File Nos. 333-06709
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. 58 (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
__X__ on November 12, 1999 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
- -------- -----------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . Index of Terms
Item 3. Synopsis or Highlights. . . . . . . . . . . Summary
Item 4. Condensed Financial Information. . . . . . . Appendix-Condensed
Financial Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . Other Information-
The Separate Account,
Allianz Life,
Investment Options
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . .The Valuemark IV
Variable Annuity
Contract
Item 8. Annuity Period. . .. . . . . . . . . . . . . . Annuity Payments
(The Payout Phase)
Item 9. Death Benefit. . . . . . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value. . . . . . . . . .Purchase
Item 11. Redemptions. . . . . . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . Table of Contents
of the Statement of
Additional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
<S> <C> <C>
Item No. Location
- -------- --------------------
PART B
Item 15. Cover Page. . . . . . . . .. . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . Insurance Company
Item 18. Services. . . . . . . . . . . . .. . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data. . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
THE VALUEMARK(R) IV VARIABLE ANNUITY CONTRACT
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
- -------------------------------------------------------------------------------
This prospectus describes the Valuemark IV Variable Annuity Contract with a
Fixed Account offered by Allianz Life Insurance Company of North America
(Allianz Life). All references to "we," "us" and "our" refer to Allianz Life.
The annuity offers the Variable Options listed below, and a Fixed Account of
Allianz Life. Each Variable Option invests in a Portfolio of the corresponding
fund listed below. You can select up to 10 investment choices (which includes
any of the Variable Options and the Fixed Account). The Fixed Account and one or
more of the Variable Options may not be available in your state.
VARIABLE OPTIONS:
AIM Variable Insurance
Funds, Inc.:
PORTFOLIO SEEKING CAPITAL GROWTH
AIM V.I. Growth Fund
THE ALGER AMERICAN FUND:
Portfolios Seeking long-term
Capital Growth
Alger American Growth Fund
Alger American Leveraged AllCap Fund
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Preservation and Income
Franklin Money Market Fund
Portfolios Seeking Income
Franklin High Income Fund
Franklin U.S. Government Securities Fund
Franklin Zero Coupon Funds - 2000, 2005 and 2010
Templeton Global Income Securities Fund
Portfolios Seeking Growth And Income
Franklin Global Communications Securities Fun
* Franklin Growth and Income Fund
Franklin Income Securities Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Value Securities Fund
Mutual Shares Securities Fund
Templeton Global Asset Allocation Fund
Portfolios Seeking Capital Growth
Franklin Capital Growth Fund
Franklin Global Health Care Securities Fund
Franklin Natural Resources Securities Fund
Franklin S&P 500 Index Fund
Franklin Small Cap Fund
Mutual Discovery Securities Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Growth
USAllianz VIP Growth Fund
Portfolio Seeking Growth and Income
USAllianz VIP Diversified Assets Fund
Portfolio Seeking Income
USAllianz VIP Fixed Income Fund
*Prior to November 15, 1999, this was the Franklin Global Utilities Securities
Fund.
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.
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Valuemark IV Variable Annuity
Contract with a Fixed Account.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated November 12, 1999.
The SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of this prospectus. The Table of Contents of the SAI is on page
24 of this prospectus. The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference and other information about
companies that file electronically with the SEC. For a free copy of the SAI,
call us at 1-800-542-5427 or write us at: 1750 Hennepin Avenue, Minneapolis,
Minnesota 55403-2195.
The Valuemark IV Variable Annuity Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
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.
Dated: November 12, 1999
<PAGE>
TABLE OF CONTENTS
Index of Terms 4
Summary 5
Fee Table 6
1. The Valuemark IV
Variable Annuity Contract 10
Contract Owner 10
Joint Owner 10
Annuitant 10
Beneficiary 10
Assignment 10
2. Annuity Payments (The Payout Phase) 11
Annuity Options 11
3. Purchase 12
Purchase Payments 12
Automatic Investment Plan 12
Allocation of Purchase Payments 12
Free Look 12
Accumulation Units 13
4. Investment Options 13
Transfers 15
Dollar Cost Averaging Program 16
Flexible Rebalancing 16
Voting Privileges 16
Substitution 16
5. Expenses 17
Insurance Charges 17
Mortality and Expense Risk Charge 17
Administrative Charge 17
Contract Maintenance Charge 17
Contingent Deferred Sales Charge 17
Waiver of Contingent Deferred
Sales Charge Benefits 18
Reduction or Elimination of the
Contingent Deferred Sales Charge 18
Transfer Fee 18
Premium Taxes 18
Income Taxes 19
Portfolio Expenses 19
6. Taxes 19
Annuity Contracts in General 19
Qualified and Non-Qualified Contracts 19
Multiple Contracts 19
Withdrawals - Non-Qualified Contracts 19
Withdrawals - Qualified Contracts 20
Withdrawals - Tax-Sheltered Annuities 20
Diversification 20
7. Access to Your Money 20
Systematic Withdrawal Program 21
Minimum Distribution Program 21
Suspension of Payments or Transfers 21
8. Performance 21
9. Death Benefit 22
Upon Your Death 22
Death of Annuitant 23
10. Other Information 23
Allianz Life 23
Year 2000 23
The Separate Account 24
Distribution 24
Administration 24
Financial Statements 24
Table of Contents of the
Statement of Additional Information 24
Appendix 25
<PAGE>
INDEX OF TERMS
- -------------------------------------------------------------------------------
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term.
Page
Accumulation Phase 10
Accumulation Unit 13
Annuitant 10
Annuity Options 11
Annuity Payments 11
Annuity Unit 13
Beneficiary 10
Contract 10
Contract Owner 10
Fixed Account 10
Page
Income Date 11
Joint Owner 10
Non-Qualified . 19
Payout Phase 10
Portfolios 10
Purchase Payment 12
Qualified 19
Tax Deferral 10
Variable Option 5
<PAGE>
Variable Annuity Prospectus
Summary
- -------------------------------------------------------------------------------
The sections in this summary correspond to sections in this prospectus which
discuss the topics in more detail.
The Variable Annuity Contract:
The annuity contract offered by Allianz Life provides a means for investing on a
tax-deferred basis in Variable Options and the Allianz Life Fixed Account for
retirement savings or other long-term investment purposes. The Contract provides
two death benefit options.
Annuity Payments:
If you want to receive regular income from your annuity, you can choose an
Annuity Option. You can choose whether to have payments come from our general
account, the available Variable Options or both. If you choose to have any part
of your payments come from the Variable Options, the dollar amount of your
payments may go up or down based on the performance of the Portfolios.
Purchase:
You can buy the Contract with $5,000 or more under most circumstances. You can
add $250 or more any time you like during the Accumulation Phase.
Investment Options:
You can put your money in the Variable Options and/or you can invest in the
Allianz Life Fixed Account. The investment returns on the Portfolios are not
guaranteed. You can make or lose money. You can make transfers between
investment choices.
Expenses:
The Contract has insurance features and investment features, and there are costs
related to each.
Each year, Allianz Life deducts a $30 contract maintenance charge from your
Contract. Allianz Life currently waives this charge if the value of your
Contract is at least $50,000.
Allianz Life deducts a mortality and expense risk charge which is equal, on an
annual basis, to 1.34% of the average daily value of the Contract invested in a
Variable Option during the Accumulation Phase (1.25% during the Payout Phase).
Allianz Life also deducts an administrative charge which is equal, on an annual
basis, to 0.15% of the value of the Contract invested in a Variable Option.
If you take money out of the Contract, Allianz Life may assess a contingent
deferred sales charge against each Purchase Payment withdrawn. The contingent
deferred sales charge starts at 6% in the first year and declines to 0% after 7
years.
You can make 12 free transfers each year. After that, Allianz Life deducts $25,
or 2% of the amount transferred, whichever is less, for each additional
transfer.
There are also daily investment charges which range, on an annual basis, from
0.49% to 1.41% of the average daily value of the Portfolio, depending upon the
Portfolio.
Taxes:
Your earnings are not taxed until you take them out. If you take money out
during the Accumulation Phase, earnings come out first and are taxed as income.
If you are younger than 591 1/42 when you take money out, you may be charged a
10% federal tax penalty.
Access to Your Money:
You can take money out of your Contract during the Accumulation Phase.
Withdrawals during the Accumulation Phase may be subject to a contingent
deferred sales charge. You may also have to pay income tax and a tax penalty on
any money you take out.
Death Benefit:
If you die before moving to the Payout Phase, the person you have chosen as a
Beneficiary will receive a death benefit. The amount of the death benefit
depends on whether you select Death Benefit Option 1 or Death Benefit Option 2.
Free-Look:
You can cancel the Contract within 10 days after receiving it (or whatever
period is required in your state). Allianz Life will refund the value of your
Contract on the day it receives your request to cancel the Contract. This may be
more or less than your original payment. In certain states, or if you have
purchased the Contract as an individual retirement annuity, Allianz Life will
refund the Purchase Payment.
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
1-800-624-0197
<PAGE>
FEE TABLE
- -------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Variable Options under the Contract. It reflects
expenses of the Separate Account as well as the Portfolios.
Contract Owner Transaction Fees
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
Years Since
Purchase Payment Charge
---------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7 + 0%
Transfer Fee First 12 transfers in a Contract year are free. Thereafter, the fee
is $25 (or 2% of the amount transferred, if less). Dollar Cost Averaging
transfers and Flexible Rebalancing transfers are not counted.
Contract Maintenance Charge** $30 per Contract per year
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge*** 1.34%
Administrative Charge .15%
-------
Total Separate Account Annual Expenses 1.49%
* Each year after the first Contract year, you may make multiple partial
withdrawals of up to a total of 15% of the value of your Contract and no
contingent deferred sales charge will be assessed. See Section 7 -- "Access
to Your Money" for additional options.
** During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $50,000. If you own more than one Valuemark IV Contract
(registered with the same social security number), we will determine the
total value of all your Contracts. If the total value of all your Contracts
is at least $50,000, the charge is waived (except in New Jersey). Currently,
the charge is also waived during the Payout Phase if the value of your
Contract at the Income Date is at least $50,000 (except in New Jersey).
*** The Mortality and Expense Risk Charge is 1.25% during the Payout Phase.
<PAGE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES: (as a percentage of the fund's average net assets for the most recent fiscal year). See the accompanying
fund prospectuses for more information.
Management
and Portfolio Total Annual
Administration Fees1 12b-1 Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund .64% -- .08% .72%
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Growth Fund .75% -- .04% .79%
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Fund2 .85% -- .11% .96%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Capital Growth Fund .75% -- .02% .77%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Global Health Care Securities Fund3 .75% -- .09% .84%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Global Communications Securities Fund4 .47% -- .03% .50%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Growth and Income Fund .47% -- .02% .49%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin High Income Fund .50% -- .03% .53%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Income Securities Fund .47% -- .02% .49%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Money Market Fund .51% -- .02% .53%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Natural Resources Securities Fund .62% -- .02% .64%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Real Estate Securities Fund .52% -- .02% .54%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Rising Dividends Fund .70% -- .02% .72%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund5 .15% -- .38% .53%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund .75% -- .02% .77%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund .48% -- .02% .50%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Value Securities Fund3 .75% -- .08% .83%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2000 .63% -- .03% .66%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2005 .63% -- .03% .66%
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2010 .62% -- .04% .66%
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund .95% -- .05% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund .74% -- .03% .77%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund 1.25% -- .16% 1.41%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund .80% -- .04% .84%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Growth Fund .83% -- .05% .88%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Income Securities Fund .57% -- .06% .63%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Equity Fund .80% -- .08% .88%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund 1.00% -- .10% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth Fund .99% -- .11% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Diversified Assets Fund5 .55% .25% .40% 1.20%
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Fixed Income Fund5 .50% .25% .30% 1.07%
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Growth Fund5 .75% .25% .28% 1.28%
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
1 The Portfolio Administration Fee is a direct expense for the Franklin Global Health Care Securities Fund, the Franklin Value
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset Allocation
Fund, and the Templeton International Smaller Companies Fund. Other Portfolios of Franklin Templeton Variable Insurance Products
Trust pay for similar services indirectly through the Management Fee. See the Franklin Templeton Variable Insurance Products Trust
prospectus for further information regarding these fees.
2. Other expenses for the Alger American Leveraged AllCap Fund include 0.03% of interest expense.
3. The Franklin Global Health Care Securities Fund and the Franklin Value Securities Fund commenced operations May 1, 1998. The
expenses shown above for these Portfolios are therefore estimated for 1999.
4. Prior to November 15, 1999, this was the Franklin Global Utilities Securities Fund.
5. The Franklin S&P 500 Index Fund, the US Allianz VIP Diversified Assets Fund, the US Allianz VIP Fixed Income Fund, and the US
Allianz VIP Growth Fund commenced operations as of the date of this prospectus. The expenses shown above for these portfolios are
therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
o The examples below should not be considered a representation of past or future expenses. Actual expenses may be greater or less
than those shown.
oThe $30 contract maintenance charge is included in the examples as a prorated charge of $1. Since the average Contract size is
greater than $1,000, the contract maintenance charge is reduced accordingly.
o Premium taxes are not reflected in the tables. Premium taxes may apply.
o For additional information, see Section 5 - "Expenses" and the accompanying fund prospectuses.
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>
AIM V.I. Growth Fund $83 $123 $157 $264
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Growth Fund $84 $125 $161 $272
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Fund $86 $130 $170 $289
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Capital Growth Fund $84 $125 $160 $270
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Global Health Care Securities Fund* $85 $127 $164 $277
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Global Communications Securities Fund $81 $116 $146 $242
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Growth and Income Fund $81 $116 $146 $241
- ---------------------------------------------------------------------------------------------------------------------------
Franklin High Income Fund $82 $117 $148 $245
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Income Securities Fund $81 $116 $146 $241
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Money Market Fund $82 $117 $148 $245
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Natural Resources Securities Fund $83 $121 $153 $256
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Real Estate Securities Fund $82 $118 $148 $246
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Rising Dividends Fund $83 $123 $157 $264
- ---------------------------------------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund* $82 $117 $148 $245
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund $84 $125 $160 $270
- ---------------------------------------------------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund $81 $116 $146 $242
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Value Securities Fund* $85 $126 $163 $276
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2000 $83 $121 $154 $258
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2005 $83 $121 $154 $258
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2010 $83 $121 $154 $258
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund $86 $132 $172 $293
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund $84 $125 $160 $270
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund $90 $144 $192 $332
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund $85 $127 $164 $277
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Growth Fund $85 $128 $166 $281
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Income Securities Fund $83 $120 $153 $255
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Equity Fund $85 $128 $166 $281
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund $87 $135 $177 $302
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth Fund $87 $135 $177 $302
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Diversified Assets Fund* $88 $138 $181 $312
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Fixed Income Fund* $87 $133 $174 $298
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Growth Fund* $89 $140 $185 $320
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return on your money if your Contract is not
surrendered or if you apply your Contract value to an Annuity Option:
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund $23 $72 $123 $264
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Growth Fund $24 $74 $127 $272
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap $26 $79 $136 $289
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Capital Growth Fund $24 $74 $126 $270
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Global Health Care Securities Fund* $25 $76 $130 $277
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Global Communications Securities Fund $21 $65 $112 $242
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Growth and Income Fund $21 $65 $112 $241
- ---------------------------------------------------------------------------------------------------------------------------
Franklin High Income Fund $22 $66 $114 $245
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Income Securities Fund $21 $65 $112 $241
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Money Market Fund $22 $66 $114 $245
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Natural Resources Securities Fund $23 $70 $119 $256
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Real Estate Securities Fund $22 $67 $114 $246
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Rising Dividends Fund $23 $72 $123 $264
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund $24 $74 $126 $270
- ---------------------------------------------------------------------------------------------------------------------------
Franklin S&P 500 Index Fund* $22 $66 $114 $245
- ---------------------------------------------------------------------------------------------------------------------------
Franklin U.S. Government Securities Fund $21 $65 $112 $242
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Value Securities Fund* $25 $75 $129 $276
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2000 $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2005 $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------------------
Franklin Zero Coupon Fund - 2010 $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------------------
Money Market Fund $22 $66 $114 $245
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund $26 $81 $138 $293
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund $30 $93 $158 $332
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund $25 $76 $130 $277
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Growth Fund $25 $77 $132 $281
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Income Securities Fund $23 $69 $119 $255
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Equity Fund $25 $77 $132 $281
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund $27 $84 $143 $302
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth Fund $27 $84 $143 $302
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Diversified Assets Fund* $28 $87 $147 $312
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Fixed Income Fund* $27 $82 $140 $298
- ---------------------------------------------------------------------------------------------------------------------------
USAllianz VIP Growth Fund* $29 $89 $151 $320
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
See the Appendix for Accumulation Unit Values - Condensed Financial Information.
<PAGE>
1. THE VALUEMARK IV
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes a variable deferred annuity contract with a Fixed
Account offered by Allianz Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Allianz Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is at least two years in the
future. Until you decide to begin receiving Annuity Payments, your annuity is in
the Accumulation Phase. Once you begin receiving Annuity Payments, your Contract
switches to the Payout Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
Your investment choices include Variable Options and the Fixed Account of
Allianz Life. The Contract is called a variable annuity because you can choose
among the Variable Options and, depending upon market conditions, you can make
or lose money in the Contract based on the investment performance of the
Portfolios. 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 account
assets of Allianz Life. Allianz Life may change the terms of the Fixed Account
in the future - please contact Allianz Life for the most current terms.
If you select the Fixed Account, the amount of money you are able to accumulate
in your Contract during the Accumulation Phase depends upon the total interest
credited to your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law.
CONTRACT OWNER
You, as the Contract Owner, have all the rights under the Contract. The Contract
Owner is as designated at the time the Contract is issued, unless changed. You
may change Contract Owners at any time. This may be a taxable event. You should
consult with your tax adviser before doing this.
JOINT OWNER
The Contract can be owned by Joint Owners. Any Joint Owner must be the spouse of
the other Contract Owner (except in Pennsylvania, Oregon and New Jersey). Upon
the death of either Joint Owner, the surviving Joint Owner will be the
designated Beneficiary. Any other Beneficiary designation at the time the
Contract was issued or as may have been later changed will be treated as a
contingent Beneficiary unless otherwise indicated.
ANNUITANT
The Annuitant is the natural person on whose life we base Annuity Payments. You
name an Annuitant. You may change the Annuitant at any time before the Income
Date unless the Contract is owned by a non-individual (for example, a
corporation).
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. The Beneficiary is named at the time the Contract is issued unless
changed at a later date. Unless an irrevocable Beneficiary has been named, you
can change the Beneficiary or contingent Beneficiary.
ASSIGNMENT
You can transfer ownership (assign) the Contract at any time during your
lifetime. Allianz Life will not be bound by the assignment until it receives the
written notice of the assignment. Allianz Life will not be liable for any
payment or other action it takes in accordance with the Contract before it
receives notice of the assignment. Any assignment made after the death benefit
has become payable can only be done with our consent. An assignment may be a
taxable event.
If the Contract is issued pursuant to a Qualified plan, you may be unable to
assign the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- -------------------------------------------------------------------------------
You can receive regular monthly income payments under your Contract. You can
choose the month and year in which those payments begin. We call that date the
Income Date. Your Income Date must be the first day of a calendar month and must
be at least 2 years after you buy the Contract. You can also choose among income
plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You can
change it at any time before the Income Date with 30 days notice to us. Annuity
Payments must begin by the Annuitant's 85th birthday or 10 years (5 years in
Pennsylvania) from the date the Contract was issued, whichever is later. This
limitation may not apply when the Contract is issued to a charitable remainder
trust. You (or someone you designate) will receive the Annuity Payments. You
will receive tax reporting on those payments.
If you do not choose an Annuity Option prior to the Income Date, we will assume
that you selected Option 2 which provides a life annuity with 5 years of
guaranteed payments.
You may elect to receive your Annuity Payments as a variable payout, a fixed
payout, or a combination of both. Under a fixed payout, all of the Annuity
Payments will be the same dollar amount (equal installments). If you choose a
variable payout, you can select from the available Variable Options. If you do
not tell us otherwise, your Annuity Payments will be based on the investment
allocations that were in place on the Income Date.
If you choose to have any portion of your Annuity Payments based on the
investment performance of the Variable Option(s), the dollar amount of your
payments will depend upon three things:
1) the value of your Contract in the Variable Option(s) on the Income Date,
2) the 5% assumed investment rate used in the annuity table for the Contract,
and
3) the performance of the Variable Option(s) you selected.
If the actual performance exceeds the 5% assumed investment rate, your Annuity
Payments will increase. Similarly, if the actual rate is less than 5%, your
Annuity Payments will decrease.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
you want and that Allianz Life agrees to provide. After Annuity Payments begin,
you cannot change the Annuity Option.
OPTION 1. Life Annuity. Under this option, we will make monthly Annuity Payments
so long as the Annuitant is alive. After the Annuitant dies, we stop making
Annuity Payments.
OPTION 2. Life Annuity with 5, 10, 15 or 20 Year Payments Guaranteed. Under this
option, we will make monthly Annuity Payments so long as the Annuitant is alive.
However, if the Annuitant dies before the end of the selected guaranteed period,
we will continue to make Annuity Payments to you or any person you choose 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 you can be
equal to 100%, 75% or 50% of the amount that was being paid when both Annuitants
were alive. The monthly Annuity Payments will end when the last surviving
Annuitant dies.
OPTION 4. Joint and Last Survivor Annuity with 5, 10, 15 or 20 Year Payments
Guaranteed. Under this option, we will make monthly Annuity Payments during the
joint lifetime of the Annuitant and the joint Annuitant. When the Annuitant
dies, if the joint Annuitant is still alive, we will continue to make Annuity
Payments, so long as the surviving Annuitant continues to live, at 100% of the
amount that was being paid when both were alive. If, when the last death occurs,
we have made Annuity Payments for less than the selected guaranteed period, we
will continue to make Annuity Payments to you or any person you choose for the
rest of the guaranteed period. If you do not want to receive Annuity Payments
after the Annuitant's death, you can ask us for a single lump sum.
OPTION 5. Refund Life Annuity. Under this option, we will make monthly Annuity
Payments during the Annuitant's lifetime. The last Annuity Payment will be made
before the Annuitant dies and if the value of the Annuity Payments made is less
than the value applied to the Annuity Option, then you will receive a refund as
set forth in the Contract.
3. PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A Purchase Payment is the money you invest in the Contract. The minimum payment
Allianz Life will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If you enroll in the Automatic Investment Plan (which is
described below), your Purchase Payment can be $2,000. If you are buying the
Contract as part of an IRA (Individual Retirement Annuity), 401(k) or other
Qualified plan, the minimum amount we will accept is $2,000. The maximum amount
we will accept without our prior approval is $1 million. 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. Allianz Life may, at its
sole discretion, waive the minimum payment requirements. We reserve the right to
decline any Purchase Payments. At the time you buy the Contract, you and the
Annuitant cannot be older than 85 years old.
This product is not designed for professional market timing organizations, other
entities, or persons using programmed, large or frequent transfers.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan (AIP) is a program which allows you to make
additional Purchase Payments to your Contract on a monthly or quarterly basis by
electronic transfer of monies from your savings or checking account. You may
participate in this program by completing the appropriate form. We must receive
your form by the first of the month in order for AIP to begin that same month.
Investments will take place on the 20th of the month, or the next business day.
The minimum investment that can be made by AIP is $100. You may stop AIP at any
time you want. We need to be notified by the first of the month in order to stop
or change AIP that month. If AIP is used for a Qualified Contract, you should
consult your tax adviser for advice regarding maximum contributions.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Account and/or one or more of the Variable Options you have selected. We
ask that you allocate your money in either whole percentages or round dollars.
The Fixed Account may not be available in your state (check with your registered
representative). Transfers do not change the allocation instructions for
payments. You can instruct us how to allocate additional Purchase Payments you
make. If you do not instruct us, we will allocate them in the same way as your
previous instructions to us. You may change the allocation of future payments
without fee, penalty or other charge upon written notice or telephone
instructions to the Valuemark Service Center. A change will be effective for
payments received on or after we receive your notice or instructions. Allianz
Life reserves the right to limit the number of Variable Options that you may
invest in at one time. Currently, you may invest in 10 investment choices at any
one time (which includes any of the Variable Options listed in Section 4 and the
Allianz Life Fixed Account). We may change this in the future. However, we will
always allow you to invest in at least five Variable Options.
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your first Purchase Payment within 2 business
days. If you do not give us all of the information we need, we will contact you
or your registered representative to get it. If for some reason we are unable to
complete this process within 5 business days, we will either send back your
money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it (or the period required in your state). When you cancel
the Contract within this time period, Allianz Life will not assess a contingent
deferred sales charge. You will receive back whatever your Contract is worth on
the day we receive your request. In certain states, or if you have purchased the
Contract as an IRA, we may be required to give you back your Purchase Payment if
you decide to cancel your Contract within 10 days after receiving it (or
whatever period is required in your state). If that is the case, we reserve the
right to allocate your initial Purchase Payment to the Franklin Money Market
Fund for 15 days after we receive it. (In some states, the period may be
longer.) At the end of that period, we will re-allocate your money as you
selected. Currently, however, we will directly allocate your money to the
Variable Options and/or the Fixed Account as you have selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Variable Options will
go up or down based upon the investment performance of the Variable 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 by multiplying the Accumulation Unit value for the previous
period by a factor for the current period. The factor is determined by:
1) dividing the value of a Portfolio at the end of the current period by the
value of a Portfolio for the previous period; and
2) multiplying it by one minus the daily amount of the insurance charges and any
charges for taxes.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units for any portion of your Purchase Payment allocated to a Variable Option.
The number of Accumulation Units 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 Franklin 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 Franklin Growth and
Income Fund is $12.50. We then divide $3,000 by $12.50 and credit your Contract
on Wednesday night with 240 Accumulation Units.
4. INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
The Contract offers Variable Options, which invest in Portfolios of AIM Variable
Insurance Funds, Inc., The Alger American Fund, Franklin Templeton Variable
Insurance Products Trust, and USAllianz Variable Insurance Products Trust. The
Contract also offers a Fixed Account of Allianz Life. Additional Portfolios may
be
available in the future.
You should read the fund prospectuses (which are attached to this prospectus)
carefully before investing.
AIM Variable Insurance Funds, Inc., The Alger American Fund, Franklin Templeton
Variable Insurance Products Trust and USAllianz Variable Insurance Products
Trust are the mutual funds underlying your Contract. Each Portfolio has its own
investment objective.
Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares which are described in the
attached prospectus for Franklin Templeton Variable Insurance Products Trust.
Only Class 1 shares are available in connection with your Contract.
Investment advisers for each Portfolio are listed in the table below and are as
follows: A I M Advisors, Inc., Allianz of America, Inc., Fred Alger Management,
Inc., Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Mutual
Advisers, LLC, Templeton Asset Management Ltd., Templeton Global Advisors
Limited, and Templeton Investment Counsel, Inc. Certain advisers have retained
one or more subadvisers to help them manage the Portfolios.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the Portfolios may be higher or lower than the results
of such other mutual funds. The investment advisers cannot guarantee, and make
no representation, that the investment results of similar funds will be
comparable even though the funds have the same investment advisers.
The following is a list of the Portfolios available under the Contract:
<TABLE>
<CAPTION>
Investment
Available Portfolios Advisers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
AIM Variable Insurance Funds, Inc.:
PORTFOLIO SEEKING CAPITAL GROWTH
AIM V.I. Growth Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Portfolios Seeking Long-Term Capital Growth
Alger American Growth Fund Fred Alger Management, Inc.
Alger American Leveraged AllCap Fund Fred Alger Management, Inc.
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST:
Portfolio Seeking Capital Preservation and Income
Franklin Money Market Fund Franklin Advisers, Inc.
Portfolios Seeking Income
Franklin High Income Fund Franklin Advisers, Inc.
Franklin U.S. Government Securities Fund Franklin Advisers, Inc.
Franklin Zero Coupon Funds - 2000, 2005 and 2010 Franklin Advisers, Inc.
Templeton Global Income Securities Fund Franklin Advisers, Inc.
Portfolios Seeking Growth And Income
Franklin Global Communications Securities Fund* Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Franklin Income Securities Fund Franklin Advisers, Inc.
Franklin Real Estate Securities Fund Franklin Advisers, Inc.
Franklin Rising Dividends Fund Franklin Advisory Services, LLC
Franklin Value Securities Fund Franklin Advisory Services, LLC
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
Templeton Global Asset Allocation Fund Templeton Global Advisors Limited
Portfolios Seeking Capital Growth
Franklin Capital Growth Fund Franklin Advisers, Inc.
Franklin Global Health Care Securities Fund Franklin Advisers, Inc.
Franklin Natural Resources Securities Fund Franklin Advisers, Inc.
Franklin S&P 500 Index Fund Franklin Advisers, Inc.
Franklin Small Cap Fund Franklin Advisers, Inc.
Mutual Discovery Securities Fund Franklin Mutual Advisers, LLC
Templeton Developing Markets Equity Fund Templeton Asset Management Ltd.
Templeton Global Growth Fund Templeton Global Advisors Limited
Templeton International Equity Fund Franklin Advisers, Inc.
Templeton International Smaller Companies Fund Templeton Investment Counsel, Inc.
Templeton Pacific Growth Fund Franklin Advisers, Inc.
<FN>
*Prior to November 15, 1999, this was the Franklin Global Utilities Securities
Fund.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment
Available Portfolios Advisers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
USALLIANZ VARIABLE INSURANCE
PRODUCTS TRUST:
Portfolio Seeking Capital Growth
USAllianz VIP Growth Fund Allianz of America, Inc.
Portfolio Seeking Growth and Income
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
Portfolio Seeking Income
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
</TABLE>
Shares of the funds may be offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with Allianz Life. Certain funds may also be
sold directly to qualified plans. The funds believe that offering their shares
in this manner will not be disadvantageous to you.
Allianz Life may enter into certain arrangements under which it is reimbursed by
the funds' advisers, distributors and/or affiliates for the administrative
services which it provides to the Portfolios.
Transfers
You can transfer money among the Variable Options and/or the Fixed Account.
Allianz Life currently allows you to make as many transfers as you want to each
year. Allianz Life may change this practice in the future. However, this product
is not designed for professional market timing organizations or other persons
using programmed, large, or frequent transfers. Such activity may be disruptive
to a Portfolio. We reserve the right to reject any specific Purchase Payment
allocation or transfer request from any person, if in the Portfolio manager's
judgment, a Portfolio would be unable to invest effectively in accordance with
its investment objectives and policies, or would otherwise potentially be
adversely affected.
Your Contract provides that you can make 3 transfers every year without charge.
However, currently Allianz Life permits you to make 12 transfers every year
without charge. We measure a year from the anniversary of the day we issued your
Contract. You can make a transfer to or from the Fixed Account and to or from
any Variable Option. If you make more than 12 transfers in a year, there is a
transfer fee deducted. The fee is $25 per transfer or, if less, 2% of the amount
transferred. The following applies to any transfer:
1) The minimum amount which you can transfer is $1,000 ($500 in New Jersey) or
your entire value in the Variable Option or Fixed Account, if less. This
requirement is waived if the transfer is in connection with the Dollar Cost
Averaging Program or Flexible Rebalancing (which are described below).
2) We may not allow you to make transfers during the free look period.
3) Your request for a transfer must clearly state which Variable Option(s) or
the Fixed Account is involved in the transfer.
4) Your request for a transfer must clearly state how much the transfer is for.
5) You cannot make any transfers within 7 calendar days prior to the date your
first Annuity Payment is due.
6) During the Payout Phase, you may not make a transfer from a fixed Annuity
Option to a variable Annuity Option.
7) During the Payout Phase, you can make at least one transfer from a variable
Annuity Option to a fixed Annuity Option.
Allianz Life has reserved the right to modify the transfer provisions subject to
the guarantees described above and subject to applicable state law.
You can make transfers by telephone. We may allow you to authorize someone else
to make transfers by telephone on your behalf. If you own the Contract with a
Joint Owner, unless 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.
You must participate in the program for at least six months (or two quarters)
and must transfer at least $500 each time (or $1,500 each quarter). Your
allocations can be in whole percentages or dollar amounts. You may elect this
program by properly completing the Dollar Cost Averaging Forms provided by
Allianz Life.
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.
Your participation in the program will end when any of the following occurs:
1) the number of desired transfers have been made;
2) you do not have enough money in the Variable Option(s) or the Fixed Account
to make the transfer (if less money is available, that amount will be dollar
cost averaged and the program will end);
3) you request to terminate the program (your request must be received by us by
the first of the month to terminate that month); or
4) the Contract is terminated.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and Flexible
Rebalancing at the same time.
Flexible Rebalancing
Once your money has been invested, the performance of the Variable Options may
cause your chosen allocation to shift. Flexible Rebalancing is designed to help
you maintain your specified allocation mix among the different Variable Options.
You can direct us to readjust your Contract value on a quarterly, semi-annual or
annual basis to return to your original Variable Option allocations. Flexible
Rebalancing transfers will be made on the 20th day of the month unless that day
is not a business day. If it is not, then the transfer will be made on the
previous day. If you participate in Flexible Rebalancing, the transfers made
under the program are not taken into account in determining any transfer fee.
The Fixed Account is not permitted to be part of Flexible Rebalancing.
VOTING PRIVILEGES
Allianz Life is the legal owner of the Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote which affects
your investment, Allianz Life will obtain from you and other affected Contract
Owners instructions as to how to vote those shares. When we receive those
instructions, we will vote all of the shares we own in proportion to those
instructions. This will also include any shares that Allianz Life owns on its
own behalf. Should Allianz Life determine that it is no longer required to
comply with the above, we will vote the shares in our own right.
SUBSTITUTION
Allianz Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
5. EXPENSES
- -------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, Allianz Life makes a deduction for its insurance charges. Allianz Life
does this as part of its calculation of the value of the Accumulation Units and
the Annuity Units. The insurance charge has two parts:
1) the mortality and expense risk charge, and
2) the administrative charge.
Mortality and Expense Risk Charge. During the Accumulation Phase, this charge is
equal, on an annual basis, to 1.34% of the average daily value of the Contract
invested in a Variable Option. During the Payout Phase, the charge is equal, on
an annual basis, to 1.25% of the average daily value of the Contract invested in
a Variable Option. This charge compensates us for all the insurance benefits
provided by your Contract (for example, our contractual obligation to make
Annuity Payments, the death benefits, certain expenses related to the Contract,
and for assuming the risk (expense risk) that the current charges will be
insufficient in the future to cover the cost of administering the Contract). The
amount of the mortality and expense risk charge is less during the Payout Phase
because Allianz Life does not pay a death benefit separate from benefits under
the Annuity Option if you die during the Payout Phase.
Administrative Charge. This charge is equal, on an annual basis, to .15% of the
average daily value of the Contract invested in a Variable Option. This charge,
together with the contract maintenance charge (which is explained below), is for
all the expenses associated with the administration of the Contract. Some of
these expenses include: preparation of the Contract, confirmations, annual
statements, maintenance of Contract records, personnel costs, legal and
accounting fees, filing fees, and computer and systems costs.
CONTRACT MAINTENANCE CHARGE
Every year, at each Contract anniversary, Allianz Life deducts $30 from your
Contract as a contract maintenance charge. The fee is assessed on the last day
of each Contract year. (In South Carolina, if your Contract is in force on the
20th Contract anniversary, we will waive the contract maintenance charge that is
to be deducted after the 20th Contract anniversary.) This charge is for
administrative expenses (see above). This charge can not be increased.
However, during the Accumulation Phase, if the value of your Contract is at
least $50,000 when the deduction for the charge is to be made, Allianz Life will
not deduct this charge. If you own more than one Valuemark IV Contract, Allianz
Life will determine the total value of all your Valuemark IV Contracts. If the
total value of all Valuemark IV Contracts registered under the same social
security number is at least $50,000, Allianz Life will not assess the contract
maintenance charge (except in New Jersey). Currently, the charge is also waived
during the Payout Phase if the value of your Contract at the Income Date is at
least $50,000. If the Contract is owned by a non-natural person (e.g., a
corporation), Allianz Life will look to the Annuitant to determine if it will
assess the charge.
If you make a complete withdrawal from your Contract, the contract maintenance
charge will also be deducted. During the Payout Phase, if the contract
maintenance charge is deducted, the charge will be collected monthly out of each
Annuity Payment.
CONTINGENT DEFERRED SALES CHARGE
Withdrawals 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. The charge is:
Contingent deferred
sales charge
Years since (as a percentage
Purchase Payment of Purchase Payments)
- -------------------------------------------------------
0-1 6%
1-2 6%
2-3 6%
3-4 5%
4-5 4%
5-6 3%
6-7 2%
7+ 0%
However, after Allianz Life has had a Purchase Payment for 7 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. Allianz Life does not assess the contingent
deferred sales charge on any payments paid out as Annuity Payments or as death
benefits.
In the state of Washington, the contingent deferred sales charge will be waived
beginning with the later of the first Contract anniversary after your attaining
age 70 or the 10th Contract anniversary.
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 (referred to in sales literature as "15% Withdrawal
Privilege") - Each year after the first Contract year, you can make multiple
withdrawals up to 15% of the value of your Contract and no contingent deferred
sales charge will be deducted from the 15% you take out. (This amount may be
increased when the Contract is issued to a charitable remainder trust.) If you
make a withdrawal of more than the free 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 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 Section 7 - "Access to Your Money" for a description of the
Systematic Withdrawal Program and the Minimum Distribution Program.
Waiver of Contingent Deferred Sales Charge Benefits
Under certain circumstances, after the first year, Allianz Life will permit you
to take your money out of the Contract without deducting a contingent deferred
sales charge:
1) if you become confined to a nursing home for at least 90 days;
2) if you become terminally ill, which is defined as life expectancy of 12
months or less (a full withdrawal of the Contract will be required); or
3) if you become totally disabled for at least 90 consecutive days.
The waiver will not apply if any of the above conditions existed on the date
your Contract was issued.
Also, after the first year, if you become unemployed for at least 90 consecutive
days, you can take up to 50% of your contract value out of the Contract without
incurring a contingent deferred sales charge. This benefit is available only
once during the life of the Contract. You may not use both this benefit and the
15% free withdrawal amount in the same Contract year.
These benefits vary from state to state or may not be available in your state.
(Check with your registered representative.)
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
You can make 12 free transfers every year. We measure a year from the day we
issue your Contract. If you make more than 12 transfers a year, we will deduct a
transfer fee of $25 or 2% of the amount that is transferred, whichever is less,
for each additional transfer. If the transfer is part of the Dollar Cost
Averaging Program or Flexible Rebalancing, it will not count in determining the
transfer fee.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. Allianz Life is responsible for the payment of
these taxes. 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 fund prospectuses.
6. TAXES
- -------------------------------------------------------------------------------
NOTE: Allianz Life has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice. You should consult
your own tax adviser about your own circumstances. Allianz Life has included
additional information regarding taxes in the Statement of Additional
Information.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity Payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes. This means that the Contract may not receive the
benefits of Tax Deferral. Income may be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), and pension and profit-sharing plans, which include 401(k)
plans and H.R. 10 plans. If you do not purchase the Contract under a Qualified
plan, your Contract is referred to as a Non-Qualified Contract.
MULTIPLE CONTRACTS
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year period to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange. You
should consult a tax adviser prior to purchasing more than one Non-Qualified
annuity contract in any calendar year period.
WITHDRAWALS -- NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Purchase Payments. In most
cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts:
1) paid on or after the taxpayer reaches age 591/2;
2) paid after you die;
3) paid if the taxpayer becomes totally disabled (as that term is defined in the
Code);
4)paid in a series of substantially equal payments made annually (or more
frequently) for life or a period not exceeding life expectancy;
5) paid under an immediate annuity; or
6) which come from purchase payments made prior to August 14, 1982.
WITHDRAWALS -- QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts does
not apply to Qualified Contracts. There are special rules that govern Qualified
Contracts. A more complete discussion of withdrawals from Qualified Contracts is
contained in the Statement of Additional Information.
WITHDRAWALS -- TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of amounts attributable to Purchase Payments made
under a salary reduction agreement by Contract Owners from Tax-Sheltered
Annuities. Withdrawals can only be made when a Contract Owner:
1) reaches age 59 1/2;
2) leaves his/her job;
3) dies;
4) becomes disabled (as that term is defined in the Code); or
5) in the case of hardship. However, in the case of hardship, the Contract Owner
can only withdraw the Purchase Payments and not any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. Allianz Life believes that the Portfolios are being managed so
as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Allianz Life,
would be considered the owner of the shares of the Portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the Contract. It is unknown to what extent under federal tax
law Contract Owners are permitted to select Portfolios, to make transfers among
the Portfolios or the number and type of Portfolios Contract Owners may select
from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
owner of the Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Allianz Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- -------------------------------------------------------------------------------
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 Section 5 - "Expenses" for a discussion of the charges.)
Any partial withdrawal must be for at least $500. Unless you instruct Allianz
Life otherwise, a partial withdrawal will be made pro-rata from all the Variable
Options and the Fixed Account you selected. After you make a partial withdrawal
the value of your Contract must be at least $2,000.
We will pay the amount of any withdrawal from the Variable Options within seven
(7) days of when we receive your request in good order unless the Suspension of
Payments or Transfers provision is in effect (see below).
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
There are limits to the amount you can withdraw from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see Section 6 - "Taxes" and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
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 15% of the value of
your Contract. This is determined on the last business day prior to the day your
request is received. You may withdraw any amount you want under this program if
your payments are no longer subject to the contingent deferred sales charge. 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 Section 5 - "Expenses." All
systematic withdrawals will be made on the 9th day of the month unless that day
is not a business day. If it is not, then the withdrawal will be made the
previous business day.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
MINIMUM DISTRIBUTION PROGRAM
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Allianz Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Allianz Life will make payments to you on a
monthly or quarterly basis. 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.
8. 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
Portfolio expenses. 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 accompanying fund prospectuses for more information.
Certain Portfolios have been in existence for some time and have investment
performance history. However, the Contracts have been available only since
February 3, 1997. In order to demonstrate how the actual investment experience
of the Portfolios may affect your Accumulation Unit values, Allianz Life has
prepared performance information which can be found in the SAI. There is
performance shown which is based on the historical performance of the
Portfolios, modified to reflect the current charges and expenses of your
Contract as if the Contract had been in existence for the time periods shown.
The information is based upon the historical experience of the Portfolios and
does not represent past performance or predict future performance.
Allianz Life may in the future also advertise yield information. If it does, it
will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data. It does not
guarantee future results of the Portfolios.
9. DEATH BENEFIT
- ------------------------------------------------------------------------------
Upon Your Death
If you die during the Accumulation Phase, Allianz Life will pay a death benefit
to your Beneficiary (see below). No death benefit is paid if you die during the
Payout Phase. If you purchase the Contract on or after July 6, 1999, you may
choose Death Benefit Option 1 or Death Benefit Option 2 below at the time of
application. Once you make the selection, you may not change it. If you
purchased the Contract before July 6, 1999, Death Benefit Option 2 is not
available.
I. Contracts That Receive An Enhanced Death Benefit Endorsement
Contracts that are owned individually, or jointly with another person, or as
agent for an individual person, will receive an enhanced death benefit
endorsement for Death Benefit Option 1 or Death Benefit Option 2. For these
Contracts, the death benefit options are:
Death Benefit Option 1
The death benefit will be the greater of 1) or 2) below:
1) The current value of your Contract, less any taxes owed. This amount is
determined as of the day that all claim proofs and payment election forms are
received at the Valuemark Service Center.
2) The guaranteed minimum death benefit (as explained below and in the
enhanced death benefit endorsement to your Contract), as of the day you die.
A. During the first year of all such Contracts and if you are age 81 or
older (76 or older for deaths occurring in Washington, or in most other
states before 11/1/98) at the time of purchase, the following guaranteed
minimum death benefit will apply:
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out,
o less any premium taxes owed.
B. After the first Contract year, for Contracts issued before your 81st
birthday (76th birthday for deaths occurring before 11/1/98), and until
you reach age 81 (age 76 for deaths occurring before 11/1/98), the
greater of (a) or (b) below will be your guaranteed minimum death
benefit:
a) 5% Increase
o payments you have made,
o less any money you have taken out,
o less any applicable charges paid on money taken out,
o plus 5% on each Contract anniversary,
o less any premium taxes owed.
b) Highest 6th Year Contract Value
o highest Contract value on any six year Contract anniversary,
o plus any payments made since that Contract anniversary,
o less any money you have taken out since that anniversary,
o less any applicable charges paid on money taken out since that
anniversary,
o less any premium taxes owed.
C. After your 81st birthday (76th birthday for deaths occurring before
11/1/98), the following guaranteed minimum death benefit will apply:
o your guaranteed minimum death benefit on the Contract anniversary
prior to your 81st birthday (76th birthday for deaths occurring before
11/1/98),
o plus any payments you have made since then,
o less any money you have taken out since then,
o less any applicable charges paid on money taken out since then,
o less any premium taxes owed.
Death Benefit Option 2
The death benefit will be the greater of:
1) the current value of your Contract, less any taxes, on the day all claim
proofs and payment election forms are received by Allianz Life at the
Valuemark Service Center; or
2) (if applicable) the guaranteed minimum death benefit, less any taxes, on
the day all claim proofs and payment election forms are received by Allianz
Life at the Valuemark Service Center.
The guaranteed minimum death benefit is the greater of:
o payments you have made, less any money you have taken out and any charges
paid on the money you have taken out.
o the greatest Contract "anniversary value". The Contract "anniversary value"
is the value of the Contract on a Contract anniversary, increased by payments
you have made since that anniversary and decreased by any money you have
taken out and any charges paid on the money you have taken out since that
anniversary. Allianz Life will not take into consideration any Contract
anniversaries which occur on or after your 81st birthday or date of death in
determining this benefit.
In certain states, the above death benefit may not be available. Check your
Contract and Endorsement for your applicable death benefit.
II. Contracts That Do Not Receive An Enhanced Death Benefit Endorsement
For all Contracts that do not receive an enhanced death benefit endorsement, the
death benefit will be:
The current value of your Contract, less any taxes owed. This amount is
determined as of the day that all claim proofs and payment election forms are
received at the Valuemark Service Center.
III. Additional Provisions
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. The guaranteed minimum death
benefit will be reduced by any amounts withdrawn after the date of death. If the
Contract is owned by a non-natural person, then all references to you mean the
Annuitant.
In the case of Joint Owners, if a Joint Owner dies, the surviving Joint Owner
will be the Beneficiary. Joint Owners must be spouses (except in Pennsylvania,
Oregon and New Jersey).
A Beneficiary may request that the death benefit be paid in one of the following
ways: (1) Payment of the entire death benefit within 5 years of the date of
death. (2) Payment of the death benefit under an Annuity Option. The death
benefit payable under an Annuity Option must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy.
Payment must begin within one year of the date of death. (3) If the Beneficiary
is the spouse of the Contract Owner, he/she can choose to continue the Contract
in his/her own name at the then current value, or if greater, the death benefit
value. (4) If a lump sum payment is elected and all the necessary requirements,
including any required tax consent from some states, are met, the payment will
be made within 7 days. Pay ment of the death benefit may be delayed pending
receipt of any applicable tax consents and/or forms from a state.
If you (or any Joint Owner) die during the Payout Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Payout Phase, the Beneficiary becomes the Contract Owner.
Death of Annuitant
If the Annuitant, who is not a Contract Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If you do not name a new
Annuitant within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Contract Owner is a non-natural person (e.g., a
corporation), then the death of the Annuitant will be treated as the death of
the Contract Owner, and a new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining amounts
payable, if any, will be as provided for in the Annuity Option selected. The
remaining amounts payable will be paid to the Contract Owner at least as rapidly
as they were being paid at the Annuitant's death.
10. OTHER INFORMATION
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Allianz Life
Allianz Life Insurance Company of North America (Allianz Life), 1750 Hennepin
Avenue, Minneapolis, Minnesota 55403, was organized under the laws of the state
of Minnesota in 1896. Allianz Life offers fixed and variable life insurance and
annuities and group life, accident and health insurance. Allianz Life is
licensed to do business in 49 states and the District of Columbia. Allianz Life
is a wholly-owned subsidiary of Allianz Versicherungs-AG Holding.
YEAR 2000
Allianz Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. These costs are expensed as
incurred and total costs are not expected to have a significant effect on
Allianz Life's financial position or results of operations. Allianz Life
believes it is taking steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Allianz Life will be adequate to
avoid any adverse impact.
THE SEPARATE ACCOUNT
Allianz Life established a separate account named Allianz Life Variable Account
B (Separate Account) to hold the assets that underlie the Contracts, except
assets allocated to the Fixed Account. The Board of Directors of Allianz Life
adopted a resolution to establish the Separate Account under Minnesota insurance
law on May 31, 1985. Allianz Life has registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into Variable
Options (also known as sub-accounts). Each Variable Option invests in 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
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC), 1750
Hennepin Avenue, Minneapolis, MN 55403, acts as the distributor of the Contract.
USAllianz Investor Services, LLC, is a wholly-owned subsidiary of Allianz Life.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions up to 7.5% 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 7.5% of Purchase Payments). In addition, Allianz Life 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 or there is a recission of the Contract within the Free-Look period.
ADMINISTRATION
Allianz Life has hired Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, to perform certain administrative services
regarding the Contracts. The administrative services include issuance of the
Contracts and maintenance of Contract Owner's records.
FINANCIAL STATEMENTS
The consolidated financial statements of Allianz Life and the Separate Account
have been included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
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Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Reduction or Elimination of the
Contingent Deferred Sales Charge 2
Calculation of Performance Data 2
Federal Tax Status 4
Annuity Provisions 9
Mortality and Expense Risk Guarantee 10
Financial Statements 10
Appendix
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<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 of the Separate Account included in the Statement of Additional
Information.
(Number of units in thousands)
Period Year or Period Inception
Ended Ended (2/3/97) to
Sub-Accounts: June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin Capital Growth
Unit value at beginning of period $15.537 $13.110 $11.247
Unit value at end of period $17.321 $15.537 $13.110
Number of units outstanding at end of period 7,333 4,502 1,957
Franklin Global Health Care Securities*
Unit value at beginning of period $10.604 $10.000 NA
Unit value at end of period 8.963 $10.604 NA
Number of units outstanding at end of period 399 224 NA
Franklin Global Communications Securities**
Unit value at beginning of period $28.082 $25.635 $20.526
Unit value at end of period $30.398 $28.082 $25.635
Number of units outstanding at end of period 1,245 1,006 310
Franklin Growth and Income
Unit value at beginning of period $25.993 $24.354 $19.351
Unit value at end of period $27.829 $25.993 $24.354
Number of units outstanding at end of period 5,704 5,185 2,376
Franklin High Income
Unit value at beginning of period $21.020 $21.141 $19.237
Unit value at end of period $21.132 $21.020 $21.141
Number of units outstanding at end of period 4,438 4,191 2,202
Franklin Income Securities
Unit value at beginning of period $24.898 $24.864 $21.554
Unit value at end of period $25.153 $24.898 $24.864
Number of units outstanding at end of period 4,603 4,239 2,094
Franklin Money Market
Unit value at beginning of period $14.260 $13.756 $13.266
Unit value at end of period $14.470 $14.260 $13.756
Number of units outstanding at end of period 3,734 4,342 3,214
Franklin Natural Resources Securities
Unit value at beginning of period $8.430 $11.466 $14.364
Unit value at end of period $10.811 $8.430 $11.466
Number of units outstanding at end of period 626 514 304
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)
Period Year or Period Inception
Ended Ended (2/3/97) to
Sub-Accounts: June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin Real Estate Securities
Unit value at beginning of period $22.901 $27.944 $23.499
Unit value at end of period 23.987 $22.901 $27.944
Number of units outstanding at end of period 1,691 1,823 1,217
Franklin Rising Dividends
Unit value at beginning of period $21,034 $19.968 $15.235
Unit value at end of period $21.467 $21.034 $19.968
Number of units outstanding at end of period 4,477 4,428 1,991
Franklin Small Cap
Unit value at beginning of period $14.558 $14.923 $12.899
Unit value at end of period $16.831 $14.558 $14.923
Number of units outstanding at end of period 5,294 5,492 2,965
Franklin U.S. Government Securities
Unit value at beginning of period $18.847 $17.805 $16.533
Unit value at end of period $18.465 $18.847 $17.805
Number of units outstanding at end of period 3,735 3,040 1,359
Franklin Value Securities*
Unit value at beginning of period $7.713 $10.000 NA
Unit value at end of period $8.491 $7.713 NA
Number of units outstanding at end of period 473 367 NA
Franklin Zero Coupon 2000
Unit value at beginning of period $20.502 $19.358 $18.345
Unit value at end of period $20.557 $20.502 $19.358
Number of units outstanding at end of period 217 188 94
Franklin Zero Coupon 2005
Unit value at beginning of period $24.786 $22.357 $20.375
Unit value at end of period $23.383 $24.786 $22.357
Number of units outstanding at end of period 523 380 161
Franklin Zero Coupon 2010
Unit value at beginning of period $27.674 $24.544 $21.371
Unit value at end of period $25.048 $27.674 $24.544
Number of units outstanding at end of period 701 478 150
Mutual Discovery Securities
Unit value at beginning of period $11.205 $11.971 $10.179
Unit value at end of period $12.462 $11.205 $11.971
Number of units outstanding at end of period 8,261 8,822 5,461
Mutual Shares Securities
Unit value at beginning of period $11.814 $11.981 $10.329
Unit value at end of period 13.433 $11.814 $11.981
Number of units outstanding at end of period 19,848 19,834 11,394
</TABLE>
<TABLE>
<CAPTION>
(Number of units in thousands)
Period Year or Period Inception
Ended Ended (2/3/97) to
Sub-Accounts: June 30, 1999 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Templeton Developing Markets Equity
Unit value at beginning of period $7.958 $10.305 $11.458
Unit value at end of period 10.735 $7.958 $10.305
Number of units outstanding at end of period 3,436 3,425 2,663
Templeton Global Asset Allocation
Unit value at beginning of period $13.543 $13.752 $12.495
Unit value at end of period 14.133 $13.543 $13.752
Number of units outstanding at end of period 1,465 1,491 1,008
Templeton Global Growth
Unit value at beginning of period $16.238 $15.124 $13.525
Unit value at end of period $18.050 $16.238 $15.124
Number of units outstanding at end of period 8,993 8,864 5,525
Templeton Global Income Securities
Unit value at beginning of period $17.746 $16.821 $16.661
Unit value at end of period 16.698 $17.746 $16.821
Number of units outstanding at end of period 693 651 393
Templeton International Equity
Unit value at beginning of period $18.322 $17.617 $16.010
Unit value at end of period 20.261 $18.322 $17.617
Number of units outstanding at end of period 4,406 4,427 3,122
Templeton International Smaller Companies
Unit value at beginning of period $9.342 $10.809 $11.138
Unit value at end of period $10.856 $9.342 $10.809
Number of units outstanding at end of period 886 967 792
Templeton Pacific Growth
Unit value at beginning of period $8.028 $9.381 $14.866
Unit value at end of period $10.261 $8.028 $9.381
Number of units outstanding at end of period 963 655 379
<FN>
* The Franklin Global Health Care Securities and the Franklin Value Securities
Sub-Accounts commenced operations May 1, 1998.
** Prior to November 15, 1999, this was the Franklin Global Utilities Securities
Fund. There are no Accumulation Unit Values shown for the Franklin S&P 500
Index, AIM V.I. Growth, Alger American Growth, Alger American Leveraged AllCap,
USAllianz VIP Diversified Assets, USAllianz VIP Fixed Income and USAllianz VIP
Growth Sub-Accounts because they commenced operations as of the date of this
prospectus and therefore had no assets as of June 30,
</FN>
</TABLE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
VALUEMARK IV
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
November 12, 1999
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT:
1750 Hennepin Avenue, Minneapolis, MN 55403-2195,
(800) 542-5427
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED NOVEMBER
12, 1999, AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
- --------------------------------------------------------------
Contents Page
Insurance Company ............................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Reduction or Elimination of the
Contingent Deferred Sales Charge ............... 2
Calculation of Performance Data ................. 3
Federal Tax Status .............................. 6
Annuity Provisions .............................. 11
Mortality and Expense Risk Guarantee ............ 11
Financial Statements ............................ 12
Insurance Company
- --------------------------------------------------------------------------------
Allianz Life Insurance Company of North America (the
"Insurance Company") is a stock life insurance company organized under the laws
of the state of Minnesota in 1896. The Insurance Company is a wholly-owned
subsidiary of Allianz Versicherungs-AG Holding ("Allianz"). Allianz is
headquartered in Munich, Germany, and has sales outlets throughout the world.
The Insurance Company offers fixed and variable life insurance and annuities,
and group life, accident and health insurance. The Insurance Company is rated A+
(Superior) by A.M. BEST, an independent analyst of the insurance industry. The
financial strength of an insurance company may be relevant insofar as the
ability of a company to make fixed annuity payments from its general account.
Experts
- -------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the Insurance Company as of and for the year ended
December 31, 1998 included in this Statement of Additional Information have been
audited by KPMG, LLP, independent auditors, as indicated in their reports
included in this Statement of Additional Information and are included herein in
reliance upon such reports and upon the authority of said firm as experts in
accounting and auditing.
Legal Opinions
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
Distributor
- --------------------------------------------------------------------------------
USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC), a
subsidiary of the Insurance 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 may 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 Insurance Company may advertise the performance data for
the variable options in sales literature, advertisements, personalized
hypothetical illustrations, and Contract Owner communications. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Portfolio over a stated period of time which is determined by
dividing the increase (or decrease) in value for that unit by the accumulation
unit value at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.34% Mortality and Expense Risk Charge,
a 0.15% Administrative 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 Contract Maintenance
Charges and any applicable Contingent Deferred Sales 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 payment made at the
beginning of the time periods used at the end of such time periods (or
fractional portion thereof).
The Insurance Company may also advertise performance data which will be
calculated in the same manner as described above but which will not reflect the
deduction of the Contingent Deferred Sales Charge and the Contract Maintenance
Charge. The Insurance Company may also advertise cumulative and average total
return information over different periods of time. The Company may also present
performance information computed on a different basis ("Non-Standardized Total
Return").
Cumulative total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that no sales load is
deducted from the initial $1,000 payment at the time it is allocated to the
Portfolios and assumes that the income earned by the investment in the Portfolio
is reinvested.
Contract Owners should note that investment results will fluctuate over time,
and any presentation of total return for any period should not be considered as
a representation of what an investment may earn or what a Contract Owner's total
return may be in any future period.
Yield
The Franklin Money Market Fund. The Insurance Company may advertise yield
information for the Franklin Money Market Fund. The Franklin Money Market Fund's
current yield may vary each day, depending upon, among other things, the average
maturity of the underlying Portfolio's investment securities and changes in
interest rates, operating expenses, the deduction of the Mortality and Expense
Risk Charge, the Administrative Charge and the Contract Maintenance Charge and,
in certain instances, the value of the underlying Portfolio's investment
securities. The fact that the Portfolio's current yield will fluctuate and that
the principal is not guaranteed should be taken into consideration when using
the Portfolio's current yield as a basis for comparison with savings accounts or
other fixed-yield investments. The yield at any particular time is not
indicative of what the yield may be at any other time.
The Franklin Money Market Fund'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, the Administrative
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 June 30, 1999, the Franklin Money Market
Sub-Account had a current yield of 2.92% and an effective yield of 2.96%. The
yield information assumes that the Contract Sub-Account was invested in the
Franklin Money Market Fund for the time period shown.
Other Portfolios. The Insurance Company may also quote yield in sales
literature, advertisements, personalized hypothetical illustrations, and
Contract Owner communications for the other Portfolios. Each Portfolio (other
than the Franklin Money Market Fund) will publish standardized total return
information with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
accumulation unit earned during the period (minus the deduction for the
Mortality and Expense Risk Charge, Administrative Charge and Contract
Maintenance Charge) by the accumulation unit value on the last day of the period
and annualizing the resulting figure, according to the following formula:
Yield = 2 [(a-b) + 1)6 - 1]
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of accumulation units outstanding during the
period;
d = the maximum offering price per accumulation unit on the last day of the
period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods (or one month) identified in the sales literature,
advertisement, or communication. Yield calculations assume no sales load. The
Insurance Company does not currently advertise yield information for any
Portfolio (other than the Franklin Money Market Fund).
Performance Ranking
Total return may be compared to relevant indices, including U.S. domestic and
international indices and data from Lipper Analytical Services, Inc., Standard &
Poor's Indices, or VARDS(R).
From time to time, evaluation of performance by independent sources may also be
used.
Performance Information
In order to show how investment performance of the Portfolios affects
accumulation unit values, the following performance information was developed.
The chart below shows accumulation unit performance which assumes that the
accumulation units were invested in each of the Portfolios for the same periods.
The performance figures in Column I represent performance figures for the
accumulation units which reflects the deduction of the Mortality and Expense
Risk Charge, Administrative Charge, and the operating expenses of the
Portfolios. Column II represents performance figures for the accumulation units
which reflects the Mortality and Expense Risk Charge, Administrative Charge, the
Contract Maintenance Charge, the operating expenses of the Portfolios and
assumes that you make a withdrawal at the end of the period (therefore the
Contingent Deferred Sales Charge is reflected). Past performance does not
guarantee future results.
<TABLE>
<CAPTION>
Valuemark IV
Total Return for the periods ended June 30, 1999
Column I Column II
- ---------------------------------------------------------------------------------------------------------------------------
Separate
Account
Inception One Five Ten Since One Five Ten Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Franklin Capital Growth 5/1/96 18.62% NA NA 18.94% 12.52% NA NA 17.91%
Franklin Global Health Care
Securities 5/1/98 -10.77 NA NA -8.95% -16.87% NA NA -13.59%
Franklin Global Communications
Securities 1/24/89 12.16% 16.23% 11.02% 11.25% 6.06% 15.78% 10.95% 11.18%
Franklin Growth and Income 1/24/89 9.21% 16.56% 10.83% 10.31% 3.11% 16.11% 10.76% 10.23%
Franklin High Income 1/24/89 -3.06% 7.94% 7.50% 7.44% -9.16% 7.35% 7.42% 7.36%
Franklin Income Securities 1/24/89 0.62% 8.80% 9.41% 9.25% -5.48% 8.23% 9.34% 9.18%
Franklin Money Market+ 1/24/89 3.29% 3.63% 7.03% 3.60% -2.81% 2.94% 6.85% 3.52%
Franklin Natural Resources
Securities 1/24/89 2.59% -4.26% 0.47% 0.75% -3.51% -5.19% 0.38% 0.66%
Franklin Real Estate Securities 1/24/89 -9.45% 8.86% 8.62% 8.75% -15.55% 8.29% 8.54% 8.68%
Franklin Rising Dividends 1/27/92 3.06% 17.20% NA 10.84% -3.04% 16.76% NA 10.75%
Franklin Small Cap 11/01/95 7.91% NA NA 15.26% 1.81% NA NA 14.37%
Franklin U.S. Government
Securities 3/14/89 0.88% 6.13% 6.32% 6.14% -5.22% 5.51% 6.24% 6.06%
Franklin Value Securities 5/1/98 -6.87% NA NA -13.07% -12.97% NA NA -17.75%
Franklin Zero Coupon - 2000+ 3/14/89 3.58% 5.86% 6.93% 7.25% -2.52% 5.22% 6.86% 7.18%
Franklin Zero Coupon - 2005+ 3/14/89 0.49% 7.89% 7.58% 8.60% -5.61% 7.30% 7.50% 8.53%
Franklin Zero Coupon - 2010+ 3/14/89 -3.64% 9.95% 8.34% 9.33% -9.74% 9.41% 8.26% 9.26%
Mutual Discovery Securities 11/08/96 -5.30% NA NA 8.69% -11.40% NA NA 6.88%
Mutual Shares Securities 11/08/96 4.96% NA NA 11.82% -1.14% NA NA 10.09%
Templeton Developing Markets Equity3/15/94 28.13% 1.54% NA 1.35% 22.03% 0.79% NA 0.77%
Templeton Global Asset Allocation 5/1/95 0.71% NA NA 8.66% -5.39% NA NA 7.92%
Templeton Global Growth 3/15/94 10.63% 12.59% NA 11.80% 4.53% 12.08% NA 11.41%
Templeton Global Income Securities1/24/89 -2.60% 4.40% 4.96% 5.04% -8.70% 3.73% 4.89% 4.96%
Templeton International Equity 1/27/92 2.19% 10.73% NA 9.98% -3.91% 10.19% NA 9.89%
Templeton International
Smaller Companies 5/01/96 -1.02% NA NA 2.63% -7.12% NA NA 1.22%
Templeton Pacific Growth 1/27/92 49.80% -4.96% NA 0.35% 43.70% -5.93% NA 0.25%
<FN>
The Franklin Global Health Care Securities and the Franklin Value Securities
Sub-Accounts commenced operations on May 1, 1998.
The Franklin S&P 500,USAllianz VIP Growth, USAllianz VIP Diversified
Assets, and the USAllianz VIP Fixed Income Sub-Accounts commenced operations
on November 12, 1999.
+Calculated with waiver of fees.
</FN>
</TABLE>
The chart below shows hypothetical accumulation unit performance based on the
historical performance of the AIM V.I. Growth Fund, the Alger American Growth
Fund and the Alger American Leveraged AllCap Fund. The Performance figures
assume that your Contract was invested in each of the Portfolios commencing from
the inception date of the Portfolio. The performance figures in Column 1 reflect
the deduction of the Mortality and Expense Risk Charge, Administrative Charge
and the operating expenses of the Portfolios. The performance figures in Column
II reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Charge, the Contract Maintenance Charge, the operating expenses
of the Portfolios and assumes that you make a withdrawal at the end of the
period (and therefore the Contingent Deferred Sales Charge is reflected). Past
performance does not guarantee future results.
<TABLE>
<CAPTION>
Total Return for the periods ended June 30, 1999
Column I Column II
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio
Inception One Five Ten Since One Five Ten Since
Portfolio Date Year Years Years Inception Year Years Years Inception
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM V.I. Growth 5/5/93 25.16% 24.63% NA 19.55% 19.06% 24.28% NA 19.36%
Alger American Growth 1/9/89 33.21% 28.22% 20.65% 20.84% 27.11% 27.90% 20.59% 20.78%
Alger American Leveraged AllCap 1/25/95 55.38% NA NA 39.25% 49.28% NA NA 38.93%
</TABLE>
Federal Tax Status
- --------------------------------------------------------------------------------
Note: The following description is based upon the Insurance Company's
understanding of current federal income tax law applicable to annuities in
general. The Insurance Company cannot predict the probability that any changes
in such laws will be made. Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes. The Insurance Company does not
guarantee the tax status of the Contracts. Purchasers bear the complete risk
that the Contracts may not be treated as "annuity contracts" under federal
income tax laws. It should be further understood that the following discussion
is not exhaustive and that special rules not described herein may be applicable
in certain situations. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. A Contract Owner is not taxed on increases in
the value of a Contract until distribution occurs, either in the form of a lump
sum payment or as annuity payments under the Annuity Option elected. For a lump
sum payment received as a total surrender (total redemption) or death benefit,
the recipient is taxed on the portion of the payment that exceeds the cost basis
of the Contract. For Non-Qualified Contracts, this cost basis is generally the
purchase payments, while for Qualified Contracts there may be no cost basis. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e. when the
total of the excludible amounts equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income rates. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Contract Owners, annuitants and beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
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 underlying the Contracts will
be managed by the investment advisers 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.
Death Benefits
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
(a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or (b) distributions which are required minimum distributions; or
(c) the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions); or (d) hardship withdrawals. Participants
should consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals -
Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount 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 withdrawal
penalties and restrictions may apply to withdrawals from Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations.") Employee loans are not allowed under these Contracts.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's taxable income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Contracts to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 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 periods beginning
with tax year 1998. Purchasers of Contracts to be qualified as a Roth IRA should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employee until distributed from the
Plan. The tax consequences to participants may vary, depending upon the
particular Plan design. However, the Code places limitations and restrictions on
all Plans, including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions and withdrawals.
Participant loans are not allowed under the Contracts purchased in connection
with these Plans. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Purchasers of Contracts for use with Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax Treatment of Withdrawals -
Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) (Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Contract Owner or Annuitant (as applicable) reaches age 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,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions by the Contract Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, and to income attributable to such contributions and to
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
Annuity Provisions
- --------------------------------------------------------------------------------
Fixed Annuity Payout
A fixed annuity is an annuity with payments which are guaranteed as to dollar
amount by the Insurance Company and do not vary with the investment experience
of a Portfolio. The Fixed Account value on the day immediately preceding the
Income Date will be used to determine the Fixed Annuity monthly payment. The
monthly Annuity Payment will be based upon the Contract Value at the time of
annuitization, the Annuity Option selected, the age of the Annuitant and any
joint Annuitant and the sex of the Annuitant and joint Annuitant where allowed.
Variable Annuity Payout
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Portfolio(s).
Annuity Unit Value
On the Income Date, a fixed number of Annuity Units will be purchased as
follows:
The first Annuity Payment is equal to the Adjusted Contract Value, divided first
by $1,000 and then multiplied by the appropriate Annuity Payment amount for each
$1,000 of value for the Annuity Option selected. In each Portfolio the fixed
number of Annuity Units is determined by dividing the amount of the initial
Annuity Payment determined for each Portfolio by the Annuity Unit value on the
Income Date. Thereafter, the number of Annuity Units in each Portfolio remains
unchanged unless the Contract Owner elects to transfer between Portfolios. All
calculations will appropriately reflect the Annuity Payment frequency selected.
On each subsequent Annuity Payment date, the total Annuity Payment is the sum of
the Annuity Payments for each Portfolio.
The Annuity Payment in each Portfolio is determined by multiplying the number of
Annuity Units then allocated to such Portfolio by the Annuity Unit value for
that Portfolio.
On each subsequent Valuation Date, the value of an Annuity Unit is determined in
the following way:
First: The Net Investment Factor is determined as described in the Prospectus
under "Purchase - Accumulation Units."
Second: The value of an Annuity Unit for a Valuation Period is equal to:
a. the value of the Annuity Unit for the immediately preceding Valuation Period.
b. multiplied by the Net Investment Factor for the current Valuation Period;
c. divided by the Assumed Net Investment Factor (see below) for the Valuation
Period.
The Assumed Net Investment Factor is equal to one plus the Assumed Investment
Return which is used in determining the basis for the purchase of an Annuity,
adjusted to reflect the particular Valuation Period. The Assumed Investment
Return that the Insurance Company will use is 5%. However, the Insurance Company
may agree to use a different value.
Mortality and Expense Risk Guarantee
- --------------------------------------------------------------------------------
The Insurance Company guarantees that the dollar amount of each annuity payment
after the first annuity payment will not be affected by variations in mortality
and expense experience.
Financial Statements
- -------------------------------------------------------------------------------
The audited consolidated financial statements of the Insurance Company as of and
for the year ended December 31, 1998 included herein should be considered only
as bearing upon the ability of the Insurance Company to meet its obligations
under the Contracts. The audited financial statements of the Separate Account as
of and for the year ended December 31, 1998 and the unaudited financial
statements of the Separate Account as of and for the period ended June 30, 1999
are also included herein.
<TABLE>
<CAPTION>
Allianz Life Variable Account B
of Allianz Life Insurance Company of North America
Financial Statements
Statements of Assets and Liabilities
June 30, 1999 (unaudited)
(In thousands)
CapitalGlobalHealthGlobalUtilitiesGrowthand High Income Money
GrowthCare SecuritiesSecuritiesIncome Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund,
18,298 shares, cost $267,543 $330,467 - - - - - -
Global Health Care Securities Fund,
1,045 shares, cost $10,114 - 9,529 - - - - -
Global Utilities Securities Fund,
36,569 shares, cost $596,285 - - 815,112 - - - -
Growth and Income Fund,
49,737 shares, cost $778,793 - - - 1,092,230 - - -
High Income Fund,
25,933 shares, cost $347,106 - - - - 348,804 - -
Income Securities Fund,
52,278 shares, cost $801,305 - - - - - 900,225 -
Money Market Fund,
319,570 shares, cost $319,570 - - - - - - 319,570
- -------------------------------------------------------------------------------------------------------------------
Total assets 330,467 9,529 815,112 1,092,230 348,804 900,225 319,570
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 104 3 70 75 14 177 146
Accrued mortality and expense risk charges -
Valuemark IV 10 6 6 10 8 9 7
Accrued administrative charges - Valuemark II & III 12 1 9 9 2 21 18
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 127 11 86 95 25 208 172
Net assets $330,340 9,518 815,026 1,092,135 348,779 900,017 319,398
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $198,881 5,931 774,468 925,171 254,390 778,465 263,272
Contracts in accumulation period -
Valuemark IV (note 5) 127,025 3,587 37,843 158,744 93,780 115,787 54,028
Contracts in annuity payment period (note 2) 4,434 - 2,715 8,220 609 5,765 2,098
- -------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $330,340 9,518 815,026 1,092,135 348,779 900,017 319,398
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
TEMPLETON
MUTUAL MUTUAL NATURAL DEVELOPING
DISCOVERY SHARES RESOURCES REAL ESTATE RISING SMALL MARKETS
SECURITIESSECURITIESSECURITIES SECURITIES DIVIDENDS CAP EQUITY
FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund,
15,210 shares, cost $177,688 $192,402 - - - - - -
Mutual Shares Securities Fund,
34,068 shares, cost $393,926 - 466,736 - - - - -
Natural Resources Securities Fund,
4,323 shares, cost $49,132 - - 46,859 - - - -
Real Estate Securities Fund,
9,992 shares, cost $182,649 - - - 210,122 - - -
Rising Dividends Fund,
30,163 shares, cost $410,596 - - - - 561,631 - -
Small Cap Fund,
17,794 shares, cost $239,108 - - - - - 284,353 -
Templeton Developing Markets Equity Fund,
19,232 shares, cost $190,222 - - - - - - 180,590
- -------------------------------------------------------------------------------------------------------------------
Total assets 192,402 466,736 46,859 210,122 561,631 284,353 180,590
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 36 76 5 15 38 49 41
Accrued mortality and expense risk charges -
Valuemark IV 9 15 5 7 9 8 6
Accrued administrative charges - Valuemark II & III 4 9 1 2 5 6 5
Accrued administrative charges - Valuemark IV 1 2 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 50 102 12 25 53 64 53
Net assets $192,352 466,634 46,847 210,097 561,578 284,289 180,537
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $85,609 194,093 40,077 168,785 460,854 191,469 142,769
Contracts in accumulation period -
Valuemark IV (note 5) 102,951 266,625 6,769 40,551 96,117 89,107 36,887
Contracts in annuity payment period (note 2) 3,792 5,916 1 761 4,607 3,713 881
- -------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $192,352 466,634 46,847 210,097 561,578 284,289 180,537
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON TEMPLETONINTERNATIONALTEMPLETON U.S.
GLOBAL ASSET GLOBAL GLOBAL INCOMEINTERNATIONALSMALLER PACIFICGOVERNMENT
ALLOCATION GROWTH SECURITIES EQUITY COMPANIES GROWTH SECURITIES
FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
4,975 shares, cost $60,719 $66,261 - - - - - -
Templeton Global Growth Fund,
41,842 shares, cost $525,224 - 692,068 - - - - -
Templeton Global Income Securities Fund,
8,351 shares, cost $105,978 - - 101,882 - - - -
Templeton International Equity Fund,
44,698 shares, cost $624,510 - - - 772,834 - - -
Templeton International Smaller Companies Fund,
2,145 shares, cost $23,277 - - - - 23,106 - -
Templeton Pacific Growth Fund,
10,844 shares, cost $97,753 - - - - - 104,861 -
U.S. Government Securities Fund,
38,997 shares, cost $514,160 - - - - - - 534,650
- -------------------------------------------------------------------------------------------------------------------
Total assets 66,261 692,068 101,882 772,834 23,106 104,861 534,650
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 36 151 7 137 8 18 21
Accrued mortality and expense risk charges -
Valuemark IV 6 11 6 8 5 5 7
Accrued administrative charges - Valuemark II & III 4 18 1 16 1 2 2
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 47 181 15 162 15 26 31
Net assets $66,214 691,887 101,867 772,672 23,091 104,835 534,619
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $43,774 522,209 90,220 680,760 12,899 94,54 465,258
Contracts in accumulation period -
Valuemark IV (note 5) 20,711 162,323 11,575 89,264 9,619 9,881 68,975
Contracts in annuity payment period (note 2) 1,729 7,355 72 2,648 573 409 386
- -------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $66,214 691,887 101,867 772,672 23,091 104,835 534,619
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
VALUE ZERO ZERO ZERO TOTAL
SECURITIES COUPON COUPON COUPON ALL
FUND FUND - 2000FUND - 2005FUND - 2010 FUNDS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund,
1,299 shares, cost $10,343 $11,223 - - -
Zero Coupon Fund - 2000
4,433 shares, cost $62,601 - 66,311 - -
Zero Coupon Fund - 2005
3,931 shares, cost $60,655 - - 66,271 -
Zero Coupon Fund - 2010
4,187 shares, cost $70,837 - - - 72,724
- -------------------------------------------------------------------------------------------------------------------
Total assets 11,223 66,311 66,271 72,724 8,270,821
Liabilities:
Accrued mortality and expense risk charges - Valuemark II & III 14 6 7 7 1,261
Accrued mortality and expense risk charges - Valuemark IV 5 5 5 6 184
Accrued administrative charges - Valuemark II & III 2 1 1 1 153
Accrued administrative charges - Valuemark IV 1 1 1 1 26
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 22 13 14 15 1,624
Net assets $11,201 66,298 66,257 72,709 8,269,197
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III (note 5) $6,788 61,816 54,026 55,130 6,571,659
Contracts in accumulation period - Valuemark IV (note 5) 4,026 4,470 12,231 17,570 1,640,446
- -------------------------------------------------------------------------------------------------------------------
Contracts in annuity payment period (note 2) 387 12 - 9 57,092
Total contract owners' equity $11,201 $66,298 66,257 72,709 8,269,197
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
CAPITALGLOBAL HEALTHGLOBALUTILITIEGROWTH AND HIG INCOME MONEY
GROWTHCARE SECURITIESSECURITIESINCOME INCOME SECURITIES MARKET
FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - - - - - - 7,942
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges-Valuemark II & III 1,182 38 4,977 5,871 1,824 5,890 1,875
Mortality and expense risk charges - Valuemark IV 679 19 215 965 623 731 404
Administrative charges - Valuemark II & III 142 5 597 705 219 707 225
Administrative charges - Valuemark IV 76 2 24 108 70 82 45
- -------------------------------------------------------------------------------------------------------------------
Total expenses 2,079 64 5,813 7,649 2,736 7,410 2,549
Investment income (loss), net (2,079) (64) (5,813) (7,649) (2,736) (7,410) 5,393
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - - - - - -
Realized gains (losses) on sales of investments,net5,694 (158) 34,911 52,844 1,103 20,605 -
Realized gains (losses) on investments, net 5,694 (158) 34,911 52,844 1,103 20,605 -
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 28,299 (1,393) 33,786 29,574 4,684 (6,401) -
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 33,993 (1,551) 68,697 82,418 5,787 14,204 -
Net increase (decrease) in net assets from operations$31,914 (1,615) 62,884 74,769 3,051 6,794 5,393
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
TEMPLETON
MUTUAL MUTUAL NATURAL DEVELOPING
DISCOVERY SHARES RESOURCES REAL ESTATE RISING SMALL MARKETS
SECURITIESSECURITIESSECURITIES SECURITIES DIVIDENDS CAP EQUITY
FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III579 1,257 233 1,174 3,066 1,218 821
Mortality and expense risk charges - Valuemark IV 660 1,646 42 268 601 538 207
Administrative charges - Valuemark II & III 69 151 28 141 368 146 99
Administrative charges - Valuemark IV 74 184 5 30 67 60 23
- -------------------------------------------------------------------------------------------------------------------
Total expenses 1,382 3,238 308 1,613 4,102 1,962 1,150
Investment income (loss), net (1,382) (3,238) (308) (1,613) (4,102) (1,962) (1,150)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - - - - - -
Realized gains (losses) on sales of investments, net(344) 5,515 (7,696) 5,771 32,761 3,018 (11,180)
Realized gains (losses) on investments, net (344) 5,515 (7,696) 5,771 32,761 3,018 (11,180)
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 22,005 55,411 18,994 5,144 (23,242) 37,728 61,079
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 21,661 60,926 11,298 10,915 9,519 40,746 49,899
Net increase (decrease) in net assets from operations$20,279 57,688 10,990 9,302 5,417 38,784 48,749
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON TEMPLETONINTERNATIONALTEMPLETON U.S.
GLOBAL ASSET GLOBAL GLOBAL INCOMEINTERNATIONALSMALLER PACIFICGOVERNMENT
ALLOCATION GROWTH SECURITIES EQUITY COMPANIES GROWTH SECURITIES
FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares - - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III 301 3,306 673 4,560 79 525 3,274
Mortality and expense risk charges - Valuemark IV 131 993 78 555 60 43 428
Administrative charges - Valuemark II & III 36 397 81 547 10 63 393
Administrative charges - Valuemark IV 15 111 9 62 7 5 48
- -------------------------------------------------------------------------------------------------------------------
Total expenses 483 4,807 841 5,724 156 636 4,143
Investment income (loss), net (483) (4,807) (841) (5,724) (156) (636) (4,143)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - - - -
Realized gains (losses) on sales
of investments, net 568 18,729 (413) 33,404 (824) (12,060) 5,670
- -------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net 568 18,729 (413) 33,404 (824) (12,060) 5,670
Net change in unrealized appreciation
(depreciation) on investments 2,560 57,331 (5,989) 52,223 4,216 36,168 (12,964)
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 3,128 76,060 (6,402) 85,627 3,392 24,108 (7,294)
Net increase (decrease) in net
assets from operations $2,645 71,253 (7,243) 79,903 3,236 23,472 (11,437)
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
VALUE ZERO ZERO ZERO TOTAL
SECURITIES COUPON COUPON COUPON ALL
FUND FUND - 2000FUND - 2005FUND - 2010 FUNDS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Dividends reinvested in fund shares - - - - 7,942
Expenses:
Mortality and expense risk charges - Valuemark II & III 35 420 372 399 43,949
Mortality and expense risk charges - Valuemark IV 23 30 74 99 10,112
Administrative charges - Valuemark II & III 4 50 45 48 5,276
Administrative charges - Valuemark IV 3 3 8 11 1,132
- -------------------------------------------------------------------------------------------------------------------
Total expenses 65 503 499 557 60,469
Investment income (loss), net (65) (503) (499) (557) (52,527)
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions
on mutual funds - - - - -
Realized gains (losses) on sales
of investments, net (429) 745 1,205 1,533 190,972
- -------------------------------------------------------------------------------------------------------------------
Realized gains (losses)
on investments, net (429) 745 1,205 1,533 190,972
Net change in unrealized appreciation
(depreciation) on investments 1,288 (27) (4,828) (8,850) 386,796
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net 859 718 (3,623) (7,317) 577,768
Net increase (decrease) in net
assets from operations $794 215 (4,122) (7,874) 525,241
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED JUNE 30, 1999
(UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
GLOBAL HEALTH GLOBAL UTILITIES GROWTH AND
CAPITAL GROWTH FUND CARE SECURITIES FUND SECURITIES FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($2,079) (1,497) (64) (42) (5,813) 25,465 (7,649) 22,488
Realized gains (losses) on investments,net 5,694 3,101 (158) (205) 34,911 99,245 52,844 128,386
Net change in unrealized appreciation
(depreciation) on investments 28,299 24,031 (1,393) 808 33,786 (40,032) 29,574 (73,442)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 31,914 25,635 (1,615) 561 62,884 84,678 74,769 77,432
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,966 3,713 62 194 1,994 7,461 4,332 16,130
Transfers between funds 96,707 55,930 2,344 5,818 (19,203) (39,931) (213) 20,093
Surrenders and terminations (49,866) (17,886) (1,545) (190) (141,580)(198,959) (203,375)(195,983)
Rescissions (214) (8) - - (217) (241) (457) (276)
Other transactions (note 2) 67 (19) (2) (1) 333 155 457 356
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III 48,660 41,730 859 5,821 (158,673)(231,515) (199,256)(159,680)
- -------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 5):
Purchase payments 6,946 21,127 354 1,428 2,440 12,583 7,320 51,280
Transfers between funds 45,442 17,665 1,452 1,051 6,379 6,950 15,392 25,926
Surrenders and terminations (7,218) (2,192) (126) (7) (2,091) (1,068) (9,038) (5,388)
Rescissions (49) (556) (1) (258) (7) (88) (118) (943)
Other transactions (note 2) 167 1 (1) - 3 5 6 46
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 45,288 36,045 1,678 2,214 6,724 18,382 13,562 70,921
Increase (decrease) in net assets 125,862 103,410 922 8,596 (89,065)(128,455) (110,925)(11,327)
Net assets at beginning of period 204,478 101,068 8,596 - 904,0911,032,546 1,203,0601,214,387
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $330,340 204,478 9,518 8,596 815,026 904,091 1,092,1351,203,060
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31,
1998 (IN THOUSANDS)
MUTUAL DISCOVERY
HIGH INCOME FUND INCOME SECURITIES FUND MONEY MARKET FUND SECURITIES FUND
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($2,736) 33,766 (7,410) 77,877 5,393 12,915 (1,382) (64)
Realized gains (losses) on investments, net1,103 4,702 20, 48,389 - - (344) 1,768
Net change in unrealized appreciation
(depreciation) on investments 4,684 (38,630) (6,401)(126,374) - - 22,005 (23,026)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 3,051 (162) 6,794 (108) 5,393 12,915 20,279 (21,322)
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,057 4,834 2,561 13,275 4,355 11,342 432 6,337
Transfers between funds (7,718) (19,142) (39,592)(51,375) 101,625 207,647 (8,752) 18,856
Surrenders and terminations (59,184) (71,048) (180,628)(219,332) (166,859)(204,171) (24,768)(22,824)
Rescissions (123) (154) (210) (278) (165) (341) (36) (132)
Other transactions (note 2) 36 455 562 411 2,885 824 110 5
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (65,932) (85,055) (217,307)(257,299) (58,159) 15,301 (33,014) 2,242
Contract transactions - Valuemark IV (note 5):
Purchase payments 6,088 39,346 7,760 42,572 7,415 44,229 2,364 35,649
Transfers between funds 5,516 8,234 6,397 14,799 (4,821) (20,238) (2,443) 12,085
Surrenders and terminations (5,733) (4,106) (5,239) (3,538) (11,583) (6,316) (6,172) (3,935)
Rescissions (888) (1,327) (32) (530) (29) (1,952) (112) (577)
Other transactions (note 2) 201 50 47 (5) 247 199 21 59
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 5,184 42,197 8,933 53,298 (8,771) 15,922 (6,342) 43,281
Increase (decrease) in net assets (57,697) (43,020) (201,580)(204,109) (61,537) 44,138 (19,077) 24,201
Net assets at beginning of period 406,476 449,496 1,101,5971,305,706 380,935 336,797 211,429 187,228
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $348,779 406,476 900,0171,101,597 319,398 380,935 192,352 211,429
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31,
1998 (IN THOUSANDS)
MUTUAL SHARES NATURAL RESOURCES
SECURITIES FUND SECURITIES FUNDREAL ESTATE SECURITIES FUNDRISING DIVIDENDS FUND
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($3,238) (1,566) (308) 75 (1,613) 9,568 (4,102) (2,149)
Realized gains (losses) on investments,net5,515 4,339 (7,696) (13,600) 5,771 25,702 32,761 134,667
Net change in unrealized appreciation
(depreciation) on investments 55,411 (15,031) 18,994 (3,804) 5,144 (105,327) (23,242)(101,514)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 57,688 (12,258) 10,990 (17,329) 9,302 (70,057) 5,417 31,004
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,150 11,748 208 899 420 4,373 1,852 10,801
Transfers between funds 88 28,224 (2,156) (5,230) (18,963) (48,548) (19,174) 17,226
Surrenders and terminations (46,835) (42,653) (5,217) (7,877) (42,996) (49,929) (110,968)(135,412)
Rescissions (203) (194) (32) (49) (39) (148) (148) (207)
Other transactions (note 2) 175 59 (1) 15 38 161 (2) 239
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (45,625) (2,816) (7,198)(12,242) (61,540) (94,091) (128,440)(107,353)
Contract transactions - Valuemark IV (note 5):
Purchase payments 7,246 85,482 249 1,717 1,003 16,008 4,583 36,972
Transfers between funds 6,629 28,604 891 841 (1,831) 1,947 2,736 17,333
Surrenders and terminations (13,439) (8,498) (294) (188) (2,136) (1,625) (6,119) (3,213)
Rescissions (105) (1,549) (1) (52) (7) (202) (109) (691)
Other transactions (note 2) 190 92 (1) (15) 19 13 111 3
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 521 104,131 844 2,303 (2,952) 16,141 1,202 50,404
Increase (decrease) in net assets 12,584 89,057 4,636 (27,268) (55,190)(148,007) (121,821)(25,945)
Net assets at beginning of period 454,050 364,993 42,211 69,479 265,287 413,294 683,399 709,344
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $466,634 454,050 46,847 42,211 210,097 265,287 561,578 683,399
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31,
1998 (IN THOUSANDS)
TEMPLETON DEVELOPING TEMPLETON GLOBAL TEMPLETON
SMALL CAP FUND MARKETS EQUITY FUNDASSET ALLOCATION FUNDGLOBAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,962) (4,034) (1,150) 3,912 (483) 1,887 (4,807) 8,781
Realized gains (losses) on investments,net3,018 24,392 (11,180) (8,736) 568 4,396 18,729 82,495
Net change in unrealized appreciation
(depreciation) on investments 37,728 (31,057) 61,079 (51,993) 2,560 (8,198) 57,331 (44,136)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 38,784 (10,699) 48,749 (56,817) 2,645 (1,915) 71,253 47,140
Contract transactions - Valuemark II & III (note 5):
Purchase payments 921 6,424 665 4,084 369 1,787 1,954 10,586
Transfers between funds (9,882) 4,845 (5,128)(39,497) (4,719) (8,074) (15,602)(41,415)
Surrenders and terminations (42,697) (36,786) (19,885)(26,039) (8,858) (8,859) (77,074)(79,015)
Rescissions (45) (186) (33) (68) (16) (7) (83) (300)
Other transactions (note 2) 182 (15) 115 (56) 31 30 290 78
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (51,521) (25,718) (24,266)(61,576) (13,193) (15,123) (90,515)(110,066)
Contract transactions - Valuemark IV (note 5):
Purchase payments 2,401 26,375 1,327 9,390 1,488 6,881 8,037 47,491
Transfers between funds (757) 13,910 95 (1,057) (746) 525 3,688 11,653
Surrenders and terminations (4,391) (2,749) (1,156) (1,050) (1,060) (519) (8,981) (4,558)
Rescissions (53) (368) (6) (129) (1) (14) (115) (653)
Other transactions (note 2) 46 32 6 (13) 21 11 12 (12)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV (2,754) 37,200 266 7,141 (298) 6,884 2,641 53,921
Increase (decrease) in net assets (15,491) 783 24,749(111,252) (10,846) (10,154) (16,621) (9,005)
Net assets at beginning of period 299,780 298,997 155,788 267,040 77,060 87,214 708,508 717,513
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $284,289 299,780 180,537 155,788 66,214 77,060 691,887 708,508
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31,
1998 (IN THOUSANDS)
TEMPLETON GLOBAL TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
INCOME SECURITIES FUNDINTERNATIONAL EQUITY FUNDSMALLER COMPANIES FUNDPACIFIC GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($841) 9,058 (5,724) 18,022 (156) 290 (636) 3,442
Realized gains (losses) on investments,net(413) 263 33,404 112,100 (824) (547) (12,060)(66,038)
Net change in unrealized appreciation
(depreciation) on investments (5,989) (1,320) 52,223 (88,725) 4,216 (3,830) 36,168 39,890
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (7,243) 8,001 79,903 41,397 3,236 (4,087) 23,472 (22,706)
Contract transactions - Valuemark II & III (note 5):
Purchase payments 253 983 1,590 8,884 45 865 414 1,634
Transfers between funds (5,153) (13,288) (43,951)(92,026) (1,402) (3,005) 3,258 (21,917)
Surrenders and terminations (23,260) (30,382) (163,833)(171,313) (1,933) (2,234) (16,844)(20,611)
Rescissions (43) (42) (1,041) (404) (2) (24) (32) (54)
Other transactions (note 2) 47 154 830 252 37 10 16 48
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (28,156) (42,575) (206,405)(254,607) (3,255) (4,388) (13,188)(40,900)
Contract transactions - Valuemark IV (note 5):
Purchase payments 801 3,461 2,088 21,502 269 2,980 275 2,042
Transfers between funds 683 1,385 1,633 6,064 (583) (467) 2,906 282
Surrenders and terminations (773) (377) (4,050) (2,654) (454) (365) (447) (205)
Rescissions (4) (12) (20) (95) (3) (85) (3) (42)
Other transactions (note 2) 5 2 33 45 5 (15) 22 (1)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 712 4,459 (316) 24,862 (766) 2,048 2,753 2,076
Increase (decrease) in net assets (34,687) (30,115) (126,818)(188,348) (785) (6,427) 13,037 (61,530)
Net assets at beginning of period 136,554 166,669 899,4901,087,838 23,876 30,303 91,798 153,328
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $101,867 136,554 772,672 899,490 23,091 23,876 104,835 91,798
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31,
1998 (IN THOUSANDS)
U.S. GOVERNMENT VALUE ZERO COUPON ZERO COUPON
SECURITIES FUND SECURITIES FUND FUND - 2000 FUND - 2005
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($4,143) 36,201 (65) (47) (503) 5,241 (499) 3,261
Realized gains (losses) on investments, net5,670 8,286 (429) (74) 745 2,396 1,205 2,485
Net change in unrealized appreciation
(depreciation) on investments (12,964) (7,222) 1,288 (407) (27) (2,765) (4,828) 1,608
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (11,437) 37,265 794 (528) 215 4,872 (4,122) 7,354
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,678 5,708 170 190 154 498 104 759
Transfers between funds (5,626) 12,261 2,303 6,072 (829) (4,978) (130) 3,490
Surrenders and terminations (99,787)(126,296) (1,642) (129) (12,038) (14,347) (8,318)(10,720)
Rescissions (939) (188) - - (4) (4) (15) (11)
Other transactions (note 2) 122 860 (1) (1) (10) 165 (9) 105
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (104,552)(107,655) 830 6,132 (12,727) (18,666) (8,368) (6,377)
Contract transactions - Valuemark IV (note 5):
Purchase payments 6,840 20,857 392 916 305 864 1,458 3,307
Transfers between funds 9,851 12,943 619 2,211 541 1,107 2,564 2,192
Surrenders and terminations (3,712) (2,139) (106) (62) (199) (68) (562) (284)
Rescissions (111) (701) - (4) (8) (23) (81) (68)
Other transactions (note 2) 136 4 7 - 3 (6) 90 (4)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 13,004 30,964 912 3,061 642 1,874 3,469 5,143
IIncrease (decrease) in net assets (102,985) (39,426) 2,536 8,665 (11,870) (11,920) (9,021) 6,120
Net assets at beginning of period 637,604 677,030 8,665 - 78,168 90,088 75,278 69,158
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $534,619 637,604 11,201 8,665 66,298 78,168 66,257 75,278
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31,
1998 (IN THOUSANDS)
ZERO COUPON FUND - 2010 TOTAL ALL FUNDS
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($557) 3,294 (52,527) 266,144
Realized gains (losses) on investments, net 1,533 5,443 190,972 603,355
Net change in unrealized appreciation
(depreciation) on investments (8,850) 769 386,796 (699,727)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (7,874) 9,506 525,241 169,772
Contract transactions - Valuemark II & III (note 5):
Purchase payments 141 682 28,847 134,191
Transfers between funds 801 4,057 (1,067) (3,907)
Surrenders and terminations (11,579) (15,533) (1,521,569)(1,708,528)
Rescissions (6) (2) (4,103) (3,318)
Other transactions (note 2) 103 49 6,411 4,339
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (10,540) (10,747) (1,491,481)(1,577,223)
Contract transactions - Valuemark IV (note 5):
Purchase payments 2,291 5,944 81,740 540,403
Transfers between funds 4,265 3,245 106,498 169,190
Surrenders and terminations (783) (458) (95,862) (55,562)
Rescissions (11) (20) (1,874) (10,939)
Other transactions (note 2) 4 (2) 1,400 489
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 5,766 8,709 91,902 643,581
Increase (decrease) in net assets (12,648) 7,468 (874,338)(763,870)
Net assets at beginning of period 85,357 77,889 9,143,535 9,907,405
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $72,709 85,357 8,269,197 9,143,535
- -------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
June 30, 1999 (unaudited)
1. ORGANIZATION
Allianz Life Variable Account B (Variable Account) is a segregated investment
account of Allianz Life Insurance Company of North America (Allianz Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established on May 31, 1985 and commenced
operations January 24, 1989. Accordingly, it is an accounting entity wherein all
segregated account transactions are reflected.
The Variable Account's assets are the property of Allianz Life and are held for
the benefit of the owners and other persons entitled to payments under variable
annuity contracts issued through the Variable Account and underwritten by
Allianz Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Allianz Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates, in accordance with the
selection made by the contract owner. Not all funds are available as investment
options for the products which comprise the Variable Account.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or
Allianz Life.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENTS
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include realized gain distributions received from the
respective funds and gains on the sale of fund shares as determined by the
average cost method. Realized gain distributions are reinvested in the
respective funds. Dividend distributions received from the FVF are reinvested in
additional shares of the FVF and are recorded as income to the Variable Account
on the ex-dividend date.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general assets of Allianz Life. The
liabilities of the Fixed Accounts are part of the general obligations of Allianz
Life and are not included in the Variable Account. The guaranteed minimum rate
of return on the Fixed Accounts is 3%.
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on May 1, 1998. The Utility Equity Fund name was
changed to Global Utilities Securities Fund on May 1, 1998.
CONTRACTS IN ANNUITY PAYMENT PERIOD
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3% or 5%. Charges to
annuity reserves for mortality and risk expense are reimbursed to Allianz Life
if the reserves required are less than originally estimated. If additional
reserves are required, Allianz Life reimburses the account.
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPENSES
ASSET BASED EXPENSES
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and Valuemark III and 1.34% of the daily net assets of
Valuemark IV.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of all products
which comprise the Variable Account
CONTRACT BASED EXPENSES
A contract maintenance charge is paid by the contract owner annually from each
deferred annuity contract by liquidating contract units at the end of the
contract year and at the time of full surrender. The amount of the charge is $30
each year. Contract maintenance charges paid by the contract owners during the
period ended June 30, 1999 (unaudited) and the year ended December 31, 1998 were
$2,547,306 and $4,716,335, respectively. These contract charges are reflected in
the Statements of Changes in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
and Valuemark III contracts and within seven years of the date of surrender for
Valuemark IV contracts. For this purpose, purchase payments are allocated on a
first-in, first-out basis. The amount of the contingent deferred sales charge is
calculated by: (a) allocating purchase payments to the amount surrendered; and
(b) multiplying each allocated purchase payment that has been held under the
contract for the period shown below by the charge shown below:
Years Since Contingent Deferred Sales Charge
Payment Valuemark IIValuemark IIIValuemark IV
0-1 5% 6% 6%
1-2 5% 5% 6%
2-3 4% 4% 6%
3-4 3% 3% 5%
4-5 1.5% 1.5% 4%
5-6 0% 0% 3%
6-7 0% 0% 2%
7+ 0% 0% 0%
and (c) adding the products of each multiplication in (b) above.
A Valuemark II or Valuemark III deferred annuity contract owner may, not more
frequently than once annually on a cumulative basis, make a surrender each
contract year of fifteen percent (15%) of purchase payments paid, less any prior
surrenders, without incurring a contingent deferred sales charge. A Valuemark IV
deferred annuity contract owner may make multiple surrenders, each year after
the first contract year, up to fifteen percent (15%) of the contract value
without incurring a contingent deferred sales charge. For a partial surrender,
the contingent deferred sales charge will be deducted from the remaining
contract value, if sufficient; otherwise it will be deducted from the amount
surrendered. Total contingent deferred sales charges paid by the contract owners
for the period ended June 30, 1999 (unaudited) and the year ended December 31,
1998 were $9,698,970 and $8,535,795, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges paid by the contract owners for the period ended June 30,
1999 (unaudited) and the year ended December 31, 1998 were $85,769 and $159,282,
respectively. Transfer charges are reflected in the Statements of Changes in Net
Assets as other transactions. Net transfers from the Fixed Accounts for the
period ended June 30, 1999 (unaudited) and the year ended December 31, 1998 were
$105,431,072 and $165,283,144, respectively.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONTRACT BASED EXPENSES (CONTINUED)
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Allianz Life may, in its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Allianz Life
may have to deduct such amounts at a later date.
On Valuemark II and Valuemark III deferred annuity contracts, a systematic
withdrawal plan is available which allows an owner to withdraw up to nine
percent (9%) of purchase payments less prior surrenders annually, paid monthly
or quarterly, without incurring a contingent deferred sales charge. The
systematic withdrawal plan available to Valuemark IV deferred annuity contract
owners allows up to fifteen percent (15%) of the contract value withdrawn
annually, paid monthly or quarterly, without incurring a contingent deferred
sales charge. The exercise of the systematic withdrawal plan in any contract
year replaces the 15% penalty free privilege for that year for all deferred
annuity contracts.
A rescission is defined as a contract that is returned to the Company by the
Contract Owner and canceled within the free-look period, generally within 10
days.
3. CAPITALIZATION
Allianz Life provides capital for the establishment of new funds as investment
options of the Variable Account. There were no capitalization transactions
during the period ended June 30, 1999 (unaudited). The capitalization
transactions were as follows during the year ended December 31, 1998: <TABLE>
<CAPTION>
Capitalization Date of Market Value Date of
Fund Amount Capitalization at Withdrawal Withdrawal
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Health Care Securities Fund $ 250,000 5/1/98 $253,250 12/1/98
Value Securities Fund $ 250,000 5/1/98 $192,000 12/1/98
</TABLE>
4. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Allianz Life, which is taxed as a life insurance company under the
Internal Revenue Code.
Allianz Life does not expect to incur any federal income taxes in the operation
of the Variable Account. If, in the future, Allianz Life determines that the
Variable Account may incur federal income taxes, it may then assess a charge
against the Variable Account for such taxes.
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS)
Transactions in units for each fund for the period ended June 30, 1999
(unaudited) and the year ended December 31,1998 were as follows:
GLOBAL GLOBAL MUTUAL MUTUAL
CAPITALHEALTH CAREUTILITIESGROWTH ANDHIGH INCOME MONEY DISCOVERY SHARES
GROWTHSECURITIESSECURITIESINCOME INCOMESECURITIES MARKET SECURITIESSECURITIES
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II & III
Accumulation units outstanding at
December 31, 1997 5,673 - 39,623 46,962 18,871 49,811 20,982 9,940 18,744
Contract transactions:
Purchase payments 160 20 241 538 223 459 566 402 795
Transfers between funds 3,882 586 (1,529) 699 (811) (2,088) 14,858 1,284 2,150
Surrenders and terminations (1,258) (20) (7,481) (7,722) (3,310) (8,767)(14,408) (1,897) (3,544)
Rescissions (1) - (9) (11) (7) (11) (24) (11) (16)
Other transactions (2) - 6 14 21 16 58 - 4
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,781 586 (8,772) (6,482) (3,884)(10,391) 1,050 (222) (611)
Accumulation units outstanding at
December 31, 1998 8,454 586 30,851 40,480 14,987 39,420 22,032 9,718 18,133
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 91 7 61 112 49 79 123 35 81
Transfers between funds 5,969 235 (681) 12 (346) (1,603) 7,164 (799) (64)
Surrenders and terminations (3,056) (166) (4,973) (7,672) (2,761) (7,251)(11,478) (2,107) (3,732)
Rescissions (13) - (8) (17) (6) (8) (11) (3) (17)
Other transactions 4 - 12 18 2 23 198 9 14
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,995 76 (5,589) (7,547) (3,062) (8,760) (4,004) (2,865) (3,718)
Accumulation units outstanding at
June 30,1999 (unaudited) 11,449 662 25,262 32,933 11,925 30,660 18,028 6,853 14,415
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL GLOBAL MUTUAL MUTUAL
CAPITALHEALTH CAREUTILITIESGROWTH ANDHIGH INCOME MONEY DISCOVERY SHARES
GROWTHSECURITIESSECURITIESINCOME INCOMESECURITIES MARKET SECURITIESSECURITIES
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK IV
Accumulation units outstanding at
December 31, 1997 1,957 - 310 2,376 2,202 2,094 3,214 5,461 11,394
Contract transactions:
Purchase payments 1,503 147 477 2,027 1,834 1,710 3,217 2,832 6,911
Transfers between funds 1,238 106 262 1,031 409 599 (1,515) 907 2,362
Surrenders and terminations (156) (1) (40) (214) (195) (143) (448) (338) (718)
Rescissions (40) (28) (3) (37) (61) (21) (140) (45) (123)
Other transactions - - - 2 2 - 14 5 8
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,545 224 696 2,809 1,989 2,145 1,128 3,361 8,440
Accumulation units outstanding at
December 31, 1998 4,502 224 1,006 5,185 4,191 4,239 4,342 8,822 19,834
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 431 38 87 282 287 317 516 204 580
Transfers between funds 2,841 151 226 586 263 259 (333) (224) 502
Surrenders and terminations (448) (14) (74) (344) (270) (212) (806) (531) (1,075)
Rescissions (3) - - (5) (42) (1) (2) (10) (8)
Other transactions 10 - - - 10 2 17 2 15
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,831 175 239 519 248 365 (608) (559) 14
Accumulation units outstanding at
June 30,1999 (unaudited) 7,333 399 1,245 5,704 4,439 4,604 3,734 8,263 19,848
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
NATURAL TEMPLETONTEMPLETONTEMPLETONTEMPLETONTEMPLETON
RESOURCESREAL ESTATERISING SMALL DEVELOPINGGLOBAL ASSET GLOBALGLOBAL INCOMEINTERNATIONAL
SECURITIESSECURITIESDIVIDENDS CAPMARKETS EQUITYALLOCATION GROWTH SECURITIES EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II & III
Accumulation units outstanding at
December 31, 1997 5,709 13,445 33,249 16,925 23,005 5,229 41,433 9,434 58,179
Contract transactions:
Purchase payments 86 147 415 348 429 69 569 57 449
Transfers between funds (562) (1,976) 670 173 (4,481) (598) (2,789) (773) (5,188)
Surrenders and terminations (777) (1,978) (6,653) (2,575) (2,951) (646) (4,973) (1,749) (9,177)
Rescissions (5) (6) (10) (13) (7) - (19) (2) (21)
Other transactions 2 7 12 (2) (6) 2 5 9 14
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions(1,256) (3,806) (5,566) (2,069) (7,016) (1,173) (7,207) (2,458) (13,923)
Accumulation units outstanding at
December 31, 1998 4,453 9,639 27,683 14,856 15,989 4,056 34,226 6,976 44,256
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 23 17 70 56 71 14 91 14 78
Transfers between funds (241) (838) (945) (752) (648) (356) (1,003) (299) (2,347)
Surrenders and terminations (560) (1,847) (5,477) (2,829) (2,186) (629) (4,533) (1,339) (8,599)
Rescissions (3) (2) (7) (3) (3) (1) (5) (3) (55)
Other transactions 0 2 0 12 12 2 17 3 42
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (781) (2,668) (6,359) (3,516) (2,754) (970) (5,433) (1,624) (10,881)
Accumulation units outstanding at
June 30,1999 (unaudited) 3,672 6,971 21,324 11,340 13,235 3,086 28,793 5,352 33,375
- -------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding at
December 31, 1997 304 1,217 1,991 2,965 2,663 1,008 5,525 393 3,122
Contract transactions:
Purchase payments 162 604 1,788 1,762 1,055 487 2,951 202 1,143
Transfers between funds 73 75 843 988 (154) 34 720 79 307
Surrenders and terminations (19) (66) (159) (199) (121) (38) (290) (22) (143)
Rescissions (5) (8) (35) (27) (16) (1) (41) (1) (5)
Other transactions (1) 1 - 3 (2) 1 (1) - 3
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 210 606 2,437 2,527 762 483 3,339 258 1,305
Accumulation units outstanding at
December 31, 1997 514 1,823 4,428 5,492 3,425 1,491 8,864 651 4,427
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 26 43 229 159 146 109 475 46 109
Transfers between funds 118 (84) 127 (65) (10) (58) 199 39 80
Surrenders and terminations (31) (93) (307) (293) (125) (79) (540) (45) (212)
Rescissions - - (6) (4) (1) - (7) - (1)
Other transactions - 1 5 3 1 2 1 - 2
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 113 (133) 48 (200) 11 (26) 128 40 (22)
Accumulation units outstanding at
June 30,1999 (unaudited) 627 1,690 4,476 5,292 3,436 1,465 8,992 691 4,405
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED)
TEMPLETON
INTERNATIONALTEMPLETONU.S. ZERO ZERO ZERO
SMALLER PACIFICGOVERNMENT VALUE COUPON COUPON COUPON TOTAL
COMPANIES GROWTH SECURITIESSECURITIESFUND - FUND - FUND - ALL
FUND FUND FUND FUND 2000 2005 2010 FUNDS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VALUEMARK II & III
Accumulation units outstanding at
December 31, 1997 1,998 15,833 36,347 - 4,523 2,910 2,998 481,823
Contract transactions:
Purchase payments 35 204 310 17 25 32 26 6,622
Transfers between funds (288) (2,708) 617 718 (249) 140 138 1,875
Surrenders and terminations (211) (2,662) (6,810) (16) (712) (451) (582) (91,330)
Rescissions (2) (7) (10) - - - - (192)
Other transactions 1 9 46 - 8 4 2 230
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (465) (5,164) (5,847) 719 (928) (275) (416) (82,795)
Accumulation units outstanding at December 31, 1998 1,533 10,669 30,500 719 3,595 2,635 2,582 399,028
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 3 46 89 4 7 4 5 1,230
Transfers between funds (155) 371 (299) 294 (40) (4) 27 2,652
Surrenders and terminations (199) (1,933) (5,282) (218) (582) (344) (438) (80,191)
Rescissions - (4) (50) - - (1) - (220)
Other transactions 4 2 6 - - - 4 386
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (347) (1,518) (5,536) 80 (615) (345) (402) (76,143)
Accumulation units outstanding at
June 30,1999 (unaudited) 1,186 9,151 24,964 799 2,980 2,290 2,180 322,885
- -------------------------------------------------------------------------------------------------------------------
VALUEMARK IV
Accumulation units outstanding at December 31, 1996 792 379 1,359 - 94 161 150 51,131
Contract transactions:
Purchase payments 271 256 1,142 109 43 142 226 33,001
Transfers between funds (52) 53 693 267 55 92 120 9,592
Surrenders and terminations (34) (28) (116) (8) (3) (12) (17) (3,528)
Rescissions (8) (5) (38) (1) (1) (3) (1) (694)
Other transactions (2) - - - - - - 33
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 175 276 1,681 367 94 219 328 38,404
Accumulation units outstanding at December 31, 1998 967 655 3,040 367 188 380 4788 9,535
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 28 31 365 51 15 61 87 4,722
Transfers between funds (63) 320 526 69 26 106 167 5,768
Surrenders and terminations (46) (47) (198) (14) (10) (24) (30) (5,868)
Rescissions - - (6) - - (3) - (99)
Other transactions 1 2 7 1 - 4 - 86
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (80) 306 694 107 31 144 224 4,609
Accumulation units outstanding at
June 30,1999 (unaudited) 887 961 3,734 474 219 524 702 94,144
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
6. UNIT VALUES
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for the six-month period ended June 30, 1999 (unaudited) and
each of the five years in the period ended December 31, 1998 follows.
VALUEMARK II & III VALUEMARK IV
- -------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE
(IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS* (IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH FUND
June 30, 1999 (unaudited)11,449 $17.371 $198,881 2.17% 7,333 $17.321 $127,025 2.26%
December 31,
1998 8,454 15.574 131,652 2.17 4,502 15.537 69,939 2.26
1997 5,673 13.130 74,473 2.17 1,967 13.110 25,654 2.26
19961 3,722 11.254 42,110 2.17+ - - - -
GLOBAL HEALTH CARE SECURITIES FUND
June 30, 1999 (unaudited) 662 8.973 5,931 2.21 399 8.963 3,587 2.30
December 31,
19982 586 10.610 6,215 2.24+ 224 11 2,381 2.33+
GLOBAL UTILITIES SECURITIES FUND
June 30, 1999 (unaudited)25,262 30.656 774,468 1.91 1,245 30.398 37,843 2.00
December 31,
1998 30,851 28.308 873,319 1.90 1,006 28.082 28,248 1.99
1997 39,623 25.818 1,022,994 1.90 310 25.635 7,959 1.99
1996 53,086 20.654 1,097,873 1.90 - - - -
1995 66,669 19.565 1,305,495 1.90 - - - -
1994 70,082 15.104 1,058,531 1.92 - - - -
GROWTH AND INCOME FUND
June 30, 1999 (unaudited)32,933 28.092 925,171 1.89 5,704 27.829 158,744 1.98
December 31,
1998 40,480 26.226 1,061,658 1.89 5,185 25.993 134,775 1.98
1997 46,962 24.551 1,152,961 1.89 2,376 24.354 57,877 1.98
1996 50,027 19.490 977,110 1.90 - - - -
1995 46,893 17.310 812,732 1.92 - - - -
1994 35,695 13.215 471,773 1.94 - - - -
HIGH INCOME FUND
June 30, 1999 (unaudited)11,925 21.331 254,390 1.95 4,439 21.132 93,780 2.04
December 31,
1998 14,987 21.208 317,865 1.93 4,191 21.020 88,069 2.02
1997 18,871 21.312 402,167 1.93 2,202 21.141 46,545 2.02
1996 20,736 19.375 402,379 1.94 - - - -
1995 18,756 17.252 323,580 1.96 - - - -
1994 15,679 14.608 229,026 2.00 - - - -
INCOME SECURITIES FUND
June 30, 1999 (unaudited)30,660 25.390 778,465 1.92 4,604 25.153 115,787 2.01
December 31,
1998 39,420 25.122 990,325 1.89 4,239 24.898 105,543 1.98
1997 49,811 25.065 1,248,520 1.90 2,094 24.864 52,069 1.99
1996 57,504 21.708 1,251,844 1.90 - - - -
1995 59,309 19.785 1,175,143 1.91 - - - -
1994 56,569 16.392 927,343 1.94 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
6. UNIT VALUES (CONTINUED)
VALUEMARK II & III VALUEMARK IV
- -------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE
(IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS* (IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
June 30, 1999 (unaudited)18,028 $14.604 263,272 1.92% 3,734 $14.470 $54,028 2.01%
December 31,
1998 22,032 14.386 316,921 1.85 4,342 14.260 61,911 1.94
1997 20,892 13.865 290,904 1.85 3,214 13.756 44,200 1.94
1996 28,060 13.359 375,629 1.83 - - - -
1995 31,040 12.883 399,935 1.80 - - - -
1994 39,437 12.354 487,239 1.86 - - - -
MUTUAL DISCOVERY SECURITIES FUND
June 30, 1999 (unaudited) 6,853 $12.492 $85,609 2.38 8,263 $12.462 $102,951 2.47
December 31,
1998 9,718 11.226 109,094 2.40 8,822 11.205 98,842 2.49
1997 9,940 11.983 119,104 2.46 5,461 11.971 65,375 2.55
19963 1,471 10.180 15,074 2.77+ - - - -
MUTUAL SHARES SECURITIES FUND
June 30, 1999 (unaudited)14,415 13.465 194,093 2.18 19,848 13.433 266,625 2.27
December 31,
1998 18,133 11.837 214,642 2.17 19,834 11.814 234,337 2.26
1997 18,744 11.993 224,796 2.20 11,394 11.981 136,521 2.29
19963 2,613 10.330 27,141 2.40+ - - - -
NATURAL RESOURCES SECURITIES FUND
June 30, 1999 (unaudited) 3,672 10.913 40,077 2.07 627 10.811 6,769 2.16
December 31,
1998 4,453 8.505 37,878 2.04 514 8.430 4,332 2.13
1997 5,709 11.559 65,992 2.09 304 11.466 3,482 2.18
1996 6,998 14.467 101,248 2.05 - - - -
1995 6,919 14.109 97,630 2.06 - - - -
1994 8,285 13.979 115,828 2.08 - - - -
REAL ESTATE SECURITIES FUND
June 30, 1999 (unaudited) 6,971 24.213 168,785 1.97 1,690 23.987 40,551 2.06
December 31,
1998 9,639 23.107 222,740 1.94 1,823 22.901 41,773 2.03
1997 13,445 28.169 378,751 1.94 1,217 27.944 34,023 2.03
1996 12,757 23.668 301,974 1.97 - - - -
1995 10,998 18.073 198,773 1.99 - - - -
1994 11,645 15.594 181,599 2.02 - - - -
RISING DIVIDENDS FUND
June 30, 1999 (unaudited)21,324 21.611 460,854 2.14 4,476 21.467 96,117 2.23
December 31,
1998 27,683 21.165 585,952 2.12 4,428 21.034 93,151 2.21
1997 33,249 20.074 667,473 2.14 1,991 19.968 39,752 2.23
1996 35,569 15.303 545,127 2.16 - - - -
1995 33,789 12.498 422,992 2.18 - - - -
1994 28,778 9.769 281,145 2.20 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
6. UNIT VALUES (CONTINUED)
VALUEMARK II & III VALUEMARK IV
- -------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE
(IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS* (IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SMALL CAP FUND
June 30, 1999 (unaudited)11,340 $16.887 $191,469 2.20% 5,292 $16.831 $89,107 2.29%
December 31,
1998 14,856 14.600 216,872 2.17 5,492 14.558 79,977 2.26
1997 16,925 14.952 253,045 2.17 2,965 14.923 44,268 2.26
1996 12,784 12.913 165,578 2.17 - - - -
19954 1,302 10.146 13,260 2.30+ - - - -
TEMPLETON DEVELOPING MARKETS EQUITY FUND
June 30, 1999 (unaudited)13,235 10.786 142,769 2.80 3,436 10.735 36,887 2.89
December 31,
1998 15,989 7.993 127,804 2.81 3,425 7.958 27,259 2.90
1997 23,005 10.340 237,895 2.82 2,663 10.305 27,448 2.91
1996 22,423 11.487 259,346 2.89 - - - -
1995 15,618 9.582 150,481 2.81 - - - -
19945 9,774 9.454 92,469 2.93+ - - - -
TEMPLETON GLOBAL ASSET ALLOCATION FUND
June 30, 1999 (unaudited) 3,086 14.187 43,774 2.23 1,465 14.133 20,711 2.32
December 31,
1998 4,056 13.589 55,102 2.24 1,491 13.543 20,200 2.33
1997 5,229 13.786 72,082 2.34 1,008 13.752 13,864 2.43
1996 4,104 12.514 52,117 2.26 - - - -
19956 1,338 10.591 14,234 2.30+ - - - -
TEMPLETON GLOBAL GROWTH FUND
June 30, 1999 (unaudited)28,793 18.137 522,209 2.28 8,992 18.050 162,323 2.37
December 31,
1998 34,226 16.309 558,162 2.28 8,864 16.238 143,943 2.37
1997 41,433 15.176 628,785 2.28 5,525 15.124 83,558 2.37
1996 40,327 13.560 550,066 2.33 - - - -
1995 28,309 11.339 322,284 2.37 - - - -
19945 14,637 10.201 149,393 2.54+ - - - -
TEMPLETON GLOBAL INCOME SECURITIES FUND
June 30, 1999 (unaudited) 5,352 16.856 90,220 2.06 691 16.698 11,575 2.15
December 31,
1998 6,976 17.905 124,899 2.03 651 17.746 11,582 2.12
1997 9,434 16.957 159,973 2.02 393 16.821 6,620 2.11
1996 11,857 16.781 198,968 2.01 - - - -
1995 14,181 15.522 220,143 2.04 - - - -
1994 16,855 13.726 231,368 2.11 - - - -
TEMPLETON INTERNATIONAL EQUITY FUND
June 30, 1999 (unaudited) 33,375 20.397 680,760 2.31 4,405 20.261 89,264 2.40
December 31,
1998 44,256 18.437 815,915 2.28 4,427 18.322 81,113 2.37
1997 58,179 17.711 1,030,420 2.29 3,122 17.617 55,008 2.38
1996 64,375 16.081 1,036,583 2.29 - - - -
1995 59,883 13.263 794,670 2.32 - - - -
1994 60,464 12.161 735,339 2.39 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
6. UNIT VALUES (CONTINUED)
VALUEMARK II & III VALUEMARK IV
- -------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE
(IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS* (IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton International Smaller Companies Fund
June 30, 1999 (unaudited) 1,186 $10.887 $12,899 2.53% 887 $10.856 $9,619 2.62%
December 31,
1998 1,533 9.364 14,354 2.50 967 9.342 9,037 2.59
1997 1,998 10.825 21,626 2.46 792 10.809 8,557 2.55
19961 1,388 11.145 15,527 2.18+ - - - -
TEMPLETON PACIFIC GROWTH FUND
June 30, 1999 (unaudited) 9,151 10.330 94,545 2.49 961 10.261 9,881 2.58
December 31,
1998 10,669 8.078 86,200 2.50 655 8.028 5,274 2.59
1997 15,833 9.431 149,327 2.43 379 9.381 3,566 2.52
1996 22,061 14.932 330,159 2.39 - - - -
1995 22,483 13.630 306,843 2.41 - - - -
1994 27,231 12.802 348,655 2.47 - - - -
U.S. GOVERNMENT SECURITIES FUND
June 30, 1999 (unaudited)24,964 18.638 465,258 1.94 3,734 18.465 68,975 2.03
December 31,
1998 30,500 19.014 579,909 1.90 3,040 18.847 57,334 1.99
1997 36,347 17.947 652,317 1.90 1,359 17.805 24,222 1.99
1996 44,598 16.650 742,973 1.91 - - - -
1995 34,313 16.298 559,234 1.92 - - - -
1994 36,490 13.835 504,837 1.93 - - - -
VALUE SECURITIES FUND
June 30, 1999 (unaudited) 799 8.500 6,788 2.27+ 474 8.491 4,026 2.36+
December 31,
19982 719 7.717 5,542 2.52+ 367 7.713 2,834 2.61+
ZERO COUPON FUND - 2000
June 30, 1999 (unaudited) 2,980 20.749 61,816 2.06 219 20.557 4,470 2.15
December 31,
1998 3,595 20.684 74,353 1.80 188 20.502 3,815 1.89
1997 4,523 19.512 88,260 1.80 94 19.358 1,801 1.89
1996 5,636 18.475 104,125 1.80 - - - -
1995 6,066 18.294 110,965 1.80 - - - -
1994 4,953 15.373 76,140 1.80 - - - -
ZERO COUPON FUND - 2005
June 30, 1999 (unaudited) 2,290 23.598 54,026 2.06 524 23.383 12,231 2.15
December 31,
1998 2,635 25.003 65,876 1.80 380 24.786 9,402 1.89
1997 2,910 22.532 65,573 1.80 161 22.357 3,585 1.89
1996 3,579 20.517 73,434 1.80 - - - -
1995 3,504 20.914 73,292 1.80 - - - -
1994 2,780 16.096 44,756 1.80 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
June 30, 1999 (unaudited)
6. UNIT VALUES (CONTINUED)
VALUEMARK II & III VALUEMARK IV
- -------------------------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
ACCUMULATION EXPENSES ACCUMULATION EXPENSES
UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE UNITS OUTSTANDINGACCUMULATIONNET ASSETSTO AVERAGE
(IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS* (IN THOUSANDS)UNIT VALUE(IN THOUSANDS)NET ASSETS*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ZERO COUPON FUND - 2010
June 30, 1999 (unaudited) 2,180 $25.282 $55,129 2.06% 702 $25.048 $17,570 2.15%
December 31,
1998 2,582 27.920 72,114 1.80 478 27.674 13,233 1.89
1997 2,998 24.740 74,199 1.80 150 24.544 3,676 1.89
1996 3,297 21.522 70,969 1.80 - - - -
1995 3,437 22.431 77,136 1.80 - - - -
1994 2,589 15.930 41,255 1.80 - - - -
<FN>
* For the period ended June 30, 1999 (unaudited) or the year ended December 31,
including the effect of the expenses of the underlying funds.
+ Annualized.
1 Period from May 1, 1996 (fund commencement) to December 31, 1996. 2 Period
from May 1, 1998 (fund commencement) to December 31, 1998. 3 Period from
November 8, 1996 (fund commencement) to December 31, 1996. 4 Period from
November 1, 1995 (fund commencement) to December 31, 1995. 5 Period from March
15, 1994 (fund commencement) to December 31, 1994. 6 Period from May 1, 1995
(fund commencement) to December 31, 1995.
</FN>
</TABLE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Independent Auditors'Report
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Allianz Life Variable Account B as of December 31, 1998, the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the years in the two-years then ended. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody for the benefit of the Variable Account were confirmed to us by
the Franklin Valuemark Funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of Allianz
Life Variable Account B at December 31, 1998, the results of their operations
for the year then ended and the changes in their net assets for each of the
years in the two-years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1999
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements
Statements of Assets and Liabilities
December 31, 1998
(In thousands)
Global Global
Capital Health Care Utilities Growth High Income Money
Growth Securities Securities and Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Capital Growth Fund,
12,719 shares, cost $169,900 $204,526 - - - - - -
Global Health Care Securities Fund,
804 shares, cost $7,806 - 8,614 - - - - -
Global Utilities Securities Fund,
44,235 shares, cost $719,124 - - 904,165 - - - -
Growth and Income Fund,
59,093 shares, cost $919,277 - - - 1,203,140 - - -
High Income Fund,
30,610 shares, cost $409,488 - - - - 406,501 - -
Income Securities Fund,
65,116 shares, cost $996,447 - - - - - 1,101,768 -
Money Market Fund,
381,077 shares, cost $381,077 - - - - - - 381,077
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 204,526 8,614 904,165 1,203,140 406,501 1,101,768 381,077
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 35 6 60 62 14 144 120
Accrued mortality and expense risk charges -
Valuemark IV 8 10 6 10 8 9 7
Accrued administrative charges - Valuemark II & III 4 1 7 7 2 17 14
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 48 18 74 80 25 171 142
Net assets $204,478 8,596 904,091 1,203,060 406,476 1,101,597 380,935
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $131,652 6,215 873,319 1,061,658 317,865 990,325 316,921
Contracts in accumulation period -
Valuemark IV (note 5) 69,939 2,381 28,248 134,775 88,069 105,543 61,911
Contracts in annuity payment period (note 2) 2,887 - 2,524 6,627 542 5,729 2,103
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $204,478 8,596 904,091 1,203,060 406,476 1,101,597 380,935
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Mutual Discovery Securities Fund,
18,731 shares, cost $218,767 $211,477 - - - - - -
Mutual Shares Securities Fund,
37,971 shares, cost $436,731 - 454,129 - - - - -
Natural Resources Securities Fund,
5,033 shares, cost $63,490 - - 42,223 - - - -
Real Estate Securities Fund,
13,312 shares, cost $242,989 - - - 265,318 - - -
Rising Dividends Fund,
37,739 shares, cost $509,182 - - - - 683,459 - -
Small Cap Fund,
21,854 shares, cost $292,317 - - - - - 299,835 -
Templeton Developing Markets Equity Fund,
22,551 shares, cost $226,538 - - - - - - 155,827
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 211,477 454,129 42,223 265,318 683,459 299,835 155,827
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 34 56 5 20 46 41 29
Accrued mortality and expense risk charges -
Valuemark IV 9 14 5 7 8 8 6
Accrued administrative charges - Valuemark II & III 4 7 1 3 5 5 3
Accrued administrative charges - Valuemark IV 1 2 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 48 79 12 31 60 55 39
Net assets $211,429 454,050 42,211 265,287 683,399 299,780 155,788
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $109,094 214,642 37,878 222,740 585,952 216,872 127,804
Contracts in accumulation period -
Valuemark IV (note 5) 98,842 234,337 4,332 41,773 93,151 79,977 27,259
Contracts in annuity payment period (note 2) 3,493 5,071 1 774 4,296 2,931 725
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $211,429 454,050 42,211 265,287 683,399 299,780 155,788
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Templeton Templeton
Templeton Templeton Global Templeton International Templeton U.S.
Global Asset Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Templeton Global Asset Allocation Fund,
6,085 shares, cost $74,120 $77,102 - - - - - -
Templeton Global Growth Fund,
47,979 shares, cost $599,143 - 708,656 - - - - -
Templeton Global Income Securities Fund,
10,611 shares, cost $134,677 - - 136,570 - - - -
Templeton International Equity Fund,
57,966 shares, cost $803,532 - - - 899,633 - - -
Templeton International Smaller Companies Fund,
2,597 shares, cost $28,278 - - - - 23,890 - -
Templeton Pacific Growth Fund,
12,226 shares, cost $120,880 - - - - - 91,820 -
U.S. Government Securities Fund,
45,906 shares, cost $604,186 - - - - - - 637,639
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 77,102 708,656 136,570 899,633 23,890 91,820 637,639
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 31 122 9 120 7 14 24
Accrued mortality and expense risk charges -
Valuemark IV 6 10 5 8 5 5 7
Accrued administrative charges - Valuemark II & III 4 15 1 14 1 2 3
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 42 148 16 143 14 22 35
Net assets $77,060 708,508 136,554 899,490 23,876 91,798 637,604
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $55,102 558,162 124,899 815,915 14,354 86,200 579,909
Contracts in accumulation period -
Valuemark IV (note 5) 20,200 143,943 11,582 81,113 9,037 5,274 57,334
Contracts in annuity payment period (note 2) 1,758 6,403 73 2,462 485 324 361
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $77,060 708,508 136,554 899,490 23,876 91,798 637,604
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Franklin Valuemark Funds:
Value Securities Fund, 1,117 shares, cost $9,106 $8,698 - - -
Zero Coupon Fund - 2000, 5,279 shares, cost $74,444 - 78,181 - -
Zero Coupon Fund - 2005, 4,244 shares, cost $64,849 - - 75,293 -
Zero Coupon Fund - 2010, 4,482 shares, cost $74,63 - - - 85,373
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 8,698 78,181 75,293 85,373 9,144,914
Liabilities:
Accrued mortality and expense risk charges - Valuemark II & III 15 6 8 8 1,036
Accrued mortality and expense risk charges - Valuemark IV 14 5 5 6 191
Accrued administrative charges - Valuemark II & III 2 1 1 1 125
Accrued administrative charges - Valuemark IV 2 1 1 1 27
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 33 13 15 16 1,379
Net assets $8,665 78,168 75,278 85,357 9,143,535
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III (note 5) $5,542 74,353 65,876 72,114 7,665,363
Contracts in accumulation period - Valuemark IV (note 5) 2,834 3,815 9,402 13,233 1,428,304
Contracts in annuity payment period (note 2) 289 - - 10 49,868
- ---------------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $8,665 78,168 75,278 85,357 9,143,535
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations
For the year ended December 31, 1998
(In thousands)
Global Global
Capital Health Care Utilities Growth High Income Money
Growth Securitie Securities and Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 494 - 38,909 39,645 40,005 95,451 17,985
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges -
Valuemark II & III 1,170 29 11,766 13,988 4,633 14,586 3,861
Mortality and expense risk charges -
Valuemark IV 612 10 239 1,340 944 1,113 671
Administrative charges - Valuemark II & III 140 3 1,412 1,679 556 1,750 463
Administrative charges - Valuemark IV 69 0 27 150 106 125 75
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,991 42 13,444 17,157 6,239 17,574 5,070
Investment income (loss), net (1,497) (42) 25,465 22,488 33,766 77,877 12,915
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on mutual funds - - 56,735 93,268 2,374 22,541 -
Realized gains (losses) on sales of
investments, net 3,101 (205) 42,510 35,118 2,328 25,848 -
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 3,101 (205) 99,245 128,386 4,702 48,389 -
Net change in unrealized appreciation
(depreciation) on investments 24,031 808 (40,032) (73,442) (38,630) (126,374) -
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 27,132 603 59,213 54,944 (33,928) (77,985) -
Net increase (decrease) in net assets
from operations $25,635 561 84,678 77,432 (162) (108) 12,915
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ 3,108 4,806 878 14,421 7,816 191 6,715
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges -
Valuemark II & III 1,606 3,023 659 3,793 7,982 2,950 2,139
Mortality and expense risk charges -
Valuemark IV 1,235 2,685 58 544 922 828 366
Administrative charges - Valuemark II & III 193 363 79 455 958 354 257
Administrative charges - Valuemark IV 138 301 7 61 103 93 41
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 3,172 6,372 803 4,853 9,965 4,225 2,803
Investment income (loss), net (64) (1,566) 75 9,568 (2,149) (4,034) 3,912
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on
mutual funds 2,892 4,199 - 8,927 95,780 24,533 21,834
Realized gains (losses) on sales of
investments, net (1,124) 140 (13,600) 16,775 38,887 (141) (30,570)
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 1,768 4,339 (13,600) 25,702 134,667 24,392 (8,736)
Net change in unrealized appreciation
(depreciation) on investments (23,026) (15,031) (3,804) (105,327) (101,514) (31,057) (51,993)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net(21,258) (10,692) (17,404) (79,625) 33,153 (6,665) (60,729)
Net increase (decrease) in net assets
from operations ($21,322) (12,258) (17,329) (70,057) 31,004 (10,699) (56,817)
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Templeton Templeton
Templeton Templeton Global Templeton International Templeton U.S.
Global Asset Global Income International Smaller Pacific Government
Allocation Growth Securities Equity Companies Growth Securities
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
Investment income:
Dividends reinvested in fund shares $3,077 19,141 11,179 32,633 706 4,948 45,330
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses:
Mortality and expense risk charges -
Valuemark II & III 821 7,655 1,770 12,067 241 1,291 7,622
Mortality and expense risk charges -
Valuemark IV 243 1,606 125 986 131 54 532
Administrative charges - Valuemark II & III 99 919 212 1,448 29 155 915
Administrative charges - Valuemark IV 27 180 14 110 15 6 60
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,190 10,360 2,121 14,611 416 1,506 9,129
Investment income (loss), net 1,887 8,781 9,058 18,022 290 3,442 36,201
Realized gains (losses) and unrealized
appreciation (depreciation) on investments:
Realized capital gain distributions on
mutual funds 3,659 69,721 - 65,552 817 1,506 -
Realized gains (losses) on sales of
investments, net 737 12,774 263 46,548 (1,364) (67,544) 8,286
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 4,396 82,495 263 112,100 (547) (66,038) 8,286
Net change in unrealized appreciation
(depreciation) on investments (8,198) (44,136) (1,320) (88,725) (3,830) 39,890 (7,222)
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net (3,802) 38,359 (1,057) 23,375 (4,377) (26,148) 1,064
Net increase (decrease) in net assets from
operations ($1,915) 47,140 8,001 41,397 (4,087) (22,706) 37,265
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Operations (cont.)
For the year ended December 31, 1998
(In thousands)
Value Zero Zero Zero Total
Securities Coupon Coupon Coupon All
Fund Fund - 2000 Fund - 2005 Fund - 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends reinvested in fund shares $ - 6,413 4,263 4,432 402,546
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III 28 1,012 808 907 106,407
Mortality and expense risk charges - Valuemark IV 14 35 87 110 15,490
Administrative charges - Valuemark II & III 3 121 97 109 12,769
Administrative charges - Valuemark IV 2 4 10 12 1,736
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 47 1,172 1,002 1,138 136,402
Investment income (loss), net (47) 5,241 3,261 3,294 266,144
Realized gains (losses) and unrealized appreciation
(depreciation)on investments:
Realized capital gain distributions on mutual funds - 1,026 986 613 476,963
Realized gains (losses) on sales of investments, net (74) 1,370 1,499 4,830 126,392
- ---------------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net (74) 2,396 2,485 5,443 603,355
Net change in unrealized appreciation (depreciation)
on investments (407) (2,765) 1,608 769 (699,727)
Total realized gains (losses) and unrealized appreciation
(depreciation)on investments, net (481) (369) 4,093 6,212 (96,372)
Net increase (decrease) in net assets from operations ($528) 4,872 7,354 9,506 169,772
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets
For the years ended December 31, 1998 and 1997
(In thousands)
Global Health Global Utilities
Capital Growth Fund Care Securities Fund Securities Fund Growth and Income Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,497) (894) (42) - 25,465 35,651 22,488 20,007
Realized gains (losses) on
investments, net 3,101 2,092 (205) - 99,245 106,619 128,386 58,209
Net change in unrealized
appreciation (depreciation)
on investments 24,031 8,783 808 - (40,032) 76,100 (73,442) 173,409
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 25,635 9,981 561 - 84,678 218,370 77,432 251,625
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 3,713 11,652 194 - 7,461 14,377 16,130 50,544
Transfers between funds 55,930 18,490 5,818 - (39,931) (131,387) 20,093 23,747
Surrenders and terminations (17,886) (5,581) (190) - (198,959) (173,138) (195,983) (141,024)
Rescissions (8) (159) - - (241) (730) (276) (922)
Other transactions (note 2) (19) (89) (1) - 155 246 356 241
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III 41,730 24,313 5,821 - (231,515) (290,632) (159,680) (67,414)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 21,127 23,159 1,428 - 12,583 5,818 51,280 49,951
Transfers between funds 17,665 2,395 1,051 - 6,950 1,246 25,926 4,608
Surrenders and terminations (2,192) (174) (7) - (1,068) (70) (5,388) (685)
Rescissions (556) (754) (258) - (88) (60) (943) (859)
Other transactions (note 2) 1 38 - - 5 1 46 51
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 36,045 24,664 2,214 - 18,382 6,935 70,921 53,066
Increase (decrease) in
net assets 103,410 58,958 8,596 - (128,455) (65,327) (11,327) 237,277
Net assets at beginning
of year 101,068 42,110 - - 1,032,546 1,097,873 1,214,387 977,110
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $204,478 101,068 8,596 - 904,091 1,032,546 1,203,060 1,214,387
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Discovery
High Income Fund Income Securities Fund Money Market Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 33,766 27,707 77,877 74,684 12,915 13,801 (64) (1,520)
Realized gains (losses) on
investments, net 4,702 10,947 48,389 44,523 - - 1,768 591
Net change in unrealized
appreciation (depreciation)
on investments (38,630) 389 (126,374) 62,214 - - (23,026) 15,535
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (162) 39,043 (108) 181,421 12,915 13,801 (21,322) 14,606
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 4,834 22,772 13,275 50,873 11,342 70,286 6,337 28,591
Transfers between funds (19,142) 310 (51,375) (56,241) 207,647 (3,675) 18,856 74,361
Surrenders and terminations (71,048) (59,371) (219,332) (169,518) (204,171) (161,311) (22,824) (7,182)
Rescissions (154) (602) (278) (1,451) (341) (2,246) (132) (510)
Other transactions (note 2) 455 246 411 446 824 894 5 17
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (85,055) (36,645) (257,299) (175,891) 15,301 (96,052) 2,242 95,277
Contract transactions -
Valuemark IV (note 5):
Purchase payments 39,346 42,607 42,572 46,661 44,229 93,106 35,649 57,513
Transfers between funds 8,234 3,456 14,799 3,254 (20,238) (46,177) 12,085 6,028
Surrenders and terminations (4,106) (521) (3,538) (443) (6,316) (3,086) (3,935) (520)
Rescissions (1,327) (844) (530) (1,143) (1,952) (918) (577) (763)
Other transactions (note 2) 50 21 (5) 3 199 494 59 13
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 42,197 44,719 53,298 48,332 15,922 43,419 43,281 62,271
Increase (decrease) in net assets(43,020) 47,117 (204,109) 53,862 44,138 (38,832) 24,201 172,154
Net assets at beginning of year 449,496 402,379 1,305,706 1,251,844 336,797 375,629 187,228 15,074
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $406,476 449,496 1,101,597 1,305,706 380,935 336,797 211,429 187,228
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Mutual Shares Natural Resources
Securities Fund Securities Fund Real Estate Securities FundRising Dividends Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($1,566) (2,774) 75 110 9,568 5,160 (2,149) 199
Realized gains (losses) on
investments, net 4,339 65 (13,600) (3,931) 25,702 16,329 134,667 43,845
Net change in unrealized
appreciation (depreciation)
on investments (15,031) 31,825 (3,804) (14,906) (105,327) 42,697 (101,514) 123,868
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (12,258) 29,116 (17,329) (18,727) (70,057) 64,186 31,004 167,912
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 11,748 55,149 899 3,818 4,373 25,139 10,801 23,594
Transfers between funds 28,224 136,704 (5,230) (11,395) (48,548) 28,062 17,226 20,217
Surrenders and terminations (42,653) (12,002) (7,877) (9,401) (49,929) (36,947) (135,412) (84,492)
Rescissions (194) (558) (49) (67) (148) (342) (207) (422)
Other transactions (note 2) 59 11 15 26 161 89 239 537
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (2,816) 179,304 (12,242) (17,019) (94,091) 16,001 (107,353) (40,566)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 85,482 113,173 1,717 3,783 16,008 29,207 36,972 32,143
Transfers between funds 28,604 18,844 841 290 1,947 2,787 17,333 5,752
Surrenders and terminations (8,498) (1,198) (188) (6) (1,625) (354) (3,213) (409)
Rescissions (1,549) (1,424) (52) (94) (202) (517) (691) (624)
Other transactions (note 2) 92 37 (15) 4 13 10 3 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 104,131 129,432 2,303 3,977 16,141 31,133 50,404 36,871
Increase (decrease) in
net assets 89,057 337,852 (27,268) (31,769) (148,007) 111,320 (25,945) 164,217
Net assets at beginning of year 364,993 27,141 69,479 101,248 413,294 301,974 709,344 545,127
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $454,050 364,993 42,211 69,479 265,287 413,294 683,399 709,344
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Developing Templeton Global Templeton
Small Cap Fund Markets Equity Fund Asset Allocation Fund Global Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net ($4,034) (2,855) 3,912 (744) 1,887 379 8,781 1,105
Realized gains (losses) on
investments, net 24,392 16,256 (8,736) 11,272 4,396 1,109 82,495 8,777
Net change in unrealized
appreciation (depreciation)
on investments (31,057) 21,914 (51,993) (46,160) (8,198) 4,962 (44,136) 58,155
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations (10,699) 35,315 (56,817) (35,632) (1,915) 6,450 47,140 68,037
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 6,424 29,239 4,084 29,184 1,787 11,196 10,586 58,703
Transfers between funds 4,845 50,164 (39,497) 5,324 (8,074) 9,847 (41,415) 4,664
Surrenders and terminations (36,786) (23,270) (26,039) (24,867) (8,859) (6,290) (79,015) (46,883)
Rescissions (186) (651) (68) (281) (7) (71) (300) (1,055)
Other transactions (note 2) (15) 71 (56) 2 30 186 78 54
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (25,718) 55,553 (61,576) 9,362 (15,123) 14,868 (110,066) 15,483
Contract transactions -
Valuemark IV (note 5):
Purchase payments 26,375 40,513 9,390 32,069 6,881 13,018 47,491 79,798
Transfers between funds 13,910 2,867 (1,057) 2,442 525 1,126 11,653 5,848
Surrenders and terminations (2,749) (266) (1,050) (253) (519) (107) (4,558) (652)
Rescissions (368) (589) (129) (302) (14) (260) (653) (1,079)
Other transactions (note 2) 32 26 (13) 8 11 2 (12) 12
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 37,200 42,551 7,141 33,964 6,884 13,779 53,921 83,927
Increase (decrease) in
net assets 783 133,419 (111,252) 7,694 (10,154) 35,097 (9,005) 167,447
Net assets at beginning of year 298,997 165,578 267,040 259,346 87,214 52,117 717,513 550,066
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $299,780 298,997 155,788 267,040 77,060 87,214 708,508 717,513
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Templeton Global Templeton Templeton International Templeton
Income Securities FundInternational Equity FundSmaller Companies Fund Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 9,058 10,527 18,022 14,487 290 (225) 3,442 1,743
Realized gains (losses) on
investments, net 263 1,131 112,100 91,429 (547) 545 (66,038) (6,660)
Net change in unrealized
appreciation (depreciation)
on investments (1,320) (10,041) (88,725) 1,618 (3,830) (1,688) 39,890 (91,510)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 8,001 1,617 41,397 107,534 (4,087) (1,368) (22,706) (96,427)
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 983 5,204 8,884 48,236 865 5,943 1,634 7,156
Transfers between funds (13,288) (17,682) (92,026) (33,305) (3,005) 2,953 (21,917) (55,954)
Surrenders and terminations (30,382) (27,867) (171,313) (126,296) (2,234) (1,856) (20,611) (36,981)
Rescissions (42) (283) (404) (1,041) (24) (91) (54) (144)
Other transactions (note 2) 154 193 252 282 10 32 48 398
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (42,575) (40,435) (254,607) (112,124) (4,388) 6,981 (40,900) (85,525)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 3,461 6,478 21,502 53,802 2,980 8,807 2,042 4,649
Transfers between funds 1,385 316 6,064 2,916 (467) 531 282 622
Surrenders and terminations (377) (83) (2,654) (259) (365) (128) (205) (98)
Rescissions (12) (207) (95) (629) (85) (50) (42) (52)
Other transactions (note 2) 2 15 45 15 (15) 3 (1) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 4,459 6,519 24,862 55,845 2,048 9,163 2,076 5,121
Increase (decrease) in net assets(30,115) (32,299) (188,348) 51,255 (6,427) 14,776 (61,530) (176,831)
Net assets at beginning of year 166,669 198,968 1,087,838 1,036,583 30,303 15,527 153,328 330,159
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $136,554 166,669 899,490 1,087,838 23,876 30,303 91,798 153,328
<FN>
See accompanying notes to financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
U.S. Government Value
Securities Fund Securities Fund Zero Coupon Fund - 2000Zero Coupon Fund - 2005
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 36,201 28,049 (47) - 5,241 5,205 3,261 3,461
Realized gains (losses) on
investments, net 8,286 5,606 (74) - 2,396 1,677 2,485 1,510
Net change in unrealized
appreciation (depreciation)
on investments (7,222) 17,549 (407) - (2,765) (1,692) 1,608 1,476
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 37,265 51,204 (528) - 4,872 5,190 7,354 6,447
Contract transactions -
Valuemark II & III (note 5):
Purchase payments 5,708 23,060 190 - 498 1,290 759 1,695
Transfers between funds 12,261 (47,874) 6,072 - (4,978) (6,415) 3,490 (6,814)
Surrenders and terminations (126,296) (115,692) (129) - (14,347) (15,927) (10,720) (8,976)
Rescissions (188) (756) - - (4) (43) (11) (1)
Other transactions (note 2) 860 775 (1) - 165 134 105 7
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark II & III (107,655) (140,487) 6,132 - (18,666) (20,961) (6,377) (14,089)
Contract transactions -
Valuemark IV (note 5):
Purchase payments 20,857 22,408 916 - 864 1,862 3,307 3,410
Transfers between funds 12,943 1,524 2,211 - 1,107 (121) 2,192 34
Surrenders and terminations (2,139) (132) (62) - (68) (7) (284) (10)
Rescissions (701) (527) (4) - (23) - (68) (68)
Other transactions (note 2) 4 67 - - (6) - (4) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
contract transactions -
Valuemark IV 30,964 23,340 3,061 - 1,874 1,734 5,143 3,366
Increase (decrease) in
net assets (39,426) (65,943) 8,665 - (11,920) (14,037) 6,120 (4,276)
Net assets at beginning
of year 677,030 742,973 - - 90,088 104,125 69,158 73,434
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $637,604 677,030 8,665 - 78,168 90,088 75,278 69,158
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
For the years ended December 31, 1998 and 1997
(In thousands)
Zero Coupon Fund - 2010 Total All Funds
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income (loss), net $ 3,294 3,446 266,144 236,709
Realized gains (losses) on investments, net 5,443 1,575 603,355 413,516
Net change in unrealized appreciation (depreciation) on investments 769 5,123 (699,727) 479,620
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations 9,506 10,144 169,772 1,129,845
Contract transactions - Valuemark II & III (note 5):
Purchase payments 682 3,822 134,191 581,523
Transfers between funds 4,057 (2,318) (3,907) 1,783
Surrenders and terminations (15,533) (8,063) (1,708,528)(1,302,935)
Rescissions (2) (17) (3,318) (12,443)
Other transactions (note 2) 49 (11) 4,339 4,787
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract transactions -
Valuemark II & III (10,747) (6,587) (1,577,223) (727,285)
Contract transactions - Valuemark IV (note 5):
Purchase payments 5,944 3,098 540,403 767,033
Transfers between funds 3,245 282 169,190 20,870
Surrenders and terminations (458) (11) (55,562) (9,472)
Rescissions (20) (6) (10,939) (11,769)
Other transactions (note 2) (2) - 489 829
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from contract transactions -
Valuemark IV 8,709 3,363 643,581 767,491
Increase (decrease) in net assets 7,468 6,920 (763,870)1,170,051
Net assets at beginning of year 77,889 70,969 9,907,405 8,737,354
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $85,357 77,889 9,143,535 9,907,405
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Allianz Life Variable Account B (Variable Account) is a segregated investment
account of Allianz Life Insurance Company of North America (Allianz Life) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940 (as
amended). The Variable Account was established on May 31, 1985 and commenced
operations January 24, 1989. Accordingly, it is an accounting entity wherein all
segregated account transactions are reflected.
The Variable Account's assets are the property of Allianz Life and are held for
the benefit of the owners and other persons entitled to payments under variable
annuity contracts issued through the Variable Account and underwritten by
Allianz Life. The assets of the Variable Account, equal to the reserves and
other liabilities of the Variable Account, are not chargeable with liabilities
that arise from any other business which Allianz Life may conduct.
The Variable Account's sub-accounts may invest, at net asset values, in one or
more of the funds of the Franklin Valuemark Funds (FVF), managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates, in accordance with the
selection made by the contract owner. Not all funds are available as investment
options for the products which comprise the Variable Account.
Certain officers and trustees of the FVF are also officers and/or directors of
Franklin Advisers, Inc. and/or Allianz Life.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Investments of the Variable Account are valued daily at market value using net
asset values provided by Franklin Advisers, Inc.
Realized investment gains include realized gain distributions received from the
respective funds and gains on the sale of fund shares as determined by the
average cost method. Realized gain distributions are reinvested in the
respective funds. Dividend distributions received from the FVF are reinvested in
additional shares of the FVF and are recorded as income to the Variable Account
on the ex-dividend date.
Two Fixed Account investment options are available to deferred annuity contract
owners. A Flexible Fixed Option is available to all deferred annuity contract
owners and a Dollar Cost Averaging Option is available to Valuemark IV deferred
annuity contract owners. These accounts are comprised of equity and fixed income
investments which are part of the general assets of Allianz Life. The
liabilities of the Fixed Accounts are part of the general obligations of Allianz
Life and are not included in the Variable Account. The guaranteed minimum rate
of return on the Fixed Accounts is 3%.
The Global Health Care Securities Fund and Value Securities Fund were added as
available investment options on May 1, 1998. The Utilities Equity Fund name was
changed to Templeton Global Utilities Securities Fund on May 1, 1998. The
Precious Metals Fund name was changed to Natural Resources Securities Fund on
May 1, 1997.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contracts in Annuity Payment Period
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table, using an assumed investment return
(AIR) equal to the AIR of the specific contracts, either 3%, 5% or 7%. Charges
to annuity reserves for mortality and risk expense are reimbursed to Allianz
Life if the reserves required are less than originally estimated. If additional
reserves are required, Allianz Life reimburses the account.
Expenses
Asset Based Expenses
A mortality and expense risk charge is deducted from the Variable Account on a
daily basis. The charge is equal, on an annual basis, to 1.25% of the daily net
assets of Valuemark II and Valuemark III and 1.34% of the daily net assets of
Valuemark IV.
An administrative charge is deducted from the Variable Account on a daily basis
equal, on an annual basis, to 0.15% of the daily net assets of all products
which comprise the Variable Account
Contract Based Expenses
A contract maintenance charge is paid by the contract owner annually from each
deferred annuity contract by liquidating contract units at the end of the
contract year and at the time of full surrender. The amount of the charge is $30
each year. Contract maintenance charges paid by the contract owners during the
years ended December 31, 1998 and 1997 were and $4,716,335 and $4,561,683,
respectively. These contract charges are reflected in the Statements of Changes
in Net Assets as other transactions.
A contingent deferred sales charge is deducted from the contract value at the
time of a surrender. This charge applies only to a surrender of purchase
payments received within five years of the date of surrender for Valuemark II
and Valuemark III contracts and within seven years of the date of surrender for
Valuemark IV contracts. For this purpose, purchase payments are allocated on a
first-in, first-out basis. The amount of the contingent deferred sales charge is
calculated by: (a) allocating purchase payments to the amount surrendered; and
(b) multiplying each allocated purchase payment that has been held under the
contract for the period shown below by the charge shown below:
<TABLE>
<CAPTION>
Years Since Contingent Deferred Sales Charge
- ---------------------------------------------------------------------------------------------------------------------------
Payment Valuemark II Valuemark III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-1 5% 6% 6%
1-2 5% 5% 6%
2-3 4% 4% 6%
3-4 3% 3% 5%
4-5 1.5% 1.5% 4%
5-6 0% 0% 3%
6-7 0% 0% 2%
7+ 0% 0% 0%
</TABLE>
and (c) adding the products of each multiplication in (b) above.
A Valuemark II or Valuemark III deferred annuity contract owner may, not more
frequently than once annually on a cumulative basis, make a surrender each
contract year of fifteen percent (15%) of purchase payments paid, less any prior
surrenders, without incurring a contingent deferred sales charge. A Valuemark IV
deferred annuity contract owner may make multiple surrenders, each year after
the first contract year, up to fifteen percent (15%) of the contract value
without incurring a contingent deferred sales charge. For a partial surrender,
the contingent
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
Contract Based Expenses (cont.)
deferred sales charge will be deducted from the remaining contract value, if
sufficient; otherwise it will be deducted from the amount surrendered. Total
contingent deferred sales charges paid by the contract owners for the years
ended December 31, 1998 and 1997 were $8,535,795 and $8,999,290, respectively.
Currently, twelve transfers are permitted each contract year. Thereafter, the
fee is $25 per transfer, or 2% of the amount transferred, if less. Currently,
transfers associated with the dollar cost averaging program are not counted.
Total transfer charges paid by the contract owners for the years ended December
31, 1998 and 1997 were $159,282 and $126,072, respectively. Transfer charges are
reflected in the Statements of Changes in Net Assets as other transactions. Net
transfers from the Fixed Accounts for the years ended December 31, 1998 and 1997
were $165,283,144 and $22,652,962 respectively.
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the contract values. Allianz Life may, in its sole
discretion, pay taxes when due and deduct that amount from the contract value at
a later date. Payment at an earlier date does not waive any right Allianz Life
may have to deduct such amounts at a later date.
On Valuemark II and Valuemark III deferred annuity contracts, a systematic
withdrawal plan is available which allows an owner to withdraw up to nine
percent (9%) of purchase payments less prior surrenders annually, paid monthly
or quarterly, without incurring a contingent deferred sales charge. The
systematic withdrawal plan available to Valuemark IV deferred annuity contract
owners allows up to fifteen percent (15%) of the contract value withdrawn
annually, paid monthly or quarterly, without incurring a contingent deferred
sales charge. The exercise of the systematic withdrawal plan in any contract
year replaces the 15% penalty free privilege for that year for all deferred
annuity contracts.
A rescission is defined as a contract that is returned to the Company by the
Contract Owner and canceled within the free-look period, generally within 10
days.
3. CAPITALIZATION
Allianz Life provides capital for the establishment of new funds as investment
options of the Variable Account. There were no capitalization transactions
during the year ended December 31, 1997. The capitalization transactions were as
follows during the year ended December 31, 1998:
<TABLE>
<CAPTION>
Capitalization Date of Market Value Date of
Fund Amount Capitalization at Withdrawal Withdrawal
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Health Care Securities Fund $250,000 5/1/98 $253,250 12/1/98
Value Securities Fund $250,000 5/1/98 $192,000 12/1/98
</TABLE>
4. FEDERAL INCOME TAXES
Operations of the Variable Account form a part of, and are taxed with,
operations of Allianz Life, which is taxed as a life insurance company under the
Internal Revenue Code.
Allianz Life does not expect to incur any federal income taxes in the operation
of the Variable Account. If, in the future, Allianz Life determines that the
Variable Account may incur federal income taxes, it may then assess a charge
against the Variable Account for such taxes.
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands)
Transactions in units for each fund for the years ended December 31, 1998 and
1997 were as follows:
Global Global
Capital Health Care Utilities Growth High Income Money
Growth Securities Securities and Income Income Securities Market
Fund Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at
December 31, 1996 3,722 - 53,086 50,027 20,736 57,504 28,060
Contract transactions:
Purchase payments 948 - 663 2,362 1,153 2,205 5,065
Transfers between funds 1,469 - (6,159) 1,043 (57) (2,484) (219)
Surrenders and terminations (445) - (7,944) (6,436) (2,943) (7,368) (11,824)
Rescissions (14) - (34) (44) (30) (65) (166)
Other transactions (7) - 11 10 12 19 66
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,951 - (13,463) (3,065) (1,865) (7,693) (7,078)
Accumulation units outstanding a
December 31, 1997 5,673 - 39,623 46,962 18,871 49,811 20,982
Contract transactions:
Purchase payments 160 20 241 538 223 459 566
Transfers between funds 3,882 586 (1,529) 699 (811) (2,088) 14,858
Surrenders and terminations (1,258) (20) (7,481) (7,722) (3,310) (8,767) (14,408)
Rescissions (1) - (9) (11) (7) (11) (24)
Other transactions (2) - 6 14 21 16 58
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 2,781 586 (8,772) (6,482) (3,884) (10,391) 1,050
Accumulation units outstanding at
December 31, 1998 8,454 586 30,851 40,480 14,987 39,420 22,032
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - - -
Contract transactions:
Purchase payments 1,839 - 263 2,241 2,100 2,022 6,870
Transfers between funds 188 - 53 200 168 140 (3,400)
Surrenders and terminations (13) - (3) (29) (25) (19) (225)
Rescissions (60) - (3) (38) (42) (49) (67)
Other transactions 3 - - 2 1 - 36
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,957 - 310 2,376 2,202 2,094 3,214
Accumulation units outstanding at December 31, 1997 1,957 - 310 2,376 2,202 2,0943,214
Contract transactions:
Purchase payments 1,503 147 477 2,027 1,834 1,710 3,217
Transfers between funds 1,238 106 262 1,031 409 599 (1,515)
Surrenders and terminations (156) (1) (40) (214) (195) (143) (448)
Rescissions (40) (28) (3) (37) (61) (21) (140)
Other transactions - - - 2 2 - 14
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 2,545 224 696 2,809 1,989 2,145 1,128
Accumulation units outstanding at
December 31, 1998 4,502 224 1,006 5,185 4,191 4,239 4,342
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
Mutual Mutual Natural Templeton
Discovery Shares Resources Real Estate Rising Small Developing
Securities Securities Securities Securities Dividends Cap Markets
Fund Fund Fund Fund Fund Fund Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at
December 31, 1996 1,471 2,613 6,998 12,757 35,569 12,784 22,423
Contract transactions:
Purchase payments 2,480 4,911 276 1,023 1,368 2,180 2,264
Transfers between funds 6,648 12,308 (861) 1,129 1,034 3,656 330
Surrenders and terminations (613) (1,037) (701) (1,453) (4,724) (1,652) (1,990)
Rescissions (47) (52) (5) (14) (26) (49) (22)
Other transactions 1 1 2 3 28 6 -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 8,469 16,131 (1,289) 688 (2,320) 4,141 582
Accumulation units outstanding at
December 31, 1997 9,940 18,744 5,709 13,445 33,249 16,925 23,005
Contract transactions:
Purchase payments 402 795 86 147 415 348 429
Transfers between funds 1,284 2,150 (562) (1,976) 670 173 (4,481)
Surrenders and terminations (1,897) (3,544) (777) (1,978) (6,653) (2,575) (2,951)
Rescissions (11) (16) (5) (6) (10) (13) (7)
Other transactions - 4 2 7 12 (2) (6)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (222) (611) (1,256) (3,806) (5,566) (2,069) (7,016)
Accumulation units outstanding at
December 31, 1998 9,718 18,133 4,453 9,639 27,683 14,856 15,989
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - - -
Contract transactions:
Purchase payments 5,050 9,998 288 1,144 1,745 2,823 2,516
Transfers between funds 518 1,620 23 106 299 198 190
Surrenders and terminations (43) (101) - (13) (21) (18) (21)
Rescissions (65) (126) (7) (20) (33) (40) (23)
Other transactions 1 3 - - 1 2 1
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 5,461 11,394 304 1,217 1,991 2,965 2,663
Accumulation units outstanding at
December 31, 1997 5,461 11,394 304 1,217 1,991 2,965 2,663
Contract transactions:
Purchase payments 2,832 6,911 162 604 1,788 1,762 1,055
Transfers between funds 907 2,362 73 75 843 988 (154)
Surrenders and terminations (338) (718) (19) (66) (159) (199) (121)
Rescissions (45) (123) (5) (8) (35) (27) (16)
Other transactions 5 8 (1) 1 - 3 (2)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 3,361 8,440 210 606 2,437 2,527 762
Accumulation units outstanding at
December 31, 1998 8,822 19,834 514 1,823 4,428 5,492 3,425
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Growth Securities Equity Companies Growth
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at December 31, 1996 4,104 40,327 11,857 64,375 1,388 22,061
Contract transactions:
Purchase payments 819 3,970 314 2,786 517 501
Transfers between funds 755 334 (1,058) (1,782) 258 (4,037)
Surrenders and terminations (456) (3,127) (1,673) (7,156) (160) (2,707)
Rescissions (6) (74) (17) (59) (8) (10)
Other transactions 13 3 11 15 3 25
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,125 1,106 (2,423) (6,196) 610 (6,228)
Accumulation units outstanding at December 31, 1997 5,229 41,433 9,434 58,179 1,998 15,833
Contract transactions:
Purchase payments 69 569 57 449 35 204
Transfers between funds (598) (2,789) (773) (5,188) (288) (2,708)
Surrenders and terminations (646) (4,973) (1,749) (9,177) (211) (2,662)
Rescissions - (19) (2) (21) (2) (7)
Other transactions 2 5 9 14 1 9
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (1,173) (7,207) (2,458) (13,923) (465) (5,164)
Accumulation units outstanding at December 31, 1998 4,056 34,226 6,976 44,256 1,533 10,669
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - -
Contract transactions:
Purchase payments 952 5,261 391 3,008 761 346
Transfers between funds 82 375 19 162 46 47
Surrenders and terminations (8) (42) (5) (14) (11) (10)
Rescissions (18) (70) (13) (35) (4) (4)
Other transactions - 1 1 1 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,008 5,525 393 3,122 792 379
Accumulation units outstanding at December 31, 1997 1,008 5,525 393 3,122 792 379
Contract transactions:
Purchase payments 487 2,951 202 1,143 271 256
Transfers between funds 34 720 79 307 (52) 53
Surrenders and terminations (38) (290) (22) (143) (34) (28)
Rescissions (1) (41) (1) (5) (8) (5)
Other transactions 1 (1) - 3 (2) -
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 483 3,339 258 1,305 175 276
Accumulation units outstanding at December 31, 1998 1,491 8,864 651 4,427 967 655
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (In thousands) (cont.)
U.S. Zero Zero Zero
Government Value Coupon Coupon Coupon Total
Securities Securities Fund - Fund - Fund - All
Fund Fund 2000 2005 2010 Funds
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuemark II & III
Accumulation units outstanding at December 31, 1996 44,598 - 5,636 3,579 3,297 508,972
Contract transactions:
Purchase payments 1,363 - 69 83 177 37,497
Transfers between funds (2,875) - (341) (328) (113) 8,650
Surrenders and terminations (6,740) - (846) (424) (362) (72,781)
Rescissions (44) - (2) - (1) (789)
Other transactions 45 - 7 - - 274
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (8,251) - (1,113) (669) (299) (27,149)
Accumulation units outstanding at December 31, 1997 36,347 - 4,523 2,910 2,998 481,823
Contract transactions:
Purchase payments 310 17 25 32 26 6,622
Transfers between funds 617 718 (249) 140 138 1,875
Surrenders and terminations (6,810) (16) (712) (451) (582) (91,330)
Rescissions (10) - - - - (192)
Other transactions 46 - 8 4 2 230
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions (5,847) 719 (928) (275) (416) (82,795)
Accumulation units outstanding at December 31, 1998 30,500 719 3,595 2,635 2,582 399,028
Valuemark IV
Accumulation units outstanding at December 31, 1996 - - - - - -
Contract transactions:
Purchase payments 1,310 - 100 162 138 51,328
Transfers between funds 84 - (6) 2 12 1,126
Surrenders and terminations (8) - - - - (629)
Rescissions (31) - - (3) - (751)
Other transactions 4 - - - - 57
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,359 - 94 161 150 51,131
Accumulation units outstanding at December 31, 1997 1,359 - 94 161 150 51,131
Contract transactions:
Purchase payments 1,142 109 43 142 226 33,001
Transfers between funds 693 267 55 92 120 9,592
Surrenders and terminations (116) (8) (3) (12) (17) (3,528)
Rescissions (38) (1) (1) (3) (1) (694)
Other transactions - - - - - 33
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation units resulting
from contract transactions 1,681 367 94 219 328 38,404
Accumulation units outstanding at December 31, 1998 3,040 367 188 380 478 89,535
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES
A summary of accumulation unit values and accumulation units outstanding for
variable annuity contracts and the expense ratios, including expenses of the
underlying funds, for each of the five years in the period ended December 31,
1998 follows.
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets to Average
(in thousands) Unit Value (in thousands)Net Assets* (in thousands) Unit Value (in thousands)Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund
December 31,
1998 8,454 $15.574 $ 131,652 2.17% 4,502 $15.537 $ 69,939 2.26%
1997 5,673 13.130 74,473 2.17 1,967 13.110 25,654 2.26
19961 3,722 11.254 42,110 2.17+ - - - -
Global Health Care
Securities Fund
December 31,
19982 586 10.610 6,215 2.24+ 224 10.604 2,381 2.33+
Global Utilities
Securities Fund
December 31,
1998 30,851 28.308 873,319 1.90 1,006 28.082 28,248 1.99
1997 39,623 25.818 1,022,994 1.90 310 25.635 7,959 1.99
1996 53,086 20.654 1,097,873 1.90 - - - -
1995 66,669 19.565 1,305,495 1.90 - - - -
1994 70,082 15.104 1,058,531 1.92 - - - -
Growth and Income Fund
December 31,
1998 40,480 26.226 1,061,658 1.89 5,185 25.993 134,775 1.98
1997 46,962 24.551 1,152,961 1.89 2,376 24.354 57,877 1.98
1996 50,027 19.490 977,110 1.90 - - - -
1995 46,893 17.310 812,732 1.92 - - - -
1994 35,695 13.215 471,773 1.94 - - - -
High Income Fund
December 31,
1998 14,987 21.208 317,865 1.93 4,191 21.020 88,069 2.02
1997 18,871 21.312 402,167 1.93 2,202 21.141 46,545 2.02
1996 20,736 19.375 402,379 1.94 - - - -
1995 18,756 17.252 323,580 1.96 - - - -
1994 15,679 14.608 229,026 2.00 - - - -
Income Securities Fund
December 31,
1998 39,420 25.122 990,325 1.89 4,239 24.898 105,543 1.98
1997 49,811 25.065 1,248,520 1.90 2,094 24.864 52,069 1.99
1996 57,504 21.708 1,251,844 1.90 - - - -
1995 59,309 19.785 1,175,143 1.91 - - - -
1994 56,569 16.392 927,343 1.94 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets to Average
(in thousands) Unit Value (in thousands)Net Assets* (in thousands) Unit Value (in thousands)Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
December 31,
1998 22,032 $14.386 $ 316,921 1.85% 4,342 $14.260 $ 61,911 1.94%
1997 20,892 13.865 290,904 1.85 3,214 13.756 44,200 1.94
1996 28,060 13.359 375,629 1.83 - - - -
1995 31,040 12.883 399,935 1.80 - - - -
1994 39,437 12.354 487,239 1.86 - - - -
Mutual Discovery
Securities Fund
December 31,
1998 9,718 11.226 109,094 2.40 8,822 11.205 98,842 2.49
1997 9,940 11.983 119,104 2.46 5,461 11.971 65,375 2.55
19963 1,471 10.180 15,074 2.77+ - - - -
Mutual Shares
Securities Fund
December 31,
1998 18,133 11.837 214,642 2.17 19,834 11.814 234,337 2.26
1997 18,744 11.993 224,796 2.20 11,394 11.981 136,521 2.29
19963 2,613 10.330 27,141 2.40+ - - - -
Natural Resources
Securities Fund
December 31,
1998 4,453 8.505 37,878 2.04 514 8.430 4,332 2.13
1997 5,709 11.559 65,992 2.09 304 11.466 3,482 2.18
1996 6,998 14.467 101,248 2.05 - - - -
1995 6,919 14.109 97,630 2.06 - - - -
1994 8,285 13.979 115,828 2.08 - - - -
Real Estate Securities Fund
December 31,
1998 9,639 23.107 222,740 1.94 1,823 22.901 41,773 2.03
1997 13,445 28.169 378,751 1.94 1,217 27.944 34,023 2.03
1996 12,757 23.668 301,974 1.97 - - - -
1995 10,998 18.073 198,773 1.99 - - - -
1994 11,645 15.594 181,599 2.02 - - - -
Rising Dividends Fund
December 31,
1998 27,683 21.165 585,952 2.12 4,428 21.034 93,151 2.21
1997 33,249 20.074 667,473 2.14 1,991 19.968 39,752 2.23
1996 35,569 15.303 545,127 2.16 - - - -
1995 33,789 12.498 422,992 2.18 - - - -
1994 28,778 9.769 281,145 2.20 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets to Average
(in thousands) Unit Value (in thousands)Net Assets* (in thousands) Unit Value (in thousands)Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap Fund
December 31,
1998 14,856 $14.600 $ 216,872 2.17% 5,492 $14.558 $ 79,977 2.26%
1997 16,925 14.952 253,045 2.17 2,965 14.923 44,268 2.26
1996 12,784 12.913 165,578 2.17 - - - -
19954 1,302 10.146 13,260 2.30+ - - - -
Templeton Developing
Markets Equity Fund
December 31,
1998 15,989 7.993 127,804 2.81 3,425 7.958 27,259 2.90
1997 23,005 10.340 237,895 2.82 2,663 10.305 27,448 2.91
1996 22,423 11.487 259,346 2.89 - - - -
1995 15,618 9.582 150,481 2.81 - - - -
19945 9,774 9.454 92,469 2.93+ - - - -
Templeton Global Asset
Allocation Fund
December 31,
1998 4,056 13.589 55,102 2.24 1,491 13.543 20,200 2.33
1997 5,229 13.786 72,082 2.34 1,008 13.752 13,864 2.43
1996 4,104 12.514 52,117 2.26 - - - -
19956 1,338 10.591 14,234 2.30+ - - - -
Templeton Global
Growth Fund
December 31,
1998 34,226 16.309 558,162 2.28 8,864 16.238 143,943 2.37
1997 41,433 15.176 628,785 2.28 5,525 15.124 83,558 2.37
1996 40,327 13.560 550,066 2.33 - - - -
1995 28,309 11.339 322,284 2.37 - - - -
19945 14,637 10.201 149,393 2.54+ - - - -
Templeton Global Income
Securities Fund
December 31,
1998 6,976 17.905 124,899 2.03 651 17.746 11,582 2.12
1997 9,434 16.957 159,973 2.02 393 16.821 6,620 2.11
1996 11,857 16.781 198,968 2.01 - - - -
1995 14,181 15.522 220,143 2.04 - - - -
1994 16,855 13.726 231,368 2.11 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets to Average
(in thousands) Unit Value (in thousands)Net Assets* (in thousands) Unit Value (in thousands)Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton International
Equity Fund
December 31,
1998 44,256 $18.437 $ 815,915 2.28% 4,427 $18.322 $ 81,113 2.37%
1997 58,179 17.711 1,030,420 2.29 3,122 17.617 55,008 2.38
1996 64,375 16.081 1,036,583 2.29 - - - -
1995 59,883 13.263 794,670 2.32 - - - -
1994 60,464 12.161 735,339 2.39 - - - -
Templeton International
Smaller Companies Fund
December 31,
1998 1,533 9.364 14,354 2.50 967 9.342 9,037 2.59
1997 1,998 10.825 21,626 2.46 792 10.809 8,557 2.55
19961 1,388 11.145 15,527 2.18+ - - - -
Templeton Pacific
Growth Fund
December 31,
1998 10,669 8.078 86,200 2.50 655 8.028 5,274 2.59
1997 15,833 9.431 149,327 2.43 379 9.381 3,566 2.52
1996 22,061 14.932 330,159 2.39 - - - -
1995 22,483 13.630 306,843 2.41 - - - -
1994 27,231 12.802 348,655 2.47 - - - -
U.S. Government Securities Fund
December 31,
1998 30,500 19.014 579,909 1.90 3,040 18.847 57,334 1.99
1997 36,347 17.947 652,317 1.90 1,359 17.805 24,222 1.99
1996 44,598 16.650 742,973 1.91 - - - -
1995 34,313 16.298 559,234 1.92 - - - -
1994 36,490 13.835 504,837 1.93 - - - -
Value Securities Fund
December 31,
19982 719 7.717 5,542 2.52+ 367 7.713 2,834 2.61+
Zero Coupon Fund - 2000
December 31,
1998 3,595 20.684 74,353 1.80 188 20.502 3,815 1.89
1997 4,523 19.512 88,260 1.80 94 19.358 1,801 1.89
1996 5,636 18.475 104,125 1.80 - - - -
1995 6,066 18.294 110,965 1.80 - - - -
1994 4,953 15.373 76,140 1.80 - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. UNIT VALUES (cont.)
Valuemark II & III Valuemark IV
- ---------------------------------------------------------------------------------------------------------------------------
Accumulation Ratio of Accumulation Ratio of
Units Expenses Units Expenses
Outstanding Accumulation NetAssets to Average Outstanding Accumulation NetAssets to Average
(in thousands) Unit Value (in thousands)Net Assets* (in thousands) Unit Value (in thousands)Net Assets*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zero Coupon Fund - 2005
December 31,
1998 2,635 $25.003 $ 65,876 1.80% 380 $24.786 $ 9,402 1.89%
1997 2,910 22.532 65,573 1.80 161 22.357 3,585 1.89
1996 3,579 20.517 73,434 1.80 - - - -
1995 3,504 20.914 73,292 1.80 - - - -
1994 2,780 16.096 44,756 1.80 - - - -
Zero Coupon Fund - 2010
December 31,
1998 2,582 27.920 72,114 1.80 478 27.674 13,233 1.89
1997 2,998 24.740 74,199 1.80 150 24.544 3,676 1.89
1996 3,297 21.522 70,969 1.80 - - - -
1995 3,437 22.431 77,136 1.80 - - - -
1994 2,589 15.930 41,255 1.80 - - - -
<FN>
*For the year ended December 31, including the effect of the expenses of the underlying funds.
+Annualized.
1Period from May 1, 1996 (fund commencement) to December 31, 1996.
2Period from May 1, 1998 (fund commencement) to December 31, 1998.
3Period from November 8, 1996 (fund commencement) to December 31, 1996.
4Period from November 1, 1995 (fund commencement) to December 31, 1995.
5Period from March 15, 1994 (fund commencement) to December 31, 1994.
6Period from May 1, 1995 (fund commencement) to December 31, 1995.
</FN>
</TABLE>
ALLIANZ LIFE INSURANCE
COMPANY OF NORTH AMERICA
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Independent Auditors' Report
The Board of Directors
Allianz Life Insurance Company of North America:
We have audited the accompanying consolidated balance sheets of Allianz Life
Insurance Company of North America and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Allianz
Life Insurance Company of North America and subsidiaries as of December 31, 1998
and 1997, and the results of their operations, changes in stockholder's equity
and cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at fair value $ 2,538,291 2,705,210
Equity securities, at fair value 512,404 442,607
Mortgage loans on real estate 457,128 318,683
Certificates of deposit and short-term securities 166,366 117,124
Policy loans 7,118 5,695
Other invested assets 95,746 51,863
Investment in LifeUSA Holdings Inc. 80,928 0
- ---------------------------------------------------------------------------------------------------------------------------
Total investments 3,857,981 3,641,182
Cash 67,195 26,871
Accrued investment income 36,649 38,345
Receivables (net of allowance for uncollectible accounts of $3,254 in 1998 and $3,122 in 1997) 323,971 262,676
Reinsurance receivable:
Funds held on deposit 1,170,170 1,145,210
Recoverable on future policy benefit reserves 1,191,098 1,120,663
Recoverable on unpaid claims 293,179 219,443
Receivable on paid claims 24,986 31,158
Deferred acquisition costs 930,059 927,080
Other assets 35,755 34,475
Federal income tax recoverable 4,060 20,761
- ---------------------------------------------------------------------------------------------------------------------------
Assets, exclusive of separate account assets 7,935,103 7,467,864
Separate account assets 9,915,150 10,756,929
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $17,850,253 18,224,793
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Balance Sheets (cont.)
December 31, 1998 and 1997
(in thousands)
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Future benefit reserves:
Life $ 1,445,844 1,297,269
Annuity 3,588,491 3,251,829
Policy and contract claims 770,846 607,011
Unearned premiums 53,778 50,168
Reinsurance payable 129,397 111,684
Deferred income on reinsurance 106,065 115,688
Deferred income taxes 257,903 228,861
Accrued expenses 91,631 93,341
Commissions due and accrued 41,000 39,517
Other policyholder funds 20,586 30,208
Other liabilities 89,038 424,696
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities, exclusive of separate account liabilities 6,594,579 6,250,272
Separate account liabilities 9,915,150 10,756,929
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 16,509,729 17,007,201
Stockholder's equity:
Common stock, $1 par value, 20 million shares authorized, issued and outstanding 20,000 20,000
Preferred stock, $1 par value, cumulative, 200 million shares authorized,
No shares outstanding in 1998, 25 million shares outstanding in 1997 0 25,000
Additional paid-in capital 407,088 407,088
Retained earnings 673,857 574,447
Accumulated other comprehensive income 239,579 191,057
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,340,524 1,217,592
Commitments and contingencies (notes 6, 12 and 13)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $17,850,253 18,224,793
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance premiums $ 416,199 339,841 284,084
Other life policy considerations 52,668 83,816 85,747
Annuity considerations 222,632 219,262 170,656
Accident and health premiums 773,570 747,718 603,230
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums and considerations 1,465,069 1,390,637 1,143,717
Premiums and annuity considerations ceded 411,316 438,018 277,163
- ---------------------------------------------------------------------------------------------------------------------------
Net premiums and considerations 1,053,753 952,619 866,554
Investment income, net 217,066 162,350 222,622
Realized investment gains 89,226 61,488 28,561
Equity in earnings of LifeUSA Holdings Inc. 2,207 0 0
Other 75,967 53,760 6,193
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 1,438,219 1,230,217 1,123,930
Benefits and expenses:
Life insurance benefits 461,891 336,090 281,441
Annuity benefits 251,463 206,189 153,238
Accident and health insurance benefits 623,640 566,746 434,793
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits 1,336,994 1,109,025 869,472
Benefit recoveries 501,719 426,607 249,552
- ---------------------------------------------------------------------------------------------------------------------------
Net benefits 835,275 682,418 619,920
Commissions and other agent compensation 322,697 310,665 267,714
General and administrative expenses 116,007 106,744 99,018
Taxes, licenses and fees 15,848 20,605 19,959
Increase in deferred acquisition costs, net (2,979) (63,742) (36,344)
- ---------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,286,848 1,056,690 970,267
Income from operations before income taxes 151,371 173,527 153,663
Income tax expense:
Current 48,410 31,571 21,936
Deferred 2,822 28,283 30,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense 51,232 59,854 52,495
Net income $ 100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $100,139 113,673 101,168
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax benefit of $949, $525, and $10 in
1998, 1997, and 1996 respectively (1,761) (975) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on fixed maturities and equity securities:
Unrealized holding gains (losses) arising during the period net of tax expense (benefit)
of $57,703, $71,594 and $(10,289) in 1998, 1997, and 1996 respectively 107,162 132,961 (19,107)
Reclassification adjustment for gains included in net income, net of tax expense of
$30,627, $21,588, and $9,401 in 1998, 1997, and 1996 respectively (56,879) (40,093) (17,460)
- ---------------------------------------------------------------------------------------------------------------------------
Total unrealized holding gains (losses) 50,283 92,868 (36,567)
Total other comprehensive income (loss) 48,522 91,893 (36,585)
Total comprehensive income $148,661 205,566 64,583
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1998,
1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 20,000 20,000 20,000
- ---------------------------------------------------------------------------------------------------------------------------
Preferred stock:
Balance at beginning of year 25,000 25,000 25,000
Redemption of stock during the year (25,000) 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 0 25,000 25,000
Additional paid-in capital:
Balance at beginning and end of year 407,088 407,088 407,088
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 574,447 462,925 363,357
Net income 100,139 113,673 101,168
Cash dividend to stockholder (729) (2,151) (1,600)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 673,857 574,447 462,925
Accumulated other comprehensive income:
Accumulated unrealized holding gain:
Balance at beginning of year 195,505 102,637 139,204
Net unrealized gain (loss) on investments during the year, net of deferred federal income taxes 50,283
92,868 (36,567)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 245,788 195,505 102,637
Accumulated unrealized foreign currency (loss):
Balance at beginning of year (4,448) (3,473) (3,455)
Net unrealized (loss) on foreign currency translation during the year,
net of deferred federal income taxes (1,761) (975) (18)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (6,209) (4,448) (3,473)
Total accumulated comprehensive income 239,579 191,057 99,164
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity $1,340,524 1,217,592 1,014,177
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows
December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Realized investment gains (89,226) (61,488) (28,561)
Deferred federal income tax expense 2,822 28,283 30,559
Charges to policy account balances (104,681) (148,159) (87,865)
Interest credited to policy account balances 262,956 251,182 202,243
Change in:
Accrued investment income 1,696 (2,215) 728
Receivables (61,295) (107,398) (30,578)
Reinsurance receivables (162,959) (1,205,410) (76,003)
Deferred acquisition costs (2,979) (63,742) (36,344)
Future benefit reserves 25,183 138,370 71,193
Policy and contract claims and other policyholder funds 154,213 92,230 37,055
Unearned premiums 3,610 17,992 (2,005)
Reinsurance payable 17,713 68,725 24,019
Current tax recoverable 16,701 (8,306) (8,508)
Accrued expenses and other liabilities 14,797 12,113 15,506
Commissions due and accrued 1,483 2,414 14,124
Depreciation and amortization (12,711) (13,312) (25,874)
Equity in earnings of LifeUSA Holdings Inc. (2,207) 0 0
Other, net 94 18 (1,568)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments 65,210 (998,703) 98,121
Net cash provided by (used in) operating activities 165,349 (885,030) 199,289
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Financial Statements (continued)
Consolidated Statements of Cash Flows (cont.)
Years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities 165,349 (885,030) 199,289
Cash flows provided by (used in) investing activities:
Purchase of fixed maturities $(1,256,653) (1,748,950)(1,324,676)
Purchase of equity securities (1,518,096) (1,699,847) (137,304)
Purchase of stock in LifeUSA Holdings, Inc. (79,091) 0 0
Funding of mortgage loans (168,870) (103,626) (70,265)
Sale of fixed maturities 1,460,969 1,921,534 1,043,748
Matured fixed maturities 28,152 1,150 2,711
Sale of equity securities 1,560,695 1,691,789 122,788
Repayment of mortgage loans 29,105 29,520 23,317
Net change in certificates of deposit and short-term securities (49,242) 87,848 (173,471)
Other (46,256) 82,797 (20,566)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (39,287) 262,215 (533,718)
Cash flows provided by (used in) financing activities:
Policyholders' deposits to account balances $ 864,446 748,430 591,926
Policyholders' withdrawals from account balances (562,667) (524,579) (384,550)
Change in assets held under reinsurance agreements 7,876 150,526 0
Funds borrowed (repaid) on dollar reverse repurchase agreements, net (369,664) 239,468 130,196
Redemption of preferred stock (25,000) 0 0
Cash dividends paid (729) (2,151) (1,600)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (85,738) 611,694 335,972
Net change in cash 40,324 (11,121) 1,543
Cash at beginning of year 26,871 37,992 36,449
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 67,195 26,871 37,992
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies
Allianz Life Insurance Company of North America (the Company) is a wholly owned
subsidiary of Allianz of America, Inc. (AZOA), a majority-owned subsidiary of
Allianz A.G. Holding, a Federal Republic of Germany company.
The Company is a life insurance company which is licensed to sell group and
individual life, annuity and accident and health policies in the United States,
Canada and several U.S. territories. Based on 1998 net revenues and
considerations, 36%, 16% and 48% of the Company's business is life, annuity and
accident and health, respectively. The Company's primary distribution channels
are through strategic alliances with other insurance companies and third party
marketing organizations. The Company has a significant relationship with The
Franklin Templeton Group and its broker/dealer network related to sales of its
variable life and variable annuity products and another significant
administration, marketing and reinsurance relationship with LifeUSA Holding Inc.
(LifeUSA), a publicly traded insurance company in which it holds a 21.4%
ownership interest at December 31, 1998.
Following is a summary of the significant accounting policies reflected in the
accompanying consolidated financial statements.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) which vary in certain respects
from accounting rules prescribed or permitted by state insurance regulatory
authorities. The accounts of the Company's major subsidiary, Preferred Life
Insurance Company of New York and other less significant subsidiaries have been
consolidated. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported assets
and liabilities including reporting or disclosure of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period.
Actual results could vary significantly from management's estimates.
Traditional Life, Group Life and Group Accident and Health Insurance
Traditional life products include products with guaranteed premiums and benefits
and consist principally of whole life and term insurance policies, limited
payment contracts and certain annuity products with life contingencies.
Premiums on traditional life and group life products are recognized as income
when due. Group accident and health premiums are recognized as earned on a pro
rata basis over the risk coverage periods. Benefits and expenses for traditional
and group products are matched with earned premiums so that profits are
recognized over the premium paying periods of the contracts. This matching is
accomplished by establishing provisions for future policy benefits and policy
and contract claims, and deferring and amortizing related policy acquisition
costs.
Nontraditional and Variable Life and Annuity Business
Nontraditional and variable life insurance and interest sensitive contracts that
have significant mortality or morbidity risk are accounted for in accordance
with the retrospective deposit method. Interest sensitive contracts that do not
have significant mortality or morbidity risk are accounted for in a manner
consistent with interest bearing financial instruments. For both types of
contracts, premium receipts are reported as deposits to the contractholder's
account while revenues consist of amounts assessed against contractholders
including surrender charges and earned administrative service fees. Mortality or
morbidity charges are also accounted for as revenue on those contracts
containing mortality or morbidity risk. Benefits consist of interest credited to
contractholder's accounts and claims or benefits incurred in excess of the
contractholder's balance.
Deferred Acquisition Costs
Acquisition costs, consisting of commissions and other costs which vary with and
are primarily related to production of new business, are deferred. For
traditional life and group life products, such costs are amortized over the
revenue-producing period of the related policies using the same actuarial
assumptions used in computing future policy benefit reserves. Acquisition costs
for accident and health insurance
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Deferred Acquisition Costs (cont.)
policies are deferred and amortized over the lives of the policies in the same
manner as premiums are earned. For interest sensitive products, acquisition
costs are amortized in relation to the present value of expected future gross
profits from investment margins and mortality, morbidity and expense charges.
Deferred acquisition costs amortized during 1998, 1997 and 1996 were $202,644,
$219,266, and $137,618, respectively.
Future Policy Benefit Reserves
Future policy benefit reserves on traditional life products are computed by the
net level premium method based upon estimated future investment yield, mortality
and withdrawal assumptions, commensurate with the Company's experience, modified
as necessary to reflect anticipated trends, including possible unfavorable
deviations. Most life reserve interest assumptions range from 7.5% to 5.5%.
Future policy benefit reserves for interest sensitive products are generally
carried at accumulated contract values. Reserves on some deferred annuity
contracts are computed based on contractholder cash value accumulations,
adjusted for mortality, withdrawal and interest margin assumptions.
Fair values of investment contracts, which include deferred annuities and other
annuities without significant mortality risk, were determined by testing amounts
payable on demand against discounted cash flows using interest rates
commensurate with the risks involved. Fair values are based on the amount
payable on demand at December 31.
Policy and Contract Claims
Policy and contract claims represent an estimate of claims and claim adjustment
expenses that have been reported but not yet paid and incurred but not yet
reported as of December 31.
Reinsurance
Insurance liabilities are reported before the effects of reinsurance. Amounts
paid or deemed to have been paid for claims covered by reinsurance contracts are
recorded as reinsurance receivable. Reinsurance receivables are recognized in a
manner consistent with the liabilities related to the underlying reinsured
contracts.
Investments
The Company has classified all of its fixed maturity and equity portfolio as
"available-for-sale" and, accordingly, the securities are carried at fair value.
Short-term investments are carried at amortized cost, which approximates market
value. Policy loans are reflected at their unpaid principal balances. Mortgage
loans are reflected at unpaid principal balances adjusted for premium and
discount amortization and an allowance for uncollectible balances. The Company
analyzes loan impairment at least once a year when assessing the adequacy of the
allowance for possible credit losses. The Company does not accrue interest on
impaired loans and accounts for interest income on such loans on a cash basis.
The Company accounts for its investment in LifeUSA under the equity method of
accounting and carries its investment at cost, adjusted for its share of
LifeUSA's earnings, amortization of goodwill and dividends received. The
difference between the cost of the investment and underlying equity is amortized
into net income over ten years.
Realized gains and losses are computed based on the specific identification
method.
As of December 31, 1998 and 1997, investments with a carrying value of $116,197
and $103,590, respectively, were held on deposit with various insurance
departments and in other trusts as required by statutory regulations.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Investments (cont.)
The fair values of invested assets, excluding investments in real estate, are
deemed by management to approximate their estimated market values. The fair
value of mortgage loans has been calculated using discounted cash flows and is
based on pertinent information available to management as of year-end. Policy
loan balances which are supported by the underlying cash value of the policies
approximate fair value. Changes in market conditions subsequent to year-end may
cause estimates of fair values to differ from the amounts presented herein.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Separate Accounts
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the policyholders and contractholders. Each
account has specific investment objectives and the assets are carried at fair
value. The assets of each account are legally segregated and are not subject to
claims which arise out of any other business of the Company.
Fair values of separate account assets were determined using the market value of
the underlying investments held in segregated fund accounts. Fair values of
separate account liabilities were determined using the cash surrender values of
the policyholder's and contractholder's account.
Receivables
Receivable balances approximate estimated fair values. This is based on
pertinent information available to management as of year-end including the
financial condition and credit worthiness of the parties underlying the
receivables. Changes in market conditions subsequent to year-end may cause
estimates of fair values to differ from the amounts presented herein.
Accounting Changes
In 1998, the Company adopted Statement of Financial Accounting Standard (SFAS)
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. No adjustments were made to the
consolidated financial statements upon adoption of these pronouncements.
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. A
Consolidated Statement of ComprehensiveIncome is now included in these
financial statements.
Accounting Pronouncements to be Adopted
In December 1997, the AICPA issued Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments. The SOP
provides guidance for determining when to recognize a liability for guaranty
fund assessments, how to measure the liability and for determining when an asset
may be recognized for premium tax offset recoveries. The SOP is effective for
years beginning after December 15, 1998. The Company will adopt SOP 97-3 on
January 1, 1999. Adoption of this SOP is not expected to have a significant
impact on the consolidated financial statements.
In February 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The SOP provides
guidance for determining whether computer software is in fact internal-use
software and offers guidelines on accounting for the proceeds of computer
software originally developed or obtained for internal use and subsequently
marketed and sold to the public. The
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(1) Summary of Significant Accounting Policies (cont.)
Accounting Pronouncements to be Adopted (cont.)
SOP applies to all non-government entities and is effective for years beginning
after December 15, 1998. The Company will adopt SOP 98-1 on January 1, 1999.
Adoption of this SOP is not expected to have a significant impact on the
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards for derivative financial
instruments and other similar financial instruments and for hedging activities.
The statement is effective for fiscal years beginning after June 15, 1999. The
Company will adopt SFAS No. 133 on January 1, 2000. Adoption of this statement
is not expected to have a significant impact on the consolidated financial
statements.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
<TABLE>
(2) Investments
Investments at December 31, 1998 consist of:
Amount
shown on
Amortized Estimated consolidated
cost fair balance
or cost value sheet
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
U.S. government $ 274,813 311,296 311,296
States and political subdivisions 94,640 101,121 101,121
Foreign government 34,652 36,731 36,731
Public utilities 66,236 71,982 71,982
Corporate securities 1,441,359 1,498,702 1,498,702
Mortgage backed securities 401,505 428,304 428,304
Collateralized mortgage obligations 80,599 90,155 90,155
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $2,393,804 2,538,291 2,538,291
Equity securities:
Common stocks:
Banks, trusts and insurance companies 18,824 31,194 31,194
Industrial and miscellaneous 252,122 469,566 469,566
Nonredeemable preferred stocks 7,807 11,644 11,644
- ---------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 278,753 512,404 512,404
Other investments:
Mortgage loans on real estate 457,128 XXXXXXXXX 457,128
Certificates of deposit and short-term securities 166,366 XXXXXXXXX 166,366
Policy loans 7,118 XXXXXXXXX 7,118
Other invested assets 95,746 XXXXXXXXX 95,746
Investment in LifeUSA Holdings Inc. 80,928 XXXXXXXXX 80,928
- ---------------------------------------------------------------------------------------------------------------------------
Total other investments $ 807,286 XXXXXXXXX 807,286
Total investments $3,479,843 XXXXXXXXX 3,857,981
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(2) Investments (cont.)
At December 31, 1998 and 1997, the amortized cost, gross unrealized gains, gross
unrealized losses and estimated fair values of securities are as follows:
Amortized Gross Gross Estimated
cost unrealized unrealized fair
or cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. government $ 274,813 36,717 234 311,296
States and political subdivisions 94,640 6,481 0 101,121
Foreign government 34,652 2,079 0 36,731
Public utilities 66,236 5,948 202 71,982
Corporate securities 1,441,359 67,234 9,891 1,498,702
Mortgage backed securities 401,505 26,799 0 428,304
Collateralized mortgage obligations 80,599 10,141 585 90,155
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,393,804 155,399 10,912 2,538,291
Equity securities 278,753 245,913 12,262 512,404
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,672,557 401,312 23,174 3,050,695
1997:
U.S. government 499,652 29,191 186 528,657
States and political subdivisions 82,287 3,561 19 85,829
Foreign government 35,858 1,876 0 37,734
Public utilities 44,151 4,086 0 48,237
Corporate securities 1,206,392 60,016 15,876 1,250,532
Mortgage backed securities 628,307 35,584 0 663,891
Collateralized mortgage obligations 86,246 4,086 2 90,330
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 2,582,893 138,400 16,083 2,705,210
Equity securities 264,144 205,632 27,169 442,607
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,847,037 344,032 43,252 3,147,817
- ---------------------------------------------------------------------------------------------------------------------------
The changes in unrealized gains on fixed maturity securities were $22,170,
$58,422, and $(97,973) in each of the years ended December 31, 1998, 1997 and
1996, respectively.
The changes in unrealized gains in equity investments, which include common
stocks and nonredeemable preferred stocks were $55,188, $84,718, and $40,895 for
the years ended December 31, 1998, 1997 and 1996, respectively.
The amortized cost and estimated fair value of fixed maturities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
</TABLE>
<TABLE>
Amortized Estimated
cost fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 19,578 19,831
Due after one year through five years 542,463 558,635
Due after five years through ten years 700,012 741,834
Due after ten years 649,647 699,532
Mortgage backed securities and collateralized mortgage obligations 482,104 518,459
- ---------------------------------------------------------------------------------------------------------------------------
Totals $2,393,804 2,538,291
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(2) Investments (cont.)
Gross gains of $105,723, $70,335, and $43,696 and gross losses of $18,217,
$8,654, and $16,834 were realized on sales of securities in 1998, 1997 and 1996,
respectively.
Net realized investment gains (losses) for the respective years ended December
31 are summarized as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities, at market $30,299 40,268 8,897
Equity securities 57,207 21,413 17,964
Mortgage loans (1,320) (982) (1,129)
Real estate 3,133 635 3,104
Other (93) 154 (275)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains before taxes 89,226 61,488 28,561
Tax expense on net realized gains 31,229 21,521 9,996
- ---------------------------------------------------------------------------------------------------------------------------
Net gains after taxes $57,997 39,967 18,565
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first two months of 1998 and all of 1997, the Company entered into
mortgage backed security reverse repurchase transactions ("dollar rolls") with
certain securities dealers. Under this program, the Company sold certain
securities for delivery in the current month and simultaneously contracted with
the same dealer to repurchase similar, but not identical, securities on a
specified future date. The Company gave up the right to receive principal and
interest on the securities sold. As of December 31, 1998 there were no
outstanding amounts under the Company's dollar roll program. As of December 31,
1997, mortgage backed securities underlying such agreements were carried at a
market value of $350,985 and other liabilities were $369,664 for funds received
under these agreements. Average balances outstanding for the first two months of
1998 and all of 1997, respectively were $120,525 and $183,530 and weighted
average interest rates were 6.5% and 7.2%. The maximum balance outstanding
during 1998 and 1997 was $120,525 and $369,664, respectively.
The valuation allowances on mortgage loans at December 31, 1998, 1997 and 1996
and the changes in the allowance for the years then ended are summarized as
follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Beginning of Year $8,279 7,279 10,487
Charged to operations 1,320 1,000 0
Recoveries 0 0 (3,208)
- ---------------------------------------------------------------------------------------------------------------------------
End of Year $9,599 8,279 7,279
- ---------------------------------------------------------------------------------------------------------------------------
Major categories of net investment income for the respective years ended
December 31 are:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest:
Fixed maturities $155,397 211,335 178,664
Mortgage loans 34,449 25,232 19,267
Policy loans 497 6,526 7,013
Short-term investments 15,022 12,804 10,688
Dividends:
Preferred stock 668 748 818
Common stock 5,190 4,603 4,527
Interest on assets held by reinsurers 8,272 8,858 9,709
Other invested assets 8,637 9,438 5,344
- ---------------------------------------------------------------------------------------------------------------------------
Total investment income 228,132 279,544 236,030
Investment expenses related to coinsurance agreement (note 6) 2,689 98,417 0
Investment expenses 8,377 18,777 13,408
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $217,066 162,350 222,622
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(3) Summary Table of Fair Value Disclosures
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets Fixed maturities, at market:
U.S. Government $ 311,296 311,296 528,657 528,657
States and political subdivisions 101,121 101,121 85,829 85,829
Foreign governments 36,731 36,731 37,734 37,734
Public utilities 71,982 71,982 48,237 48,237
Corporate securities 1,546,342 1,546,342 1,250,532 1,250,532
Mortgage backed securities 380,664 380,664 663,891 663,891
Collateralized mortgage obligations 90,155 90,155 90,330 90,330
Equity securities 512,404 512,404 442,607 442,607
Mortgage loans 457,128 495,202 318,683 333,540
Short term investments 166,366 166,366 117,124 117,124
Policy loans 7,118 7,118 5,695 5,695
Other long term investments 95,746 95,746 51,863 51,863
Investment in LifeUSA Holdings Inc. 80,928 68,290 0 0
Receivables 323,971 323,971 262,676 262,676
Separate accounts assets 9,915,150 9,915,150 10,756,92910,756,929
Financial liabilities
Investment contracts 3,645,657 3,035,787 3,536,690 2,945,366
Separate account liabilities 9,915,150 9,765,791 10,756,92910,565,205
Dollar reverse repurchase agreements 0 0 369,664 369,664
See Note 1 "Summary of Significant Accounting Policies" for description of the
methods and significant assumptions used to estimate fair values.
(4) Receivables
Receivables at December 31 consist of the following:
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums due $270,657 207,293
Agents balances 10,088 3,186
Related party receivables 3,852 1,445
Reinsurance commission receivable 8,022 23,921
Scholarship enrollment fees 12,010 8,401
Due from administrators 13,271 13,630
Other 6,071 4,800
- ---------------------------------------------------------------------------------------------------------------------------
Total receivables $323,971 262,676
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(5) Accident and Health Claims Reserves
Accident and health claims reserves are based on estimates which are subject to
uncertainty. Uncertainty regarding reserves of a given accident year is
gradually reduced as new information emerges each succeeding year, thereby
allowing more reliable re-evaluations of such reserves. While management
believes that reserves as of December 31, 1998 are adequate, uncertainties in
the reserving process could cause such reserves to develop favorably or
unfavorably in the near term as new or additional information emerges. Any
adjustments to reserves are reflected in the operating results of the periods in
which they are made. Movements in reserves which are small relative to the
amount of such reserves could significantly impact future reported earnings of
the Company.
Activity in the accident and health claims reserves, exclusive of long term
care, hospital indemnity and AIDS reserves of $9,918, $12,479, and $14,348 in
1998, 1997 and 1996, respectively, is summarized as follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, net of reinsurance recoverables of $141,033,
$124,320, and $99,292 $312,886 273,813 240,602
Incurred related to:
Current year 417,042 346,901 279,717
Prior years (12,217) (12,087) (11,642)
- ---------------------------------------------------------------------------------------------------------------------------
Total incurred 404,825 334,814 268,075
Paid related to:
Current year 204,100 150,942 107,842
Prior years 147,186 144,798 127,022
- ---------------------------------------------------------------------------------------------------------------------------
Total paid 351,286 295,740 234,864
Balance at December 31, net of reinsurance recoverables of $128,764,
$141,033, and $124,320 $366,425 312,887 273,813
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to lower than anticipated losses related to prior years, the provision for
claims and claim adjustment expenses decreased.
(6) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
risks under excess coverage and coinsurance contracts. The Company retains a
maximum of $1 million coverage per individual life. Reinsurance contracts do not
relieve the Company from its obligations to policyholders. Failure of reinsurers
to honor their obligations could result in losses to the Company. The Company
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk to minimize its exposure to significant losses from reinsurer
insolvencies.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(6) Reinsurance (cont.)
<TABLE>
Life insurance, annuities and accident and health business assumed from and
ceded to other companies is as follows:
Percentage
Assumed Ceded of amount
Direct from other to other Net assumed
Year ended amount companies companies amount to net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance in force $34,118,554 98,832,792 19,483,581 113,467,765 87.1%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 244,416 224,451 93,812 375,055 59.8%
Annuities 220,812 1,820 50,385 172,247 1.1%
Accident and health 479,237 294,333 267,119 506,451 58.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 944,465 520,604 411,316 1,053,753 49.4%
December 31, 1997:
Life insurance in force $32,234,241 72,682,842 19,873,094 85,043,989 85.5%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 252,859 170,798 110,579 313,078 54.6%
Annuities 217,353 1,910 30,789 188,474 1.0%
Accident and health 436,105 311,612 296,650 451,067 69.1%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 906,317 484,320 438,018 952,619 50.8%
December 31, 1996:
Life insurance in force $37,527,994 44,073,247 6,126,541 75,474,700 58.4%
- ---------------------------------------------------------------------------------------------------------------------------
Premiums:
Life 235,837 133,994 37,986 331,845 40.4%
Annuities 169,503 1,153 12,769 157,887 0.7%
Accident and health 396,051 207,179 226,408 376,822 55.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total premiums 801,391 342,326 277,163 866,554 39.5%
- ---------------------------------------------------------------------------------------------------------------------------
Included in reinsurance receivables at December 31, 1998 are $1,170,697,
$863,477 and $307,228 recoverable from three insurers who, as of December 31,
1998, were rated A+, A- and A+, respectively, by A.M. Best's Insurance Reports.
A contingent liability exists to the extent that the Company's reinsurers are
unable to meet their contractual obligations. Management is of the opinion that
no liability will accrue to the Company with respect to this contingency.
Effective January 1, 1997, the Company entered into a 100% coinsurance agreement
with an unrelated insurance company to coinsure a block of business with life
insurance inforce of $13,200,000 and 1997 premium of $90,000. The coinsured
block included certain universal life and traditional life insurance policies
and annuity contracts. In connection with this agreement, the Company recognized
a recoverable on future benefit reserves of $1,102,000, received a ceding
commission of $138,500 and transferred assets of $881,000 which support the
business. The unearned ceding commission represents deferred revenue which will
be amortized over the revenue-producing period of the related reinsured
policies. The servicing of the coinsured business was also transferred to a
third party insurer who is also the retrocessionaire of the block. During 1998
and 1997, $15,965 and $22,647, respectively, was amortized and included in other
revenue in the consolidated statements of income. Effective January 1, 1998, the
coinsurance agreement was amended to include another block of business with
future benefit reserves of $66,000, capitalized deferred acquisition costs of
$1,935 and deferred income of $750.
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(6) Reinsurance (cont.)
Of the amounts ceded to others, the Company ceded life insurance inforce of
$2,067,664, $1,163,533, and $381,381 in 1998, 1997 and 1996, respectively, and
life insurance premiums earned of $4,165, $2,538, and $1,293 in 1998, 1997 and
1996, respectively, to its ultimate parent Allianz Aktiengesellshaft. The
Company also ceded accident and health premiums earned to Allianz
Aktiengesellshaft of $2,817, $2,467, and $1,922 in 1998, 1997 and 1996.
<TABLE>
(7) Income Taxes
Income Tax Expense
Total income tax expense (benefit) for the years ended December 31 are as
follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense attributable to operations:
Current tax expenses $48,410 31,571 21,936
Deferred tax expense 2,822 28,283 30,559
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense attributable to operations $51,232 59,854 52,495
Income tax effect on equity:
Income tax allocated to stockholder's equity:
Attributable to unrealized gains and losses for the year 26,127 49,748 (19,967)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax effect on equity $77,359 109,602 32,528
- ---------------------------------------------------------------------------------------------------------------------------
Components of Income Tax Expense
Income tax expense computed at the statutory rate of 35% varies from tax expense
reported in the Consolidated Statements of Income for the respective years ended
December 31 as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense computed at the statutory rate $52,980 60,735 53,782
Dividends received deductions and tax-exempt interest (3,294) (2,792) (650)
Foreign tax (133) 916 (2,723)
Interest on tax deficiency 900 1,100 261
Other 779 (105) 1,824
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense as reported $51,232 59,854 52,494
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
(7) Income Taxes (cont.)
Components of Deferred Tax Assets and Liabilities on the Balance Sheet
Tax effects of temporary differences giving rise to the significant components
of the net deferred tax liability at December 31 are as follows:
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for post retirement benefits $ 2,223 2,100
Allowance for uncollectible accounts 929 929
Policy reserves 173,414 177,442
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 176,566 180,471
Deferred tax liabilities:
Deferred acquisition costs 272,815 277,627
Net unrealized gain 128,883 102,756
Other 32,771 28,949
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 434,469 409,332
Net deferred tax liability $257,903 228,861
- ---------------------------------------------------------------------------------------------------------------------------
Although realization is not assured, the Company believes it is not necessary to
establish a valuation allowance for the deferred tax asset as it is more likely
than not the deferred tax asset will be realized principally through future
reversals of existing taxable temporary differences and future taxable income.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future reversals of existing taxable
temporary differences and future taxable income are reduced.
The Company files a consolidated federal income tax return with AZOA and all of
its wholly owned subsidiaries. The consolidated tax allocation agreement
stipulates that each company participating in the return will bear its share of
the tax liability pursuant to United States Treasury Department regulations. The
Company and each of its insurance subsidiaries generally will be paid for the
tax benefit on their losses, and any other tax attributes, to the extent they
could have obtained a benefit against their post-1990 separate return taxable
income or tax. Income taxes paid by the Company were $30,808, $39,914, and
$30,946 in 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997 the
Company had a tax recoverable from AZOA of $3,030 and $20,689, respectively.
(8) Related Party Transactions
The Company reimbursed AZOA $2,495, $2,519, and $1,743 in 1998, 1997 and 1996,
respectively, for certain administrative and investment management services
performed. The Company's liability to AZOA for such services was $490 and $437
at December 31, 1998 and 1997, respectively.
The Company shares a data center with affiliated insurance companies. Usage
charges paid to the data center by the Company were $1,019, $2,826, and $3,275
in 1998, 1997 and 1996, respectively. The Company's liability for data center
charges was $377
and $292 at December 31, 1998 and 1997, respectively.
The Company has 200 million authorized shares of preferred stock with a par
value of $1 per share. This preferred stock is issuable in series with the
number of shares, redemption rights and dividend rate designated by the Board of
Directors for each series. Dividends are cumulative at a rate reflective of
prevailing market conditions at time of issue and are payable semiannually.
Dividend payments are restricted by provisions in State of Minnesota statutes.
The Company had 25 million shares of Series A preferred stock outstanding held
by AZOA with a dividend rate of 6.4% and a book value of $25,000. In March 1998,
the Company redeemed and canceled the 25 million shares of Series A preferred
stock issued to AZOA.
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(8) Related Party Transactions (cont.)
As of December 31, 1996, the Company sold to AZOA, without recourse, two
receivables due from third parties amounting to $6,600. These receivables,
valued at $5,827, were repurchased by the Company in 1997.
(9) Investment in LifeUSA
In 1995, in conjunction with an expanded marketing agreement, the Company
provided LifeUSA with $30,000 in exchange for a fifteen year convertible
debenture paying 5% interest for the first five years with the interest rate
reset annually thereafter based on LIBOR plus 1%. In connection with a
definitive agreement signed in January 1998, the Company converted its debenture
to equity, extended the existing marketing agreement between the two companies
to December 31, 2000, and agreed to acquire up to a 35% equity ownership in Life
USA. Two members of the Company's management were named to LifeUSA's board of
directors in January 1998. The Company also retains additional rights of
nomination to LifeUSA's board of directors in the future based on the Company's
proportional ownership.
Acquisition of the Company's equity ownership during 1998 was accomplished
through the following:
o Conversion of the $30,000 debenture for 2.43 million shares of common stock
(conversion price of $12.34 per share);
o Exercise of the Company's preemptive right to purchase 241,846 shares of
common stock at $12.36 per share;
o Purchase of 925,000 shares of common stock from certain members of LifeUSA
management at $16.44 per share;
o Acquisition of an additional 1.3 million shares of common stock in open
market purchases.
o Acquisition of 406,092 shares of common stock at $24.63 per share as part of
a commitment to purchase $100,000 in newly issued common stock in increments of
$10,000 semi-annually over a five year period beginning in August 1998.
As of December 31, 1998, the company held 21.41% of the outstanding common stock
of LifeUSA with an approximate market value of $68,290. The carrying value of
the LifeUSA investment at year-end 1998 is $80,928, which is $20,983 higher than
the current equity in net assets of $59,945.
In February 1999, the Company purchased 395,062 shares of LifeUSA common stock
at $25.31 per share. In addition, the stock purchase agreement was amended to
allow the Company to purchase an additional 300,000 shares on the open market
for one year beyond the original agreement date.
Effective April 1, 1998, the Company began assuming business from LifeUSA. Under
this arrangement, the Company assumes 12.5% of annuity business and 16.7% of
universal life business sold by LifeUSA. As of December 31, 1998, the Company
assumed $40,000 of life and annuity reserves from LifeUSA.
The company has also guaranteed a credit agreement between LTC America Holding,
Inc., a LifeUSA subsidiary, and Norwest Bank. The agreement is for a $15,000
revolving credit line with an interest rate of LIBOR +.75% per annum and a
maturity date of December 21, 2003.
(10) Employee Benefit Plans
The Company participates in the Allianz Primary Retirement Plan (Primary
Retirement Plan), a defined contribution plan. The Company makes contributions
to a money purchase pension plan on behalf of eligible participants. All
employees, excluding agents, are eligible to participate in the Primary
Retirement Plan after two years of service. The contributions are based on a
percentage of the participant's salary with the participants being 100% vested
upon eligibility. It is the Company's policy to fund the plan costs as accrued.
Total pension contributions were $756, $810, and $808 in 1998, 1997 and 1996,
respectively.
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(10) Employee Benefit Plans (cont.)
The Company participates in the Allianz Asset Accumulation Plan (Allianz Plan),
a defined contribution plan sponsored by AZOA. Under the Allianz Plan
provisions, the Company will match from 75% to 100% of eligible employees'
contributions up to a maximum of 6% of a participant's compensation. The total
Company match for Plan participants was 75%, 90% and 100% in 1998, 1997 and
1996, respectively. All employees are eligible to participate after one year of
service and are fully vested in the Company's matching contribution after three
years of service. The Allianz Plan will accept participants' pretax or after-tax
contributions up to 15% of the participant's compensation. It is the Company's
policy to fund the Allianz Plan costs as accrued. The Company has accrued $868,
$1,057, and $1,105 in 1998, 1997 and 1996, respectively, toward planned
contributions.
The Company provides certain postretirement benefits to employees who retired on
or before December 31, 1988 or who were hired before December 31, 1988 and who
have at least ten years of service when they reach age 55. The Company's plan
obligation at December 31, 1998 and 1997 was $6,352 and $6,001, respectively.
This liability is included in "Other liabilities" in the accompanying balance
sheet.
(11) Statutory Financial Data and Dividend Restrictions
Statutory accounting is directed toward insurer solvency and protection of
policyholders. Accordingly, certain items recorded in financial statements
prepared under GAAP are excluded or vary in determining statutory policyholders'
surplus and net gain from operations. Currently, these items include, among
others, deferred acquisition costs, furniture and fixtures, accident and health
premiums receivable which are more than 90 days past due, deferred taxes and
undeclared dividends to policyholders. Additionally, future life and annuity
benefit reserves calculated for statutory accounting do not include provisions
for withdrawals.
The differences between stockholder's equity and net income reported in
accordance with statutory accounting practices and the accompanying consolidated
financial statements as of and for the year ended December 31 are as follows:
<TABLE>
Stockholder's equity Net income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Statutory basis $ 654,371 635,711 35,188 72,343 67,995
Adjustments:
Change in reserve basis (226,145) (255,816) 13,787 (85,110) 13,324
Deferred acquisition costs 930,059 927,080 2,979 63,742 36,344
Net deferred taxes (257,903) (228,861) (2,822) (28,283) (30,559)
Statutory asset valuation reserve 178,011 151,675 0 0 0
Statutory interest maintenance reserve 48,697 34,336 14,361 7,994 1,183
Modified coinsurance reinsurance (2,358) (31,953) 29,595 81,790 5,435
Unrealized gains on investments 158,391 124,754 0 0 0
Nonadmitted assets 14,943 14,824 0 0 0
Deferred income on reinsurance (105,465) (115,688) 0 0 0
Other (52,077) (38,470) 7,051 1,197 7,446
- ---------------------------------------------------------------------------------------------------------------------------
As reported in the accompanying consolidated
financial statements $1,340,524 1,217,592 100,139 113,673 101,168
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is required to meet minimum statutory capital and surplus
requirements. The Company's statutory capital and surplus as of December 31,
1998 and 1997 were in compliance with these requirements. The maximum amount of
dividends that can be paid by Minnesota insurance companies to stockholders
without prior approval of the Commissioner of Commerce is subject to
restrictions relating to statutory earned surplus, also known as unassigned
funds. Unassigned funds are determined in accordance with the accounting
procedures and practices governing preparation of the statutory annual
statement, minus 25% of earned surplus attributable to unrealized capital gains.
In accordance with Minnesota Statutes, the Company may declare and pay from its
surplus, cash dividends of not more than the greater of 10% of its beginning of
the year statutory surplus in any year, or the net gain from operations of the
insurer, not including realized gains,
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(11) Statutory Financial Data and Dividend Restrictions (cont.)
for the 12-month period ending the 31st day of the next preceding year. In 1998
and 1997, the Company paid AZOA dividends on preferred stock in the amount of
$729 and $1,600, respectively. A common stock dividend of $551 was paid in 1997.
Dividends of $63,678 could
be paid in 1999 without prior approval of the Commissioner of Commerce.
Regulatory Risk Based Capital
An insurance enterprise's state of domicile imposes minimum risk-based capital
requirements that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of an enterprise's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. Enterprises below specific triggerpoints or ratios are classified within
certain levels, each of which requires specified corrective action. The levels
and ratios are as follows:
Ratio of total adjusted capital to
authorized control level risk-based
Regulatory Event capital (less than or equal to)
- --------------------------------------------------------------------------------
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
The Company's adjusted capital is in excess of the Company action level as of
December 31, 1998 and 1997.
Permitted Statutory Accounting Practices
The Company is required to file annual statements with insurance regulatory
authorities which are prepared on an accounting basis prescribed or permitted by
such authorities. Currently, prescribed statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a variety
of publications of the NAIC. Permitted statutory accounting practices encompass
all accounting practices that are not prescribed; such practices differ from
state to state, may differ from company to company within a state, and may
change in the future. The Company does not currently use permitted statutory
accounting practices that have a significant impact on its statutory financial
statements. Furthermore, the NAIC has completed a project to codify statutory
accounting practices, the result of which will constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project which is
currently in the process of state adoption, will change the definition of what
comprises prescribed versus permitted statutory accounting practices, and may
result in changes to existing accounting policies insurance enterprises use to
prepare their statutory financial statements.
(12) Commitments and Contingencies
The Company and its subsidiaries are involved in various pending or threatened
legal proceedings arising from the conduct of their business. In the opinion of
management, the ultimate resolution of such litigation will not have a material
effect on the consolidated financial position of the Company.
The Company is contingently liable for possible future assessments under
regulatory requirements pertaining to insolvencies and impairments of
unaffiliated insurance companies. Provision has been made for assessments
currently received and assessments anticipated for known insolvencies.
(13) Year 2000
The Company is expending significant resources to assure that its computer
systems are reprogrammed in time to effectively deal with transactions in the
year 2000 and beyond. Additional costs associated with this effort are not
expected to be material and will be expensed as incurred. This "Year 2000
Computer Problem" creates risk for the Company from unforeseen problems in its
own computer systems and
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
(13) Year 2000 (cont.)
from third parties with whom the Company deals on financial transactions
worldwide. Failures of the Company and/or third parties' computer systems could
have a material impact on the Company's ability to conduct its business and
especially to process and account for the transfer of data and funds
electronically.
(14) Foreign Currency Translation
The net assets of the Company's foreign operations are translated into U.S.
dollars using exchange rates in effect at each year-end. Translation adjustments
arising from differences in exchange rates from period to period are included in
the accumulated foreign currency translation adjustment reported as a separate
component of stockholder's equity. An analysis of this account for the
respective years ended December 31 follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning amount of cumulative translation adjustments $(4,448) (3,473) (3,455)
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate adjustment for the period resulting from translation adjustments (2,710) (1,500) (28)
Amount of income tax benefit for period related to aggregate adjustment 949 525 10
- ---------------------------------------------------------------------------------------------------------------------------
Net aggregate translation included in equity (1,761) (975) (18)
Ending amount of cumulative translation adjustments $(6,209) (4,448) (3,473)
Canadian foreign exchange rate at end of year 0.6535 0.6992 0.7297
</TABLE>
<PAGE>
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(in thousands, except share data)
<TABLE>
(15) Supplementary Insurance Information
The following table summarizes certain financial information by line of business
for 1998, 1997 and 1996:
As of December 31 For the year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
Future policy Other Premium Benefits, Net change
Deferred benefits, policy revenue claims in
policy losses, claims and and other Net losses, and policy Other
acquisitio claims and Unearned benefits contract investment settlement acquisition operating
costs loss expense premiums payable considerations income expenses costs (a) expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life $217,262 1,445,844 3,859 97,647 375,055 34,731 306,318 (27,291) 141,705
Annuities 694,388 3,588,491 0 1,727 172,247 158,458 135,356 23,333 151,719
Accident and health 18,409 0 49,919 671,472 506,451 23,877 393,601 979
161,128
- ---------------------------------------------------------------------------------------------------------------------------
$930,059 5,034,335 53,778 770,846 1,053,753 217,066 835,275 (2,979) 454,552
1997:
Life $189,971 1,297,269 5,215 63,572 313,078 24,352 230,357 (14,363) 99,913
Annuities 717,721 3,251,829 0 1,881 188,474 118,028 124,535 (44,924) 186,789
Accident and health 19,388 0 44,953 487,660 451,067 19,970 327,526 (4,455)
151,312
- ---------------------------------------------------------------------------------------------------------------------------
$927,080 4,549,098 50,168 553,113 952,619 162,350 682,418 (63,742) 438,014
1996:
Life $175,608 1,204,633 5,502 62,369 331,845 89,049 258,221 4,308 103,352
Annuities 672,797 2,879,221 0 1,859 157,887 113,537 105,335 (43,283) 161,002
Accident and health 14,933 0 26,674 374,596 376,822 20,036 256,364 2,631
122,337
- ---------------------------------------------------------------------------------------------------------------------------
$863,338 4,083,854 32,176 438,824 866,554 222,622 619,920 (36,344) 386,691
<FN>
(a) See note 1 for total gross amortization.
</FN>
</TABLE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in Part
B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1998 and 1997.
3. Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - December 31, 1998,
1997 and 1996.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Statements of Assets and Liabilities as of June 30, 1999
(unaudited).
2. Statements of Operations for the period ended June 30, 1999
(unaudited).
3. Statements of Changes in Net Assets for the period ended June 30,
1999 (unaudited).
4. Notes to Financial Statements - June 30, 1999 (unaudited).
5. Independent Auditors' Report.
6. Statements of Assets and Liabilities as of December 31, 1998.
7. Statements of Operations for the year ended December 31, 1998.
8. Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997.
9. Notes to Financial Statements - December 31, 1998.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account(1)
2. Not Applicable
3. Principal Underwriter's Agreement(2)
4. Individual Variable Annuity Contract(1)
4.a. Waiver of Contingent Deferred Sales Charge Endorsement(1)
4.b. Enhanced Death Benefit Endorsement(1)
5. Application for Individual Variable Annuity Contract(1)
6. (i) Copy of Articles of Incorporation of the Company(1)
(ii) Copy of the Bylaws of the Company(1)
7. Not Applicable
8.(i) Form of Fund Participation Agreement between AIM Variable
Insurance Funds, Inc., Allianz Life Insurance Company of North
America and NALAC Financial Plans LLC.
(ii)Form of Fund Participation Agreement between Alger American Fund,
Allianz Life Insurance Company of North America and Fred Alger and
Company.
(iii)Form of Fund Participation Agreement between USAllianz Variable
Insurance Products Trust, Allianz Life Insurance Company of North
America and BISYS Fund Services Limited Partnership.
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Data
14. Company Organizational Chart(2)
27. Not Applicable
(1) Incorporated by reference to Registrant's Form N-4 electronically filed on
June 24, 1996.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
form N-4 electronically filed on December 13, 1996.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Insurance Company:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
- ---------------------------- ---------------------------------
Robert W. MacDonald Director,
1750 Hennepin Avenue Chief Executive Officer
Minneapolis, MN 55403
Margery G. Hughes President,
1750 Hennepin Avenue Chief Administrative Officer
Minneapolis, MN 55403
Mark A. Zesbaugh Senior Vice President,
1750 Hennepin Avenue Chief Financial Officer
Minneapolis, MN 55403
Lowell C. Anderson Chairman of the Board
1750 Hennepin Avenue
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Boulevard
Minneapolis, MN 55439
Dr. Gerhard Rupprecht Director
Reinsburgstrasse 19
D-70178
Stuttgart, Germany
Edward J. Bonach President - Special
1750 Hennepin Avenue Markets Division
Minneapolis, MN 55403
Robert S. James President - Individual
1750 Hennepin Avenue Insurance Division
Minneapolis, MN 55403
Rev. Dennis Dease Director
c/o University of St. Thomas
215 Summit Avenue
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Corp.
Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0116
Robert M. Kimmitt Director
Wilmer, Cutler & Pickering
2445 M Street NW
Washington, DC 20037-1420
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
The Company organizational chart is incorporated by reference to Pre-Effective
Amendment No. 1 (File No. 811-05618)
Item 27. Number of Contract Owners
As of September 30, 1999 there were 8,109 qualified Contract Owners and 19,486
non-qualified Contract Owners with Contracts in the separate account
Item 28. Indemnification
The Bylaws of the Insurance Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Insurance Company pursuant to the foregoing, or otherwise, the Insurance Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Insurance Company of expenses
incurred or paid by a director, officer or controlling person of the Insurance
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
a. USAllianz Investor Services, LLC (formerly NALAC Financial Plans, LLC)
is the principal underwriter for the Contracts. It also is the
principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers(managers) and directors (Board of
Governors) of USAllianz Investor Services, LLC:
<TABLE>
<CAPTION>
<S> <C>
Positions and Offices
Business Address with Underwriter
- ---------------------- ----------------------
Christopher H.Pinkerton Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford Chief Manager and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
55403 and Delaware Valley Financial Services, Valuemark Service Center, 300
Berwyn Park, Berwyn, Pennsylvania 19312, maintains physical possession of the
accounts, books or documents of the Variable Account required to be maintained
by Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Allianz Life Insurance Company of North America ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Insurance Company hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance, dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 8th day of November, 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 11-08-99
Lowell C. Anderson
Robert W. MacDonald* Director and 11-08-99
Robert W. MacDonald Chief Executive Officer
Margery G. Hughes* President and 11-08-99
Margery G. Hughes Chief Administrative Officer
Mark A. Zesbaugh* Chief Financial Officer 11-08-99
Mark A. Zesbaugh Senior Vice President
Herbert F. Hansmeyer* Director 11-08-99
Herbert F. Hansmeyer
Michael P. Sullivan* Director 11-08-99
Michael P. Sullivan
Dr. Gerhard Rupprecht* Director 11-08-99
Dr. Gerhard Rupprecht
Rev. Dennis Dease* Director 11-08-99
Rev. Dennis Dease
James R. Campbell* Director 11-08-99
James R. Campbell
Robert M. Kimmitt* Director 11-08-99
Robert M. Kimmitt
</TABLE>
*By Power of Attorney
By: /s/ MICHAEL T. WESTERMEYER
--------------------------------
Michael T. Westermeyer
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Margery G. Hughes, President and
Chief Administrative Officer of Allianz Life Insurance Company of North America
(Allianz Life), a corporation duly organized under the laws of Minnesota, do
hereby appoint Robert W. MacDonald and Michael T. Westermeyer, each individually
as my attorney and agent, for me, and in my name as President and Chief
Administrative Officer on behalf of Allianz Life, with full power to execute,
deliver and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 7th day of October 1999.
WITNESS
/s/ illegible /s/ Margery G. Hughes
___________________________ _____________________________
Margery G. Hughes
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert W. MacDonald, Chief
Executive Officer and a Director of Allianz Life Insurance Company of North
America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Michael T. Westermeyer, as my attorney and agent,
for me, and in my name as Chief Executive Officer and a Director of Allianz Life
on behalf of Allianz Life, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of
aforesaid Acts.
WITNESS my hand and seal this 12th day of October 1999.
WITNESS
/s/ Stacey Thiele /s/ Robert W. MacDonald
___________________________ _____________________________
Robert W. MacDonald
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Mark A.Zesbaugh, Senior Vice
President and Chief Financial Officer of Allianz Life Insurance Company of North
America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Robert W. MacDonald and Michael T. Westermeyer,
each individually as my attorney and agent, for me, and in my name as Senior
Vice President and Chief Financial Officer of Allianz Life on behalf of Allianz
Life, with full power to execute, deliver and file with the Securities and
Exchange Commission all documents required for registration of a security under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 6th day of October 1999.
WITNESS
/s/ Stacey Thiele /s/ Mark A. Zesbaugh
___________________________ _____________________________
Mark A. Zesbaugh
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
EXHIBIT
99.B8(i) Form of Fund Participation Agreement-AIM
99.B8(ii) Form of Fund Participation Agreement-Alger
99.B8(iii) Form of Fund Participation Agreement-USAllianz
99.B9 Opinion and Consent of Counsel
99.B10 Independent Auditors' Consent
99.B13 Calculation of Performance Data
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
NALAC FINANCIAL PLANS, LLC
PA-ALZ_AGR.doc
071599 (2) dmr
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
- ----------- ----
Section 1. Available Funds....................................................2
1.1 Availability.................................................2
1.2 Addition, Deletion or Modification of Funds..................2
1.3 No Sales to the General Public...............................2
Section 2. Processing Transactions............................................2
2.1 Timely Pricing and Orders....................................2
2.2 Timely Payments..............................................3
2.3 Applicable Price.............................................3
2.4 Dividends and Distributions..................................4
2.5 Book Entry...................................................4
Section 3. Costs and Expenses.................................................4
3.1 General......................................................4
3.2 Parties To Cooperate.........................................4
Section 4. Legal Compliance...................................................4
4.1 Tax Laws.....................................................4
4.2 Insurance and Certain Other Laws.............................7
4.3 Securities Laws..............................................7
4.4 Notice of Certain Proceedings and Other Circumstances........8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF....9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY...10
Section 5. Mixed and Shared Funding..........................................11
5.1 General.....................................................11
5.2 Disinterested Directors.....................................12
5.3 Monitoring for Material Irreconcilable Conflicts............12
5.4 Conflict Remedies...........................................13
5.5 Notice to LIFE COMPANY......................................14
5.6 Information Requested by Board of Directors.................14
5.7 Compliance with SEC Rules...................................14
5.8 Other Requirements..........................................15
Section 6. Termination.......................................................15
6.1 Events of Termination.......................................15
6.2 Notice Requirement for Termination..........................16
6.3 Funds To Remain Available...................................16
6.4 Survival of Warranties and Indemnifications.................17
6.5 Continuance of Agreement for Certain Purposes...............17
Section 7. Parties To Cooperate Respecting Termination.......................17
Section 8. Assignment........................................................17
Section 9. Notices...........................................................17
Section 10. Voting Procedures................................................18
Section 11. Foreign Tax Credits..............................................19
Section 12. Indemnification..................................................19
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER.....................19
12.2 Of A LIFE COMPANY and UNDERWRITER by AVIF...................21
12.3 Effect of Notice............................................23
12.4 Successors..................................................24
Section 13. Applicable Law...................................................24
Section 14. Execution in Counterparts........................................24
Section 15. Severability.....................................................24
Section 16. Rights Cumulative................................................24
Section 17. Headings.........................................................24
Section 18. Confidentiality..................................................24
Section 19. Trademarks and Fund Names........................................25
Section 20. Parties to Cooperate.............................................26
Section 21. Amendments.......................................................26
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 27th day of July,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), Allianz Life Insurance Company of North America, a
Minnesota life insurance company (ALIFE COMPANY@), on behalf of itself and each
of its segregated asset accounts listed in Schedule A hereto, as the parties
hereto may amend from time to time (each, an "Account," and collectively, the
"Accounts"); and NALAC Financial Plans, LLC, an affiliate of LIFE COMPANY and
the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the
AParties@).
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of fifteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on
the next following Business Day or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule B, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY'S knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions
of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure or
alleged failure;
(iii)LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to
the Commissioner of the IRS that such failure was
inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative
or judicial proceeding or contests (including judicial
appeals thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a
failure or alleged failure; provided, however, that LIFE
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection
with any of the foregoing proceedings or contests
(including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting information or
analysis); subject to the confidentiality provisions of
Section 18, at least ten (10) business days or such shorter
period to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted, and (b)
shall not be submitted by LIFE COMPANY to any such person
without the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii)LIFE COMPANY shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim against
AVIF or its affiliates (a) compromise or settle any claim,
(b) accept any adjustment on audit, or (c) forego any
allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which
shall not be unreasonably withheld, provided that LIFE
COMPANY shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial
decision unless AVIF or its affiliates shall have provided
an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE COMPANY
fails to comply with any of the foregoing clauses (i)
through (vii), and such failure could be shown to have
materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals thereof, and in that event AVIF or its affiliates shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall LIFE COMPANY have any
liability resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Minnesota and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Minnesota Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Minnesota law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the
registration statement for its Contracts under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale
in accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase Asales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase Asales literature or
other promotional material@ includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY=s
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets
in a different investment medium, including another Fund of
AVIF, or submitting the question whether such segregation
should be implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., annuity Participants, life insurance
Participants or all Participants) that votes in favor of
such segregation, or offering to the affected Participants
the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the
1940 Act or a new separate account that is operated as a
management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY'S obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as AExisting Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or communication
required or permitted by this Agreement will be given to the following persons
at the following addresses and facsimile numbers, or such other persons,
addresses or facsimile numbers as the Party receiving such notices or
communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
NALAC FINANCIAL PLANS, LLC
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Facsimile: (612) 337-6136
Attn: Thomas B. Clifford
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC=s interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
its affiliates, and each person, if any, who controls AVIF, or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE COMPANY
or UNDERWRITER by or on behalf of AVIF for use in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising or otherwise for use in connection with the sale
of Contracts or Shares (or any amendment or supplement to
any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates and on which such
persons have reasonably relied) or the negligent, illegal or
fraudulent conduct of LIFE COMPANY, UNDERWRITER or their
respective affiliates or persons under their control
(including, without limitation, their employees and "persons
associated with a member," as that term is defined in
paragraph (q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Contracts or
Shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information
furnished to AVIF, or its affiliates by or on behalf of LIFE
COMPANY, UNDERWRITER or their respective affiliates for use
in AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the services
and furnish the materials required of them under the terms
of this Agreement, or any material breach of any
representation and/or warranty made by LIFE COMPANY or
UNDERWRITER in this Agreement or arise out of or result from
any other material breach of this Agreement by LIFE COMPANY
or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h)
of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER=s election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law, or otherwise; provided, the Account owns shares of the Fund and insofar as
such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus or
sales literature or advertising of AVIF (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising for
the Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AVIF, or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF, or its affiliates or persons under its
control (including, without limitation, their employees and
"persons associated with a member" as that term is defined
in Section (q) of Article I of the NASD By-Laws), in
connection with the sale or distribution of AVIF Shares; or
(iii)arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY,
UNDERWRITER or their respective affiliates by or on behalf
of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made
by AVIF in this Agreement or arise out of or result from any
other material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF)
or actions in respect thereof (including, to the extent reasonable, legal and
other expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF shall be liable under this Section 12.2 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each
Account or Participants.
(d) AVIF shall be liable under this Section 12.2 with respect to any
action against an Indemnified Party unless the Indemnified Party shall have
notified AVIF in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the action shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify AVIF of any such action shall not relieve AVIF from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF
will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's or AIM=s election to assume the defense thereof, the Indemnified Party
will cooperate fully with AVIF and shall bear the fees and expenses of any
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the ALIFE COMPANY Protected Parties@ for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY=s performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties= customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties= customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY=s prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the AAVIF Protected Parties@ for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF=s
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties= customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties= customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF=s prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among A
I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF=s or AIM=s prior written consent, the granting of which shall
be at AVIF=s or AIM=s sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY=s or
UNDERWRITER=s prior written consent, the granting of which shall be at LIFE
COMPANY=s or UNDERWRITER=s sole option.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 21. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
/s/P. Michelle Grace /s/ Robert H Graham
Attest: _______________________ By: ___________________________________
Name: P. Michelle Grace Name: Robert H. Graham
Title Assistant Secretary Title: President
ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA, on behalf of itself and its
separate accounts
/s/ Michael D Engel /s/ Thomas B. Clifford
Attest: ________________________ By: __________________________________
Michael D Engel Thomas B. Clifford
Name: ________________________ Name: __________________________________
Senior Counsel Assistand Vice President
Title: ________________________ Title: __________________________________
NALAC FINANCIAL PLANS, LLC
/s/ Michael D Engel /s/ Thomas B. Clifford
Attest: ________________________ By: __________________________________
Michael D Engel Thomas B Clifford
Name: ________________________ Name: __________________________________
Senior Counsel President
Title: ________________________ Title: __________________________________
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
$ AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
<PAGE>
SCHEDULE B
EXPENSE ALLOCATIONS
================================================================================
LIFE COMPANY AVIF / AIM
================================================================================
Preparing and filing the Account=s preparing and filing the Fund=s
registration statement registration statement
- --------------------------------------------------------------------------------
text composition for Account text composition for Fund prospectuses
prospectuses and supplements and supplements
- --------------------------------------------------------------------------------
text alterations of prospectuses text alterations of prospectuses
(Account) and supplements (Account) (Fund) and supplements (Fund)
- --------------------------------------------------------------------------------
printing Account and Fund prospectuses a camera ready Fund prospectus
and supplements
- --------------------------------------------------------------------------------
text composition and printing Account text composition and printing Fund
SAIs SAIs
- --------------------------------------------------------------------------------
mailing and distributing Account SAIs mailing and distributing Fund SAIs to
to policy owners upon request by policy owners upon request by policy
policy owners owners
- --------------------------------------------------------------------------------
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
- --------------------------------------------------------------------------------
text composition (Account), printing, text composition of annual and
mailing, and distributing annual and semi-annual reports (Fund)
semi-annual reports for Account (Fund
and Account as, applicable)
- --------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction statements and voting instruction
solicitation materials to policy owners solicitation materials to policy
with respect to proxies related to the owners with respect to proxies
Account related to the Fund
- --------------------------------------------------------------------------------
Preparation, printing and distributing
sales material and advertising relating
to the Funds, insofar as such materials
relate to the Contracts and filing such
materials with and obtaining approval
from, the SEC, the NASD, any state
insurance regulatory authority, and any
other appropriate regulatory authority,
to the extent Required
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 16th day of July, 1999, by and among The
Alger American Fund (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust, Allianz Life Insurance Company of
North America, a life insurance company organized as a corporation under the
laws of the State of Minnesota, (the "Company"), on its own behalf and on behalf
of each segregated asset account of the Company set forth in Schedule A, as may
be amended from time to time (the "Accounts"), and Fred Alger & Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
<PAGE>
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios indicated on
Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio,
provided that the Company notifies the Trust of such purchase orders
and requests for redemption by 9:30 a.m. Eastern time on the next
following Business Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order
by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from
time to time to the Trust for the purchase and redemption of shares of
the Portfolios. The Trustees of the Trust (the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of such
Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to
the Trust, with the reasonable expectation of receipt by the Trust by
2:00 p.m. Eastern time on the next Business Day after the Trust (or its
agent) receives the purchase order. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Trust for
this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates
its net asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at
the net asset value next computed after receipt by the Trust (or its
agent) of the request for redemption, as established in accordance with
the provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust.
Proceeds of redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire
to the Company by order of the Trust with the reasonable expectation of
receipt by the Company by 2:00 p.m. Eastern time on the next Business
Day after the receipt by the Trust (or its agent) of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market
conditions exist, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act. The Trust reserves
the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions
payable on the shares of any Portfolio of the Trust. The Company hereby
elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the
number of shares so issued as payment of such dividends and
distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or
its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available to the
Company by 6:30 p.m. Eastern time each Business Day. If the Trust
provides materially incorrect share net asset value information, the
number of shares purchased or redeemed shall be adjusted to reflect the
correct net asset value per share, unless the Distributor corrects such
error by reimbursing the Fund for any losses. Any material error in the
calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to
the Company.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts,
to the Fund Sponsor or its affiliates and to such other entities as may
be permitted by Section 817(h) of the Code, the regulations hereunder,
or judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.3. The Trust shall provide such documentation (including a final copy of
the Trust's prospectus as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for the Company to
print together in one document the current prospectus for the Contracts
issued by the Company and the current prospectus for the Trust. The
Trust shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Contract owners, and
the Company shall bear the expense of printing copies of the Trust's
prospectus that are used in connection with offering the Contracts
issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall
reasonably require for purposes of distributing to Contract owners. The
Trust, at the Company's expense, shall provide the Company with copies
of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably request
for use in connection with offering the Contracts issued by the
Company. If requested by the Company in lieu thereof, the Trust shall
provide such documentation (including a final copy of the Trust's proxy
materials, periodic reports to shareholders and other communications to
shareholders, as set in type or in camera-ready copy) and other
assistance as reasonably necessary in order for the Company to print
such shareholder communications for distribution to Contract owners.
2.6. The Company agrees and acknowledges that the Distributor is the sole
owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of the Distributor. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature or other materials relating
to the Accounts or Contracts without the prior written consent of the
Distributor. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to
Contract owners, proxy statement, application for exemption or request
for no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented
from time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any
request for approval on a prompt and timely basis. The Company shall
adopt and implement procedures reasonably designed to ensure that
"broker only" materials including information therein about the Trust
or the Distributor are not distributed to existing or prospective
Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and
the Distributor, in such form as the Company may reasonably require, as
the Company shall reasonably request in connection with the preparation
of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the
registration statement or prospectus for the Contracts (as such
registration statement and prospectus may be amended or supplemented
from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials,
except as required by legal process or regulatory authorities or with
the prior written permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by
the Trust. With respect to each registered Account, the Company will
vote shares of each Portfolio of the Trust held by a registered Account
and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contacts without the prior written
consent of the Trust, which consent may be withheld in the Trust's sole
discretion. The Company reserves the right, to the extent permitted by
law, to vote shares held in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency
letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust, the
Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of
Minnesota and that it has legally and validly established each Account
as a segregated asset account under such law as of the date set forth
in Schedule A, and that NALAC Financial Plans LLC, the principal
underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member in good standing of
the National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration
is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is
available prior to any issuance or sale of the Contracts; the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal
and state laws, and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify
its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply and will immediately take
all reasonable steps to adequately diversify the Portfolio to achieve
compliance within the grace period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify
the Company immediately upon having a reasonable basis for believing it
has ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act of 1934
and is a member in good standing of the National Association of
Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all Participating Insurance Companies. A material
irreconcilable conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Trust shall
promptly inform the Company of any determination by the Trustees that a
material irreconcilable conflict exists and of the implications
thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared
Funding Exemptive Order by providing the Trustees with all information
reasonably necessary for and requested by the Trustees to consider any
issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may
be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract
owners are also affected, at its own expense and to the extent
reasonably practicable (as determined by the Trustees) take whatever
steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps could include: (a) withdrawing the assets
allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or
submitting the question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account; provided, however that such
withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end
of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Trust and terminate this
Agreement with respect to such Account within six (6) months after the
Trustees inform the Company in writing that the Trust has determined
that such decision has created a material irreconcilable conflict;
provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
Until the end of such six (6) month period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in
no event will the Trust be required to establish a new funding medium
for any Contract. The Company shall not be required to establish a new
funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of Contract owners materially adversely affected
by the material irreconcilable conflict. In the event that the Trustees
determine that any proposed action does not adequately remedy any
material irreconcilable conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within
six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so
that the Trustees may fully carry out the duties imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared
Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as
adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Distributor, the Trust and each of its Trustees,
officers, employees and agents and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
5.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the Contracts or
Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the
Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section
5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under
the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company
to the Trust of insufficient or incorrect information
regarding the purchase or sale of shares of any Portfolio, or
the failure of the Company to provide such information on a
timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation,
or at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust
Documents" for the purposes of this Article V), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
was accurately derived from written information furnished to
the Distributor or the Trust by or on behalf of the Company
for use in Trust Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived form Company Documents) or wrongful conduct
of the Distributor or persons under its control, with respect
to the sale or acquisition of the Contracts or Portfolio
shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Company Documents or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and
accurately derived from written information furnished to the
Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Distributor
or the Trust to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the
Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Distributor or
the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within
a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim shall have
been served upon or otherwise received by such Indemnified Party (or
after such Indemnified Party shall have received notice of service upon
or other notification to any designated agent), but failure to notify
the party against whom indemnification is sought of any such claim
shall not relieve that party from any liability which it may have to
the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After notice
from the indemnifying party to the Indemnified Party of an election to
assume such defense, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written
notice to the other parties, unless a shorter time is agreed
to by the parties;
(b) at the option of the Trust or the Distributor if the
Contracts issued by the Company cease to qualify as annuity
contracts or life insurance contracts, as applicable, under
the Code ( unless disqualification is caused by the Trust or
the Distributor) or if the Contracts are not registered,
issued or sold in accordance with applicable state and/or
federal law; or
(c) at the option of any party upon a determination by a
majority of the Trustees of the Trust, or a majority of its
disinterested Trustees, that a material irreconcilable
conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD,
the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to the
sale of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio
fails to meet the diversification requirements specified in
Section 3.6 hereof; or
(f) at the option of the Company if shares of the Series are
not reasonably available to meet the requirements of the
Variable Contracts issued by the Company, as determined by the
Company, and upon prompt notice by the Company to the other
parties; or
(g) at the option of the Company in the event any of the
shares of the Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying
investment media of the Variable Contracts issued or to be
issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to
qualify as a Regulated Investment Company under Subchapter M
of the Code; or
(i) at the option of the Distributor if it shall determine in
its sole judgment exercised in good faith, that the Company
and/or its affiliated companies has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the
terms and conditions of this Agreement for all Contracts in effect on
the effective date of termination of this Agreement.
6.3. The provisions of Article V and all warranties under Article III shall
survive the termination of this Agreement, and the provisions of
Article IV and Section 2.9 shall survive the termination of this
Agreement as long as shares of the Trust are held on behalf of Contract
owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Attn: Thomas B. Clifford
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota. It
shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the
Commission granting exemptive relief therefrom and the conditions of
such orders.
Copies of any such orders shall be promptly forwarded by the Trust to
the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and no Trustee, officer, agent or
holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the
other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto, and
shall not disclose such confidential information without the written
consent of the affected party unless such information has become
publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger & Company, Incorporated
By:__/s/ Gregory S. Duch_________
Name: Gregory S. Duch
Title: Executive Vice President
The Alger American Fund
By:_/s/ Gregory S. Duch _________
Name: Gregory S. Duch
Title: Treasurer
Allianz Life Insurance Company of North America
By:_/s/ Thomas B. Clifford_________
Name: Thomas B. Clifford
Title: Assistant Vice President
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 6th day of October, 1999, by and among
USAllianz Variable Insurance Products Trust (the "Trust"), an open-end
management investment company organized as a Delaware Business Trust, Allianz
Life Insurance Company of North America, a life insurance company organized as a
corporation under the laws of the State of Minnesota, (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts"), and
BISYS Fund Services Limited Partnership, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act").
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the Company has registered or will register under the 1940 Act
certain variable life insurance policies and variable annuity contracts, set
forth in Schedule A, to be issued by the Company under which the Portfolios are
to be made as investment vehicles (the "Contracts);
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios indicated
on Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided
that the Company notifies the Trust of such purchase orders and requests
for redemption by 8:30 a.m. Eastern time on the next following Business
Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts
at the net asset value next computed after receipt of a purchase order by
the Trust ( or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio purchase procedures. The Company will transmit orders from time
to time to the Trust for the purchase and redemption of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or if, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under Federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on behalf
of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 4:00 p.m.
Eastern time on the same Business Day that the Trust (or its agent)
receives the purchase order. Upon receipt by the Trust of the federal
funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust for this
purpose. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the
net asset value next computed after receipt by the Trust (or its agent)
of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust. Proceeds
of redemption with respect to a Portfolio will normally be paid to the
Company for an Account in federal funds transmitted by wire to the
Company by order of the Trust with the reasonable expectation of receipt
by the Company by 4:00 p.m. Eastern time on the same Business Day that
the Trust (or its agent) receives the request for redemption. Such
payment may be delayed if, for example, the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no event
shall payment be delayed for a greater period than is permitted by the
1940 Act. The Trust reserves the right to suspend the right of
redemption, consistent with Section 22(3) of the 1940 Act and any rules
thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of
the Trust's Portfolios under Section 1.4 on any Business Day may be
netted against one another for the purpose of determining the amount of
any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to the
Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to
receive all such income dividends and capital gain distributions as are
payable on a Portfolio's shares in additional shares of that Portfolio.
The Trust shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or its
designated agent on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best
efforts to make such net asset value per share available to the Company
by 6:30 p.m. Eastern time each Business Day. If the Trust provides
materially incorrect share net asset value information, the number of
shares purchased or redeemed shall be adjusted to reflect the correct net
asset value per share. Any material error in the calculation or reporting
of net asset value per share, dividend or capital gain information shall
be reported promptly upon discovery to the Company.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts, to
the Fund Sponsor or its affiliates and to such other entities as any be
permitted by Section 817(h) of the Code, the regulations hereunder, or
judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company agrees
that it will use Trust shares only for the purposes of funding the
Contracts through the Accounts listed in Schedule A, as amended from time
to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.11 and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and file with the Commission a registration
statement under the Securities Act of 1933 as amended (the "1933 Act")
and this Agreement shall not be effective until such registration has
been declared effective by the Commission.
2.2. The Trust shall prepare and be responsible for filing with the Commission
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration
and qualification of shares of the Portfolios, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
2.3. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state
law.
2.4. The Trust shall provide such documentation (including a final copy of the
Trust's prospectus as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company to print
together in one document the current prospectus for the Contracts issued
by the Company and the current prospectus for the Trust. The Trust shall
bear the expense of printing copies of its current prospectus that will
be distributed to existing Contract owners, and the Company shall bear
the expense of printing copies of the Trust's prospectus that are used in
connection with offering the Contracts issued by the Company.
2.5. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection with
offering the Contracts issued by the Company.
2.6. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require
for purposes of distributing to Contract owners. The Trust, at the
Company's expense, shall provide the Company with copies of its periodic
reports to shareholders and other communications to shareholders in such
quantity as the Company shall reasonably request for use in connection
with offering the Contracts issued by the Company. If requested by the
Company in lieu thereof, the Trust shall provide such documentation
(including a final copy of the Trust's proxy materials, periodic reports
to shareholders and other communications to shareholders, as set in type
or in camera-ready copy) and other assistance as reasonably necessary in
order for the Company to print such shareholder communications for
distribution to Contract owners.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or its
designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to Contract
owners, proxy statement, application for exemption or request for
no-action letter in which the Trust or the Distributor is named
contemporaneously with the filing of such document with the Commission.
The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee each piece of sales literature or other promotional
material in which the Trust or the Distributor is named, at least five
Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the prior
written permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any request
for approval on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that "broker only"
materials including information therein about the Trust or the
Distributor are not distributed to existing or prospective Contract
owners.
2.9. The Trust shall use its best efforts to provide the Company, on a timely
basis, with such information about the Trust, the Portfolios and the
Distributor, in such form as the Company may reasonably require, as the
Company shall reasonably request in connection with the preparation of
registration statements, prospectuses and annual and semi-annual reports
pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no affiliate
of either of them shall give, any information or make any representations
or statements on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal
process or regulatory authorities or with the prior written permission of
the Company. The Company agrees to respond to any request for approval on
a prompt and timely basis.
2.11. So long as, and to the extent that,the Commission interprets the 1940 Act
to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners
whose cash values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that
the Accounts calculate voting privileges in the manner established by the
Trust. With respect to each registered Account, the Company will vote
shares of each Portfolio of the Trust held by a registered Account and
for which no timely voting instructions from Contract owners are received
in the same proportion as those shares for which voting instructions are
received. The Company and its agents will in no way recommend or oppose
or interfere with the solicitation of proxies for Portfolio shares held
to fund the Contracts without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion. The Company
reserves the right, to the extent permitted by law, to vote shares held
in any Account in its sole discretion.
2.12. The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the Contracts
or the Trust, including relevant portions of any "deficiency letter" and
any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust, the Accounts or
both.
2.14. The Company shall take all such actions as are necessary under applicable
federal and state law to permit the sale of the Contracts issued by the
Company, including registering each Account as an investment company to
the extent required under the 1940 Act, and registering the Contracts or
interests in the Accounts under the Contracts to the extent required
under the 1933 Act, and obtaining all necessary approvals to offer the
Contracts from state insurance commissioners.
2.15. The Company shall make every effort to maintain the treatment of the
Contracts issued by the Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Trust and the Distributor immediately upon
having a reasonable basis for believing that such Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.16. The Company shall offer and sell the Contracts issued by the Company in
accordance with the applicable provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, the NASD
Rules of Fair Practice, and state law respecting the offering of variable
life insurance policies and variable annuity contracts.
2.17. The Distributor shall sell and distribute the shares of the Portfolios of
the Fund in accordance with the applicable provisions of the 1933 Act,
the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state
law.
2.18. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and state insurance regulators)
and shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Minnesota
and that it has legally and validly established each Account as a
segregated asset account under such law as of the date set forth in
Schedule A, and that USAllianz Investor Services, LLC, the principal
underwriter for the Contracts, is registered as a broker-dealer under the
1934 Act and is a member in good standing of the National Association of
Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act
and cause each Account to remain so registered to serve as a segregated
asset account for the Contracts, unless an exemption from registration is
available.
3.3. The Company represents and warrants that the Contracts will be registered
under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be
issued and sold in compliance in all material respects with all
applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance law suitability
requirements.
3.4. the Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Delaware and that it does and
will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5. The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and
sold in accordance with all applicable federal and state laws, and the
Trust shall be registered under the 1940 Act prior to and at the time of
any issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements for variable annuity,
endowment or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code", and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5), and will notify the Company immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or
might not so comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance within the grace
period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify the
Company immediately upon having a reasonable basis for believing it has
ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than
the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents and warrants that it is duly organized and
validly existing under the laws of the State of Ohio and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the 1934 Act and is a member in good
standing of the National Association of Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
(This article intentionally left blank)
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Distributor, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 5.1) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company, which consent shall
not be unreasonably withheld) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability
or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition
of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of the Trust
for use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as
defined in Section 5.2(a) or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately
derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company; or
(f) arise out of or result from the provision by the Company to the
Trust of insufficient or incorrect information regarding the
purchase or sale of shares of any Portfolio, or the failure of the
Company to provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" "or the purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent
shall not be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common
law or otherwise, insofar as such Losses are related to the sale or
acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Trust (or any
amendment or supplement thereto) (collectively, "Trust Documents"
for the purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written
information furnished to the Distributor or the Trust by or on
behalf of the Company for use in Trust documents or otherwise for
use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the
Distributor or persons under its control, with respect to the sale
or acquisition of the Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Distributor; or
(d) arise out of or result from any failure by the Distributor to
provide the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Distributor.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any Losses incurred or assessed against an Indemnified
Party that arise from such Indemnified Party's willful misfeasance, bad
faith or negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable,
with respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon
or otherwise received by such Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party
from any liability which it may have to the Indemnified party in the
absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense,
in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
indemnifying party to the Indemnified Party of an election to assume such
defense, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be
liable to the Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE VI.
Termination
6.1 This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written notice to
the other parties, unless a shorter time is agreed to by the
parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code (unless
disqualification is caused by the Trust or the Distributor) or if
the Contracts are not registered, issued or sold in accordance
with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority of
the Trustees of the Trust, or a majority of its disinterested
Trustees, that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body regarding the Trust's or the Distributor's duties
under this Agreement or related to the sale of Trust shares or the
operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails to
meet the diversification requirements specified in Section 3.6
hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of the
Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal law, or such law precludes the use
of such shares as the underlying investment media of the Variable
Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify as
a Regulated investment Company under Subchapter M of the Code: or
(i) at the option of the Distributor if it shall determine in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity.
(j) immediately, in the event the Distributor ceases, for any reason,
to act in the capacity of distributor for the Trust and its
shares.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares
of any Portfolio and redeem shares of any Portfolio pursuant to the terms
and conditions of this Agreement for all Contracts in effect on the
effective date of termination of this Agreement.
6.3. The provisions of Article V and all warranties under Article III shall
survive the termination of this Agreement, and the provisions of Article
IV and Section 2.11 shall survive the termination of this Agreement as
long as shares of the Trust are held on behalf of Contract owners in
accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time
specify in writing to the other party.
If to the Trust:
USAllianz Variable Insurance Products Trust
55 Greens Farms Road
Westport, CT 06881-5160
Attn: David P. Marks
President
If to the Distributor:
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
Attn: William J. Tomko
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Attn: Thomas B. Clifford
Assistant Vice President
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota. It shall
also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to the
Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder
of shares of beneficial interest of the Trust shall be personally liable
for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission,
the National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both
parties.
8.11. Each party hereto shall, except as required by law or otherwise permitted
by this Agreement, treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose
such confidential information without the written consent of the affected
party unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year
first above written.
BISYS Fund Service Limited Partnership
BISYS Fund Services,Inc.,its General Partner
By: /s/ Irimga Mckay
____________________________________
Name: Irimga Mckay
Title: Senior Vice President
USAllianz Variable Insurance Products Trust
By: /s/ Greg Maddox
_____________________________________
Name: Greg Maddox
Title: Vice President
Allianz Life Insurance Company of North America
By: /s/ Michael Westermeyer
______________________________________
Name: Michael Westermeyer
Title: Vice President and Corporate Legal
Officer
SCHEDULE A
Funds Available Under the Contracts
o Diversified Assets Fund, a portfolio of USAllianz Variable Insurance
Products Trust
o Intermediate Fixed Income Fund, a portfolio of USAllianz Variable
Insurance Products Trust
o Growth Fund, a portfolio of USAllianz Variable Insurance
Products Trust
Separate Accounts Utilizing the Funds
o Allianz Life Variable Account A
o Allianz Life Variable Account B
Contracts Funded By the Separate Accounts
Allianz Variable Account A
o Allianz Value Life
o Franklin Valuemark Life
Allianz Variable Account B
o Franklin Valuemark II
o Franklin Valuemark III
o Franklin Valuemark IV
o Valuemark Income Plus
o Franklin Valuemark Charter
November 8, 1999
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
RE: Opinion and Consent of Counsel
Allianz Life Variable Account B
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Flexible
Payment Variable Annuity Contracts to be issued by Allianz Life Insurance
Company of North America and its separate account, Allianz Life Variable Account
B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term
is defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner
pursuant to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a Contract
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
------------------------
Lynn Korman Stone
KPMG, LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America
and Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 29, 1999 on the financial
statements of Allianz Life Variable Account B and our report dated February 5,
1999, on the consolidated financial statements of Allianz Life Insurance Company
of North America and subsidiaries included herein and to the reference to our
Firm under the heading "EXPERTS".
KPMG, LLP
Minneapolis, Minnesota
November 8, 1999
<TABLE>
<CAPTION>
Valuemark(R) IV
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of June 30, 1998
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Capital Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-98 Purchase $1,000.00 $14.60256524 68.481 68.481 $1,000.00
6-30-99 Contract Fee (1.00) 17.32145585 (0.058) 68.423 1,185.19
6-30-99 Value before Surr Chg 17.32145585 0.000 68.423 1,185.19
6-30-99 Surrender Charge (60.00) 17.32145585 (3.464) 64.959 1,125.19
Cumulative and Average Annual Total Returns
without/with charges 18.62% A 12.52% B
Franklin Growth and Income
6-30-98 Purchase $1,000.00 $25.48139973 39.244 39.244 $1,000.00
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 39.208 1,091.14
6-30-99 Value before Surr Chg 27.82914670 0.000 39.208 1,091.14
6-30-99 Surrender Charge (60.00) 27.82914670 (2.156) 37.052 1,031.14
Cumulative and Average Annual Total Returns
without/with charges 9.21% A 3.11% B
Franklin High Income
6-30-98 Purchase $1,000.00 $21.80002340 45.872 45.872 $1,000.00
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 45.824 968.35
6-30-99 Value before Surr Chg 21.13194534 0.000 45.824 968.35
6-30-99 Surrender Charge (60.00) 21.13194534 (2.839) 42.985 908.35
Cumulative and Average Annual Total Returns
without/with charges -3.06% A -9.16% B
Franklin Income Securities
6-30-98 Purchase $1,000.00 $24.99672715 40.005 40.005 $1,000.00
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 39.965 1,005.25
6-30-99 Value before Surr Chg 25.15286592 0.000 39.965 1,005.25
6-30-99 Surrender Charge (60.00) 25.15286592 (2.385) 37.580 945.25
Cumulative and Average Annual Total Returns
without/with charges 0.62% A -5.48% B
Franklin Money Market
6-30-98 Purchase $1,000.00 $14.00847401 71.385 71.385 $1,000.00
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 71.316 1,031.95
6-30-99 Value before Surr Chg 14.47001675 0.000 71.316 1,031.95
6-30-99 Surrender Charge (60.00) 14.47001675 (4.147) 67.170 971.95
Cumulative and Average Annual Total Returns
without/with charges 3.29% A -2.81% B
Mutual Discovery Securities
6-30-98 Purchase $1,000.00 $13.15898582 75.994 75.994 $1,000.00
6-30-99 Contract Fee (1.00) 12.46194426 (0.080) 75.913 946.03
6-30-99 Value before Surr Chg 12.46194426 0.000 75.913 946.03
6-30-99 Surrender Charge (60.00) 12.46194426 (4.815) 71.099 886.03
Cumulative and Average Annual Total Returns
without/with charges -5.30% A -11.40% B
Mutual Shares Securities
6-30-98 Purchase $1,000.00 $12.79882279 78.132 78.132 $1,000.00
6-30-99 Contract Fee (1.00) 13.43316575 (0.074) 78.058 1,048.56
6-30-99 Value before Surr Chg 13.43316575 0.000 78.058 1,048.56
6-30-99 Surrender Charge (60.00) 13.43316575 (4.467) 73.591 988.56
Cumulative and Average Annual Total Returns
without/with charges 4.96% A -1.14% B
Franklin Natural Resources Securities
6-30-98 Purchase $1,000.00 $10.53813081 94.893 94.893 $1,000.00
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 94.801 1,024.91
6-30-99 Value before Surr Chg 10.81112496 0.000 94.801 1,024.91
6-30-99 Surrender Charge (60.00) 10.81112496 (5.550) 89.251 964.91
Cumulative and Average Annual Total Returns
without/with charges 2.59% A -3.51% B
Franklin Real Estate Securities
6-30-98 Purchase $1,000.00 $26.48895990 37.752 37.752 $1,000.00
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 37.710 904.55
6-30-99 Value before Surr Chg 23.98705371 0.000 37.710 904.55
6-30-99 Surrender Charge (60.00) 23.98705371 (2.501) 35.209 844.55
Cumulative and Average Annual Total Returns
without/with charges -9.45% A -15.55% B
Franklin Rising Dividends
6-30-98 Purchase $1,000.00 $20.82988434 48.008 48.008 $1,000.00
6-30-99 Contract Fee (1.00) 21.46719404 (0.047) 47.961 1,029.60
6-30-99 Value before Surr Chg 21.46719404 0.000 47.961 1,029.60
6-30-99 Surrender Charge (60.00) 21.46719404 (2.795) 45.166 969.60
Cumulative and Average Annual Total Returns
without/with charges 3.06% A -3.04% B
Franklin Small Cap
6-30-98 Purchase $1,000.00 $15.59788697 64.111 64.111 $1,000.00
6-30-99 Contract Fee (1.00) 16.83123568 (0.059) 64.052 1,078.07
6-30-99 Value before Surr Chg 16.83123568 0.000 64.052 1,078.07
6-30-99 Surrender Charge (60.00) 16.83123568 (3.565) 60.487 1,018.07
Cumulative and Average Annual Total Returns
without/with charges 7.91% A 1.81% B
Templeton Developing Markets Equity
6-30-98 Purchase $1,000.00 $8.37789859 119.362 119.362 $1,000.00
6-30-99 Contract Fee (1.00) 10.73475762 (0.093) 119.269 1,280.32
6-30-99 Value before Surr Chg 10.73475762 0.000 119.269 1,280.32
6-30-99 Surrender Charge (60.00) 10.73475762 (5.589) 113.679 1,220.32
Cumulative and Average Annual Total Returns
without/with charges 28.13% A 22.03% B
Templeton Global Asset Allocation
6-30-98 Purchase $1,000.00 $14.03313224 71.260 71.260 $1,000.00
6-30-99 Contract Fee (1.00) 14.13328693 (0.071) 71.189 1,006.14
6-30-99 Value before Surr Chg 14.13328693 0.000 71.189 1,006.14
6-30-99 Surrender Charge (60.00) 14.13328693 (4.245) 66.944 946.14
Cumulative and Average Annual Total Returns
without/with charges 0.71% A -5.39% B
Templeton Global Growth
6-30-98 Purchase $1,000.00 $16.31635191 61.288 61.288 $1,000.00
6-30-99 Contract Fee (1.00) 18.05030611 (0.055) 61.233 1,105.27
6-30-99 Value before Surr Chg 18.05030611 0.000 61.233 1,105.27
6-30-99 Surrender Charge (60.00) 18.05030611 (3.324) 57.909 1,045.27
Cumulative and Average Annual Total Returns
without/with charges 10.63% A 4.53% B
Templeton Global Income Securities
6-30-98 Purchase $1,000.00 $17.14318723 58.332 58.332 $1,000.00
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 58.272 973.03
6-30-99 Value before Surr Chg 16.69802045 0.000 58.272 973.03
6-30-99 Surrender Charge (60.00) 16.69802045 (3.593) 54.679 913.03
Cumulative and Average Annual Total Returns
without/with charges -2.60% A -8.70% B
Templeton International Equity
6-30-98 Purchase $1,000.00 $19.82805109 50.434 50.434 $1,000.00
6-30-99 Contract Fee (1.00) 20.26134036 (0.049) 50.384 1,020.85
6-30-99 Value before Surr Chg 20.26134036 0.000 50.384 1,020.85
6-30-99 Surrender Charge (60.00) 20.26134036 (2.961) 47.423 960.85
Cumulative and Average Annual Total Returns
without/with charges 2.19% A -3.91% B
Templeton International Smaller Companies
6-30-98 Purchase $1,000.00 $10.96750543 91.178 91.178 $1,000.00
6-30-99 Contract Fee (1.00) 10.85569231 (0.092) 91.086 988.81
6-30-99 Value before Surr Chg 10.85569231 0.000 91.086 988.81
6-30-99 Surrender Charge (60.00) 10.85569231 (5.527) 85.559 928.81
Cumulative and Average Annual Total Returns
without/with charges -1.02% A -7.12% B
Templeton Pacific Growth
6-30-98 Purchase $1,000.00 $6.85019464 145.981 145.981 $1,000.00
6-30-99 Contract Fee (1.00) 10.26126773 (0.097) 145.884 1,496.95
6-30-99 Value before Surr Chg 10.26126773 0.000 145.884 1,496.95
6-30-99 Surrender Charge (60.00) 10.26126773 (5.847) 140.037 1,436.95
Cumulative and Average Annual Total Returns
without/with charges 49.80% A 43.70% B
Franklin U.S. Government Securities
6-30-98 Purchase $1,000.00 $18.30521146 54.629 54.629 $1,000.00
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 54.575 1,007.75
6-30-99 Value before Surr Chg 18.46547047 0.000 54.575 1,007.75
6-30-99 Surrender Charge (60.00) 18.46547047 (3.249) 51.326 947.75
Cumulative and Average Annual Total Returns
without/with charges 0.88% A -5.22% B
Franklin Global Utilities Securities
6-30-98 Purchase $1,000.00 $27.10331597 36.896 36.896 $1,000.00
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 36.863 1,120.57
6-30-99 Value before Surr Chg 30.39824832 0.000 36.863 1,120.57
6-30-99 Surrender Charge (60.00) 30.39824832 (1.974) 34.889 1,060.57
Cumulative and Average Annual Total Returns
without/with charges 12.16% A 6.06% B
Franklin Zero Coupon - 2000
6-30-98 Purchase $1,000.00 $19.84757618 50.384 50.384 $1,000.00
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 50.335 1,034.75
6-30-99 Value before Surr Chg 20.55715072 0.000 50.335 1,034.75
6-30-99 Surrender Charge (60.00) 20.55715072 (2.919) 47.417 974.75
Cumulative and Average Annual Total Returns
without/with charges 3.58% A -2.52% B
Franklin Zero Coupon - 2005
6-30-98 Purchase $1,000.00 $23.26941083 42.975 42.975 $1,000.00
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 42.932 1,003.88
6-30-99 Value before Surr Chg 23.38292589 0.000 42.932 1,003.88
6-30-99 Surrender Charge (60.00) 23.38292589 (2.566) 40.366 943.88
Cumulative and Average Annual Total Returns
without/with charges 0.49% A -5.61% B
Franklin Zero Coupon - 2010
6-30-98 Purchase $1,000.00 $25.99460614 38.470 38.470 $1,000.00
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 38.430 962.58
6-30-99 Value before Surr Chg 25.04775737 0.000 38.430 962.58
6-30-99 Surrender Charge (60.00) 25.04775737 (2.395) 36.034 902.58
Cumulative and Average Annual Total Returns
without/with charges -3.64% A -9.74% B
Franklin Global Health Care Securities
6-30-98 Purchase $1,000.00 $10.04536457 99.548 99.548 $1,000.00
6-30-99 Contract Fee (1.00) 8.96313257 (0.112) 99.437 891.27
6-30-99 Value before Surr Chg 8.96313257 0.000 99.437 891.27
6-30-99 Surrender Charge (60.00) 8.96313257 (6.694) 92.743 831.27
Cumulative and Average Annual Total Returns
without/with charges -10.77% A -16.87% B
Franklin Value Securities
6-30-98 Purchase $1,000.00 $9.11763974 109.678 109.678 $1,000.00
6-30-99 Contract Fee (1.00) 8.49138875 (0.118) 109.560 930.31
6-30-99 Value before Surr Chg 8.49138875 0.000 109.560 930.31
6-30-99 Surrender Charge (60.00) 8.49138875 (7.066) 102.494 870.31
Cumulative and Average Annual Total Returns
without/with charges -6.87% A -12.97% B
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of June 30, 1994
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Growth and Income
<S> <C> <C> <C> <C> <C> <C>
6-30-94 Purchase $1,000.00 $12.93727424 77.296 77.296 $1,000.00
6-30-95 Contract Fee (1.00) 15.02497409 (0.067) 77.229 1,160.37
6-30-96 Contract Fee (1.00) 18.02065761 (0.055) 77.174 1,390.73
6-30-97 Contract Fee (1.00) 21.71133685 (0.046) 77.128 1,674.55
6-30-98 Contract Fee (1.00) 25.48139973 (0.039) 77.089 1,964.33
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 77.053 2,144.31
6-30-99 Value before Surr Chg 27.82914670 0.000 77.053 2,144.31
6-30-99 Surrender Charge (34.00) 27.82914670 (1.222) 75.831 2,110.31
Cumulative Total Returns without/with chrgs. 115.11% A 111.03% C
Avg. Annual Total Returns without/with chrgs. 16.56% B 16.11% D
Franklin High Income
6-30-94 Purchase $1,000.00 $14.42292450 69.334 69.334 $1,000.00
6-30-95 Contract Fee (1.00) 16.34932272 (0.061) 69.273 1,132.57
6-30-96 Contract Fee (1.00) 17.65865281 (0.057) 69.216 1,222.27
6-30-97 Contract Fee (1.00) 20.01866071 (0.050) 69.166 1,384.62
6-30-98 Contract Fee (1.00) 21.80002340 (0.046) 69.120 1,506.83
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 69.073 1,459.65
6-30-99 Value before Surr Chg 21.13194534 0.000 69.073 1,459.65
6-30-99 Surrender Charge (34.00) 21.13194534 (1.609) 67.464 1,425.65
Cumulative Total Returns without/with chrgs. 46.52% A 42.56% C
Avg. Annual Total Returns without/with chrgs. 7.94% B 7.35% D
Franklin Income Securities
6-30-94 Purchase $1,000.00 $16.49579717 60.622 60.622 $1,000.00
6-30-95 Contract Fee (1.00) 18.13712739 (0.055) 60.566 1,098.50
6-30-96 Contract Fee (1.00) 20.30460628 (0.049) 60.517 1,228.78
6-30-97 Contract Fee (1.00) 22.81473491 (0.044) 60.473 1,379.68
6-30-98 Contract Fee (1.00) 24.99672715 (0.040) 60.433 1,510.63
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 60.394 1,519.07
6-30-99 Value before Surr Chg 25.15286592 0.000 60.394 1,519.07
6-30-99 Surrender Charge (34.00) 25.15286592 (1.352) 59.042 1,485.07
Cumulative Total Returns without/with chrgs. 52.48% A 48.51% C
Avg. Annual Total Returns without/with chrgs. 8.80% B 8.23% D
Franklin Money Market
6-30-94 Purchase $1,000.00 $12.10443970 82.614 82.614 $1,000.00
6-30-95 Contract Fee (1.00) 12.55121525 (0.080) 82.535 1,035.91
6-30-96 Contract Fee (1.00) 13.03050692 (0.077) 82.458 1,074.47
6-30-97 Contract Fee (1.00) 13.50201928 (0.074) 82.384 1,112.35
6-30-98 Contract Fee (1.00) 14.00847401 (0.071) 82.312 1,153.07
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 82.243 1,190.06
6-30-99 Value before Surr Chg 14.47001675 0.000 82.243 1,190.06
6-30-99 Surrender Charge (34.00) 14.47001675 (2.350) 79.894 1,156.06
Cumulative Total Returns without/with chrgs. 19.54% A 15.61% C
Avg. Annual Total Returns without/with chrgs. 3.63% B 2.94% D
Franklin Natural Resources Securities
6-30-94 Purchase $1,000.00 $13.44188476 74.394 74.394 $1,000.00
6-30-95 Contract Fee (1.00) 13.93486984 (0.072) 74.323 1,035.68
6-30-96 Contract Fee (1.00) 15.11198761 (0.066) 74.256 1,122.16
6-30-97 Contract Fee (1.00) 13.04136833 (0.077) 74.180 967.40
6-30-98 Contract Fee (1.00) 10.53813081 (0.095) 74.085 780.72
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 73.992 799.94
6-30-99 Value before Surr Chg 10.81112496 0.000 73.992 799.94
6-30-99 Surrender Charge (34.00) 10.81112496 (3.145) 70.847 765.94
Cumulative Total Returns without/with chrgs. -19.57% A -23.41% C
Avg. Annual Total Returns without/with chrgs. -4.26% B -5.19% D
Franklin Real Estate Securities
6-30-94 Purchase $1,000.00 $15.68855571 63.741 63.741 $1,000.00
6-30-95 Contract Fee (1.00) 16.04574487 (0.062) 63.678 1,021.77
6-30-96 Contract Fee (1.00) 19.10662239 (0.052) 63.626 1,215.68
6-30-97 Contract Fee (1.00) 25.09697799 (0.040) 63.586 1,595.82
6-30-98 Contract Fee (1.00) 26.48895990 (0.038) 63.548 1,683.33
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 63.507 1,523.34
6-30-99 Value before Surr Chg 23.98705371 0.000 63.507 1,523.34
6-30-99 Surrender Charge (34.00) 23.98705371 (1.417) 62.089 1,489.34
Cumulative Total Returns without/with chrgs. 52.90% A 48.93% C
Avg. Annual Total Returns without/with chrgs. 8.86% B 8.29% D
Franklin Rising Dividends
6-30-94 Purchase $1,000.00 $9.70789728 103.009 103.009 $1,000.00
6-30-95 Contract Fee (1.00) 11.00119461 (0.091) 102.918 $1,132.22
6-30-96 Contract Fee (1.00) 13.25810670 (0.075) 102.843 $1,363.50
6-30-97 Contract Fee (1.00) 17.59317070 (0.057) 102.786 1,808.33
6-30-98 Contract Fee (1.00) 20.82988434 (0.048) 102.738 2,140.02
6-30-99 Contract Fee (1.00) 21.46719404 (0.047) 102.691 2,204.49
6-30-99 Value before Surr Chg 21.46719404 0.000 102.691 2,204.49
6-30-99 Surrender Charge (34.00) 21.46719404 (1.584) 101.107 2,170.49
Cumulative Total Returns without/with chrgs. 121.13% A 117.05% C
Avg. Annual Total Rtns. without/with chrgs. 17.20% B 16.76% D
Templeton Developing Markets Equity
6-30-94 Purchase $1,000.00 $9.94645764 100.538 100.538 $1,000.00
6-30-95 Contract Fee (1.00) 9.66716598 (0.103) 100.435 970.92
6-30-96 Contract Fee (1.00) 11.00773296 (0.091) 100.344 1,104.56
6-30-97 Contract Fee (1.00) 13.59109068 (0.074) 100.270 1,362.78
6-30-98 Contract Fee (1.00) 8.37789859 (0.119) 100.151 839.06
6-30-99 Contract Fee (1.00) 10.73475762 (0.093) 100.058 1,074.10
6-30-99 Value before Surr Chg 10.73475762 0.000 100.058 1,074.10
6-30-99 Surrender Charge (34.00) 10.73475762 (3.167) 96.891 1,040.10
Cumulative Total Returns without/with chrgs. 7.93% A 4.01% C
Avg. Annual Total Rtns. without/with chrgs. 1.54% B 0.79% D
Templeton Global Growth
6-30-94 Purchase $1,000.00 $9.97601329 100.240 100.240 $1,000.00
6-30-95 Contract Fee (1.00) 10.84212585 (0.092) 100.148 1,085.82
6-30-96 Contract Fee (1.00) 12.45329039 (0.080) 100.068 1,246.17
6-30-97 Contract Fee (1.00) 15.28815115 (0.065) 100.003 1,528.85
6-30-98 Contract Fee (1.00) 16.31635191 (0.061) 99.941 1,630.68
6-30-99 Contract Fee (1.00) 18.05030611 (0.055) 99.886 1,802.97
6-30-99 Value before Surr Chg 18.05030611 0.000 99.886 1,802.97
6-30-99 Surrender Charge (34.00) 18.05030611 (1.884) 98.002 1,768.97
Cumulative Total Returns without/with chrgs. 80.94% A 76.90% C
Avg. Annual Total Rtns. without/with chrgs. 12.59% B 12.08% D
Templeton Global Income Securities
6-30-94 Purchase $1,000.00 $13.46216452 74.282 74.282 $1,000.00
6-30-95 Contract Fee (1.00) 14.64037580 (0.068) 74.214 1,086.52
6-30-96 Contract Fee (1.00) 15.50611791 (0.064) 74.149 1,149.77
6-30-97 Contract Fee (1.00) 16.59486576 (0.060) 74.089 1,229.50
6-30-98 Contract Fee (1.00) 17.14318723 (0.058) 74.031 1,269.13
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 73.971 1,235.17
6-30-99 Value before Surr Chg 16.69802045 0.000 73.971 1,235.17
6-30-99 Surrender Charge (34.00) 16.69802045 (2.036) 71.935 1,201.17
Cumulative Total Returns without/with chrgs. 24.04% A 20.12% C
Avg. Annual Total Returns without/with chrgs. 4.40% B 3.73% D
Templeton International Equity
6-30-94 Purchase $1,000.00 $12.17156456 82.159 82.159 $1,000.00
6-30-95 Contract Fee (1.00) 12.96475877 (0.077) 82.082 1,064.17
6-30-96 Contract Fee (1.00) 14.73320607 (0.068) 82.014 1,208.32
6-30-97 Contract Fee (1.00) 18.09132929 (0.055) 81.958 1,482.74
6-30-98 Contract Fee (1.00) 19.82805109 (0.050) 81.908 1,624.08
6-30-99 Contract Fee (1.00) 20.26134036 (0.049) 81.859 1,658.57
6-30-99 Value before Surr Chg 20.26134036 0.000 81.859 1,658.57
6-30-99 Surrender Charge (34.00) 20.26134036 (1.678) 80.181 1,624.57
Cumulative Total Returns without/with chrgs. 66.46% A 62.46% C
Avg. Annual Total Rtns. without/with chrgs. 10.73% B 10.19% D
Templeton Pacific Growth
6-30-94 Purchase $1,000.00 $13.23313886 75.568 75.568 $1,000.00
6-30-95 Contract Fee (1.00) 12.97546433 (0.077) 75.491 979.53
6-30-96 Contract Fee (1.00) 15.12099228 (0.066) 75.425 1,140.50
6-30-97 Contract Fee (1.00) 15.19593399 (0.066) 75.359 1,145.15
6-30-98 Contract Fee (1.00) 6.85019464 (0.146) 75.213 515.22
6-30-99 Contract Fee (1.00) 10.26126773 (0.097) 75.115 770.78
6-30-99 Value before Surr Chg 10.26126773 0.000 75.115 770.78
6-30-99 Surrender Charge (34.00) 10.26126773 (3.313) 71.802 736.78
Cumulative Total Returns without/with chrgs. -22.46% A -26.32% C
Avg. Annual Total Rtns. without/with chrgs. -4.96% B -5.93% D
Franklin U.S. Government Securities
6-30-94 Purchase $1,000.00 $13.71116538 72.933 72.933 $1,000.00
6-30-95 Contract Fee (1.00) 15.36272963 (0.065) 72.868 1,119.45
6-30-96 Contract Fee (1.00) 15.84280380 (0.063) 72.805 1,153.44
6-30-97 Contract Fee (1.00) 17.02416691 (0.059) 72.746 1,238.45
6-30-98 Contract Fee (1.00) 18.30521146 (0.055) 72.692 1,330.64
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 72.638 1,341.29
6-30-99 Value before Surr Chg 18.46547047 0.000 72.638 1,341.29
6-30-99 Surrender Charge (34.00) 18.46547047 (1.841) 70.796 1,307.29
Cumulative Total Returns without/with chrgs. 34.67% A 30.73% C
Avg. Annual Total Returns without/with chrgs. 6.13% B 5.51% D
Franklin Global Utilities Securities
6-30-94 Purchase $1,000.00 $14.32790513 69.794 69.794 $1,000.00
6-30-95 Contract Fee (1.00) 16.80832864 (0.059) 69.734 1,172.12
6-30-96 Contract Fee (1.00) 20.15215080 (0.050) 69.685 1,404.30
6-30-97 Contract Fee (1.00) 21.87757235 (0.046) 69.639 1,523.53
6-30-98 Contract Fee (1.00) 27.10331597 (0.037) 69.602 1,886.45
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 69.569 2,114.78
6-30-99 Value before Surr Chg 30.39824832 0.000 69.569 2,114.78
6-30-99 Surrender Charge (34.00) 30.39824832 (1.118) 68.451 2,080.78
Cumulative Total Returns without/with chrgs. 112.16% A 108.08% C
Avg. Annual Total Returns without/with chrgs. 16.23% B 15.78% D
Franklin Zero Coupon - 2000
6-30-94 Purchase $1,000.00 $15.46386617 64.667 64.667 $1,000.00
6-30-95 Contract Fee (1.00) 17.26898333 (0.058) 64.609 1,115.73
6-30-96 Contract Fee (1.00) 17.66928482 (0.057) 64.552 1,140.59
6-30-97 Contract Fee (1.00) 18.64051914 (0.054) 64.499 1,202.29
6-30-98 Contract Fee (1.00) 19.84757618 (0.050) 64.448 1,279.14
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 64.400 1,323.87
6-30-99 Value before Surr Chg 20.55715072 0.000 64.400 1,323.87
6-30-99 Surrender Charge (34.00) 20.55715072 (1.654) 62.746 1,289.87
Cumulative Total Returns without/with chrgs. 32.94% A 28.99% C
Avg. Annual Total Returns without/with chrgs. 5.86% B 5.22% D
Franklin Zero Coupon - 2005
6-30-94 Purchase $1,000.00 $15.99331951 62.526 62.526 $1,000.00
6-30-95 Contract Fee (1.00) 18.95506513 (0.053) 62.473 1,184.19
6-30-96 Contract Fee (1.00) 19.23481832 (0.052) 62.421 1,200.66
6-30-97 Contract Fee (1.00) 20.66244634 (0.048) 62.373 1,288.78
6-30-98 Contract Fee (1.00) 23.26941083 (0.043) 62.330 1,450.38
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 62.287 1,456.46
6-30-99 Value before Surr Chg 23.38292589 0.000 62.287 1,456.46
6-30-99 Surrender Charge (34.00) 23.38292589 (1.454) 60.833 1,422.46
Cumulative Total Returns without/with chrgs. 46.20% A 42.25% C
Avg. Annual Total Returns without/with chrgs. 7.89% B 7.30% D
Franklin Zero Coupon - 2010
6-30-94 Purchase $1,000.00 $15.58486894 64.165 64.165 $1,000.00
6-30-95 Contract Fee (1.00) 19.48443734 (0.051) 64.113 1,249.22
6-30-96 Contract Fee (1.00) 19.77580128 (0.051) 64.063 1,266.90
6-30-97 Contract Fee (1.00) 21.60810819 (0.046) 64.017 1,383.28
6-30-98 Contract Fee (1.00) 25.99460614 (0.038) 63.978 1,663.09
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 63.938 1,601.51
6-30-99 Value before Surr Chg 25.04775737 0.000 63.938 1,601.51
6-30-99 Surrender Charge (34.00) 25.04775737 (1.357) 62.581 1,567.51
Cumulative Total Returns without/with chrgs. 60.72% A 56.75% C
Avg. Annual Total Returns without/with chrgs. 9.95% B 9.41% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of June 30, 1989
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Growth and Income
<S> <C> <C> <C> <C> <C> <C>
6-30-89 Purchase $1,000.00 $9.94828222 100.520 100.520 $1,000.00
6-30-90 Contract Fee (1.00) 10.49279710 (0.095) 100.425 1,053.73
6-30-91 Contract Fee (1.00) 10.49141653 (0.095) 100.329 1,052.60
6-30-92 Contract Fee (1.00) 11.37012867 (0.088) 100.241 1,139.76
6-30-93 Contract Fee (1.00) 12.82659966 (0.078) 100.163 1,284.75
6-30-94 Contract Fee (1.00) 12.93727424 (0.077) 100.086 1,294.84
6-30-95 Contract Fee (1.00) 15.02497409 (0.067) 100.019 1,502.79
6-30-96 Contract Fee (1.00) 18.02065761 (0.055) 99.964 1,801.42
6-30-97 Contract Fee (1.00) 21.71133685 (0.046) 99.918 2,169.35
6-30-98 Contract Fee (1.00) 25.48139973 (0.039) 99.879 2,545.05
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 99.843 2,778.54
6-30-99 Value before Surr Chg 27.82914670 0.000 99.843 2,778.54
6-30-99 Surrender Charge 27.82914670 0.000 99.843 2,778.54
Cumulative Total Returns without/with chrgs. 179.74% A 177.85%
Avg. Annual Total Returns without/with chrgs. 22.84% B 22.68%
Franklin High Income
6-30-89 Purchase $1,000.00 $10.25698768 97.495 97.495 $1,000.00
6-30-90 Contract Fee (1.00) 9.96176342 (0.100) 97.394 970.22
6-30-91 Contract Fee (1.00) 10.54429547 (0.095) 97.299 1,025.95
6-30-92 Contract Fee (1.00) 12.53786325 (0.080) 97.220 1,218.93
6-30-93 Contract Fee (1.00) 14.27545762 (0.070) 97.149 1,386.85
6-30-94 Contract Fee (1.00) 14.42292450 (0.069) 97.080 1,400.18
6-30-95 Contract Fee (1.00) 16.34932272 (0.061) 97.019 1,586.19
6-30-96 Contract Fee (1.00) 17.65865281 (0.057) 96.962 1,712.22
6-30-97 Contract Fee (1.00) 20.01866071 (0.050) 96.912 1,940.06
6-30-98 Contract Fee (1.00) 21.80002340 (0.046) 96.867 2,111.69
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 96.819 2,045.98
6-30-99 Value before Surr Chg 21.13194534 0.000 96.819 2,045.98
6-30-99 Surrender Charge 21.13194534 0.000 96.819 2,045.98
Cumulative Total Returns without/with chrgs. 106.02% A 104.60%
Avg. Annual Total Returns without/with chrgs. 15.55% B 15.39%
Franklin Income Securities
6-30-89 Purchase $1,000.00 $10.23707120 97.684 97.684 $1,000.00
6-30-90 Contract Fee (1.00) 10.82044452 (0.092) 97.592 1,055.99
6-30-91 Contract Fee (1.00) 12.03241338 (0.083) 97.509 1,173.26
6-30-92 Contract Fee (1.00) 14.77671640 (0.068) 97.441 1,439.86
6-30-93 Contract Fee (1.00) 16.58417279 (0.060) 97.381 1,614.98
6-30-94 Contract Fee (1.00) 16.49579717 (0.061) 97.320 1,605.37
6-30-95 Contract Fee (1.00) 18.13712739 (0.055) 97.265 1,764.11
6-30-96 Contract Fee (1.00) 20.30460628 (0.049) 97.216 1,973.93
6-30-97 Contract Fee (1.00) 22.81473491 (0.044) 97.172 2,216.95
6-30-98 Contract Fee (1.00) 24.99672715 (0.040) 97.132 2,427.98
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 97.092 2,442.14
6-30-99 Value before Surr Chg 25.15286592 0.000 97.092 2,442.14
6-30-99 Surrender Charge 25.15286592 0.000 97.092 2,442.14
Cumulative Total Returns without/with chrgs. 145.70% A 144.21%
Avg. Annual Total Returns without/with chrgs. 19.70% B 19.55%
Franklin Money Market
6-30-89 Purchase $1,000.00 $10.30299600 97.059 97.059 $1,000.00
6-30-90 Contract Fee (1.00) 10.93712376 (0.091) 96.968 1,060.55
6-30-91 Contract Fee (1.00) 11.51413216 (0.087) 96.881 1,115.50
6-30-92 Contract Fee (1.00) 11.82065483 (0.085) 96.796 1,144.20
6-30-93 Contract Fee (1.00) 11.95116766 (0.084) 96.713 1,155.83
6-30-94 Contract Fee (1.00) 12.10443970 (0.083) 96.630 1,169.65
6-30-95 Contract Fee (1.00) 12.55121525 (0.080) 96.550 1,211.82
6-30-96 Contract Fee (1.00) 13.03050692 (0.077) 96.474 1,257.10
6-30-97 Contract Fee (1.00) 13.50201928 (0.074) 96.399 1,301.59
6-30-98 Contract Fee (1.00) 14.00847401 (0.071) 96.328 1,349.41
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 96.259 1,392.87
6-30-99 Value before Surr Chg 14.47001675 0.000 96.259 1,392.87
6-30-99 Surrender Charge 14.47001675 0.000 96.259 1,392.87
Cumulative Total Returns without/with chrgs. 40.44% A 39.29%
Avg. Annual Total Returns without/with chrgs. 7.03% B 6.85%
Franklin Natural Resources Securities
6-30-89 Purchase $1,000.00 $10.31673712 96.930 96.930 $1,000.00
6-30-90 Contract Fee (1.00) 11.16300190 (0.090) 96.840 1,081.03
6-30-91 Contract Fee (1.00) 10.87715871 (0.092) 96.748 1,052.35
6-30-92 Contract Fee (1.00) 10.85685445 (0.092) 96.656 1,049.38
6-30-93 Contract Fee (1.00) 12.88261163 (0.078) 96.579 1,244.18
6-30-94 Contract Fee (1.00) 13.44188476 (0.074) 96.504 1,297.20
6-30-95 Contract Fee (1.00) 13.93486984 (0.072) 96.432 1,343.77
6-30-96 Contract Fee (1.00) 15.11198761 (0.066) 96.366 1,456.29
6-30-97 Contract Fee (1.00) 13.04136833 (0.077) 96.290 1,255.75
6-30-98 Contract Fee (1.00) 10.53813081 (0.095) 96.195 1,013.71
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 96.102 1,038.97
6-30-99 Value before Surr Chg 10.81112496 0.000 96.102 1,038.97
6-30-99 Surrender Charge 10.81112496 0.000 96.102 1,038.97
Cumulative Total Returns without/with chrgs. 4.79% A 3.90%
Avg. Annual Total Returns without/with chrgs. 0.94% B 0.77%
Franklin Real Estate Securities
6-30-89 Purchase $1,000.00 $10.49598545 95.275 95.275 $1,000.00
6-30-90 Contract Fee (1.00) 10.06777447 (0.099) 95.175 958.20
6-30-91 Contract Fee (1.00) 10.73156284 (0.093) 95.082 1,020.38
6-30-92 Contract Fee (1.00) 11.80091694 (0.085) 94.997 1,121.05
6-30-93 Contract Fee (1.00) 14.65769310 (0.068) 94.929 1,391.44
6-30-94 Contract Fee (1.00) 15.68855571 (0.064) 94.865 1,488.30
6-30-95 Contract Fee (1.00) 16.04574487 (0.062) 94.803 1,521.18
6-30-96 Contract Fee (1.00) 19.10662239 (0.052) 94.751 1,810.36
6-30-97 Contract Fee (1.00) 25.09697799 (0.040) 94.711 2,376.95
6-30-98 Contract Fee (1.00) 26.48895990 (0.038) 94.673 2,507.79
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 94.631 2,269.93
6-30-99 Value before Surr Chg 23.98705371 0.000 94.631 2,269.93
6-30-99 Surrender Charge 23.98705371 0.000 94.631 2,269.93
Cumulative Total Returns without/with chrgs. 128.54% A 126.99%
Avg. Annual Total Returns without/with chrgs. 17.98% B 17.82%
Templeton Global Income Securities
6-30-89 Purchase $1,000.00 $10.28686240 97.211 97.211 $1,000.00
6-30-90 Contract Fee (1.00) 11.23448179 (0.089) 97.122 1,091.12
6-30-91 Contract Fee (1.00) 11.94031363 (0.084) 97.039 1,158.67
6-30-92 Contract Fee (1.00) 13.19858013 (0.076) 96.963 1,279.77
6-30-93 Contract Fee (1.00) 13.85578453 (0.072) 96.891 1,342.50
6-30-94 Contract Fee (1.00) 13.46216452 (0.074) 96.816 1,303.36
6-30-95 Contract Fee (1.00) 14.64037580 (0.068) 96.748 1,416.43
6-30-96 Contract Fee (1.00) 15.50611791 (0.064) 96.684 1,499.19
6-30-97 Contract Fee (1.00) 16.59486576 (0.060) 96.623 1,603.45
6-30-98 Contract Fee (1.00) 17.14318723 (0.058) 96.565 1,655.43
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 96.505 1,611.44
6-30-99 Value before Surr Chg 16.69802045 0.000 96.505 1,611.44
6-30-99 Surrender Charge 16.69802045 0.000 96.505 1,611.44
Cumulative Total Returns without/with chrgs. 62.32% A 61.14%
Avg. Annual Total Returns without/with chrgs. 10.17% B 10.01%
Franklin U.S. Government Securities
6-30-89 Purchase $1,000.00 $10.00889534 99.911 99.911 $1,000.00
6-30-90 Contract Fee (1.00) 10.59080948 (0.094) 99.817 1,057.14
6-30-91 Contract Fee (1.00) 11.60838902 (0.086) 99.731 1,157.71
6-30-92 Contract Fee (1.00) 13.01290987 (0.077) 99.654 1,296.78
6-30-93 Contract Fee (1.00) 14.41632943 (0.069) 99.584 1,435.64
6-30-94 Contract Fee (1.00) 13.71116538 (0.073) 99.511 1,364.42
6-30-95 Contract Fee (1.00) 15.36272963 (0.065) 99.446 1,527.77
6-30-96 Contract Fee (1.00) 15.84280380 (0.063) 99.383 1,574.51
6-30-97 Contract Fee (1.00) 17.02416691 (0.059) 99.324 1,690.92
6-30-98 Contract Fee (1.00) 18.30521146 (0.055) 99.270 1,817.16
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 99.216 1,832.06
6-30-99 Value before Surr Chg 18.46547047 0.000 99.216 1,832.06
6-30-99 Surrender Charge 18.46547047 0.000 99.216 1,832.06
Cumulative Total Returns without/with chrgs. 84.49% A 83.21%
Avg. Annual Total Returns without/with chrgs. 13.03% B 12.87%
Franklin Global Utilities Securities
6-30-89 Purchase $1,000.00 $10.68519201 93.587 93.587 $1,000.00
6-30-90 Contract Fee (1.00) 11.45966531 (0.087) 93.500 1,071.48
6-30-91 Contract Fee (1.00) 12.44925968 (0.080) 93.420 1,163.01
6-30-92 Contract Fee (1.00) 14.81240450 (0.068) 93.352 1,382.77
6-30-93 Contract Fee (1.00) 17.33146587 (0.058) 93.295 1,616.93
6-30-94 Contract Fee (1.00) 14.32790513 (0.070) 93.225 1,335.72
6-30-95 Contract Fee (1.00) 16.80832864 (0.059) 93.165 1,565.95
6-30-96 Contract Fee (1.00) 20.15215080 (0.050) 93.116 1,876.48
6-30-97 Contract Fee (1.00) 21.87757235 (0.046) 93.070 2,036.15
6-30-98 Contract Fee (1.00) 27.10331597 (0.037) 93.033 2,521.51
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 93.000 2,827.04
6-30-99 Value before Surr Chg 30.39824832 0.000 93.000 2,827.04
6-30-99 Surrender Charge 30.39824832 0.000 93.000 2,827.04
Cumulative Total Returns without/with chrgs. 184.49% A 182.70%
Avg. Annual Total Returns without/with chrgs. 23.26% B 23.10%
Franklin Zero Coupon - 2000
6-30-89 Purchase $1,000.00 $10.51680943 95.086 95.086 $1,000.00
6-30-90 Contract Fee (1.00) 10.72614891 (0.093) 94.993 1,018.91
6-30-91 Contract Fee (1.00) 11.59188612 (0.086) 94.906 1,100.14
6-30-92 Contract Fee (1.00) 13.57729087 (0.074) 94.833 1,287.57
6-30-93 Contract Fee (1.00) 16.24888420 (0.062) 94.771 1,539.93
6-30-94 Contract Fee (1.00) 15.46386617 (0.065) 94.707 1,464.53
6-30-95 Contract Fee (1.00) 17.26898333 (0.058) 94.649 1,634.49
6-30-96 Contract Fee (1.00) 17.66928482 (0.057) 94.592 1,671.37
6-30-97 Contract Fee (1.00) 18.64051914 (0.054) 94.538 1,762.24
6-30-98 Contract Fee (1.00) 19.84757618 (0.050) 94.488 1,875.36
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 94.439 1,941.40
6-30-99 Value before Surr Chg 20.55715072 0.000 94.439 1,941.40
6-30-99 Surrender Charge 20.55715072 0.000 94.439 1,941.40
Cumulative Total Returns without/with chrgs. 95.47% A 94.14%
Avg. Annual Total Returns without/with chrgs. 14.34% B 14.19%
Franklin Zero Coupon - 2005
6-30-89 Purchase $1,000.00 $11.26535477 88.768 88.768 $1,000.00
6-30-90 Contract Fee (1.00) 10.85458360 (0.092) 88.676 962.54
6-30-91 Contract Fee (1.00) 11.46056817 (0.087) 88.588 1,015.27
6-30-92 Contract Fee (1.00) 13.53610417 (0.074) 88.514 1,198.14
6-30-93 Contract Fee (1.00) 17.37752728 (0.058) 88.457 1,537.16
6-30-94 Contract Fee (1.00) 15.99331951 (0.063) 88.394 1,413.72
6-30-95 Contract Fee (1.00) 18.95506513 (0.053) 88.342 1,674.52
6-30-96 Contract Fee (1.00) 19.23481832 (0.052) 88.290 1,698.24
6-30-97 Contract Fee (1.00) 20.66244634 (0.048) 88.241 1,823.28
6-30-98 Contract Fee (1.00) 23.26941083 (0.043) 88.198 2,052.32
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 88.156 2,061.33
6-30-99 Value before Surr Chg 23.38292589 0.000 88.156 2,061.33
6-30-99 Surrender Charge 23.38292589 0.000 88.156 2,061.33
Cumulative Total Returns without/with chrgs. 107.56% A 106.13%
Avg. Annual Total Returns without/with chrgs. 15.73% B 15.57%
Franklin Zero Coupon - 2010
6-30-89 Purchase $1,000.00 $11.24382372 88.938 88.938 $1,000.00
6-30-90 Contract Fee (1.00) 10.85648884 (0.092) 88.846 964.55
6-30-91 Contract Fee (1.00) 11.02817122 (0.091) 88.755 978.80
6-30-92 Contract Fee (1.00) 13.11837202 (0.076) 88.679 1,163.32
6-30-93 Contract Fee (1.00) 16.93650395 (0.059) 88.620 1,500.91
6-30-94 Contract Fee (1.00) 15.58486894 (0.064) 88.555 1,380.13
6-30-95 Contract Fee (1.00) 19.48443734 (0.051) 88.504 1,724.45
6-30-96 Contract Fee (1.00) 19.77580128 (0.051) 88.454 1,749.24
6-30-97 Contract Fee (1.00) 21.60810819 (0.046) 88.407 1,910.31
6-30-98 Contract Fee (1.00) 25.99460614 (0.038) 88.369 2,297.11
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 88.329 2,212.44
6-30-99 Value before Surr Chg 25.04775737 0.000 88.329 2,212.44
6-30-99 Surrender Charge 25.04775737 0.000 88.329 2,212.44
Cumulative Total Returns without/with chrgs. 122.77% A 121.24%
Avg. Annual Total Returns without/with chrgs. 17.37% B 17.21%
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/10 Years)]-1
C = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of Sub-Account Inception
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Franklin Capital Growth
<S> <C> <C> <C> <C> <C> <C>
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.17227997 (0.090) 99.910 $1,116.23
5-1-98 Contract Fee (1.00) $14.62013773 (0.068) 99.842 $1,459.71
5-1-99 Contract Fee (1.00) $16.46083654 (0.061) 99.781 $1,642.48
6-30-99 Contract Fee (1.00) $17.32145585 (0.058) 99.724 $1,727.36
6-30-99 Value before Surr Chg $17.32145585 0.000 99.724 $1,727.36
6-30-99 Surrender Charge (42.50) $17.32145585 (2.454) 97.270 $1,684.86
Cumulative Total Returns without/with chgs. 73.21% A 68.49% C
Avg. Annual Total Returns without/with chgs. 18.96% B 17.92% D
Franklin Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.59756692 (0.104) 99.896 958.76
1-24-91 Contract Fee (1.00) 10.03104257 (0.100) 99.796 1,001.06
1-24-92 Contract Fee (1.00) 12.16171947 (0.082) 99.714 1,212.69
1-24-93 Contract Fee (1.00) 12.57661487 (0.080) 99.634 1,253.06
1-24-94 Contract Fee (1.00) 14.09886247 (0.071) 99.563 1,403.73
1-24-95 Contract Fee (1.00) 13.27759299 (0.075) 99.488 1,320.96
1-24-96 Contract Fee (1.00) 17.25393143 (0.058) 99.430 1,715.56
1-24-97 Contract Fee (1.00) 19.79450666 (0.051) 99.380 1,967.17
1-24-98 Contract Fee (1.00) 23.84479142 (0.042) 99.338 2,368.69
1-24-99 Contract Fee (1.00) 25.33178429 (0.039) 99.298 2,515.40
6-30-99 Value before Surr Chg 27.82914670 0.000 99.298 2,763.39
6-30-99 Contract Fee (1.00) 27.82914670 (0.036) 99.262 2,762.39
6-30-99 Surrender Charge 0.00 27.82914670 0.000 99.262 2,762.39
Cumulative Total Returns without/with chgs. 178.29% A 176.24% C
Avg. Annual Total Returns without/with chgs. 10.30% B 10.23% D
Franklin High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.98265449 (0.100) 99.900 997.27
1-24-91 Contract Fee (1.00) 8.98103976 (0.111) 99.788 896.20
1-24-92 Contract Fee (1.00) 11.85616038 (0.084) 99.704 1,182.11
1-24-93 Contract Fee (1.00) 13.39874388 (0.075) 99.630 1,334.91
1-24-94 Contract Fee (1.00) 15.29126669 (0.065) 99.564 1,522.46
1-24-95 Contract Fee (1.00) 14.64571855 (0.068) 99.496 1,457.19
1-24-96 Contract Fee (1.00) 17.40215300 (0.057) 99.438 1,730.44
1-24-97 Contract Fee (1.00) 19.32656477 (0.052) 99.387 1,920.80
1-24-98 Contract Fee (1.00) 21.32546077 (0.047) 99.340 2,118.47
1-24-99 Contract Fee (1.00) 21.17467503 (0.047) 99.293 2,102.49
6-30-99 Value before Surr Chg 21.13194534 0.000 99.293 2,098.24
6-30-99 Contract Fee (1.00) 21.13194534 (0.047) 99.245 2,097.24
6-30-99 Surrender Charge 0.00 21.13194534 0.000 99.245 2,097.24
Cumulative Total Returns without/with chgs. 111.32% A 109.72% C
Avg. Annual Total Returns without/with chgs. 7.43% B 7.35% D
Franklin Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.70345941 (0.093) 99.907 1,069.35
1-24-91 Contract Fee (1.00) 9.93454622 (0.101) 99.806 991.53
1-24-92 Contract Fee (1.00) 13.99562082 (0.071) 99.734 1,395.85
1-24-93 Contract Fee (1.00) 15.30544228 (0.065) 99.669 1,525.48
1-24-94 Contract Fee (1.00) 17.64961404 (0.057) 99.612 1,758.12
1-24-95 Contract Fee (1.00) 16.27638185 (0.061) 99.551 1,620.33
1-24-96 Contract Fee (1.00) 20.08267334 (0.050) 99.501 1,998.25
1-24-97 Contract Fee (1.00) 21.74528582 (0.046) 99.455 2,162.68
1-24-98 Contract Fee (1.00) 24.54291374 (0.041) 99.415 2,439.92
1-24-99 Contract Fee (1.00) 24.52276055 (0.041) 99.374 2,436.92
6-30-99 Value before Surr Chg 25.15286592 0.000 99.374 2,499.53
6-30-99 Contract Fee (1.00) 25.15286592 (0.040) 99.334 2,498.53
6-30-99 Surrender Charge 0.00 25.15286592 0.000 99.334 2,498.53
Cumulative Total Returns without/with chgs. 151.53% A 149.85% C
Avg. Annual Total Returns without/with chgs. 9.24% B 9.17% D
Franklin Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67178511 (0.094) 99.906 1,066.18
1-24-91 Contract Fee (1.00) 11.31010498 (0.088) 99.818 1,128.95
1-24-92 Contract Fee (1.00) 11.72881708 (0.085) 99.733 1,169.75
1-24-93 Contract Fee (1.00) 11.90009827 (0.084) 99.649 1,185.83
1-24-94 Contract Fee (1.00) 12.02348344 (0.083) 99.565 1,197.12
1-24-95 Contract Fee (1.00) 12.32338409 (0.081) 99.484 1,225.98
1-24-96 Contract Fee (1.00) 12.84105599 (0.078) 99.406 1,276.48
1-24-97 Contract Fee (1.00) 13.29676207 (0.075) 99.331 1,320.78
1-24-98 Contract Fee (1.00) 13.78822114 (0.073) 99.259 1,368.60
1-24-99 Contract Fee (1.00) 14.28684165 (0.070) 99.189 1,417.09
6-30-99 Value before Surr Chg 14.47001675 0.000 99.189 1,435.26
6-30-99 Contract Fee (1.00) 14.47001675 (0.069) 99.120 1,434.26
6-30-99 Surrender Charge 0.00 14.47001675 0.000 99.120 1,434.26
Cumulative Total Returns without/with chgs. 44.70% A 43.43% C
Avg. Annual Total Returns without/with chgs. 3.60% B 3.52% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.82973739 (0.085) 99.915 1,181.97
11-8-98 Contract Fee (1.00) 10.94138042 (0.091) 99.824 1,092.21
6-30-99 Contract Fee (1.00) 12.46194426 (0.080) 99.744 1,243.00
6-30-99 Value before Surr Chg 12.46194426 0.000 99.744 1,243.00
6-30-99 Surrender Charge (51.00) 12.46194426 (4.092) 95.651 1,192.00
Cumulative Total Returns without/with chgs. 24.62% A 19.20% C
Avg. Annual Total Returns without/with chgs. 8.69% B 6.88% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.75083052 (0.085) 99.915 1,174.08
11-8-98 Contract Fee (1.00) 11.57328030 (0.086) 99.828 1,155.34
6-30-99 Value before Surr Chg 13.43316575 0.000 99.828 1,341.01
6-30-99 Contract Fee (1.00) 13.43316575 (0.074) 99.754 1,340.01
6-30-99 Surrender Charge (51.00) 13.43316575 (3.797) 95.957 1,289.01
Cumulative Total Returns without/with chgs. 34.33% A 28.90% C
Avg. Annual Total Returns without/with chgs. 11.82% B 10.09% D
Franklin Natural Resources Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 12.88562226 (0.078) 99.922 1,287.56
1-24-91 Contract Fee (1.00) 9.76834317 (0.102) 99.820 975.08
1-24-92 Contract Fee (1.00) 10.91292825 (0.092) 99.728 1,088.33
1-24-93 Contract Fee (1.00) 9.12197464 (0.110) 99.619 908.72
1-24-94 Contract Fee (1.00) 14.41516281 (0.069) 99.549 1,435.02
1-24-95 Contract Fee (1.00) 12.96347704 (0.077) 99.472 1,289.51
1-24-96 Contract Fee (1.00) 15.88612084 (0.063) 99.409 1,579.23
1-24-97 Contract Fee (1.00) 13.72771013 (0.073) 99.336 1,363.66
1-24-98 Contract Fee (1.00) 10.52200700 (0.095) 99.241 1,044.22
1-24-99 Contract Fee (1.00) 8.19126066 (0.122) 99.119 811.91
6-30-99 Value before Surr Chg 10.81112496 0.000 99.119 1,071.59
6-30-99 Contract Fee (1.00) 10.81112496 (0.092) 99.027 1,070.59
6-30-99 Surrender Charge 0.00 10.81112496 0.000 99.027 1,070.59
Cumulative Total Returns without/with chgs. 8.11% A 7.06% C
Avg. Annual Total Returns without/with chgs. 0.75% B 0.66% D
Franklin Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13076509 (0.099) 99.901 1,012.08
1-24-91 Contract Fee (1.00) 9.36020172 (0.107) 99.794 934.10
1-24-92 Contract Fee (1.00) 12.25114822 (0.082) 99.713 1,221.60
1-24-93 Contract Fee (1.00) 13.49614031 (0.074) 99.639 1,344.74
1-24-94 Contract Fee (1.00) 15.30618064 (0.065) 99.573 1,524.09
1-24-95 Contract Fee (1.00) 14.92840438 (0.067) 99.506 1,485.47
1-24-96 Contract Fee (1.00) 18.04447622 (0.055) 99.451 1,794.54
1-24-97 Contract Fee (1.00) 23.78351943 (0.042) 99.409 2,364.29
1-24-98 Contract Fee (1.00) 27.81930359 (0.036) 99.373 2,764.49
1-24-99 Contract Fee (1.00) 22.54748470 (0.044) 99.329 2,239.61
6-30-99 Value before Surr Chg 23.98705371 0.000 99.329 2,382.60
6-30-99 Contract Fee (1.00) 23.98705371 (0.042) 99.287 2,381.60
6-30-99 Surrender Charge 0.00 23.98705371 0.000 99.287 2,381.60
Cumulative Total Returns without/with chgs. 139.87% A 138.16% C
Avg. Annual Total Returns without/with chgs. 8.75% B 8.67% D
Franklin Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.68876950 (0.094) 99.906 1,067.88
1-27-94 Contract Fee (1.00) 10.36623339 (0.096) 99.810 1,034.65
1-27-95 Contract Fee (1.00) 9.94675745 (0.101) 99.709 991.79
1-27-96 Contract Fee (1.00) 12.48933274 (0.080) 99.629 1,244.30
1-27-97 Contract Fee (1.00) 15.20870091 (0.066) 99.564 1,514.23
1-27-98 Contract Fee (1.00) 19.73278049 (0.051) 99.513 1,963.67
1-27-99 Contract Fee (1.00) 19.71148388 (0.051) 99.462 1,960.55
6-30-99 Value before Surr Chg 21.46719404 0.000 99.462 2,135.17
6-30-99 Contract Fee (1.00) 21.46719404 (0.047) 99.416 2,134.17
6-30-99 Surrender Charge 0.00 21.46719404 0.000 99.416 2,134.17
Cumulative Total Returns without/with chgs. 114.67% A 113.42% C
Avg. Annual Total Returns without/with chgs. 10.83% B 10.75% D
Franklin Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.14713625 (0.082) 99.918 1,213.71
11-1-97 Contract Fee (1.00) 15.53654825 (0.064) 99.853 1,551.38
11-1-98 Contract Fee (1.00) 12.49929024 (0.080) 99.773 1,247.10
6-30-99 Value before Surr Chg 16.83123568 0.000 99.773 1,679.31
6-30-99 Contract Fee (1.00) 16.83123568 (0.059) 99.714 1,678.31
6-30-99 Surrender Charge (42.50) 16.83123568 (2.525) 97.189 1,635.81
Cumulative Total Returns without/with chgs. 68.31% A 63.58% C
Avg. Annual Total Returns without/with chgs. 15.27% B 14.38% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62058630 (0.116) 99.884 861.06
3-15-96 Contract Fee (1.00) 10.27729571 (0.097) 99.787 1,025.54
3-15-97 Contract Fee (1.00) 12.41978933 (0.081) 99.706 1,238.33
3-15-98 Contract Fee (1.00) 10.51420276 (0.095) 99.611 1,047.33
3-15-99 Contract Fee (1.00) 8.18678208 (0.122) 99.489 814.49
6-30-99 Value before Surr Chg 10.73475762 0.000 99.489 1,067.99
6-30-99 Contract Fee (1.00) 10.73475762 (0.093) 99.396 1,066.99
6-30-99 Surrender Charge (25.50) 10.73475762 (2.375) 97.020 1,041.49
Cumulative Total Returns without/with chgs. 7.35% A 4.15% C
Avg. Annual Total Returns without/with chgs. 1.35% B 0.77% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.24184599 (0.089) 99.911 1,123.18
5-1-97 Contract Fee (1.00) 12.74937771 (0.078) 99.833 1,272.80
5-1-98 Contract Fee (1.00) 14.95108178 (0.067) 99.766 1,491.61
5-1-99 Contract Fee (1.00) 14.11534088 (0.071) 99.695 1,407.23
6-30-99 Value before Surr Chg 14.13328693 0.000 99.695 1,409.02
6-30-99 Contract Fee (1.00) 14.13328693 (0.071) 99.624 1,408.02
6-30-99 Surrender Charge (34.00) 14.13328693 (2.406) 97.218 1,374.02
Cumulative Total Returns without/with chgs. 41.33% A 37.40% C
Avg. Annual Total Returns without/with chgs. 8.66% B 7.92% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.09452231 (0.099) 99.901 1,008.45
3-15-96 Contract Fee (1.00) 11.79417892 (0.085) 99.816 1,177.25
3-15-97 Contract Fee (1.00) 14.06170230 (0.071) 99.745 1,402.58
3-15-98 Contract Fee (1.00) 16.68243544 (0.060) 99.685 1,662.99
3-15-99 Contract Fee (1.00) 16.12348021 (0.062) 99.623 1,606.27
6-30-99 Value before Surr Chg 18.05030611 0.000 99.623 1,798.23
6-30-99 Contract Fee (1.00) 18.05030611 (0.055) 99.568 1,797.23
6-30-99 Surrender Charge (25.50) 18.05030611 (1.413) 98.155 1,771.73
Cumulative Total Returns without/with chgs. 80.50% A 77.17% C
Avg. Annual Total Returns without/with chgs. 11.80% B 11.40% D
Templeton Global Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.85157001 (0.092) 99.908 1,084.16
1-24-91 Contract Fee (1.00) 11.76337661 (0.085) 99.823 1,174.25
1-24-92 Contract Fee (1.00) 12.92541183 (0.077) 99.745 1,289.25
1-24-93 Contract Fee (1.00) 12.75002133 (0.078) 99.667 1,270.76
1-24-94 Contract Fee (1.00) 14.76765782 (0.068) 99.599 1,470.85
1-24-95 Contract Fee (1.00) 13.50498150 (0.074) 99.525 1,344.09
1-24-96 Contract Fee (1.00) 15.35232035 (0.065) 99.460 1,526.94
1-24-97 Contract Fee (1.00) 16.46140335 (0.061) 99.399 1,636.25
1-24-98 Contract Fee (1.00) 16.93462624 (0.059) 99.340 1,682.29
1-24-99 Contract Fee (1.00) 17.81240927 (0.056) 99.284 1,768.49
6-30-99 Value before Surr Chg 16.69802045 0.000 99.284 1,657.85
6-30-99 Contract Fee (1.00) 16.69802045 (0.060) 99.224 1,656.85
6-30-99 Surrender Charge 0.00 16.69802045 0.000 99.224 1,656.85
Cumulative Total Returns without/with chgs. 66.98% A 65.68% C
Avg. Annual Total Returns without/with chgs. 5.04% B 4.96% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.53509236 (0.105) 99.895 952.51
1-27-94 Contract Fee (1.00) 12.85431852 (0.078) 99.817 1,283.08
1-27-95 Contract Fee (1.00) 11.91221607 (0.084) 99.733 1,188.05
1-27-96 Contract Fee (1.00) 13.52801052 (0.074) 99.659 1,348.19
1-27-97 Contract Fee (1.00) 16.14799023 (0.062) 99.598 1,608.30
1-27-98 Contract Fee (1.00) 17.44491176 (0.057) 99.540 1,736.47
1-27-99 Contract Fee (1.00) 17.72403072 (0.056) 99.484 1,763.25
6-30-99 Value before Surr Chg 20.26134036 0.000 99.484 2,015.67
6-30-99 Contract Fee (1.00) 20.26134036 (0.049) 99.434 2,014.67
6-30-99 Surrender Charge 0.00 20.26134036 0.000 99.434 2,014.67
Cumulative Total Returns without/with chgs. 102.61% A 101.47% C
Avg. Annual Total Returns without/with chgs. 9.97% B 9.89% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.32006145 (0.088) 99.912 1,131.01
5-1-98 Contract Fee (1.00) $12.03423474 (0.083) 99.829 1,201.36
5-1-99 Contract Fee (1.00) $10.34721028 (0.097) 99.732 1,031.95
6-30-99 Value before Surr Chg $10.85569231 0.000 99.732 1,082.66
6-30-99 Contract Fee (1.00) $10.85569231 (0.092) 99.640 1,081.66
6-30-99 Surrender Charge (42.50) $10.85569231 (3.915) 95.725 1,039.16
Cumulative Total Returns without/with chgs. 8.56% A 3.92% C
Avg. Annual Total Returns without/with chgs. 2.63% B 1.22% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.91965141 (0.101) 99.899 990.97
1-27-94 Contract Fee (1.00) 14.07652865 (0.071) 99.828 1,405.23
1-27-95 Contract Fee (1.00) 11.91556247 (0.084) 99.744 1,188.51
1-27-96 Contract Fee (1.00) 14.44474860 (0.069) 99.675 1,439.78
1-27-97 Contract Fee (1.00) 14.58766078 (0.069) 99.606 1,453.03
1-27-98 Contract Fee (1.00) 8.42138869 (0.119) 99.488 837.82
1-27-99 Contract Fee (1.00) 7.82724368 (0.128) 99.360 777.71
6-30-99 Value before Surr Chg 10.26126773 0.000 99.360 1,019.56
6-30-99 Contract Fee (1.00) 10.26126773 (0.097) 99.262 1,018.56
6-30-99 Surrender Charge 0.00 10.26126773 0.000 99.262 1,018.56
Cumulative Total Returns without/with chgs. 2.61% A 1.86% C
Avg. Annual Total Returns without/with chgs. 0.35% B 0.25% D
Franklin U.S. Government Securities
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.29864074 (0.097) 99.903 1,028.86
3-14-91 Contract Fee (1.00) 11.44148140 (0.087) 99.815 1,142.04
3-14-92 Contract Fee (1.00) 12.36677937 (0.081) 99.735 1,233.40
3-14-93 Contract Fee (1.00) 14.05074266 (0.071) 99.663 1,400.35
3-14-94 Contract Fee (1.00) 14.20297756 (0.070) 99.593 1,414.52
3-14-95 Contract Fee (1.00) 14.59412892 (0.069) 99.525 1,452.47
3-14-96 Contract Fee (1.00) 15.82460547 (0.063) 99.461 1,573.94
3-14-97 Contract Fee (1.00) 16.60622197 (0.060) 99.401 1,650.68
3-14-98 Contract Fee (1.00) 18.04599170 (0.055) 99.346 1,792.79
3-14-99 Contract Fee (1.00) 18.76504555 (0.053) 99.292 1,863.23
6-30-99 Value before Surr Chg 18.46547047 0.000 99.292 1,833.48
6-30-99 Contract Fee (1.00) 18.46547047 (0.054) 99.238 1,832.48
6-30-99 Surrender Charge 0.00 18.46547047 0.000 99.238 1,832.48
Cumulative Total Returns without/with chgs. 84.65% A 83.25% C
Avg. Annual Total Returns without/with chgs. 6.13% B 6.06% D
Franklin Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.47363453 (0.087) 99.913 1,146.36
1-24-91 Contract Fee (1.00) 11.95102656 (0.084) 99.829 1,193.06
1-24-92 Contract Fee (1.00) 14.20139407 (0.070) 99.759 1,416.71
1-24-93 Contract Fee (1.00) 15.91822229 (0.063) 99.696 1,586.98
1-24-94 Contract Fee (1.00) 16.43119760 (0.061) 99.635 1,637.12
1-24-95 Contract Fee (1.00) 15.48692698 (0.065) 99.571 1,542.04
1-24-96 Contract Fee (1.00) 19.69346882 (0.051) 99.520 1,959.89
1-24-97 Contract Fee (1.00) 20.83359223 (0.048) 99.472 2,072.35
1-24-98 Contract Fee (1.00) 25.00670659 (0.040) 99.432 2,486.46
1-24-99 Contract Fee (1.00) 27.85091832 (0.036) 99.396 2,768.27
6-30-99 Value before Surr Chg 30.39824832 0.000 99.396 3,021.46
6-30-99 Contract Fee (1.00) 30.39824832 (0.033) 99.363 3,020.46
6-30-99 Surrender Charge 0.00 30.39824832 0.000 99.363 3,020.46
Cumulative Total Returns without/with chgs. 203.98% A 202.05% C
Avg. Annual Total Returns without/with chgs. 11.24% B 11.17% D
Franklin Zero Coupon - 2000
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.37748201 (0.096) 99.904 1,036.75
3-14-91 Contract Fee (1.00) 11.49325260 (0.087) 99.817 1,147.22
3-14-92 Contract Fee (1.00) 12.63019476 (0.079) 99.737 1,259.70
3-14-93 Contract Fee (1.00) 15.48457708 (0.065) 99.673 1,543.39
3-14-94 Contract Fee (1.00) 15.97181577 (0.063) 99.610 1,590.96
3-14-95 Contract Fee (1.00) 16.16440029 (0.062) 99.548 1,609.14
3-14-96 Contract Fee (1.00) 17.74484226 (0.056) 99.492 1,765.47
3-14-97 Contract Fee (1.00) 18.31427141 (0.055) 99.437 1,821.12
3-14-98 Contract Fee (1.00) 19.60681587 (0.051) 99.386 1,948.65
3-14-99 Contract Fee (1.00) 20.49783627 (0.049) 99.338 2,036.21
6-30-99 Value before Surr Chg 20.55715072 0.000 99.338 2,042.10
6-30-99 Contract Fee (1.00) 20.55715072 (0.049) 99.289 2,041.10
6-30-99 Surrender Charge 0.00 20.55715072 0.000 99.289 2,041.10
Cumulative Total Returns without/with chgs. 105.57% A 104.11% C
Avg. Annual Total Returns without/with chgs. 7.25% B 7.17% D
Franklin Zero Coupon - 2005
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.38882453 (0.096) 99.904 1,037.88
3-14-91 Contract Fee (1.00) 11.53456820 (0.087) 99.817 1,151.35
3-14-92 Contract Fee (1.00) 12.62819047 (0.079) 99.738 1,259.51
3-14-93 Contract Fee (1.00) 16.36793990 (0.061) 99.677 1,631.50
3-14-94 Contract Fee (1.00) 16.86182251 (0.059) 99.617 1,679.73
3-14-95 Contract Fee (1.00) 17.12592868 (0.058) 99.559 1,705.04
3-14-96 Contract Fee (1.00) 19.37651757 (0.052) 99.507 1,928.11
3-14-97 Contract Fee (1.00) 20.04125698 (0.050) 99.458 1,993.25
3-14-98 Contract Fee (1.00) 22.73556936 (0.044) 99.414 2,260.22
3-14-99 Contract Fee (1.00) 24.04541704 (0.042) 99.372 2,389.44
6-30-99 Value before Surr Chg 23.38292589 0.000 99.372 2,323.61
6-30-99 Contract Fee (1.00) 23.38292589 (0.043) 99.329 2,322.61
6-30-99 Surrender Charge 0.00 23.38292589 0.000 99.329 2,322.61
Cumulative Total Returns without/with chgs. 133.83% A 132.26% C
Avg. Annual Total Returns without/with chgs. 8.60% B 8.52% D
Franklin Zero Coupon - 2010
3-14-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-14-90 Contract Fee (1.00) 10.25922011 (0.097) 99.903 1,024.92
3-14-91 Contract Fee (1.00) 11.34740047 (0.088) 99.814 1,132.63
3-14-92 Contract Fee (1.00) 12.25923536 (0.082) 99.733 1,222.65
3-14-93 Contract Fee (1.00) 16.12714811 (0.062) 99.671 1,607.41
3-14-94 Contract Fee (1.00) 16.82866376 (0.059) 99.611 1,676.33
3-14-95 Contract Fee (1.00) 17.03620553 (0.059) 99.553 1,696.00
3-14-96 Contract Fee (1.00) 19.87163939 (0.050) 99.502 1,977.28
3-14-97 Contract Fee (1.00) 20.61421426 (0.049) 99.454 2,050.16
3-14-98 Contract Fee (1.00) 24.97939657 (0.040) 99.414 2,483.30
3-14-99 Contract Fee (1.00) 26.34826167 (0.038) 99.376 2,618.38
6-30-99 Value before Surr Chg 25.04775737 0.000 99.376 2,489.14
6-30-99 Contract Fee (1.00) 25.04775737 (0.040) 99.336 2,488.14
6-30-99 Surrender Charge 0.00 25.04775737 0.000 99.336 2,488.14
Cumulative Total Returns without/with chgs. 150.48% A 148.81% C
Avg. Annual Total Returns without/with chgs. 9.32% B 9.25% D
Franklin Global Health Care Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) 8.68990569 (0.115) 99.885 867.99
6-30-99 Value before Surr Chg 8.96313257 0.000 99.885 895.28
6-30-99 Contract Fee (1.00) 8.96313257 (0.112) 99.773 894.28
6-30-99 Surrender Charge (51.00) 8.96313257 (5.690) 94.083 843.28
Cumulative Total Returns without/with chgs. -10.37% A -15.67% C
Avg. Annual Total Returns without/with chgs. -8.97% B -13.62% D
Franklin Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-99 Contract Fee (1.00) 7.78347562 (0.128) 99.872 777.35
6-30-99 Value before Surr Chg 8.49138875 0.000 99.872 848.05
6-30-99 Contract Fee (1.00) 8.49138875 (0.118) 99.754 847.05
6-30-99 Surrender Charge (51.00) 8.49138875 (6.006) 93.748 796.05
Cumulative Total Returns without/with chgs. -15.09% A -20.40% C
Avg. Annual Total Returns without/with chgs. -13.10% B -17.79% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Valuemark(R) IV
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations - HYPOTHETICAL
Original Purchase as of June 30, 1998
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
AIM VI Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-98 Purchase $1,000.00 $23.98571337 41.691 41.691 $1,000.00
6-30-99 Contract Fee (1.00) 30.02023684 (0.033) 41.658 1,250.59
6-30-99 Value before Surr Chg 30.02023684 0.000 41.658 1,250.59
6-30-99 Surrender Charge (60.00) 30.02023684 (1.999) 39.660 1,190.59
Cumulative and Average Annual Total Returns
without/with charges 25.16% A 19.06% B
Alger American Growth
6-30-98 Purchase $1,000.00 $54.52728205 18.339 18.339 $1,000.00
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 18.326 1,331.09
6-30-99 Value before Surr Chg 72.63538663 0.000 18.326 1,331.09
6-30-99 Surrender Charge (60.00) 72.63538663 (0.826) 17.500 1,271.09
Cumulative and Average Annual Total Returns
without/with charges 33.21% A 27.11% B
Alger American Leveraged AllCap
6-30-98 Purchase $1,000.00 $27.89920509 35.843 35.843 $1,000.00
6-30-99 Contract Fee (1.00) 43.34944541 (0.023) 35.820 1,552.79
6-30-99 Value before Surr Chg 43.34944541 0.000 35.820 1,552.79
6-30-99 Surrender Charge (60.00) 43.34944541 (1.384) 34.436 1,492.79
Cumulative and Average Annual Total Returns
without/with charges 55.38% A 49.28% B
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
Original Purchase as of June 30, 1994
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
AIM VI Growth
6-30-94 Purchase $1,000.00 $9.98195470 100.181 100.181 $1,000.00
6-30-95 Contract Fee (1.00) 12.79094752 (0.078) 100.103 $1,280.41
6-30-96 Contract Fee (1.00) 15.01934463 (0.067) 100.036 $1,502.48
6-30-97 Contract Fee (1.00) 18.64492837 (0.054) 99.982 1,864.16
6-30-98 Contract Fee (1.00) 23.98571337 (0.042) 99.941 2,397.15
6-30-99 Contract Fee (1.00) 30.02023684 (0.033) 99.907 2,999.24
6-30-99 Value before Surr Chg 30.02023684 0.000 99.907 2,999.24
6-30-99 Surrender Charge (34.00) 30.02023684 (1.133) 98.775 2,965.24
Cumulative Total Returns without/with chrgs. 200.75% A 196.52% C
Avg. Annual Total Returns without/with chrgs. 24.63% B 24.28% D
Alger American Growth
6-30-94 Purchase $1,000.00 $20.95700101 47.717 47.717 $1,000.00
6-30-95 Contract Fee (1.00) 28.90420339 (0.035) 47.682 1,378.21
6-30-96 Contract Fee (1.00) 33.03811182 (0.030) 47.652 1,574.33
6-30-97 Contract Fee (1.00) 40.27554189 (0.025) 47.627 1,918.21
6-30-98 Contract Fee (1.00) 54.52728205 (0.018) 47.609 2,595.97
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 47.595 3,457.08
6-30-99 Value before Surr Chg 72.63538663 0.000 47.595 3,457.08
6-30-99 Surrender Charge (34.00) 72.63538663 (0.468) 47.127 3,423.08
Cumulative Total Returns without/with chrgs. 246.59% A 242.31% C
Avg. Annual Total Returns without/with chrgs. 28.22% B 27.90% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/5 Years)]-1
C = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of June 30, 1989
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
Alger American Growth
<S> <C> <C> <C> <C> <C> <C>
6-30-89 Purchase $1,000.00 $11.11644864 89.957 89.957 $1,000.00
6-30-90 Contract Fee (1.00) 13.45450318 (0.074) 89.882 1,209.32
6-30-91 Contract Fee (1.00) 14.31003941 (0.070) 89.813 1,285.22
6-30-92 Contract Fee (1.00) 15.93950097 (0.063) 89.750 1,430.57
6-30-93 Contract Fee (1.00) 20.15378291 (0.050) 89.700 1,807.80
6-30-94 Contract Fee (1.00) 20.95700101 (0.048) 89.653 1,878.85
6-30-95 Contract Fee (1.00) 28.90420339 (0.035) 89.618 2,590.33
6-30-96 Contract Fee (1.00) 33.03811182 (0.030) 89.588 2,959.81
6-30-97 Contract Fee (1.00) 40.27554189 (0.025) 89.563 3,607.19
6-30-98 Contract Fee (1.00) 54.52728205 (0.018) 89.544 4,882.62
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 89.531 6,503.10
6-30-99 Value before Surr Chg 72.63538663 0.000 89.531 6,503.10
6-30-99 Surrender Charge 72.63538663 0.000 89.531 6,503.10
Cumulative Total Returns without/with chrgs. 553.40% A 550.31%
Avg. Annual Total Returns without/with chrgs. 20.65% B 20.59%
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/10 Years)]-1
C = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/10 Years)]-1
</FN>
</TABLE>
<TABLE>
<CAPTION>
Original Purchase as of Sub-Account Inception
Valuation Date as of June 30, 1999
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
AIM VI Growth
<S> <C> <C> <C> <C> <C> <C>
5-5-93 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-5-94 Contract Fee (1.00) 10.49813411 (0.095) 99.905 1,048.81
5-5-95 Contract Fee (1.00) 11.72581335 (0.085) 99.819 1,170.46
5-5-96 Contract Fee (1.00) 14.79509721 (0.068) 99.752 1,475.84
5-5-97 Contract Fee (1.00) 17.40038646 (0.057) 99.694 1,734.72
5-5-98 Contract Fee (1.00) 23.41232831 (0.043) 99.652 2,333.08
5-5-99 Contract Fee (1.00) 28.63843892 (0.035) 99.617 2,852.87
6-30-99 Value before Surr Chg 30.02023684 0.000 99.617 2,990.52
6-30-99 Contract Fee (1.00) 30.02023684 (0.033) 99.583 2,989.52
6-30-99 Surrender Charge (17.00) 30.02023684 (0.566) 99.017 2,972.52
Cumulative Total Returns without/with chgs. 200.20% A 197.25% C
Avg. Annual Total Returns without/with chgs. 19.55% B 19.36% D
Alger American Growth
1-9-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-9-90 Contract Fee (1.00) 12.26566501 (0.082) 99.918 1,225.57
1-9-91 Contract Fee (1.00) 11.92832842 (0.084) 99.835 1,190.86
1-9-92 Contract Fee (1.00) 18.15458436 (0.055) 99.780 1,811.46
1-9-93 Contract Fee (1.00) 19.27638931 (0.052) 99.728 1,922.39
1-9-94 Contract Fee (1.00) 23.76088211 (0.042) 99.686 2,368.62
1-9-95 Contract Fee (1.00) 23.26591670 (0.043) 99.643 2,318.28
1-9-96 Contract Fee (1.00) 29.06841839 (0.034) 99.608 2,895.45
1-9-97 Contract Fee (1.00) 35.87591329 (0.028) 99.580 3,572.54
1-9-98 Contract Fee (1.00) 41.37466992 (0.024) 99.556 4,119.10
1-9-99 Contract Fee (1.00) 64.99059618 (0.015) 99.541 6,469.21
6-30-99 Value before Surr Chg 72.63538663 0.000 99.541 7,230.18
6-30-99 Contract Fee (1.00) 72.63538663 (0.014) 99.527 7,229.18
6-30-99 Surrender Charge 0.00 72.63538663 0.000 99.527 7,229.18
Cumulative Total Returns without/with chgs. 626.35% A 622.92% C
Avg. Annual Total Returns without/with chgs. 20.84% B 20.78% D
Alger American Leveraged AllCap
1-25-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-25-96 Contract Fee (1.00) 17.22146848 (0.058) 99.942 1,721.15
1-25-97 Contract Fee (1.00) 20.13007645 (0.050) 99.892 2,010.84
1-25-98 Contract Fee (1.00) 22.01326365 (0.045) 99.847 2,197.95
1-25-99 Contract Fee (1.00) 36.29540636 (0.028) 99.819 3,622.98
6-30-99 Value before Surr Chg 43.34944541 0.000 99.819 4,327.11
6-30-99 Contract Fee (1.00) 43.34944541 (0.023) 99.796 4,326.11
6-30-99 Surrender Charge (34.00) 43.34944541 (0.784) 99.012 4,292.11
Cumulative Total Returns without/with chgs. 333.49% A 329.21% C
Avg. Annual Total Returns without/with chgs. 39.25% B 38.93% D
<FN>
A = (Unit Value as of June 30, 1999 - Unit Value at Purchase)/Unit Value at Purchase
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of June 30, 1999 - Accum. Value at Purch.)/Accum. Value at Purch.
D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
