File Nos. 33-72046
811-05618
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 7 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 41 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
-------------------------------
(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
-----------------------------------------------
(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403
------------------------------------------- -----
(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
_____ on (date) pursuant to paragraph (b)of Rule 485
__X__ 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
- -------- --------
<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 Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . The Company
Item 18. Services. . . . . . . . . . . . .. . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
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 NORTH AMERICA
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 (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 STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund
PORTFOLIOS SEEKING CURRENT INCOME
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund
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 ___ 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:
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or government agency
- - 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
- --------------------------------------------------------------------------------
Page
INDEX OF TERMS ...................................
SUMMARY...........................................
FEE TABLE ........................................
THE FRANKLIN VALUEMARK II AND FRANKLIN
VALUEMARK III VARIABLE ANNUITY CONTACTS...........
Contract Owner ...............................
Joint Owner ..................................
Annuitant ....................................
Beneficiary ..................................
Assignment ..................................
ANNUITY PAYMENTS (THE PAYOUT PHASE)...............
Annuity Options ..............................
PURCHASE .........................................
Purchase Payments ............................
Automatic Investment Plan ....................
Allocation of Purchase Payments ..............
Accumulation Units ...........................
INVESTMENT OPTIONS ...............................
Transfers ....................................
Dollar Cost Averaging Program ................
Flexible Rebalancing .........................
Voting Privileges ............................
Substitution .................................
EXPENSES .........................................
Insurance Charges ............................
Mortality and Expense Risk Charge ...........
Administrative Charge .......................
Contract Maintenance Charge ..................
Contingent Deferred Sales Charge .............
Waiver of Contingent
Deferred Sales Charge Benefits ...............
Reduction or Elimination of the
Contingent Deferred Sales Charge .............
Transfer Fee .................................
Premium Taxes ................................
Income Taxes .................................
Portfolio Expenses ...........................
TAXES ............................................
Annuity Contracts in General .................
Qualified and Non-Qualified Contracts ........
Multiple Contracts ...........................
Withdrawals - Non-Qualified Contracts .........
Withdrawals - Qualified Contracts .............
Withdrawals - Tax-Sheltered Annuities .........
Diversification ..............................
ACCESS TO YOUR MONEY .............................
Systematic Withdrawal Program ................
Minimum Distribution Program .................
Suspension of Payments or Transfers ..........
PERFORMANCE ......................................
DEATH BENEFIT ....................................
Death of Contract Owner.......................
Death of Annuitant ...........................
OTHER INFORMATION ................................
Allianz Life .................................
Year 2000 ....................................
The Separate Account .........................
Distribution .................................
Administration ...............................
Financial Statements .........................
APPENDIX .........................................
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION ...........................
INDEX OF TERMS
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 ...............................
Accumulation Unit ................................
Annuitant ........................................
Annuity Options ..................................
Annuity Payments .................................
Annuity Unit .....................................
Beneficiary ......................................
Contract .........................................
Contract Owner ...................................
Fixed Account .....................................
Income Date ......................................
Joint Owner ......................................
Non-Qualified ....................................
Payout Phase .....................................
Portfolios .......................................
Purchase Payment .................................
Qualified ........................................
Tax Deferral .....................................
Variable Option...................................
SUMMARY
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 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 (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.
- 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 STABILITY
OF PRINCIPAL AND INCOME:
Money Market Fund
PORTFOLIOS SEEKING
CURRENT INCOME:
High Income Fund
Templeton Global Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Funds - 2000, 2005 and 2010
PORTFOLIOS SEEKING
GROWTH AND INCOME:
Global Utilities Securities Fund
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.
- - 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.
- - 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.
- - During the Accumulation Phase, each year Allianz Life also deducts a $30
contract maintenance charge from your Contract. 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.
- - There are also annual Portfolio operating expenses, which vary depending upon
the Portfolio(s) you select. These expenses range from ___% to ___% of the
average daily value of the Portfolios' Class 1 shares.
- - 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.
- - 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:
<TABLE>
<CAPTION>
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)
---------- ----------------- ------------ ----------------
<S> <C> <C> <C>
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%
</TABLE>
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.
- - 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 59 1/2 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.
- Systematic Withdrawal Program - You can elect to receive monthly or
quarterly payments from Allianz Life while your Contract is in the
Accumulation Phase. Of course, you may have to pay tax penalties and
income taxes on the money you receive.
- Minimum Distribution Program - You can arrange to have money sent to
you each month or quarter to meet certain required distribution
requirements imposed by the Internal Revenue Code for IRAs (generally
after age 70 1/2).
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:
- - Dollar Cost Averaging Program - You can arrange to have a regular amount of
money automatically transferred from selected Variable Options 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.
- - 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
FEE TABLE
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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 Payment Charge Purchase Payment Charge
- ------------------------- --------------------------
<S> <C> <C> <C>
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%
</TABLE>
Transfer Fee**................................ First 12 transfers in a Contract
year are free. Thereafter, the
fee is $25 (or 2% of the amount
transferred, if less). Dollar
Cost Averaging transfers and
Flexible Rebalancing transfers
are not counted.
Contract Maintenance Charge***................ $30 per Contract per year
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge........................ 1.25%
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 for each Portfolio are based on
a percentage of that Portfolio's net assets. See the prospectus for Franklin
Valuemark Funds for more information.
The "Management and Portfolio Administration Fees" below are the amounts that
were paid to the Managers and Portfolio Administrators for the 1998 calendar
year except for newer Portfolios without a full year of operations as of
December 31, 1998.
Management
and Portfolio Total Annual
Administration Fees 1 Other Expenses Expenses
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund ................. .75% .02% .77%
Global Health Care Securities Fund . .75% .11% .86%
Global Utilities Securities Fund...... .47% .03% .50%
Growth and Income Fund ............... .47% .02% .49%
High Income Fund ..................... .50% .03% .53%
Income Securities Fund ............... .47% .03% .50%
Money Market Fund ................... .51% .02% .53%
Mutual Discovery Securities Fund...... .95% .11% 1.06%
Mutual Shares Securities Fund ........ .75% .05% .80%
Natural Resources Securities Fund ..... .62% .07% .69%
Real Estate Securities Fund ........... .51% .03% .54%
Rising Dividends Fund ................. .72% .02% .74%
Small Cap Fund ........................ .75% .02% .77%
Templeton Developing Markets Equity Fund 1.25% .17% 1.42%
Templeton Global Asset Allocation Fund . .80% .14% .94%
Templeton Global Growth Fund .... .83% .05% .88%
Templeton Global Income Securities Fund . .56% .06% .62%
Templeton International Equity Fund .... .80% .09% .89%
Templeton International Smaller Companies
Fund ............................. 1.00% .06% 1.06%
Templeton Pacific Growth Fund ........... .92% .11% 1.03%
U.S. Government Securities Fund ......... .48% .02% .50%
Value Securities Fund ................. .75% .06% .81%
Zero Coupon Fund - 2000 ............... .37% .03% .40%
Zero Coupon Fund - 2005 ............... .37% .03% .40%
Zero Coupon Fund - 2010 ............... .37% .03% .40%
<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.
</FN>
</TABLE>
EXAMPLES
- - The examples below should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
- - The $30 contract maintenance charge is included in the examples as a prorated
charge of $1. Since the average Contract size is greater than $1,000, the
contract maintenance charge is reduced accordingly.
- - Premium taxes are not reflected in the tables. Premium taxes may apply.
- - For additional information, see "Expenses" and the Franklin Valuemark Funds
prospectus.
<TABLE>
<CAPTION>
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 ............... $__ $___ $___ $___
Global Health Care Securities Fund*. $__ $___ $___ $___
Global Utilities Securities Fund... $__ $___ $___ $___
Growth and Income Fund............. $__ $___ $___ $___
High Income Fund .................. $__ $___ $___ $___
Income Securities Fund............. $__ $___ $___ $___
Money Market Fund.................. $__ $___ $___ $___
Mutual Discovery Securities Fund... $__ $___ $___ $___
Mutual Shares Securities Fund...... $__ $___ $___ $___
Natural Resources Securities Fund.. $__ $___ $___ $___
Real Estate Securities Fund........ $__ $___ $___ $___
Rising Dividends Fund.............. $__ $___ $___ $___
Small Cap Fund..................... $__ $___ $___ $___
Templeton Developing Markets Equity
Fund .............. .......... $__ $___ $___ $___
Templeton Global Asset Allocation
Fund ....... .................. $__ $___ $___ $___
Templeton Global Growth Fund....... $__ $___ $___ $___
Templeton Global Income Securities
Fund .......................... $__ $___ $___ $___
Templeton International Equity Fund $__ $___ $___ $___
Templeton International Smaller
Companies Fund ................ $__ $___ $___ $___
Templeton Pacific Growth Fund...... $__ $___ $___ $___
U.S. Government Securities Fund.... $__ $___ $___ $___
Value Securities Fund*............. $__ $___ $___ $___
Zero Coupon Fund -2000............. $__ $___ $___ $___
Zero Coupon Fund -2005............. $__ $___ $___ $___
Zero Coupon Fund -2010............. $__ $___ $___ $___
<FN>
*Annualized
</FN>
</TABLE>
<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 ............... $__ $___ $___ $___
Global Health Care Securities Fund*. $__ $___ $___ $___
Global Utilities Securities Fund... $__ $___ $___ $___
Growth and Income Fund............. $__ $___ $___ $___
High Income Fund .................. $__ $___ $___ $___
Income Securities Fund............. $__ $___ $___ $___
Money Market Fund.................. $__ $___ $___ $___
Mutual Discovery Securities Fund... $__ $___ $___ $___
Mutual Shares Securities Fund...... $__ $___ $___ $___
Natural Resources Securities Fund.. $__ $___ $___ $___
Real Estate Securities Fund........ $__ $___ $___ $___
Rising Dividends Fund.............. $__ $___ $___ $___
Small Cap Fund..................... $__ $___ $___ $___
Templeton Developing Markets Equity
Fund .............. .......... $__ $___ $___ $___
Templeton Global Asset Allocation
Fund ....... .................. $__ $___ $___ $___
Templeton Global Growth Fund....... $__ $___ $___ $___
Templeton Global Income Securities
Fund .......................... $__ $___ $___ $___
Templeton International Equity Fund $__ $___ $___ $___
Templeton International Smaller
Companies Fund ................ $__ $___ $___ $___
Templeton Pacific Growth Fund...... $__ $___ $___ $___
U.S. Government Securities Fund.... $__ $___ $___ $___
Value Securities Fund*............. $__ $___ $___ $___
Zero Coupon Fund -2000............. $__ $___ $___ $___
Zero Coupon Fund -2005............. $__ $___ $___ $___
Zero Coupon Fund -2010............. $__ $___ $___ $___
<FN>
*Annualized
</FN>
</TABLE>
<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 it is
annuitized:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund .................. $__ $__ $___ $___
Global Health Care Securities Fund*... $__ $__ $___ $___
Global Utilities Securities Fund...... $__ $__ $___ $___
Growth and Income Fund................ $__ $__ $___ $___
High Income Fund...................... $__ $__ $___ $___
Income Securities Fund................ $__ $__ $___ $___
Money Market Fund..................... $__ $__ $___ $___
Mutual Discovery Securities Fund...... $__ $__ $___ $___
Mutual Shares Securities Fund......... $__ $__ $___ $___
Natural Resources Securities Fund..... $__ $__ $___ $___
Real Estate Securities Fund........... $__ $__ $___ $___
Rising Dividends Fund................. $__ $__ $___ $___
Small Cap Fund........................ $__ $__ $___ $___
Templeton Developing Markets Equity Fund $__ $__ $___ $___
Templeton Global Asset Allocation Fund $__ $__ $___ $___
Templeton Global Growth Fund.......... $__ $__ $___ $___
Templeton Global Income Securities Fund $__ $__ $___ $___
Templeton International Equity Fund... $__ $__ $___ $___
Templeton International Smaller Companies
Fund ...................... $__ $__ $___ $___
Templeton Pacific Growth Fund......... $__ $__ $___ $___
U.S. Government Securities Fund....... $__ $__ $___ $___
Value Securities Fund*................ $__ $__ $___ $___
Zero Coupon Fund -2000................ $__ $__ $___ $___
Zero Coupon Fund -2005................ $__ $__ $___ $___
Zero Coupon Fund - 2010............... $__ $__ $___ $___
<FN>
*Annualized
</FN>
</TABLE>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
<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 offered by Allianz Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Allianz Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is at least 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 we take in accordance with the Contract before we
receive notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent.
AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, you may be unable to
assign the Contract.
ANNUITY PAYMENTS (THE PAYOUT PHASE)
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least one month after you buy the Contract. 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 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 the Beneficiary 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 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 annuitized, then the Contract Owner 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 as low as $100 if you have selected the
Automatic Investment Plan) or more to either type of Contract. 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 which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
Allocation of Purchase Payments
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 additional
Purchase Payments 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 UNTIL APPROVED
BY THE WASHINGTON INSURANCE DEPARTMENT. 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, Inc. (FAS), Franklin Mutual Advisers, Inc. (FMA),
Templeton Asset Management Ltd. (TAM), Templeton Global Advisors Limited (TGA),
and Templeton Investment Counsel, Inc. (TIC). Certain managers have retained one
or more affiliated subadvisers to help them manage the Portfolios.
The following is a list of the Portfolios available under the Contract:
<TABLE>
<CAPTION>
Investment
Available Portfolios Managers
- ------------------------------------------------------------------------------
<S> <C>
PORTFOLIO SEEKING STABILITY
OF PRINCIPAL AND INCOME
Money Market Fund ........................... FA
PORTFOLIOS SEEKING
CURRENT INCOME
High Income Fund ............................ FA
Templeton Global Income Securities Fund ..... FA
U.S. Government Securities Fund ............. FA
Zero Coupon Funds - 2000, 2005, 2010 ........ FA
PORTFOLIOS SEEKING
GROWTH AND INCOME
Global Utilities Securities Fund............. FA
Growth and Income Fund ...................... FA
Income Securities Fund ...................... FA
Mutual Shares Securities Fund ............... FMA
Real Estate Securities Fund ................. FA
Rising Dividends Fund ....................... FAS
Templeton Global Asset Allocation Fund ...... TGA
Value Securities Fund ....................... FAS
PORTFOLIOS SEEKING
CAPITAL GROWTH
Capital Growth Fund ......................... FA
Global Health Care Securities Fund .......... FA
Mutual Discovery Securities Fund ............ FMA
Natural Resources Securities Fund ........... FA
Small Cap Fund .............................. FA
Templeton Developing Markets
Equity Fund ................................ TAM
Templeton Global Growth Fund ................ TGA
Templeton International Equity Fund ......... FA
Templeton International Smaller
Companies Fund ............................. TIC
Templeton Pacific Growth Fund ............... FA
- ------------------------------------------------------------------------------
</TABLE>
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Allianz Life and other variable annuity contracts
offered by Allianz Life and its affiliates. Franklin Valuemark Funds 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 or Fixed Account, if less.
2. You cannot make a partial transfer if the value remaining in the Variable
Option or 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 to
existing Contracts. You will receive a special fixed rate guaranteed for one
year by Allianz Life. Dollar cost averaging will take place over twelve months
and requires a minimum investment of $6,000. The Dollar Cost Averaging Fixed
Option may not be available in your state.
The second option is the Standard Dollar Cost Averaging Option. 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 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, the guarantee of
annuity rates, the death benefits, certain expenses related to the Contract, and
for assuming the risk (expense risk) that the current charges will be
insufficient in the future to cover the cost of administering the Contract).
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 reports and statements, maintenance of
contract records, personnel costs, legal and accounting fees, filing fees, and
computer and systems costs.
Contract Maintenance Charge
Every year on the anniversary of the date when your Contract was issued, Allianz
Life deducts $30 from your Contract as a contract maintenance charge. 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
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:
<TABLE>
<CAPTION>
Franklin Valuemark II Franklin Valuemark III
--------------------- ----------------------
Contingent Contingent
Years Since Deferred Years Since Deferred
Purchase Payment Sales Charge Purchase Payment Sales Charge
---------------- ------------ ---------------- -------------
<S> <C> <C> <C>
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%
</TABLE>
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 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 59 1/2; (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 withdrawal 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 is
not reasonably practicable or Allianz Life cannot reasonably value the Portfolio
shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Contract Owners.
Allianz Life has reserved the right to defer payment for a withdrawal or
transfer from the Fixed Account for the period permitted by law but not for more
than six months.
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).
- - 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.
- - 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.
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. 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 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.
APPENDIX
<TABLE>
<CAPTION>
Condensed Financial Information
The consolidated financial statements of Allianz Life Insurance Company of North
America and the financial statements of Allianz Life Variable Account B may be
found in the 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 to 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
Contract Sub-Accounts: 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 .
Unit value at end of period .......
Number of units outstanding at
end of period.....................
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 .................... 5,672 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>
<TABLE>
<CAPTION>
(Number of units in thousands) Templeton Templeton
Mutual Natural Real Developing Global Templeton
Shares Resources Estate Rising Small Markets Asset Global
Contract Sub-Accounts: 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 .
Unit value at end of period .......
Number of units outstanding at
end of period....................
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 33,250 16,924 23,007 5,229 41,432
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>
<TABLE>
<CAPTION>
(Number of units in thousands) Templeton Templeton Templeton Templeton U.S. Zero Zero Zero
Global IncomeInternationalInternationalPacific Government Value Coupon Coupon Coupon
Contract Sub-Accounts: Securities Equity Smaller Cos. Growth Securities Securities 2000 2005 2010
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1998
Unit value at beginning of period .
Unit value at end of period .......
Number of units outstanding at
end of period....................
Year Ended Dec. 31, 1997
Unit value at beginning of period $16.781 $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 $13.570 $13.705 $13.482
Number of units outstanding at
end of period ................ 2,979 NA NA NA 14,426 NA 2,012 795 1,150
Year Ended Dec. 31, 1990
Unit value at beginning of period $10.813 NA NA NA $10.427 NA $10.961 $11.406 $11.486
Unit value at end of period ... $11.706 NA NA NA $11.199 NA $11.446 $11.545 $11.390
Number of units outstanding at
end of period ................ 1,322 NA NA NA 5,450 NA 1,041 406 581
Period from Inception* to Dec. 31, 1989
Unit value at beginning of period $10.000 NA NA NA $10.000 NA $10.000 $10.000 $10.000
Unit value at end of period ... $10.813 NA NA NA $10.427 NA $10.961 $11.406 $11.486
Number of units outstanding at
end of period ................ 278 NA NA NA 1,102 NA 162 86 194
<FN>
* Unit Value at inception was $10.00.
</FN>
</TABLE>
Accumulation Unit Value at the inception was $10.00 for each Contract
Sub-Account. 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.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Insurance Company.................................
Experts ..........................................
Legal Opinions ...................................
Distributor ......................................
Reduction or Elimination of the
Contingent Deferred Sales Charge .................
Calculation of Performance Data ..................
Federal Tax Status ...............................
Annuity Provisions................................
Financial Statements .............................
<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 ........................................
Experts ........................................
Legal Opinions .................................
Distributor ....................................
Reduction or Elimination of the Contingent
Deferred Sales Charge..........................
Calculation of Performance Data ................
Federal Tax Status..............................
Annuity Provisions .............................
Financial Statements ...........................
<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,
1997 included in this Statement of Additional Information have been audited by
______________________, 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 Insurance
Company believes to be relevant to determining whether reduced sales or
administrative expenses may be expected. None of the reductions in charges for
sales is contractually guaranteed.
The Contingent Deferred Sales Charge will be eliminated when the Contracts are
issued to an officer, director or employee of the Insurance Company or any of
its affiliates. The Contingent Deferred Sales Charge may be reduced or
eliminated when the Contract is sold by an agent of the Insurance Company to any
members of his or her immediate family and the commission is waived. In no event
will any reduction or elimination of the Contingent Deferred Sales Charge be
permitted where the reduction or elimination will be unfairly discriminatory to
any person.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Company may advertise the performance data for the
Contract Sub-Accounts in sales literature, advertisements, personalized
hypothetical illustrations, and Contract Owner communications. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Contract Sub-Account over a stated period of time which is
determined by dividing the increase (or decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge, the operating expenses of the underlying
Portfolios and any applicable Contingent Deferred Sales Charge and Contract
Maintenance Charge ("Standardized Total Return"). The Contingent Deferred Sales
Charge and Contract Maintenance Charge deductions are calculated assuming a
Contract is surrendered at the end of the reporting period.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual accumulation unit values for an initial
$1,000 purchase payment, and deducting any applicable Contingent Deferred Sales
Charge and Contract Maintenance Charge to arrive at the ending hypothetical
value. The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of the time
periods described. The formula used in these calculations is:
P (1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of the
Contingent Deferred Sales Charge and the Contract Maintenance Charge. Cumulative
total return is calculated in a similar manner as described above except that
the results are not annualized. The Company may also advertise cumulative and
total return information over different periods of time. The Company may also
present performance information computed on a different basis ("Non-Standardized
Total Return").
YIELD
THE MONEY MARKET SUB-ACCOUNT. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and the Contract Maintenance Charge and, in
certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Contract Sub-Account's current yield will
fluctuate and that the principal is not guaranteed should be taken into
consideration when using the Contract Sub-Account's current yield as a basis for
comparison with savings accounts or other fixed-yield investments. The yield at
any particular time is not indicative of what the yield may be at any other
time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one accumulation unit
for a particular period of time (generally seven days). The return is determined
by dividing the net change (exclusive of any capital changes) in such
accumulation unit by its beginning value, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends paid by the Portfolio,
and the deduction of the Mortality and Expense Risk Charge, Administrative
Expense Charge and Contract Maintenance Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested. (Effective
yield = [(Base Period Return + 1)365/7] -1.)
For the seven-day period ending on 12/31/98, the Money Market Sub-Account had a
current yield of ____% and an effective yield of ____%.
OTHER CONTRACT SUB-ACCOUNTS. The Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Contract Sub-Accounts. Each Contract
Sub-Account (other than the Money Market Sub-Account) will publish standardized
total return information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Expense Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
------------------------------
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Contract Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume that no Contingent
Deferred Sales Charges have been deducted (see the Prospectus for information
regarding the Contingent Deferred Sales Charge). The Company does not currently
advertise yield information for any Contract Sub-Account (other than the Money
Market Sub-Account).
PERFORMANCE RANKING
Total return information for the Contract Sub-Accounts and the Portfolios may be
compared to relevant indices, including U.S. domestic and international indices
and data from Lipper Analytical Services, Inc., Standard & Poor's Indices, or
VARDS R.
From time to time, evaluation of performance by independent sources may also be
used.
PERFORMANCE INFORMATION
Total returns reflect all aspects of a Contract Sub-Account's return, including
the automatic reinvestment by Allianz Life Variable Account B of all
distributions and any change in a Contract Sub-Account's value over the period.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio and
are shown both with and without the deduction of the Contingent Deferred Sales
Charge and Contract Maintenance Charge. Past performance does not guarantee
future results.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
FRANKLIN VALUEMARK II/III
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 1998:
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
FRANKLIN VALUEMARK II FRANKLIN VALUEMARK III
______________________________ ______________________________
CONTRACT SUB-ACCOUNT DATE YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Growth ...................... 5/1/96 _____% _____% _____% _____% _____% _____%
Global Utilities Securities ......... 1/24/89 _____% _____% _____% _____% _____% _____%
Growth and Income ................... 1/24/89 _____% _____% _____% _____% _____% _____%
High Income ......................... 1/24/89 _____% _____% _____% _____% _____% _____%
Income Securities ................... 1/24/89 _____% _____% _____% _____% _____% _____%
Money Market ........................ 1/24/89 _____% _____% _____% _____% _____% _____%
Mutual Discovery Securities ......... 11/8/96 _____% _____% _____% _____% _____% _____%
Mutual Shares Securities ............ 11/8/96 _____% _____% _____% _____% _____% _____%
Natural Resources Securities ........ 1/24/89 _____% _____% _____% _____% _____% _____%
Real Estate Securities .............. 1/24/89 _____% _____% _____% _____% _____% _____%
Rising Dividends .................... 1/27/92 _____% _____% _____% _____% _____% _____%
Small Cap ........................... 11/1/95 _____% _____% _____% _____% _____% _____%
Templeton Developing
Markets Equity ..................... 3/15/94 _____% _____% _____% _____% _____% _____%
Templeton Global
Asset Allocation ................... 5/1/95 _____% _____% _____% _____% _____% _____%
Templeton Global Growth ............. 3/15/94 _____% _____% _____% _____% _____% _____%
Templeton Global
Income Securities .................. 1/24/89 _____% _____% _____% _____% _____% _____%
Templeton International
Equity ............................. 1/27/92 _____% _____% _____% _____% _____% _____%
Templeton International
Smaller Companies .................. 5/1/96 _____% _____% _____% _____% _____% _____%
Templeton Pacific Growth ............ 1/27/92 _____% _____% _____% _____% _____% _____%
U.S. Government Securities .......... 3/14/89 _____% _____% _____% _____% _____% _____%
Zero Coupon - 2000 1................. 3/14/89 _____% _____% _____% _____% _____% _____%
Zero Coupon - 2005 1................. 3/14/89 _____% _____% _____% _____% _____% _____%
Zero Coupon - 2010 1................. 3/14/89 _____% _____% _____% _____% _____% _____%
<FN>
1 Calculated with waiver of fees
</FN>
</TABLE>
<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
CONTRACT SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth .............. 5/1/96 _____% _____% _____% _____% _____% _____% _____%
Global Utilities Securities 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Growth and Income ........... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
High Income ................. 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Income Securities ........... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Money Market ................ 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Mutual Discovery
Securities ................. 11/8/96 _____% _____% _____% _____% _____% _____% _____%
Mutual Shares
Securities ................. 11/8/96 _____% _____% _____% _____% _____% _____% _____%
Natural Resources
Securities ................. 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Real Estate Securities ...... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Rising Dividends ............ 1/27/92 _____% _____% _____% _____% _____% _____% _____%
Small Cap ................... 11/1/95 _____% _____% _____% _____% _____% _____% _____%
Templeton Developing
Markets Equity ............. 3/15/94 _____% _____% _____% _____% _____% _____% _____%
Templeton Global
Asset Allocation ........... 5/1/95 _____% _____% _____% _____% _____% _____% _____%
Templeton Global
Growth ..................... 3/15/94 _____% _____% _____% _____% _____% _____% _____%
Templeton Global
Income Securities .......... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Templeton International
Equity ..................... 1/27/92 _____% _____% _____% _____% _____% _____% _____%
Templeton International
Smaller Companies .......... 5/1/96 _____% _____% _____% _____% _____% _____% _____%
Templeton Pacific
Growth ..................... 1/27/92 _____% _____% _____% _____% _____% _____% _____%
U.S. Government
Securities ................. 3/14/89 _____% _____% _____% _____% _____% _____% _____%
Zero Coupon - 2000 1......... 3/14/89 _____% _____% _____% _____% _____% _____% _____%
Zero Coupon - 2005 1......... 3/14/89 _____% _____% _____% _____% _____% _____% _____%
Zero Coupon - 2010 1......... 3/14/89 _____% _____% _____% _____% _____% _____% _____%
<FN>
1 Calculated with waiver 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
CONTRACT SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth ............. 5/1/96 _____% _____% _____% _____% _____% _____% _____%
Global Utilities
Securities ................. 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Growth and Income ........... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
High Income ................. 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Income Securities ........... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Money Market ................ 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Mutual Discovery
Securities ................. 11/8/96 _____% _____% _____% _____% _____% _____% _____%
Mutual Shares
Securities ................. 11/8/96 _____% _____% _____% _____% _____% _____% _____%
Natural Resources
Securities ................. 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Real Estate Securities ...... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Rising Dividends ............ 1/27/92 _____% _____% _____% _____% _____% _____% _____%
Small Cap ................... 11/1/95 _____% _____% _____% _____% _____% _____% _____%
Templeton Developing
Markets Equity ............. 3/15/94 _____% _____% _____% _____% _____% _____% _____%
Templeton Global Asset
Allocation ................. 5/1/95 _____% _____% _____% _____% _____% _____% _____%
Templeton Global
Growth ..................... 3/15/94 _____% _____% _____% _____% _____% _____% _____%
Templeton Global
Income Securities .......... 1/24/89 _____% _____% _____% _____% _____% _____% _____%
Templeton International
Equity ..................... 1/27/92 _____% _____% _____% _____% _____% _____% _____%
Templeton International
Smaller Companies .......... 5/1/96 _____% _____% _____% _____% _____% _____% _____%
Templeton Pacific
Growth ..................... 1/27/92 _____% _____% _____% _____% _____% _____% _____%
U.S. Government
Securities ................. 3/14/89 _____% _____% _____% _____% _____% _____% _____%
Zero Coupon - 2000 1......... 3/14/89 _____% _____% _____% _____% _____% _____% _____%
Zero Coupon - 2005 1......... 3/14/89 _____% _____% _____% _____% _____% _____% _____%
Zero Coupon - 2010 1......... 3/14/89 _____% _____% _____% _____% _____% _____% _____%
<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
CONTRACT SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth .............. 5/1/96 _____% _____% _____% _____% _____% NA 27.58%
Global Utilities
Securities ................ 1/24/89 _____% _____% _____% _____% _____% 61.44% 156.72%
Growth and Income ........... 1/24/89 _____% _____% _____% _____% _____% 94.15% 143.89%
High Income ................. 1/24/89 _____% _____% _____% _____% _____% 59.51% 111.71%
Income Securities ........... 1/24/89 _____% _____% _____% _____% _____% 64.29% 149.19%
Money Market ................ 1/24/89 _____% _____% _____% _____% _____% 15.28% 37.62%
Mutual Discovery
Securities ................. 11/8/96 _____% _____% _____% _____% _____% NA 16.13%
Mutual Shares
Securities ................. 11/8/96 _____% _____% _____% _____% _____% NA 16.23%
Natural Resources
Securities ................. 1/24/89 _____% _____% _____% _____% _____% 21.85% 14.73%
Real Estate Securities ...... 1/24/89 _____% _____% _____% _____% _____% 113.99% 179.94%
Rising Dividends ............ 1/27/92 _____% _____% _____% _____% _____% 83.89% 99.77%
Small Cap ................... 11/1/95 _____% _____% _____% _____% _____% NA 47.00%
Templeton Developing
Markets Equity ............. 3/15/94 _____% _____% _____% _____% _____% NA 1.80%
Templeton Global
Asset Allocation ........... 5/1/95 _____% _____% _____% _____% _____% NA 35.33%
Templeton Global
Growth ..................... 3/15/94 _____% _____% _____% _____% _____% NA 50.08%
Templeton Global
Income Securities .......... 1/24/89 _____% _____% _____% _____% _____% 32.25% 68.45%
Templeton International
Equity ..................... 1/27/92 _____% _____% _____% _____% _____% 82.67% 76.30%
Templeton International
Smaller Companies .......... 5/1/96 _____% _____% _____% _____% _____% NA 4.56%
Templeton Pacific
Growth ..................... 1/27/92 _____% _____% _____% _____% _____% -4.13% -6.16%
U.S. Government
Securities ................. 3/14/89 _____% _____% _____% _____% _____% 31.15% 78.30%
Zero Coupon - 2000 1......... 3/14/89 _____% _____% _____% _____% _____% 32.76% 93.93%
Zero Coupon - 2005 1......... 3/14/89 _____% _____% _____% _____% _____% 49.51% 124.00%
Zero Coupon - 2010 1......... 3/14/89 _____% _____% _____% _____% _____% 67.65% 145.95%
<FN>
1 Calculated with waiver of fees
</FN>
</TABLE>
<PAGE>
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 Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance Company cannot predict the probability that any changes
in such laws will be made. Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes. The Insurance Company does not
guarantee the tax status of the Contracts. Purchasers bear the complete risk
that the Contracts may not be treated as "annuity contracts" under federal
income tax laws. It should be further understood that the following discussion
is not exhaustive and that special rules not described herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludable amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
The Insurance Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Insurance Company, and its operations form a part of the Insurance Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Insurance Company intends that all Portfolios of Franklin Valuemark Funds
underlying the Contracts will be managed by the managers for Franklin Valuemark
Funds in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Insurance Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. 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 includable in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
(c) the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions). Participants should consult their own tax
counsel or other tax adviser regarding withholding requirements.
Tax Treatment of 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 surrendered will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (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 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Contract
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan regardless
of the terms and conditions of the Contracts issued pursuant to the plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into the Insurance Company's administrative procedures. Contract
Owners, participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of the
types of Qualified Plans with which the Contracts may be used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules regarding Qualified Plans are very complex and will have differing
applications, depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued under a
Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Insurance Company in
connection with Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables will also be available
for use in connection with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain surrender
penalties and restrictions may apply to surrenders from Qualified Contracts.
(See "Tax Treatment of Surrenders - Qualified Contracts.")
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includable in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Surrenders - Qualified Contracts" and "Tax-Sheltered Annuities -
Surrender Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
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 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year period beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
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 59 1/2; (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 59 1/2 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 70 1/2, 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 59 1/2;
(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
surrenders for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on surrenders became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
surrenders do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Contract Sub-Account(s) of the Variable Account. At the Income
Date, the Contract Value in each Contract Sub-Account will be applied to the
applicable Annuity Tables. The Annuity Table used will depend upon the Annuity
Option chosen. Both sex distinct and unisex Annuity Tables are utilized by the
Company, depending on the state and type of Contract. If, as of the Income Date,
the then current Annuity Option rates applicable to this class of Contracts
provide a larger income than that guaranteed for the same form of annuity under
the Contract, the larger amount will be paid. The dollar amount of annuity
payments after the first is determined as follows:
1. The dollar amount of the first annuity payment is divided by the value of an
Annuity Unit as of the Income Date. This establishes the number of Annuity Units
for each monthly payment. The number of Annuity Units remains fixed during the
annuity payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity Unit value for
the last Valuation Period of the month preceding the month for which the payment
is due. This result is the dollar amount of the payment.
3. The total dollar amount of each Variable Annuity variable payout is the sum
of all Contract Sub-Account Variable Annuity payments, reduced by the Contract
Maintenance Charge.
ANNUITY UNIT VALUE
The value of an Annuity Unit for a Contract Sub-Account is determined (see
below) by subtracting (2) from (1), dividing the result by (3) and multiplying
the result by .999866337248 (.999866337248 is the daily factor to neutralize the
assumed net investment rate of 5% per annum which is built into the annuity rate
table) where:
1. is the net result of
a. the assets of the Contract Sub-Account attributable to the Annuity
Units; plus or minus
b. the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation of the Contract
Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge and
for the Administrative Expense Charge; and
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
FIXED ANNUITY PAYOUT
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Company and do not vary with the investment experience of the
Variable Account. The Fixed Option value on the day immediately preceding the
Annuity Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the annuitant and any
joint annuitant and the sex of the annuitant and any joint annuitant where
allowed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Company as of and for the
year ended December 31, 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 Variable Account as of and
for the year ended December 31, 1998 are also included herein.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
To be filed by amendment
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.
* To be filed by amendment.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ---------------------
<S> <C>
Lowell C. Anderson Chairman, President, Chief
1750 Hennepin Avenue Executive Officer and Director
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive 777 San Marin Drive
Novato, CA 94998 Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Boulevard
Minneapolis, MN 55439
Dr. Jerry E. Robertson Director
220-13E-29/3M Center
St. Paul, MN 55144
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Edward J. Bonach Senior Vice President, Chief
1750 Hennepin Avenue Financial Officer and Treasurer
Minneapolis, MN 55403
Robert S. James President - Individual
1750 Hennepin Avenue Division
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Rev. Dennis 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 December 31, 1998, there were 16,423 qualified Contract Owners and 37,376
non-qualified Contract Owners with Contracts in the separate account.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers and directors of NALAC Financial Plans,
LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ---------------- ---------------------
<S> <C>
James P. Kelso Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford President and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Director
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Director
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 has caused this Registration Statement to be
signed on its behalf in the City of Minneapolis and State of Minnesota, on this
27th day of January, 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,
Lowell C. Anderson President and
Chief Executive Officer 01/27/99
Herbert F. Hansmeyer* Director 01/27/99
Herbert F. Hansmeyer
Michael P. Sullivan* Director 01/27/99
Michael P. Sullivan
Dr. Jerry E. Robertson* Director 01/27/99
Dr. Jerry E. Robertson
Dr. Gerhard Rupprecht* Director 01/27/99
Dr. Gerhard Rupprecht
Edward J. Bonach* Chief Financial Officer 01/27/99
Edward J. Bonach
Rev. Dennis J. Dease* Director 01/27/99
Rev. Dennis J. Dease
James R. Campbell* Director 01/27/99
James R. Campbell
Robert M. Kimmitt* Director 01/27/99
Robert M. Kimmitt
</TABLE>
*By Power of Attorney
By:/s/Michael T. Westermeyer
-------------------------
Attorney-in-Fact
<PAGE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO.7
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
INDEX TO EXHIBITS
Exhibit Page
(To be filed by amendment.)