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 limitations and restrictions on
all Plans, including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions and 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
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which:
(1) are not predetermined as to dollar amount; and (2) will vary in amount with
the net investment results of the applicable Sub-Account(s) of the Variable
Account. At the Income Date, the Contract Value in each Sub-Account will be
applied to the applicable Annuity Tables. The Annuity Table used will depend
upon the Annuity Option chosen. Both sex distinct and unisex Annuity Tables are
utilized by the Company, depending on the state and type of Contract. If, as of
the Income Date, the then current Annuity Option rates applicable to this class
of Contracts provide a larger income than that guaranteed for the same form of
annuity under the Contract, the larger amount will be paid. The dollar amount of
annuity payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of
an Annuity Unit as of the Income Date. This establishes the number of
Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit value
for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Sub-Account Variable Annuity payments, reduced by the Contract
Maintenance Charge.
ANNUITY UNIT VALUE
The value of an Annuity Unit for a Sub-Account is determined (see below) by
subtracting (2) from (1), dividing the result by (3) and multiplying the result
by .999866337248 (.999866337248 is the daily factor to neutralize the assumed
net investment rate of 5% per annum which is built into the annuity rate table)
where:
1. is the net result of
a. the assets of the Sub-Account attributable to the Annuity Units; plus
or minus
b. the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation of the Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge
and for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
FIXED ANNUITY PAYOUT
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Option value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Company as of and for the
year ended December 31, 1998, included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts. The audited financial statements of the Separate Account as of and
for the year ended December 31, 1998 are also included herein.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Independent Auditors'Report
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account B as of December 31, 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 Agreement (3)
4. Individual Variable Annuity Contract (2)
5. Application for Individual Variable Annuity Contract (2)
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 (2)
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 (3)
27. Not Applicable
(1)Incorporated by reference to Post-Effective Amendment No. 2 to Registrant's
Form N-4 electronically filed on October 24, 1995.
(2)Incorporated by reference to Post-Effective Amendment No.3 to Registrant's
Form N-4 electronically filed on April 18, 1996
(3)Incorporated by reference to Post-Effective Amendment No.5 to Registrant's
Form N-4 electronically filed on April 25, 1997
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
<S> <C>
Lowell C. Anderson Chairman of the Board, President,
1750 Hennepin Avenue Chief 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 G. Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Edward J. Bonach Executive Vice President, Chief Financial
1750 Hennepin Avenue Officer and Treasurer
Minneapolis, MN 55403
Michael T. Westermeyer Vice President, Corporate Legal Officer
1750 Hennepin Avenue and Secretary
Minneapolis, MN 55403
Robert S. James President-Individual Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Paul M. Howman Vice President, Underwriting
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis J. Dease Director
c/o Univer of St.Thomas
Box AQU100
2115 Summit Avenue
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Corp.
Norwest Center
Sixth + Marquette
Minneapolis, MN 55479-0116
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 Post-Effective
Amendment No. 5 (File No. 811-05618)
Item 27. Number of Contract Owners
As of February 26, 1999, there were 15,953 qualified Contract Owners and 36,458
non-qualified Contract Owners with Contracts in the separate account.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers (managers) and directors (Board of
Governors) of NALAC Financial Plans, LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------- ---------------------
<S> <C>
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
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Allianz Life Insurance Company of North America ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter issued
to the American Council of Life Insurance, dated November 28, 1988 (Commission
ref. IP-6-88), and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 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
-------------------------
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Depositor)
By: /s/MICHAEL T. WESTERMEYER
-------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature and Title
<TABLE>
<CAPTION>
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board, 04/26/99
Lowell C. Anderson President 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 G. Rupprecht* Director 04/26/99
Dr. Gerhard G. Rupprecht
Edward J. Bonach* Executive Vice President 04/26/99
Edward J. Bonach and Chief Financial Officer
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
-------------------------
Attorney-in-Fact
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 9
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
INDEX TO EXHIBITS
Exhibit Page
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditor's Consent
EX-99.B13 Calculation of Performance Information
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
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 Deferred
Variable Annuity Contracts to be issued by Allianz Life Insurance Company of
North America and its separate account, Allianz Life Variable Account B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America
and Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 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
<TABLE>
FRANKLIN VALUEMARK III
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
Dollar Units Accum. Accum.
This
Date Transaction Amount Unit Value Trans. Units Value
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
12-31-97 Purchase $1,000.00 $13.12966406 76.163 76.163 $1,000.00
12-31-98 Contract Fee (1.00) 15.57416691 (0.064) 76.099 1,185.18
12-31-98 Value before Surr 15.57416691 0.000 76.099 1,185.18
Chg
12-31-98 Surrender Charge (51.00) 15.57416691 (3.275) 72.825 1,134.18
Cumulative and Average Annual Total Returns
without/with charges 18.62% A 13.42% B
Growth and Income
12-31-97 Purchase $1,000.00 $24.55079561 40.732 40.732 $1,000.00
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 40.694 1,067.25
12-31-98 Value before Surr 26.22646854 0.000 40.694 1,067.25
Chg
12-31-98 Surrender Charge (51.00) 26.22646854 (1.945) 38.749 1,016.25
Cumulative and Average Annual Total Returns
without/with charges 6.83% A 1.63% B
High Income
12-31-97 Purchase $1,000.00 $21.31160694 46.923 46.923 $1,000.00
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 46.876 994.16
12-31-98 Value before Surr 21.20849040 0.000 46.876 994.16
Chg
12-31-98 Surrender Charge (51.00) 21.20849040 (2.405) 44.471 943.16
Cumulative and Average Annual Total Returns
without/with charges -0.48% A -5.68% B
Income Securities
12-31-97 Purchase $1,000.00 $25.06461193 39.897 39.897 $1,000.00
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 39.857 1,001.28
12-31-98 Value before Surr 25.12170867 0.000 39.857 1,001.28
Chg
12-31-98 Surrender Charge (51.00) 25.12170867 (2.030) 37.827 950.28
Cumulative and Average Annual Total Returns
without/with charges 0.23% A -4.97% B
Money Market
12-31-97 Purchase $1,000.00 $13.86472844 72.125 72.125 $1,000.00
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 72.056 1,036.56
12-31-98 Value before Surr 14.38555424 0.000 72.056 1,036.56
Chg
12-31-98 Surrender Charge (51.00) 14.38555424 (3.545) 68.511 985.56
Cumulative and Average Annual Total Returns
without/with charges 3.76% A -1.44% B
Mutual Discovery Securities
12-31-97 Purchase $1,000.00 $11.98316359 83.450 83.450 $1,000.00
12-31-98 Contract Fee (1.00) 11.22622113 (0.089) 83.361 935.83
12-31-98 Value before Surr 11.22622113 0.000 83.361 935.83
Chg
12-31-98 Surrender Charge (51.00) 11.22622113 (4.543) 78.818 884.83
Cumulative and Average Annual Total Returns
without/with charges -6.32% -11.52%
Mutual Shares Securities
12-31-97 Purchase $1,000.00 $11.99296726 83.382 83.382 $1,000.00
12-31-98 Contract Fee (1.00) 11.83677406 (0.084) 83.298 985.98
12-31-98 Value before Surr 11.83677406 0.000 83.298 985.98
Chg
12-31-98 Surrender Charge (51.00) 11.83677406 (4.309) 78.989 934.98
Cumulative and Average Annual Total Returns
without/with charges -1.30% -6.50%
Natural Resource Securities
12-31-97 Purchase $1,000.00 $11.55913365 86.512 86.512 $1,000.00
12-31-98 Contract Fee (1.00) 8.50546484 (0.118) 86.394 734.82
12-31-98 Value before Surr 8.50546484 0.000 86.394 734.82
Chg
12-31-98 Surrender Charge (51.00) 8.50546484 (5.996) 80.398 683.82
Cumulative and Average Annual Total Returns
without/with charges -26.42% A -31.62% B
Real Estate Securities
12-31-97 Purchase $1,000.00 $28.16943249 35.499 35.499 $1,000.00
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 35.456 819.28
12-31-98 Value before Surr 23.10677956 0.000 35.456 819.28
Chg
12-31-98 Surrender Charge (51.00) 23.10677956 (2.207) 33.249 768.28
Cumulative and Average Annual Total Returns
without/with charges -17.97% A -23.17% B
Rising Dividends
12-31-97 Purchase $1,000.00 $20.07430239 49.815 49.815 $1,000.00
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 49.768 1,053.36
12-31-98 Value before Surr 21.16548977 0.000 49.768 1,053.36
Chg
12-31-98 Surrender Charge (51.00) 21.16548977 (2.410) 47.358 1,002.36
Cumulative and Average Annual Total Returns
without/with charges 5.44% A 0.24% B
Small Cap
12-31-97 Purchase $1,000.00 $14.95194471 66.881 66.881 $1,000.00
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 66.812 975.43
12-31-98 Value before Surr 14.59958077 0.000 66.812 975.43
Chg
12-31-98 Surrender Charge (51.00) 14.59958077 (3.493) 63.319 924.43
Cumulative and Average Annual Total Returns
without/with charges -2.36% -7.56%
Templeton Developing Markets Equity
12-31-97 Purchase $1,000.00 $10.34011278 96.711 96.711 $1,000.00
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 96.586 771.97
12-31-98 Value before Surr 7.99263591 0.000 96.586 771.97
Chg
12-31-98 Surrender Charge (51.00) 7.99263591 (6.381) 90.205 720.97
Cumulative and Average Annual Total Returns
without/with charges -22.70% A -27.90% B
Templeton Global Asset Allocation
12-31-97 Purchase $1,000.00 $13.78572229 72.539 72.539 $1,000.00
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 72.465 984.70
12-31-98 Value before Surr 13.58859831 0.000 72.465 984.70
Chg
12-31-98 Surrender Charge (51.00) 13.58859831 (3.753) 68.712 933.70
Cumulative and Average Annual Total Returns
without/with charges -1.43% A -6.63% B
Templeton Global Growth
12-31-97 Purchase $1,000.00 $15.17626475 65.892 65.892 $1,000.00
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 65.831 1,073.61
12-31-98 Value before Surr 16.30853286 0.000 65.831 1,073.61
Chg
12-31-98 Surrender Charge (51.00) 16.30853286 (3.127) 62.704 1,022.61
Cumulative and Average Annual Total Returns
without/with charges 7.46% A 2.26% B
Templeton Global Income Securities
12-31-97 Purchase $1,000.00 $16.95673923 58.974 58.974 $1,000.00
12-31-98 Contract Fee (1.00) 17.90515943 (0.056) 58.918 1,054.93
12-31-98 Value before Surr 17.90515943 0.000 58.918 1,054.93
Chg
12-31-98 Surrender Charge (51.00) 17.90515943 (2.848) 56.069 1,003.93
Cumulative and Average Annual Total Returns
without/with charges 5.59% A 0.39% B
Templeton International Equity
12-31-97 Purchase $1,000.00 $17.71128511 56.461 56.461 $1,000.00
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 56.407 1,039.95
12-31-98 Value before Surr 18.43652906 0.000 56.407 1,039.95
Chg
12-31-98 Surrender Charge (51.00) 18.43652906 (2.766) 53.641 988.95
Cumulative and Average Annual Total Returns
without/with charges 4.09% A -1.11% B
Templeton International Smaller Companies
12-31-97 Purchase $1,000.00 $10.82516357 92.377 92.377 $1,000.00
12-31-98 Contract Fee (1.00) 9.36443942 (0.107) 92.271 864.06
12-31-98 Value before Surr 9.36443942 0.000 92.271 864.06
Chg
12-31-98 Surrender Charge (51.00) 9.36443942 (5.446) 86.824 813.06
Cumulative and Average Annual Total Returns
without/with charges -13.49% A -18.69% B
Templeton Pacific Growth
12-31-97 Purchase $1,000.00 $9.43102016 106.033 106.033 $1,000.00
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 105.909 855.58
12-31-98 Value before Surr 8.07846316 0.000 105.909 855.58
Chg
12-31-98 Surrender Charge (51.00) 8.07846316 (6.313) 99.596 804.58
Cumulative and Average Annual Total Returns
without/with charges -14.34% A -19.54% B
U.S. Government Securities
12-31-97 Purchase $1,000.00 $17.94721856 55.719 55.719 $1,000.00
12-31-98 Contract Fee (1.00) 19.01438042 (0.053) 55.666 1,058.46
12-31-98 Value before Surr 19.01438042 0.000 55.666 1,058.46
Chg
12-31-98 Surrender Charge (51.00) 19.01438042 (2.682) 52.984 1,007.46
Cumulative and Average Annual Total Returns
without/with charges 5.95% A 0.75% B
Utility Equity
12-31-97 Purchase $1,000.00 $25.81831690 38.732 38.732 $1,000.00
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 38.697 1,095.42
12-31-98 Value before Surr 28.30779835 0.000 38.697 1,095.42
Chg
12-31-98 Surrender Charge (51.00) 28.30779835 (1.802) 36.895 1,044.42
Cumulative and Average Annual Total Returns
without/with charges 9.64% A 4.44% B
Zero Coupon - 2000
12-31-97 Purchase $1,000.00 $19.51237855 51.250 51.250 $1,000.00
12-31-98 Contract Fee (1.00) 20.68442229 (0.048) 51.201 1,059.07
12-31-98 Value before Surr 20.68442229 0.000 51.201 1,059.07
Chg
12-31-98 Surrender Charge (51.00) 20.68442229 (2.466) 48.736 1,008.07
Cumulative and Average Annual Total Returns
without/with charges 6.01% A 0.81% B
Zero Coupon - 2005
12-31-97 Purchase $1,000.00 $22.53212008 44.381 44.381 $1,000.00
12-31-98 Contract Fee (1.00) 25.00286219 (0.040) 44.341 1,108.65
12-31-98 Value before Surr 25.00286219 0.000 44.341 1,108.65
Chg
12-31-98 Surrender Charge (51.00) 25.00286219 (2.040) 42.301 1,057.65
Cumulative and Average Annual Total Returns
without/with charges 10.97% A 5.77% B
Zero Coupon - 2010
12-31-97 Purchase $1,000.00 $24.73976107 40.421 40.421 $1,000.00
12-31-98 Contract Fee (1.00) 27.92036039 (0.036) 40.385 1,127.56
12-31-98 Value before Surr 27.92036039 0.000 40.385 1,127.56
Chg
12-31-98 Surrender Charge (51.00) 27.92036039 (1.827) 38.558 1,076.56
Cumulative and Average Annual Total Returns
without/with charges 12.86% A 7.66% B
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.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN VALUEMARK III
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Growth and Income
<S> <C> <C> <C> <C> <C> <C>
12-31-95 Purchase $1,000.00 $17.30965999 57.771 57.771 $1,000.00
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 57.720 1,124.94
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 57.679 1,416.07
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 57.641 1,511.72
12-31-98 Value before Surr 26.22646854 0.000 57.641 1,511.72
Chg
12-31-98 Surrender Charge (22.00) 26.22646854 (0.839) 56.802 1,489.72
Cumulative Total Returns without/with chrgs. 51.51% A 48.97% C
Avg. Annual Total Returns without/with chrgs. 14.86% B 14.21% D
High Income
12-31-95 Purchase $1,000.00 $17.25181285 57.965 57.965 $1,000.00
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 57.913 1,122.06
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 57.866 1,233.23
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 57.819 1,226.26
12-31-98 Value before Surr 21.20849040 0.000 57.819 1,226.26
Chg
12-31-98 Surrender Charge (22.00) 21.20849040 (1.037) 56.782 1,204.26
Cumulative Total Returns without/with chrgs. 22.93% A 20.43% C
Avg. Annual Total Returns without/with chrgs. 7.13% B 6.39% D
Income Securities
12-31-95 Purchase $1,000.00 $19.78534185 50.542 50.542 $1,000.00
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 50.496 1,096.19
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 50.457 1,264.67
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 50.417 1,266.55
12-31-98 Value before Surr 25.12170867 0.000 50.417 1,266.55
Chg
12-31-98 Surrender Charge (22.00) 25.12170867 (0.876) 49.541 1,244.55
Cumulative Total Returns without/with chrgs. 26.97% A 24.46% C
Avg. Annual Total Returns without/with chrgs. 8.29% B 7.57% D
Money Market
12-31-95 Purchase $1,000.00 $12.88349436 77.619 77.619 $1,000.00
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 77.544 1,035.93
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 77.472 1,074.12
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 77.402 1,113.47
12-31-98 Value before Surr 14.38555424 0.000 77.402 1,113.47
Chg
12-31-98 Surrender Charge (22.00) 14.38555424 (1.529) 75.873 1,091.47
Cumulative Total Returns without/with chrgs. 11.66% A 9.15% C
Avg. Annual Total Returns without/with chrgs. 3.74% B 2.96% D
Natural Resource Securities
12-31-95 Purchase $1,000.00 $14.10867153 70.878 70.878 $1,000.00
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 70.809 1,024.43
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 70.723 817.49
12-31-98 Contract Fee (1.00) 8.50546484 (0.118) 70.605 600.53
12-31-98 Value before Surr 8.50546484 0.000 70.605 600.53
Chg
12-31-98 Surrender Charge (22.00) 8.50546484 (2.587) 68.019 578.53
Cumulative Total Returns without/with chrgs. -39.71% A -42.15% C
Avg. Annual Total Returns without/with chrgs. -15.52% B -16.68% D
Real Estate Securities
12-31-95 Purchase $1,000.00 $18.07282328 55.332 55.332 $1,000.00
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 55.289 1,308.57
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 55.254 1,556.47
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 55.211 1,275.74
12-31-98 Value before Surr 23.10677956 0.000 55.211 1,275.74
Chg
12-31-98 Surrender Charge (22.00) 23.10677956 (0.952) 54.259 1,253.74
Cumulative Total Returns without/with chrgs. 27.85% A 25.37% C
Avg. Annual Total Returns without/with chrgs. 8.54% B 7.83% D
Rising Dividends
12-31-95 Purchase $1,000.00 $12.49836348 80.010 80.010 $1,000.00
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 79.945 1,223.40
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 79.895 1,603.84
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 79.848 1,690.02
12-31-98 Value before Surr 21.16548977 0.000 79.848 1,690.02
Chg
12-31-98 Surrender Charge (22.00) 21.16548977 (1.039) 78.809 1,668.02
Cumulative Total Returns without/with chrgs. 69.35% A 66.80% C
Avg. Annual Total Returns without/with chrgs. 19.20% B 18.60% D
Small Cap
12-31-95 Purchase $1,000.00 $10.14638787 98.557 98.557 $1,000.00
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 98.480 1,271.64
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 98.413 1,471.46
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 98.344 1,435.79
12-31-98 Value before Surr 14.59958077 0.000 98.344 1,435.79
Chg
12-31-98 Surrender Charge (22.00) 14.59958077 (1.507) 96.838 1,413.79
Cumulative Total Returns without/with charges 43.89% 41.38%
Average Annual Total Returns without/with charges 12.90% 12.23%
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $9.58170209 104.366 104.366 $1,000.00
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 104.279 1,197.87
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 104.182 1,077.25
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 104.057 831.69
12-31-98 Value before Surr 7.99263591 0.000 104.057 831.69
Chg
12-31-98 Surrender Charge (22.00) 7.99263591 (2.753) 101.304 809.69
Cumulative Total Returns without/with chrgs. -16.58% A -19.03% C
Avg. Annual Total Returns without/with chrgs. -5.87% B -6.80% D
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.59122588 94.418 94.418 $1,000.00
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 94.338 1,180.56
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 94.265 1,299.52
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 94.192 1,279.93
12-31-98 Value before Surr 13.58859831 0.000 94.192 1,279.93
Chg
12-31-98 Surrender Charge (22.00) 13.58859831 (1.619) 92.573 1,257.93
Cumulative Total Returns without/with chrgs. 28.30% A 25.79% C
Avg. Annual Total Returns without/with chrgs. 8.66% B 7.95% D
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.33894840 88.192 88.192 $1,000.00
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 88.118 1,194.84
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 88.052 1,336.30
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 87.991 1,435.00
12-31-98 Value before Surr 16.30853286 0.000 87.991 1,435.00
Chg
12-31-98 Surrender Charge (22.00) 16.30853286 (1.349) 86.642 1,413.00
Cumulative Total Returns without/with chrgs. 43.83% A 41.30% C
Avg. Annual Total Returns without/with chrgs. 12.88% B 12.21% D
Templeton Global Income Securities
12-31-95 Purchase $1,000.00 $15.52246997 64.423 64.423 $1,000.00
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 64.363 1,080.05
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 64.304 1,090.39
12-31-98 Contract Fee (1.00) 17.90515943 (0.056) 64.248 1,150.38
12-31-98 Value before Surr 17.90515943 0.000 64.248 1,150.38
Chg
12-31-98 Surrender Charge (22.00) 17.90515943 (1.229) 63.020 1,128.38
Cumulative Total Returns without/with chrgs. 15.35% A 12.84% C
Avg. Annual Total Returns without/with chrgs. 4.88% B 4.11% D
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.26267921 75.400 75.400 $1,000.00
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 75.337 1,211.53
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 75.281 1,333.32
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 75.227 1,386.92
12-31-98 Value before Surr 18.43652906 0.000 75.227 1,386.92
Chg
12-31-98 Surrender Charge (22.00) 18.43652906 (1.193) 74.033 1,364.92
Cumulative Total Returns without/with chrgs. 39.01% A 36.49% C
Avg. Annual Total Returns without/with chrgs. 11.60% B 10.93% D
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.63037545 73.366 73.366 $1,000.00
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 73.299 1,094.46
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 73.193 690.28
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 73.069 590.28
12-31-98 Value before Surr 8.07846316 0.000 73.069 590.28
Chg
12-31-98 Surrender Charge (22.00) 8.07846316 (2.723) 70.345 568.28
Cumulative Total Returns without/with chrgs. -40.73% A -43.17% C
Avg. Annual Total Returns without/with chrgs. -16.00% B -17.17% D
U.S. Government Securities
12-31-95 Purchase $1,000.00 $16.29770051 61.358 61.358 $1,000.00
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 61.298 1,020.63
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 61.243 1,099.13
12-31-98 Contract Fee (1.00) 19.01438042 (0.053) 61.190 1,163.49
12-31-98 Value before Surr 19.01438042 0.000 61.190 1,163.49
Chg
12-31-98 Surrender Charge (22.00) 19.01438042 (1.157) 60.033 1,141.49
Cumulative Total Returns without/with chrgs. 16.67% A 14.15% C
Avg. Annual Total Returns without/with chrgs. 5.27% B 4.51% D
Utility Equity
12-31-95 Purchase $1,000.00 $19.56451758 51.113 51.113 $1,000.00
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 51.065 1,054.71
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 51.026 1,317.40
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 50.990 1,443.43
12-31-98 Value before Surr 28.30779835 0.000 50.990 1,443.43
Chg
12-31-98 Surrender Charge (22.00) 28.30779835 (0.777) 50.213 1,421.43
Cumulative Total Returns without/with chrgs. 44.69% A 42.14% C
Avg. Annual Total Returns without/with chrgs. 13.10% B 12.44% D
Zero Coupon - 2000
12-31-95 Purchase $1,000.00 $18.29362036 54.664 54.664 $1,000.00
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 54.610 1,008.90
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 54.558 1,064.57
12-31-98 Contract Fee (1.00) 20.68442229 (0.048) 54.510 1,127.51
12-31-98 Value before Surr 20.68442229 0.000 54.510 1,127.51
Chg
12-31-98 Surrender Charge (22.00) 20.68442229 (1.064) 53.447 1,105.51
Cumulative Total Returns without/with chrgs. 13.07% A 10.55% C
Avg. Annual Total Returns without/with chrgs. 4.18% B 3.40% D
Zero Coupon - 2005
12-31-95 Purchase $1,000.00 $20.91363234 47.816 47.816 $1,000.00
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 47.767 980.02
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 47.723 1,075.29
12-31-98 Contract Fee (1.00) 25.00286219 (0.040) 47.683 1,192.20
12-31-98 Value before Surr 25.00286219 0.000 47.683 1,192.20
Chg
12-31-98 Surrender Charge (22.00) 25.00286219 (0.880) 46.803 1,170.20
Cumulative Total Returns without/with chrgs. 19.55% A 17.02% C
Avg. Annual Total Returns without/with chrgs. 6.13% B 5.38% D
Zero Coupon - 2010
12-31-95 Purchase $1,000.00 $22.43134838 44.580 44.580 $1,000.00
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 44.534 958.48
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 44.494 1,100.76
12-31-98 Contract Fee (1.00) 27.92036039 (0.036) 44.458 1,241.28
12-31-98 Value before Surr 27.92036039 0.000 44.458 1,241.28
Chg
12-31-98 Surrender Charge (22.00) 27.92036039 (0.788) 43.670 1,219.28
Cumulative Total Returns without/with chrgs. 24.47% A 21.93% C
Avg. Annual Total Returns without/with chrgs. 7.57% B 6.83% D
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
</TABLE>
<PAGE>
<TABLE>
FRANKLIN VALUEMARK III
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
Dollar Units Accum. Accum.
This
Date Transaction Amount Unit Value Trans. Units Value
Growth and Income
<S> <C> <C> <C> <C> <C> <C>
12-31-93 Purchase $1,000.00 $13.67694811 73.116 73.116 $1,000.00
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 72.931 1,421.40
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 72.890 1,789.51
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 72.852 1,910.65
12-31-98 Value before Surr 26.22646854 0.000 72.852 1,910.65
Chg
12-31-98 Surrender Charge (3.75) 26.22646854 (0.143) 72.709 1,906.90
Cumulative Total Returns without/with chrgs. 91.76% A 90.69% C
Avg. Annual Total Returns without/with chrgs. 13.91% B 13.78% D
High Income
12-31-93 Purchase $1,000.00 $15.15511991 65.984 65.984 $1,000.00
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 65.916 962.87
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 65.858 1,136.17
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 65.806 1,274.98
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 65.759 1,401.44
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 65.712 1,393.66
12-31-98 Value before Surr 21.20849040 0.000 65.712 1,393.66
Chg
12-31-98 Surrender Charge (3.75) 21.20849040 (0.177) 65.535 1,389.91
Cumulative Total Returns without/with chrgs. 39.94% A 38.99% C
Avg. Annual Total Returns without/with chrgs. 6.95% B 6.81% D
Income Securities
12-31-93 Purchase $1,000.00 $17.73437317 56.388 56.388 $1,000.00
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 56.327 923.29
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 56.276 1,113.44
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 56.230 1,220.66
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 56.190 1,408.38
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 56.150 1,410.59
12-31-98 Value before Surr 25.12170867 0.000 56.150 1,410.59
Chg
12-31-98 Surrender Charge (3.75) 25.12170867 (0.149) 56.001 1,406.84
Cumulative Total Returns without/with chrgs. 41.66% A 40.68% C
Avg. Annual Total Returns without/with chrgs. 7.21% B 7.07% D
Money Market
12-31-93 Purchase $1,000.00 $12.06579747 82.879 82.879 $1,000.00
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 82.798 1,022.88
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 82.720 1,065.73
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 82.645 1,104.08
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 82.573 1,144.86
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 82.504 1,186.86
12-31-98 Value before Surr 14.38555424 0.000 82.504 1,186.86
Chg
12-31-98 Surrender Charge (3.75) 14.38555424 (0.261) 82.243 1,183.11
Cumulative Total Returns without/with chrgs. 19.23% A 18.31% C
Avg. Annual Total Returns without/with chrgs. 3.58% B 3.42% D
Natural Resource Securities
12-31-93 Purchase $1,000.00 $14.46354903 69.139 69.139 $1,000.00
12-31-94 Contract Fee (1.00) 13.97879422 (0.072) 69.068 965.48
12-31-95 Contract Fee (1.00) 14.10867153 (0.071) 68.997 973.45
12-31-96 Contract Fee (1.00) 14.46741645 (0.069) 68.928 997.21
12-31-97 Contract Fee (1.00) 11.55913365 (0.087) 68.841 795.75
12-31-98 Contract Fee (1.00) 8.50546484 (0.118) 68.724 584.53
12-31-98 Value before Surr 8.50546484 0.000 68.724 584.53
Chg
12-31-98 Surrender Charge (3.75) 8.50546484 (0.441) 68.283 580.78
Cumulative Total Returns without/with chrgs. -41.19% A -41.92% C
Avg. Annual Total Returns without/with chrgs. -10.07% B -10.30% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.36898235 65.066 65.066 $1,000.00
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 65.002 1,013.65
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.947 1,173.77
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.904 1,536.14
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 64.869 1,827.32
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 64.826 1,497.91
12-31-98 Value before Surr 23.10677956 0.000 64.826 1,497.91
Chg
12-31-98 Surrender Charge (3.75) 23.10677956 (0.162) 64.663 1,494.16
Cumulative Total Returns without/with chrgs. 50.35% A 49.42% C
Avg. Annual Total Returns without/with chrgs. 8.50% B 8.36% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.32720317 96.832 96.832 $1,000.00
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 96.729 $944.92
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 96.649 $1,207.96
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 96.584 1,478.02
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 96.534 1,937.85
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 96.487 2,042.19
12-31-98 Value before Surr 21.16548977 0.000 96.487 2,042.19
Chg
12-31-98 Surrender Charge (3.75) 21.16548977 (0.177) 96.310 2,038.44
Cumulative Total Returns without/with chrgs. 104.95% A 103.84% C
Avg. Annual Total Rtns. without/with chrgs. 15.43% B 15.31% D
Templeton Global Income Securities
12-31-93 Purchase $1,000.00 $14.64984870 68.260 68.260 $1,000.00
12-31-94 Contract Fee (1.00) 13.72629720 (0.073) 68.187 935.96
12-31-95 Contract Fee (1.00) 15.52246997 (0.064) 68.123 1,057.43
12-31-96 Contract Fee (1.00) 16.78052472 (0.060) 68.063 1,142.14
12-31-97 Contract Fee (1.00) 16.95673923 (0.059) 68.004 1,153.13
12-31-98 Contract Fee (1.00) 17.90515943 (0.056) 67.948 1,216.63
12-31-98 Value before Surr 17.90515943 0.000 67.948 1,216.63
Chg
12-31-98 Surrender Charge (3.75) 17.90515943 (0.209) 67.739 1,212.88
Cumulative Total Returns without/with chrgs. 22.22% A 21.29% C
Avg. Annual Total Returns without/with chrgs. 4.09% B 3.94% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.22565227 81.795 81.795 $1,000.00
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 81.713 993.74
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 81.638 1,082.73
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 81.575 1,311.85
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 81.519 1,443.81
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 81.465 1,501.93
12-31-98 Value before Surr 18.43652906 0.000 81.465 1,501.93
Chg
12-31-98 Surrender Charge (3.75) 18.43652906 (0.203) 81.261 1,498.18
Cumulative Total Returns without/with chrgs. 50.80% A 49.82% C
Avg. Annual Total Rtns. without/with chrgs. 8.56% B 8.42% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.23330574 70.258 70.258 $1,000.00
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 70.180 898.42
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 70.106 955.57
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 70.039 1,045.80
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 69.933 659.54
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 69.809 563.95
12-31-98 Value before Surr 8.07846316 0.000 69.809 563.95
Chg
12-31-98 Surrender Charge (3.75) 8.07846316 (0.464) 69.345 560.20
Cumulative Total Returns without/with chrgs. -43.24% A -43.98% C
Avg. Annual Total Rtns. without/with chrgs. -10.71% B -10.94% D
U.S. Government Securities
12-31-93 Purchase $1,000.00 $14.69826319 68.035 68.035 $1,000.00
12-31-94 Contract Fee (1.00) 13.83490825 (0.072) 67.963 940.26
12-31-95 Contract Fee (1.00) 16.29770051 (0.061) 67.902 1,106.64
12-31-96 Contract Fee (1.00) 16.65018339 (0.060) 67.842 1,129.57
12-31-97 Contract Fee (1.00) 17.94721856 (0.056) 67.786 1,216.57
12-31-98 Contract Fee (1.00) 19.01438042 (0.053) 67.733 1,287.91
12-31-98 Value before Surr 19.01438042 0.000 67.733 1,287.91
Chg
12-31-98 Surrender Charge (3.75) 19.01438042 (0.197) 67.536 1,284.16
Cumulative Total Returns without/with chrgs. 29.36% A 28.42% C
Avg. Annual Total Returns without/with chrgs. 5.28% B 5.13% D
Utility Equity
12-31-93 Purchase $1,000.00 $17.31879581 57.741 57.741 $1,000.00
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 57.675 871.11
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 57.623 1,127.37
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 57.575 1,189.18
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 57.536 1,485.49
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 57.501 1,627.73
12-31-98 Value before Surr 28.30779835 0.000 57.501 1,627.73
Chg
12-31-98 Surrender Charge (3.75) 28.30779835 (0.132) 57.368 1,623.98
Cumulative Total Returns without/with chrgs. 63.45% A 62.40% C
Avg. Annual Total Returns without/with chrgs. 10.33% B 10.18% D
Zero Coupon - 2000
12-31-93 Purchase $1,000.00 $16.71742785 59.818 59.818 $1,000.00
12-31-94 Contract Fee (1.00) 15.37318118 (0.065) 59.753 918.59
12-31-95 Contract Fee (1.00) 18.29362036 (0.055) 59.698 1,092.09
12-31-96 Contract Fee (1.00) 18.47475298 (0.054) 59.644 1,101.91
12-31-97 Contract Fee (1.00) 19.51237855 (0.051) 59.593 1,162.80
12-31-98 Contract Fee (1.00) 20.68442229 (0.048) 59.544 1,231.64
12-31-98 Value before Surr 20.68442229 0.000 59.544 1,231.64
Chg
12-31-98 Surrender Charge (3.75) 20.68442229 (0.181) 59.363 1,227.89
Cumulative Total Returns without/with chrgs. 23.73% A 22.79% C
Avg. Annual Total Returns without/with chrgs. 4.35% B 4.19% D
Zero Coupon - 2005
12-31-93 Purchase $1,000.00 $18.04995514 55.402 55.402 $1,000.00
12-31-94 Contract Fee (1.00) 16.09601101 (0.062) 55.340 890.75
12-31-95 Contract Fee (1.00) 20.91363234 (0.048) 55.292 1,156.35
12-31-96 Contract Fee (1.00) 20.51665706 (0.049) 55.243 1,133.40
12-31-97 Contract Fee (1.00) 22.53212008 (0.044) 55.199 1,243.74
12-31-98 Contract Fee (1.00) 25.00286219 (0.040) 55.159 1,379.13
12-31-98 Value before Surr 25.00286219 0.000 55.159 1,379.13
Chg
12-31-98 Surrender Charge (3.75) 25.00286219 (0.150) 55.009 1,375.38
Cumulative Total Returns without/with chrgs. 38.52% A 37.54% C
Avg. Annual Total Returns without/with chrgs. 6.73% B 6.58% D
Zero Coupon - 2010
12-31-93 Purchase $1,000.00 $18.14448916 55.113 55.113 $1,000.00
12-31-94 Contract Fee (1.00) 15.92982416 (0.063) 55.050 876.94
12-31-95 Contract Fee (1.00) 22.43134838 (0.045) 55.006 1,233.85
12-31-96 Contract Fee (1.00) 21.52246902 (0.046) 54.959 1,182.86
12-31-97 Contract Fee (1.00) 24.73976107 (0.040) 54.919 1,358.68
12-31-98 Contract Fee (1.00) 27.92036039 (0.036) 54.883 1,532.36
12-31-98 Value before Surr 27.92036039 0.000 54.883 1,532.36
Chg
12-31-98 Surrender Charge (3.75) 27.92036039 (0.134) 54.749 1,528.61
Cumulative Total Returns without/with chrgs. 53.88% A 52.86% C
Avg. Annual Total Returns without/with chrgs. 9.00% B 8.86% D
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
</TABLE>
<PAGE>
<TABLE>
FRANKLIN VALUEMARK III
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
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Capital Growth
<S> <C> <C> <C> <C> <C> <C>
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) 11.18234032 (0.089) 99.911 1,117.23
5-1-98 Contract Fee (1.00) 14.64647972 (0.068) 99.842 1,462.34
12-31-98 Contract Fee (1.00) 15.57416691 (0.064) 99.778 1,553.96
12-31-98 Value before Surr 15.57416691 0.000 99.778 1,553.96
Chg
12-31-98 Surrender Charge (22.00) 15.57416691 (1.413) 98.365 1,531.96
Cumulative Total Returns without/with chgs. 55.74% A 53.20% C
Avg. Annual Total Returns without/with chgs. 18.06% B 17.33% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.60621064 (0.104) 99.896 959.62
1-24-91 Contract Fee (1.00) 10.04911751 (0.100) 99.796 1,002.87
1-24-92 Contract Fee (1.00) 12.19460473 (0.082) 99.714 1,215.98
1-24-93 Contract Fee (1.00) 12.62194644 (0.079) 99.635 1,257.59
1-24-94 Contract Fee (1.00) 14.16249217 (0.071) 99.565 1,410.08
1-24-95 Contract Fee (1.00) 13.34952632 (0.075) 99.490 1,328.14
1-24-96 Contract Fee (1.00) 17.36302808 (0.058) 99.432 1,726.44
1-24-97 Contract Fee (1.00) 19.93765368 (0.050) 99.382 1,981.44
1-24-98 Contract Fee (1.00) 24.03879635 (0.042) 99.340 2,388.02
12-31-98 Value before Surr 26.22646854 0.000 99.340 2,605.35
Chg
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 99.302 2,604.35
12-31-98 Surrender Charge 0.00 26.22646854 0.000 99.302 2,604.35
Cumulative Total Returns without/with chgs. 162.26% A 160.43% C
Avg. Annual Total Returns without/with chgs. 10.19% B 10.11% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.99164502 (0.100) 99.900 998.16
1-24-91 Contract Fee (1.00) 8.99722270 (0.111) 99.789 897.82
1-24-92 Contract Fee (1.00) 11.88821941 (0.084) 99.705 1,185.31
1-24-93 Contract Fee (1.00) 13.44703876 (0.074) 99.630 1,339.73
1-24-94 Contract Fee (1.00) 15.36027784 (0.065) 99.565 1,529.35
1-24-95 Contract Fee (1.00) 14.72506391 (0.068) 99.497 1,465.10
1-24-96 Contract Fee (1.00) 17.51218685 (0.057) 99.440 1,741.41
1-24-97 Contract Fee (1.00) 19.46632780 (0.051) 99.389 1,934.73
1-24-98 Contract Fee (1.00) 21.49896803 (0.047) 99.342 2,135.76
12-31-98 Value before Surr 21.20849040 0.000 99.342 2,106.90
Chg
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 99.295 2,105.90
12-31-98 Surrender Charge 0.00 21.20849040 0.000 99.295 2,105.90
Cumulative Total Returns without/with chgs. 112.08% A 110.59% C
Avg. Annual Total Returns without/with chgs. 7.86% B 7.78% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.71309911 (0.093) 99.907 1,070.31
1-24-91 Contract Fee (1.00) 9.95244729 (0.100) 99.806 993.32
1-24-92 Contract Fee (1.00) 14.03346495 (0.071) 99.735 1,399.63
1-24-93 Contract Fee (1.00) 15.36060973 (0.065) 99.670 1,530.99
1-24-94 Contract Fee (1.00) 17.72926867 (0.056) 99.613 1,766.07
1-24-95 Contract Fee (1.00) 16.36456157 (0.061) 99.552 1,629.13
1-24-96 Contract Fee (1.00) 20.20965612 (0.049) 99.503 2,010.92
1-24-97 Contract Fee (1.00) 21.90254020 (0.046) 99.457 2,178.36
1-24-98 Contract Fee (1.00) 24.74259869 (0.040) 99.417 2,459.83
12-31-98 Value before Surr 25.12170867 0.000 99.417 2,497.52
Chg
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 99.377 2,496.52
12-31-98 Surrender Charge 0.00 25.12170867 0.000 99.377 2,496.52
Cumulative Total Returns without/with chgs. 151.22% A 149.65% C
Avg. Annual Total Returns without/with chgs. 9.71% B 9.64% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67978818 (0.094) 99.906 1,066.98
1-24-91 Contract Fee (1.00) 11.32877884 (0.088) 99.818 1,130.82
1-24-92 Contract Fee (1.00) 11.75876120 (0.085) 99.733 1,172.74
1-24-93 Contract Fee (1.00) 11.94119334 (0.084) 99.649 1,189.93
1-24-94 Contract Fee (1.00) 12.07592840 (0.083) 99.566 1,202.36
1-24-95 Contract Fee (1.00) 12.38828249 (0.081) 99.486 1,232.46
1-24-96 Contract Fee (1.00) 12.92030455 (0.077) 99.408 1,284.39
1-24-97 Contract Fee (1.00) 13.39088993 (0.075) 99.334 1,330.17
1-24-98 Contract Fee (1.00) 13.89829761 (0.072) 99.262 1,379.57
12-31-98 Value before Surr 14.38555424 0.000 99.262 1,427.94
Chg
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 99.192 1,426.94
12-31-98 Surrender Charge 0.00 14.38555424 0.000 99.192 1,426.94
Cumulative Total Returns without/with chgs. 43.86% A 42.69% C
Avg. Annual Total Returns without/with chgs. 3.73% B 3.64% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.84027297 (0.084) 99.916 1,183.03
11-8-98 Contract Fee (1.00) 10.96095902 (0.091) 99.824 1,094.17
12-31-98 Contract Fee (1.00) 11.22622113 (0.089) 99.735 1,119.65
12-31-98 Value before Surr 11.22622113 0.000 99.735 1,119.65
Chg
12-31-98 Surrender Charge (22.00) 11.22622113 (1.960) 97.776 1,097.65
Cumulative Total Returns without/with chgs. 12.26% A 9.76% C
Avg. Annual Total Returns without/with chgs. 5.54% B 4.44% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.76129584 (0.085) 99.915 1,175.13
11-8-98 Contract Fee (1.00) 11.59398963 (0.086) 99.829 1,157.41
12-31-98 Contract Fee (1.00) 11.83677406 (0.084) 99.744 1,180.65
12-31-98 Value before Surr 11.83677406 0.000 99.744 1,180.65
Chg
12-31-98 Surrender Charge (22.00) 11.83677406 (1.859) 97.886 1,158.65
Cumulative Total Returns without/with chgs. 18.37% A 15.87% C
Avg. Annual Total Returns without/with chgs. 8.18% B 7.11% D
Natural Resource Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.89722725 (0.078) 99.922 1,288.72
1-24-91 Contract Fee (1.00) 9.78594476 (0.102) 99.820 976.84
1-24-92 Contract Fee (1.00) 10.94243678 (0.091) 99.729 1,091.28
1-24-93 Contract Fee (1.00) 9.15485419 (0.109) 99.620 912.00
1-24-94 Contract Fee (1.00) 14.48022000 (0.069) 99.551 1,441.51
1-24-95 Contract Fee (1.00) 13.03370860 (0.077) 99.474 1,296.51
1-24-96 Contract Fee (1.00) 15.98656882 (0.063) 99.411 1,589.25
1-24-97 Contract Fee (1.00) 13.82698418 (0.072) 99.339 1,373.56
1-24-98 Contract Fee (1.00) 10.60761568 (0.094) 99.245 1,052.75
12-31-98 Value before Surr 8.50546484 0.000 99.245 844.12
Chg
12-31-98 Contract Fee (1.00) 8.50546484 (0.118) 99.127 843.12
12-31-98 Surrender Charge 0.00 8.50546484 0.000 99.127 843.12
Cumulative Total Returns without/with chgs. -14.95% A -15.69% C
Avg. Annual Total Returns without/with chgs. -1.62% B -1.70% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13988901 (0.099) 99.901 1,012.99
1-24-91 Contract Fee (1.00) 9.37706788 (0.107) 99.795 935.78
1-24-92 Contract Fee (1.00) 12.28427530 (0.081) 99.713 1,224.91
1-24-93 Contract Fee (1.00) 13.54478625 (0.074) 99.640 1,349.60
1-24-94 Contract Fee (1.00) 15.37525910 (0.065) 99.574 1,530.98
1-24-95 Contract Fee (1.00) 15.00928122 (0.067) 99.508 1,493.54
1-24-96 Contract Fee (1.00) 18.15857148 (0.055) 99.453 1,805.92
1-24-97 Contract Fee (1.00) 23.95551361 (0.042) 99.411 2,381.44
1-24-98 Contract Fee (1.00) 28.04564576 (0.036) 99.375 2,787.05
12-31-98 Value before Surr Chg 23.10677956 0.000 99.375 2,296.24
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 99.332 2,295.24
12-31-98 Surrender Charge 0.00 23.10677956 0.000 99.332 2,295.24
Cumulative Total Returns without/with chgs. 131.07% A 129.52% C
Avg. Annual Total Returns without/with chgs. 8.79% B 8.72% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.69831588 (0.093) 99.907 1,068.83
1-27-94 Contract Fee (1.00) 10.38483458 (0.096) 99.810 1,036.51
1-27-95 Contract Fee (1.00) 9.97357882 (0.100) 99.710 994.47
1-27-96 Contract Fee (1.00) 12.53425589 (0.080) 99.630 1,248.79
1-27-97 Contract Fee (1.00) 15.27722507 (0.065) 99.565 1,521.07
1-27-98 Contract Fee (1.00) 19.83953724 (0.050) 99.514 1,974.32
12-31-98 Value before Surr 21.16548977 0.000 99.514 2,106.27
Chg
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 99.467 2,105.27
12-31-98 Surrender Charge 0.00 21.16548977 0.000 99.467 2,105.27
Cumulative Total Returns without/with chgs. 111.65% A 110.53% C
Avg. Annual Total Returns without/with chgs. 11.42% B 11.34% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.15810442 (0.082) 99.918 1,214.81
11-1-97 Contract Fee (1.00) 15.56454139 (0.064) 99.854 1,554.17
11-1-98 Contract Fee (1.00) 12.53305565 (0.080) 99.774 1,250.47
12-31-98 Value before Surr 14.59958077 0.000 99.774 1,456.65
Chg
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 99.705 1,455.65
12-31-98 Surrender Charge (12.00) 14.59958077 (0.822) 98.883 1,443.65
Cumulative Total Returns without/with chgs. 46.00% A 44.37% C
Avg. Annual Total Returns without/with chgs. 12.69% B 12.29% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62834892 (0.116) 99.884 861.83
3-15-96 Contract Fee (1.00) 10.29583833 (0.097) 99.787 1,027.39
3-15-97 Contract Fee (1.00) 12.45337068 (0.080) 99.707 1,241.68
3-15-98 Contract Fee (1.00) 10.55209904 (0.095) 99.612 1,051.11
12-31-98 Value before Surr 7.99263591 0.000 99.612 796.16
Chg
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 99.487 795.16
12-31-98 Surrender Charge (3.75) 7.99263591 (0.469) 99.018 791.41
Cumulative Total Returns without/with chgs. -20.07% A -20.86% C
Avg. Annual Total Returns without/with chgs. -4.56% B -4.76% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.25238520 (0.089) 99.911 1,124.24
5-1-97 Contract Fee (1.00) 12.77282148 (0.078) 99.833 1,275.15
5-1-98 Contract Fee (1.00) 14.99206191 (0.067) 99.766 1,495.70
12-31-98 Value before Surr 13.58859831 0.000 99.766 1,355.68
Chg
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 99.693 1,354.68
12-31-98 Surrender Charge (12.00) 13.58859831 (0.883) 98.809 1,342.68
Cumulative Total Returns without/with chgs. 35.89% A 34.27% C
Avg. Annual Total Returns without/with chgs. 8.71% B 8.36% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.10361218 (0.099) 99.901 1,009.36
3-15-96 Contract Fee (1.00) 11.81545835 (0.085) 99.816 1,179.38
3-15-97 Contract Fee (1.00) 14.09972316 (0.071) 99.745 1,406.38
3-15-98 Contract Fee (1.00) 16.74256384 (0.060) 99.686 1,668.99
12-31-98 Value before Surr 16.30853286 0.000 99.686 1,625.73
Chg
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 99.624 1,624.73
12-31-98 Surrender Charge (3.75) 16.30853286 (0.230) 99.394 1,620.98
Cumulative Total Returns without/with chgs. 63.09% A 62.10% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.59% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.86134310 (0.092) 99.908 1,085.13
1-24-91 Contract Fee (1.00) 11.78457305 (0.085) 99.823 1,176.37
1-24-92 Contract Fee (1.00) 12.96036211 (0.077) 99.746 1,292.74
1-24-93 Contract Fee (1.00) 12.79597793 (0.078) 99.668 1,275.35
1-24-94 Contract Fee (1.00) 14.83430587 (0.067) 99.600 1,477.50
1-24-95 Contract Fee (1.00) 13.57814674 (0.074) 99.527 1,351.39
1-24-96 Contract Fee (1.00) 15.44939311 (0.065) 99.462 1,536.63
1-24-97 Contract Fee (1.00) 16.58044652 (0.060) 99.402 1,648.12
1-24-98 Contract Fee (1.00) 17.07240899 (0.059) 99.343 1,696.03
12-31-98 Value before Surr 17.90515943 0.000 99.343 1,778.75
Chg
12-31-98 Contract Fee (1.00) 17.90515943 (0.056) 99.287 1,777.75
12-31-98 Surrender Charge 0.00 17.90515943 0.000 99.287 1,777.75
Cumulative Total Returns without/with chgs. 79.05% A 77.78% C
Avg. Annual Total Returns without/with chgs. 6.04% B 5.96% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.54360836 (0.105) 99.895 953.36
1-27-94 Contract Fee (1.00) 12.87738433 (0.078) 99.818 1,285.39
1-27-95 Contract Fee (1.00) 11.94433728 (0.084) 99.734 1,191.25
1-27-96 Contract Fee (1.00) 13.57666972 (0.074) 99.660 1,353.05
1-27-97 Contract Fee (1.00) 16.22074645 (0.062) 99.599 1,615.56
1-27-98 Contract Fee (1.00) 17.53929087 (0.057) 99.542 1,745.89
12-31-98 Value before Surr 18.43652906 0.000 99.542 1,835.20
Chg
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 99.487 1,834.20
12-31-98 Surrender Charge 0.00 18.43652906 0.000 99.487 1,834.20
Cumulative Total Returns without/with chgs. 84.37% A 83.42% C
Avg. Annual Total Returns without/with chgs. 9.23% B 9.15% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) 11.33025487 (0.088) 99.912 1,132.03
5-1-98 Contract Fee (1.00) 12.05591756 (0.083) 99.829 1,203.53
12-31-98 Value before Surr 9.36443942 0.000 99.829 934.84
Chg
12-31-98 Contract Fee (1.00) 9.36443942 (0.107) 99.722 933.84
12-31-98 Surrender Charge (22.00) 9.36443942 (2.349) 97.373 911.84
Cumulative Total Returns without/with chgs. -6.36% A -8.82% C
Avg. Annual Total Returns without/with chgs. -2.43% B -3.40% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.92851087 (0.101) 99.899 991.85
1-27-94 Contract Fee (1.00) 14.10178760 (0.071) 99.828 1,407.76
1-27-95 Contract Fee (1.00) 11.94769270 (0.084) 99.745 1,191.72
1-27-96 Contract Fee (1.00) 14.49670523 (0.069) 99.676 1,444.97
1-27-97 Contract Fee (1.00) 14.65338680 (0.068) 99.607 1,459.59
1-27-98 Contract Fee (1.00) 8.46694943 (0.118) 99.489 842.37
12-31-98 Value before Surr 8.07846316 0.000 99.489 803.72
Chg
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 99.366 802.72
12-31-98 Surrender Charge 0.00 8.07846316 0.000 99.366 802.72
Cumulative Total Returns without/with chgs. -19.22% A -19.73% C
Avg. Annual Total Returns without/with chgs. -3.03% B -3.12% D
U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.30827187 (0.097) 99.903 1,029.83
3-14-91 Contract Fee (1.00) 11.46249369 (0.087) 99.816 1,144.14
3-14-92 Contract Fee (1.00) 12.40064739 (0.081) 99.735 1,236.78
3-14-93 Contract Fee (1.00) 14.10187466 (0.071) 99.664 1,405.45
3-14-94 Contract Fee (1.00) 14.26756989 (0.070) 99.594 1,420.97
3-14-95 Contract Fee (1.00) 14.67370156 (0.068) 99.526 1,460.41
3-14-96 Contract Fee (1.00) 15.92525376 (0.063) 99.463 1,583.98
3-14-97 Contract Fee (1.00) 16.72689010 (0.060) 99.403 1,662.71
3-14-98 Contract Fee (1.00) 18.19344503 (0.055) 99.348 1,807.49
12-31-98 Value before Surr 19.01438042 0.000 99.348 1,889.05
Chg
12-31-98 Contract Fee (1.00) 19.01438042 (0.053) 99.296 1,888.05
12-31-98 Surrender Charge 0.00 19.01438042 0.000 99.296 1,888.05
Cumulative Total Returns without/with chgs. 90.14% A 88.80% C
Avg. Annual Total Returns without/with chgs. 6.77% B 6.70% D
Utility Equity
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.48396786 (0.087) 99.913 1,147.40
1-24-91 Contract Fee (1.00) 11.97256112 (0.084) 99.829 1,195.21
1-24-92 Contract Fee (1.00) 14.23979461 (0.070) 99.759 1,420.55
1-24-93 Contract Fee (1.00) 15.97559846 (0.063) 99.697 1,592.71
1-24-94 Contract Fee (1.00) 16.50535338 (0.061) 99.636 1,644.53
1-24-95 Contract Fee (1.00) 15.57082971 (0.064) 99.572 1,550.42
1-24-96 Contract Fee (1.00) 19.81799066 (0.050) 99.521 1,972.31
1-24-97 Contract Fee (1.00) 20.96455989 (0.048) 99.474 2,085.42
1-24-98 Contract Fee (1.00) 25.18650535 (0.040) 99.434 2,504.39
12-31-98 Value before Surr 28.30779835 0.000 99.434 2,814.75
Chg
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 99.399 2,813.75
12-31-98 Surrender Charge 0.00 28.30779835 0.000 99.399 2,813.75
Cumulative Total Returns without/with chgs. 183.08% A 181.38% C
Avg. Annual Total Returns without/with chgs. 11.04% B 10.97% D
Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38718687 (0.096) 99.904 1,037.72
3-14-91 Contract Fee (1.00) 11.51435997 (0.087) 99.817 1,149.33
3-14-92 Contract Fee (1.00) 12.66478418 (0.079) 99.738 1,263.16
3-14-93 Contract Fee (1.00) 15.54092694 (0.064) 99.674 1,549.02
3-14-94 Contract Fee (1.00) 16.04445243 (0.062) 99.611 1,598.21
3-14-95 Contract Fee (1.00) 16.25253463 (0.062) 99.550 1,617.94
3-14-96 Contract Fee (1.00) 17.85770371 (0.056) 99.494 1,776.73
3-14-97 Contract Fee (1.00) 18.44735099 (0.054) 99.440 1,834.40
3-14-98 Contract Fee (1.00) 19.76702265 (0.051) 99.389 1,964.62
12-31-98 Value before Surr 20.68442229 0.000 99.389 2,055.80
Chg
12-31-98 Contract Fee (1.00) 20.68442229 (0.048) 99.341 2,054.80
12-31-98 Surrender Charge 0.00 20.68442229 0.000 99.341 2,054.80
Cumulative Total Returns without/with chgs. 106.84% A 105.48% C
Avg. Annual Total Returns without/with chgs. 7.69% B 7.62% D
Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.39705125 (0.096) 99.904 1,038.71
3-14-91 Contract Fee (1.00) 11.55409702 (0.087) 99.817 1,153.30
3-14-92 Contract Fee (1.00) 12.66096149 (0.079) 99.738 1,262.78
3-14-93 Contract Fee (1.00) 16.42515250 (0.061) 99.677 1,637.22
3-14-94 Contract Fee (1.00) 16.93608169 (0.059) 99.618 1,687.14
3-14-95 Contract Fee (1.00) 17.21684038 (0.058) 99.560 1,714.11
3-14-96 Contract Fee (1.00) 19.49696512 (0.051) 99.509 1,940.12
3-14-97 Contract Fee (1.00) 20.18399547 (0.050) 99.459 2,007.49
3-14-98 Contract Fee (1.00) 22.91805949 (0.044) 99.416 2,278.42
12-31-98 Value before Surr 25.00286219 0.000 99.416 2,485.68
Chg
12-31-98 Contract Fee (1.00) 25.00286219 (0.040) 99.376 2,484.68
12-31-98 Surrender Charge 0.00 25.00286219 0.000 99.376 2,484.68
Cumulative Total Returns without/with chgs. 150.03% A 148.47% C
Avg. Annual Total Returns without/with chgs. 9.80% B 9.73% D
Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.26881437 (0.097) 99.903 1,025.88
3-14-91 Contract Fee (1.00) 11.36823998 (0.088) 99.815 1,134.72
3-14-92 Contract Fee (1.00) 12.29280886 (0.081) 99.733 1,226.00
3-14-93 Contract Fee (1.00) 16.18583635 (0.062) 99.672 1,613.27
3-14-94 Contract Fee (1.00) 16.90519720 (0.059) 99.612 1,683.97
3-14-95 Contract Fee (1.00) 17.12909328 (0.058) 99.554 1,705.27
3-14-96 Contract Fee (1.00) 19.99802778 (0.050) 99.504 1,989.88
3-14-97 Contract Fee (1.00) 20.76400623 (0.048) 99.456 2,065.10
3-14-98 Contract Fee (1.00) 25.18350257 (0.040) 99.416 2,503.65
12-31-98 Value before Surr 27.92036039 0.000 99.416 2,775.73
Chg
12-31-98 Contract Fee (1.00) 27.92036039 (0.036) 99.380 2,774.73
12-31-98 Surrender Charge 0.00 27.92036039 0.000 99.380 2,774.73
Cumulative Total Returns without/with chgs. 179.20% A 177.47% C
Avg. Annual Total Returns without/with chgs. 11.04% B 10.97% 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 10.61022997 0.000 100.000 1,061.02
Chg
12-31-98 Contract Fee (1.00) 10.61022997 (0.094) 99.906 1,060.02
12-31-98 Surrender Charge (51.00) 10.61022997 (4.807) 95.099 1,009.02
Cumulative Total Returns without/with chgs. 6.10% A 0.90% C
Avg. Annual Total Returns without/with chgs. 9.27% B 1.35% 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 7.71743151 0.000 100.000 771.74
Chg
12-31-98 Contract Fee (1.00) 7.71743151 (0.130) 99.870 770.74
12-31-98 Surrender Charge (51.00) 7.71743151 (6.608) 93.262 719.74
Cumulative Total Returns without/with chgs. -22.83% A -28.03% C
Avg. Annual Total Returns without/with chgs. -32.13% B -38.86% D
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
</TABLE>
