File Nos. 333-82329
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. 1 (X)
Post-Effective Amendment No. ( )
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 61 (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
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Title of Securities Registered:
Individual Deferred Variable Annuity Contracts
================================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CROSS REFERENCE SHEET
(Required by Rule 495)
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. . . . . . . Not Applicable
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies. . . . . . . . . . . . Other Information-
The Separate Account,
Allianz Life,
Investment Options
Item 6. Deductions. . . . . . . . .. . . . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts . . . . . . . . . . . . . . .The 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
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
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
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.
PART A
THE VARIABLE ANNUITY CONTRACT
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
- --------------------------------------------------------------------------------
This prospectus describes the variable annuity contract with a Fixed Account
offered by Allianz Life Insurance Company of North America (Allianz Life).
The annuity has 37 Variable Options, each of which invests in one of the
Portfolios listed below, and a Fixed Account of Allianz Life. You can select up
to 10 investment choices (which includes any of the Variable Options and the
Fixed Account). The Fixed Account may not be available in your state.
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Growth Fund
AIM V.I. Value Fund
AIM V.I. International Equity Fund
AIM V.I. Capital Appreciation Fund
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
DAVIS VARIABLE ACCOUNT FUND, INC.:
Davis VA Value Portfolio
Davis VA Financial Portfolio
Davis VA Real Estate Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
Franklin U.S. Government Fund
Franklin Growth and Income Fund
Mutual Shares Securities Fund
Franklin Rising Dividends Securities Fund
Mutual Discovery Securities Fund
Franklin Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Pacific Growth Fund
JP MORGAN SERIES TRUST II:
J.P. Morgan International Opportunities Portfolio
J.P. Morgan U.S. Disciplined Equity Portfolio
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer VA Global Securities Fund
Oppenheimer VA High Income Fund
Oppenheimer VA Main Street Growth & Income Fund
PIMCO VARIABLE INSURANCE TRUST:
PIMCO VIT StocksPLUS Growth and Income Portfolio
PIMCO VIT Total Return Bond Portfolio
PIMCO VIT High Yield Bond Portfolio
SELIGMAN PORTFOLIOS, INC.:
Seligman Henderson Global Technology Portfolio
Seligman Small-Cap Value Portfolio
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
USAllianz VIP Growth Fund
USAllianz VIP Global Opportunities Fund
USAllianz VIP Fixed Income Fund
USAllianz VIP Diversified Assets Fund
USAllianz VIP Money Market Fund
VAN KAMPEN LIFE INVESTMENT TRUST:
Van Kampen LIT Enterprise Portfolio
Van Kampen LIT Growth and Income Portfolio
Please read this prospectus before investing and keep it for future reference.
It contains important information about the 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 ______________.
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is legally a part of this prospectus. The Table of Contents of the SAI is on
page of this prospectus. The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference and other information about
companies that file electronically with the SEC. For a free copy of the SAI,
call us at (800) 542-5427 or write us at: 1750 Hennepin Avenue, Minneapolis,
Minnesota 55403-2195.
The Variable Annuity Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
Dated: ,
TABLE OF CONTENTS
Index of Terms
Summary
Fee Table
The Variable Annuity Contract
Ownership
Contract Owner
Joint Owner
Annuitant
Beneficiary
Assignment
Annuity Payments (The Payout Phase)
Income Date
Annuity Payments
Annuity Options
Guaranteed Minimum Protection Benefits - Annuity Income Protection
Purchase
Purchase Payments
Automatic Investment Plan
Allocation of Purchase Payments
Free Look
Accumulation Units
Investment Options
Transfers
Dollar Cost Averaging Program
Flexible Rebalancing
Financial Advisers - Asset Allocation Programs
Voting Privileges
Substitution
Expenses
Insurance Charges
Mortality and Expense Risk Charge
Administrative Charge
Distribution Expense Charge
Contract Maintenance Charge
Contingent Deferred Sales Charge
Waiver of Contingent Deferred
Sales Charge Benefits
Reduction or Elimination of the
Contingent Deferred Sales Charge
Commutation Fee
Transfer Fee
Premium Taxes
Income Taxes
Portfolio Expenses
Taxes
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Multiple Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
Access to Your Money
Systematic Withdrawal Program
Minimum Distribution Program
Suspension of Payments or Transfers
Performance
Death Benefit
Upon Your Death
Guaranteed Minimum Protection Benefits - Death Benefit
Death of Annuitant
Other Information
Allianz Life
The Separate Account
Distribution
Administration
Financial Statements
Table of Contents of the Statement of Additional Information
Appendix
INDEX OF TERMS
- --------------------------------------------------------------------------------
This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical words or terms used which are
capitalized in the prospectus. The page that is indicated below is where you
will find the definition for the word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Contract
Contract Owner
Fixed Account
Income Date
Joint Owner
Non-Qualified
Payout Phase
Portfolios
Purchase Payment
Qualified
Tax Deferral
Variable Option
SUMMARY
- --------------------------------------------------------------------------------
The sections in 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 37 Variable Options
and the Allianz Life Fixed Account. The Contract is intended for retirement
savings or other long-term investment purposes. The Contract provides a
Traditional Guaranteed Minimum Protection Benefit (Traditional GMPB). You
can elect the Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB), the
Enhanced Guaranteed Income Benefit (Enhanced GMIB) or both (together, Enhanced
Guaranteed Minimum Protection Benefit (Enhanced GMPB)). These features provide
for a guaranteed death benefit and a guaranteed annuity income benefit (which
provides for guaranteed minimum payments during the Payout Phase).
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.
This product offers guaranteed income protection through either the Traditional
GMPB or the Enhanced GMPB. To receive the GMPB annuity income benefit: (1) your
Income Date must be within 30 days following a Contract anniversary beginning
with the seventh Contract anniversary; (2) you must elect to receive payments
from Allianz Life's general account (fixed annuity payments); and (3) if you
select an Annuity Option which provides for a period certain, the period must be
for at least 10 years.
Purchase: You can buy the Contract with $5,000 or more. 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 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 $40 contract maintenance charge from your
Contract. During the Accumulation Phase, Allianz Life currently waives this
charge if the value of your Contract is at least $100,000.
Allianz Life deducts a mortality and expense risk charge which varies depending
upon whether you select the Traditional GMPB, the Enhanced Guaranteed Minimum
Death Benefit (Enhanced GMDB), the Enhanced Guaranteed Minimum Income Benefit
(Enhanced GMIB) or both the Enhanced GMDB and the Enhanced GMIB. The charge is
equal, on an annual basis, to 1.25% of the average daily value of the Contract
invested in a Variable Option if you select the Traditional GMPB, 1.55% of the
average daily value of the Contract invested in a Variable Option if you select
either the Enhanced GMDB or the Enhanced GMIB, and 1.75% of the average daily
value of the Contract invested in a Variable Option if you select both the
Enhanced GMDB and the Enhanced GMIB. 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 7% in the first year and declines to 0% after 5
years.
You can make 12 free transfers each year. After that, Allianz Life deducts a $25
transfer fee for each additional transfer.
There are also daily investment charges which range, on an annual basis, from
.60% to 1.85% 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 59 1/2 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. Under certain circumstances, you can also
take money out during the Payout Phase if you select Annuity Option 2, 4 or 6.
Money you take out during the Payout Phase is subject to a commutation fee.
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 the Traditional GMPB or the Enhanced GMPB.
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:
USAllianz Service Center
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
(800) 624-0197
FEE TABLE
- --------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing,
directly or indirectly, in the Contract. It reflects expenses of the Separate
Account as well as the Portfolios.
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge*
(as a percentage of Purchase Payments)
Number of Complete Contract Years
Since Receipt of Purchase
Payment Charge
---------------------------------------------------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 years or more 0%
Commutation Fee
(as a percentage amount liquidated under Annuity Option 2,4 or 6)
Years Since Income Date Charge
- ----------------------- ------
0-1 5%
1-2 4%
2-3 3%
3-4 2%
over 4 1%
Transfer Fee
First 12 transfers in a Contract year are free. Thereafter,
the fee is $25. Dollar Cost Averaging transfers and Flexible
Rebalancing transfers are not counted.
CONTRACT MAINTENANCE CHARGE** $40 per Contract per year
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Traditional Enhanced GMDB or Enhanced GMDB
GMPB Enhanced GMIB and Enhanced GMIB
---- ---------------- -----------------
<S> <C> <C> <C>
Mortality and Expense Risk Charge 1.25% 1.55% 1.75%
Administrative Charge .15% .15% .15%
Distribution Expense Charge 0% 0% 0%
----- ----- -----
Total Separate Account Annual Expenses 1.40% 1.70% 1.90%
<FN>
* Each year, on a cumulative basis (minus any previous withdrawals you make
which are not subject to a contingent deferred sales charge), you may make
partial withdrawals of up to a total of 10% of Purchase Payments and no
contingent deferred sales charge will be assessed. See "Access to Your
Money" for additional options.
** During the Accumulation Phase, the charge is waived if the value of your
Contract is at least $100,000. If you own more than one Contract offered
under this Prospectus (registered with the same social security number), we
will determine the total value of all your Contracts. If the total value of
all your Contracts is at least $100,000, the charge is waived on all your
Contracts.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1998 ANNUAL FUND EXPENSES (as a percentage of a Portfolio's average net assets)
Other Expenses Total Fund Expenses
(after waivers/ (after waivers/
Management 12b-1 reimbursements reimbursements
Portfolio Fees Fees as noted) as noted)
- --------- ---------- ----- --------------- -------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund .62% .05% .67%
AIM V.I. Growth Fund .64% .08% .72%
AIM V.I. International Equity Fund .75% .16% .91%
AIM V.I. Value Fund .61% .05% .66%
Alger American Growth Portfolio .75% .04% .79%
Alger American Leveraged AllCap
Portfolio 1 .85% .11% .96%
Alger American MidCap Growth
Portfolio .80% .04% .84%
Alger American Small Capitalization
Portfolio .85% .04% .89%
Davis VA Financial Portfolio .75% .25% 1.00%
Davis VA Real Estate Portfolio .75% .25% 1.00%
Davis VA Value Portfolio .75% .25% 1.00%
Franklin Growth and Income Fund,
Class 2 5 .47% .25% .02% .74%
Franklin Rising Dividends Securities
Fund, Class 2 5 .70% .25% .02% .97%
Franklin Small Cap Fund, Class 2 5 .75% .25% .02% 1.02%
Franklin U.S. Government Fund,
Class 2 5 .48% .25% .02% .75%
J.P. Morgan International
Opportunities Portfolio 2 .60% .60% 1.20%
J.P. Morgan U.S. Disciplined Equity
Portfolio 3 .35% .52% .87%
Mutual Discovery Securities Fund,
Class 2 4/5 .95% .25% .05% 1.25%
Mutual Shares Securities Fund,
Class 2 4/5 .74% .25% .03% 1.02%
Oppenheimer VA Global Securities
Fund .68% .06% .74%
Oppenheimer VA High Income Fund .74% .04% .78%
Oppenheimer VA Main Street Growth &
Income Fund .74% .05% .79%
PIMCO VIT High Yield Bond Portfolio 6 .69% .06% .75%
PIMCO VIT StocksPLUS Growth &
Income Portfolio 6 .58% .07% .65%
PIMCO VIT Total Return Bond
Portfolio 6 .55% .10% .65%
Seligman Henderson Global
Technology Portfolio 1.00% .40% 1.40%
Seligman Small Cap Value Portfolio 1.00% .00% 1.00%
Templeton Developing Markets
Equity Fund, Class 2 5 1.25% .25% .16% 1.66%
Templeton Global Growth Fund,
Class 2 5 .83% .25% .05% 1.13%
Templeton Pacific Growth Fund,
Class 2 5 .99% .25% .11% 1.35%
USAllianz VIP Diversified Assets
Fund 7 .55% .25% .40% 1.20%
USAllianz VIP Fixed Income Fund 7 .50% .25% .30% 1.05%
USAllianz VIP Global Opportunities
Fund 7 .95% .25% .65% 1.85%
USAllianz VIP Growth Fund 7 .75% .25% .28% 1.28%
USAllianz VIP Money Market Fund 7 .35% .25% .28% .88%
Van Kampen LIT Enterprise
Portfolio 8 .46% .14% .60%
Van Kampen LIT Growth & Income
Portfolio 8 .26% .49% .75%
</TABLE>
1. The Alger American Leveraged AllCap Portfolio's "Other Expenses" includes
.03% of interest expense.
2. Without reimbursement, other expenses and total operating expenses would
have been 2.66% and 3.26%, respectively.
3. The expense information in this table has been restated to reflect
current fees. Effective 7/1/99, Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), an affiliate of J.P. Morgan, has agreed to
reimburse the Portfolio to the extent certain expenses exceed 0.85% of
the Portfolio's average daily net assets through 12/31/99. For the
period from 1/1/99 through 6/30/99, Morgan Guaranty agreed to reimburse
the Portfolio to the extent certain expenses exceed 0.90% of the
Portfolio's average daily net assets. Without reimbursement, other
expenses and total operating expenses would have been 1.08% and 1.43%.
4. The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund
incur a portfolio administration fee as a direct expense of the portfolio.
Other Portfolios of Franklin Templeton Variable Insurance Products Trust
pay for similar services indirectly through the Management Fee.
5. For the Class 2 Portfolios of Franklin Templeton Variable Insurance
Products Trust, Class 2 shares have a distribution plan which is referred
to as a rule 12b-1 plan. See "Fund Account Policies" in the accompanying
prospectus for Franklin Templeton Variable Insurance Products Trust for a
description of these fees and the rule 12b-1 plan. Because Class 2 shares
are relatively new (since January 6, 1999), the total fees and expenses
(other than 12b-1 fees) are based on the expenses of each Portfolio's
Class 1 shares for the most recent fiscal year.
6. PIMCO, the investment adviser, has agreed to reduce its administrative
fee, subject to potential future reimbursements, to the extent that total
Portfolio operating expenses would exceed, due to organizational expenses
and the payment by each Portfolio of its pro rata portion of the Trust's
Trustees' fees, 0.75% with respect to the High Yield Bond Portfolio,
0.65% with respect to the StocksPLUS Growth and Income Portfolio, and
0.65% with respect to the Total Return Bond Portfolio. Without such
reductions, total annual Portfolio expenses would have been 0.81%, 0.72%
and 0.75% for High Yield Bond Portfolio, StocksPLUS Growth and Income
Portfolio and Total Return Bond Portfolio, respectively.
7. The USAllianz VIP Fixed Income Fund, USAllianz VIP Global Opportunities
Fund, USAllianz VIP Growth Fund and the USAllianz VIP Money Market Fund
commenced operations on November 12, 1999 and the USAllianz VIP
Diversified Assets Fund commenced operations on November 8, 1999. The
expenses shown for these portfolios are therefore estimated for 1999.
8. If certain expenses had not been assumed by the Adviser, total return
would have been lower and total fund expenses would have been .64% for
the Van Kampen LIT Enterprise Portfolio and 1.09% for the Van Kampen LIT
Growth and Income Portfolio.
Examples
o The examples below should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
o The $40 contract maintenance charge is included in the examples as a
prorated charge of $1. Since the average Contract size is greater than
$1,000, the contract maintenance charge is reduced accordingly.
o Premium taxes are not reflected in the tables. Premium taxes may apply.
o For additional information, see "Expenses."
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on your money if you surrender your Contract at the end of each time period for
Contracts with:
(a) the Traditional GMPB
(b) the Enhanced GMDB or Enhanced GMIB
(c) the Enhanced GMPB (Enhanced GMDB and Enhanced GMIB)
Variable Option 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund (a)$ 85 (a)$103 (a)$131 (a)$250
(b) 88 (b) 112 (b) 147 (b) 281
(c) 90 (c) 118 (c) 157 (c) 300
AIM V.I. Growth Fund (a) 86 (a) 104 (a) 134 (a) 255
(b) 89 (b) 113 (b) 149 (b) 286
(c) 91 (c) 119 (c) 159 (c) 305
AIM V.I. International Equity Fund (a) 87 (a) 110 (a) 144 (a) 275
(b) 90 (b) 119 (b) 159 (b) 304
(c) 92 (c) 125 (c) 168 (c) 324
AIM V.I. Value Fund (a) 85 (a) 103 (a) 131 (a) 249
(b) 88 (b) 112 (b) 146 (b) 280
(c) 90 (c) 118 (c) 156 (c) 300
Alger American Growth Portfolio (a) 86 (a) 107 (a) 137 (a) 262
(b) 89 (b) 116 (b) 153 (b) 293
(c) 91 (c) 122 (c) 162 (c) 312
Alger American Leveraged AllCap
Portfolio (a) 88 (a) 112 (a) 146 (a) 280
(b) 91 (b) 121 (b) 161 (b) 309
(c) 93 (c) 127 (c) 171 (c) 329
Alger American MidCap Growth
Portfolio (a) 87 (a) 108 (a) 140 (a) 267
(b) 90 (b) 117 (b) 155 (b) 298
(c) 92 (c) 123 (c) 165 (c) 317
Alger American Small Capitalization
Portfolio (a) 87 (a) 110 (a) 143 (a) 273
(b) 90 (b) 119 (b) 158 (b) 302
(c) 92 (c) 125 (c) 167 (c) 322
Davis VA Financial Portfolio (a) 88 (a) 113 (a) 148 (a) 284
(b) 91 (b) 122 (b) 163 (b) 313
(c) 93 (c) 128 (c) 173 (c) 332
Davis VA Real Estate Portfolio (a) 88 (a) 113 (a) 284
(b) 91 (b) 122 (b) 313
(c) 93 (c) 128 (c) 332
Davis VA Value Portfolio (a) 88 (a) 113 (a) 148 (a) 284
(b) 91 (b) 122 (b) 163 (b) 313
(c) 93 (c) 128 (c) 173 (c) 332
Franklin Growth and Income Fund (a) 86 (a) 105 (a) 135 (a) 257
(b) 89 (b) 114 (b) 150 (b) 288
(c) 91 (c) 120 (c) 160 (c) 307
Franklin Rising Dividends Securities Fund (a) 88 (a) 112 (a) 147 (a) 281
(b) 91 (b) 121 (b) 161 (b) 310
(c) 93 (c) 127 (c) 171 (c) 329
Franklin Small Cap Fund (a) 89 (a) 113 (a) 149 (a) 286
(b) 92 (b) 122 (b) 164 (b) 315
(c) 94 (c) 128 (c) 174 (c) 334
Franklin U.S. Government Fund (a) 86 (a) 105 (a) 135 (a) 258
(b) 89 (b) 114 (b) 151 (b) 289
(c) 91 (c) 120 (c) 161 (c) 308
J.P. Morgan International
Opportunities Portfolio (a) 90 (a) 119 (a) 158 (a) 303
(b) 93 (b) 128 (b) 173 (b) 332
(c) 95 (c) 134 (c) 183 (c) 351
J.P. Morgan U.S. Disciplined Equity
Portfolio (a) 87 (a) 109 (a) 142 (a) 271
(b) 90 (b) 118 (b) 157 (b) 300
(c) 92 (c) 124 (c) 166 (c) 320
Mutual Discovery Securities Fund (a) 91 (a) 120 (a) 161 (a) 308
(b) 94 (b) 129 (b) 175 (b) 337
(c) 96 (c) 135 (c) 185 (c) 356
Mutual Shares Securities Fund (a) 89 (a) 113 (a) 149 (a) 286
(b) 92 (b) 122 (b) 164 (b) 315
(c) 94 (c) 128 (c) 174 (c) 334
Oppenheimer VA Global Securities
Fund (a) 86 (a) 105 (a) 135 (a) 257
(b) 89 (b) 114 (b) 150 (b) 288
(c) 91 (c) 120 (c) 160 (c) 307
Oppenheimer VA High Income Fund (a) 86 (a) 106 (a) 137 (a) 261
(b) 89 (b) 115 (b) 152 (b) 292
(c) 91 (c) 121 (c) 162 (c) 311
Oppenheimer VA Main Street Growth &
Income Fund (a) 86 (a) 107 (a) 137 (a) 262
(b) 89 (b) 116 (b) 153 (b) 293
(c) 91 (c) 122 (c) 162 (c) 312
PIMCO VIT High Yield Bond Portfolio (a) 86 (a) 105 (a) 135 (a) 258
(b) 89 (b) 114 (b) 151 (b) 289
(c) 91 (c) 120 (c) 161 (c) 308
PIMCO VIT StocksPLUS Growth &
Income Portfolio (a) 85 (a) 102 (a) 130 (a) 248
(b) 88 (b) 111 (b) 146 (b) 279
(c) 90 (c) 117 (c) 156 (c) 299
PIMCO VIT Total Return Bond
Portfolio (a) 85 (a) 102 (a) 130 (a) 248
(b) 88 (b) 111 (b) 146 (b) 279
(c) 90 (c) 117 (c) 156 (c) 299
Seligman Henderson Global
Technology Fund (a) 88 (a) 113 (a) 148 (a) 284
(b) 91 (b) 122 (b) 163 (b) 313
(c) 93 (c) 128 (c) 173 (c) 332
Seligman Small Cap Value Fund (a) 88 (a) 113 (a) 148 (a) 284
(b) 91 (b) 122 (b) 163 (b) 313
(c) 93 (c) 128 (c) 173 (c) 332
Templeton Developing Markets
Equity Fund (a) 95 (a) 133 (a) 181 (a) 347
(b) 98 (b) 141 (b) 195 (b) 375
(c) 100 (c) 147 (c) 205 (c) 393
Templeton Global Growth Fund (a) 90 (a) 117 (a) 155 (a) 297
(b) 93 (b) 126 (b) 169 (b) 326
(c) 95 (c) 132 (c) 179 (c) 345
Templeton Pacific Growth Fund (a) 92 (a) 123 (a) 165 (a) 318
(b) 95 (b) 132 (b) 180 (b) 346
(c) 97 (c) 138 (c) 190 (c) 365
USAllianz VIP Diversified Assets
Fund (a) 90 (a) 119 (a) 158 (a) 303
(b) 93 (b) 128 (b) 173 (b) 332
(c) 95 (c) 134 (c) 183 (c) 351
USAllianz VIP Fixed Income Fund (a) 89 (a) 114 (a) 151 (a) 289
(b) 92 (b) 123 (b) 165 (b) 318
(c) 94 (c) 129 (c) 175 (c) 337
USAllianz VIP Global Opportunities
Fund (a) 97 (a) 138 (a) 190 (a) 365
(b) 100 (b) 147 (b) 204 (b) 392
(c) 102 (c) 153 (c) 213 (c) 409
USAllianz VIP Growth Fund (a) 91 (a) 121 (a) 162 (a) 311
(b) 94 (b) 130 (b) 177 (b) 340
(c) 96 (c) 136 (c) 186 (c) 358
USAllianz VIP Money Market Fund (a) 87 (a) 109 (a) 142 (a) 272
(b) 90 (b) 118 (b) 157 (b) 301
(c) 92 (c) 124 (c) 167 (c) 321
Van Kampen LIT Enterprise Portfolio (a) 84 (a) 101 (a) 128 (a) 243
(b) 87 (b) 110 (b) 143 (b) 274
(c) 89 (c) 116 (c) 153 (c) 294
Van Kampen LIT Growth & Income
Portfolio (a) 86 (a) 105 (a) 135 (a) 258
(b) 89 (b) 114 (b) 151 (b) 289
(c) 91 (c) 120 (c) 161 (c) 308
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on your money if your Contract is not surrendered or if you apply your Contract
value to an Annuity Option for Contracts with:
(a) the Traditional GMPB
(b) the Enhanced GMDB or Enhanced GMIB
(c) the Enhanced GMPB (Enhanced GMDB and Enhanced GMIB)
Variable Option 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund (a)$ 22 (a)$ 68 (a)$116 (a)$250
(b) 25 (b) 77 (b) 132 (b) 281
(c) 27 (c) 83 (c) 142 (c) 300
AIM V.I. Growth Fund (a) 23 (a) 69 (a) 119 (a) 255
(b) 26 (b) 78 (b) 134 (b) 286
(c) 28 (c) 84 (c) 144 (c) 305
AIM V.I. International Equity Fund (a) 24 (a) 75 (a) 129 (a) 275
(b) 27 (b) 84 (b) 144 (b) 304
(c) 29 (c) 90 (c) 153 (c) 324
AIM V.I. Value Fund (a) 22 (a) 68 (a) 116 (a) 249
(b) 25 (b) 77 (b) 131 (b) 280
(c) 27 (c) 83 (c) 141 (c) 300
Alger American Growth Portfolio (a) 23 (a) 72 (a) 122 (a) 262
(b) 26 (b) 81 (b) 138 (b) 293
(c) 28 (c) 87 (c) 147 (c) 312
Alger American Leveraged AllCap
Portfolio (a) 25 (a) 77 (a) 131 (a) 280
(b) 28 (b) 86 (b) 146 (b) 309
(c) 30 (c) 92 (c) 156 (c) 329
Alger American MidCap Growth
Portfolio (a) 24 (a) 73 (a) 125 (a) 267
(b) 27 (b) 82 (b) 140 (b) 298
(c) 29 (c) 88 (c) 150 (c) 317
Alger American Small Capitalization
Portfolio (a) 24 (a) 75 (a) 128 (a) 273
(b) 27 (b) 84 (b) 143 (b) 302
(c) 29 (c) 90 (c) 152 (c) 322
Davis VA Financial Portfolio (a) 25 (a) 78 (a) 133 (a) 284
(b) 28 (b) 87 (b) 148 (b) 313
(c) 30 (c) 93 (c) 158 (c) 332
Davis VA Real Estate Portfolio (a) 25 (a) 78 (a) 133 (a) 284
(b) 28 (b) 87 (b) 148 (b) 313
(c) 30 (c) 93 (c) 158 (c) 332
Davis VA Value Portfolio (a) 25 (a) 78 (a) 133 (a) 284
(b) 28 (b) 87 (b) 148 (b) 313
(c) 30 (c) 93 (c) 158 (c) 332
Franklin Growth and Income Fund (a) 23 (a) 70 (a) 120 (a) 257
(b) 26 (b) 79 (b) 135 (b) 288
(c) 28 (c) 85 (c) 145 (c) 307
Franklin Rising Dividends Securities Fund (a) 25 (a) 77 (a) 132 (a) 281
(b) 28 (b) 86 (b) 146 (b) 310
(c) 30 (c) 92 (c) 156 (c) 329
Franklin Small Cap Fund (a) 26 (a) 78 (a) 134 (a) 286
(b) 29 (b) 87 (b) 149 (b) 315
(c) 31 (c) 93 (c) 159 (c) 334
Franklin U.S. Government Fund (a) 23 (a) 70 (a) 120 (a) 258
(b) 26 (b) 79 (b) 136 (b) 289
(c) 28 (c) 85 (c) 146 (c) 308
J.P. Morgan International
Opportunities Portfolio (a) 27 (a) 84 (a) 143 (a) 303
(b) 30 (b) 93 (b) 158 (b) 332
(c) 32 (c) 99 (c) 168 (c) 351
J.P. Morgan U.S. Disciplined Equity
Portfolio (a) 24 (a) 74 (a) 127 (a) 271
(b) 27 (b) 83 (b) 142 (b) 300
(c) 29 (c) 89 (c) 151 (c) 320
Mutual Discovery Securities Fund (a) 28 (a) 85 (a) 146 (a) 308
(b) 31 (b) 94 (b) 160 (b) 337
(c) 33 (c) 100 (c) 170 (c) 356
Mutual Shares Securities Fund (a) 26 (a) 78 (a) 134 (a) 286
(b) 29 (b) 87 (b) 149 (b) 315
(c) 31 (c) 93 (c) 159 (c) 334
Oppenheimer VA Global Securities
Fund (a) 23 (a) 70 (a) 120 (a) 257
(b) 26 (b) 79 (b) 135 (b) 288
(c) 28 (c) 85 (c) 145 (c) 307
Oppenheimer VA High Income Fund (a) 23 (a) 71 (a) 122 (a) 261
(b) 26 (b) 80 (b) 137 (b) 292
(c) 28 (c) 86 (c) 147 (c) 311
Oppenheimer VA Main Street Growth &
Income Fund (a) 23 (a) 72 (a) 122 (a) 262
(b) 26 (b) 81 (b) 138 (b) 293
(c) 28 (c) 87 (c) 147 (c) 312
PIMCO VIT High Yield Bond Portfolio (a) 23 (a) 70 (a) 120 (a) 258
(b) 26 (b) 79 (b) 136 (b) 289
(c) 28 (c) 85 (c) 146 (c) 308
PIMCO VIT StocksPLUS Growth &
Income Portfolio (a) 22 (a) 67 (a) 115 (a) 248
(b) 25 (b) 76 (b) 131 (b) 279
(c) 27 (c) 82 (c) 141 (c) 299
PIMCO VIT Total Return Bond
Portfolio (a) 22 (a) 67 (a) 115 (a) 248
(b) 25 (b) 76 (b) 131 (b) 279
(c) 27 (c) 82 (c) 141 (c) 299
Seligman Henderson Global
Technology Fund (a) 25 (a) 78 (a) 133 (a) 284
(b) 28 (b) 87 (b) 148 (b) 313
(c) 30 (c) 93 (c) 158 (c) 332
Seligman Small Cap Value Fund (a) 25 (a) 78 (a) 133 (a) 284
(b) 28 (b) 87 (b) 148 (b) 313
(c) 30 (c) 93 (c) 158 (c) 332
Templeton Developing Markets
Equity Fund (a) 32 (a) 98 (a) 166 (a) 347
(b) 35 (b) 106 (b) 180 (b) 375
(c) 37 (c) 112 (c) 190 (c) 393
Templeton Global Growth Fund (a) 27 (a) 82 (a) 140 (a) 297
(b) 30 (b) 91 (b) 154 (b) 326
(c) 32 (c) 97 (c) 164 (c) 345
Templeton Pacific Growth Fund (a) 29 (a) 88 (a) 150 (a) 318
(b) 32 (b) 97 (b) 165 (b) 346
(c) 34 (c) 103 (c) 175 (c) 365
USAllianz VIP Diversified Assets
Fund (a) 27 (a) 84 (a) 143 (a) 303
(b) 30 (b) 93 (b) 158 (b) 332
(c) 32 (c) 99 (c) 168 (c) 351
USAllianz VIP Fixed Income Fund (a) 26 (a) 79 (a) 136 (a) 289
(b) 29 (b) 88 (b) 150 (b) 318
(c) 31 (c) 94 (c) 160 (c) 337
USAllianz VIP Global Opportunities
Fund (a) 34 (a) 103 (a) 175 (a) 365
(b) 37 (b) 112 (b) 189 (b) 392
(c) 39 (c) 118 (c) 198 (c) 409
USAllianz VIP Growth Fund (a) 28 (a) 86 (a) 147 (a) 311
(b) 31 (b) 95 (b) 162 (b) 340
(c) 33 (c) 101 (c) 171 (c) 358
USAllianz VIP Money Market Fund (a) 24 (a) 74 (a) 127 (a) 272
(b) 27 (b) 83 (b) 142 (b) 301
(c) 29 (c) 89 (c) 152 (c) 321
Van Kampen LIT Enterprise Portfolio (a) 21 (a) 66 (a) 113 (a) 243
(b) 24 (b) 75 (b) 128 (b) 274
(c) 26 (c) 81 (c) 138 (c) 294
Van Kampen LIT Growth & Income
Portfolio (a) 23 (a) 70 (a) 120 (a) 258
(b) 26 (b) 79 (b) 136 (b) 289
(c) 28 (c) 85 (c) 146 (c) 308
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes a flexible purchase payment variable deferred annuity
contract with a Fixed Account offered by Allianz Life. All references in this
prospectus to "we, us, our" refer to Allianz Life.
* Flexible Purchase Payments means that you may choose to make Purchase
Payments at any time during the Accumulation Phase, in whatever amount
you choose, subject to certain minimum and maximum requirements.
* A deferred annuity contract means that Annuity Payments do not begin
for a specified period of time in the future (usually when you retire)
or until you reach a certain age.
* A variable annuity is one in which Contract values and the Annuity
Payments vary depending on the performance of the underlying
Portfolios.
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 after you
buy the Contract. Until you decide to begin receiving Annuity Payments, your
annuity is in the Accumulation Phase. Once you begin receiving Annuity Payments,
your Contract switches to the Payout Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
You have 38 investment choices - the 37 Variable Options, each of which invests
in one Portfolio, and the Fixed Account of Allianz Life. 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 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.
Allianz Life will not make any changes to your Contract without your permission
except as may be required by law.
Ownership
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. The change
will become effective as of the date the request is signed. 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 (this requirement may not apply in
certain states). 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 of (assign) the Contract at any time
during your lifetime. Allianz Life will not be bound by the assignment until it
records the assignment. Allianz Life will not be liable for any payment or other
action we take in accordance with the Contract before we receive notice of the
assignment. Any assignment made after the death benefit has become payable can
only be done with our consent. An assignment may be a taxable event.
If the Contract is issued pursuant to a Qualified plan, you may be unable to
assign the Contract.
ANNUITY PAYMENTS (THE PAYOUT PHASE)
- --------------------------------------------------------------------------------
Income Date
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. To receive the annuity income
protection of the Guaranteed Minimum Income Benefit, your Income Date must be
within 30 days following a Contract anniversary beginning with the 7th
Contract anniversary (and certain other conditions must be met).
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. Your
Income Date must not be later than the Annuitant's 90th birthday or 10 years
from the date the Contract was issued, or the maximum date permitted under state
law. This limitation may not apply when the Contract is issued to a charitable
remainder trust.
Annuity Payments
The Contract provides for guaranteed minimum Annuity Payments under certain
circumstances. The amount of the guaranteed minimum payment depends on whether
you select the Traditional GMPB or the Enhanced GMIB (see below).
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 factors:
1) the value of your Contract in the Variable Option(s) on the Income
Date,
2) the assumed investment rate used in the annuity table for the
Contract, and
3) the performance of the Variable Option(s) you selected.
You can choose a 3%, 5% or 7% assumed investment rate (AIR). The 7% AIR is not
be available in all states. If the actual performance exceeds the AIR you
selected, your Annuity Payments will increase. Similarly, if the actual rate is
less than the AIR you selected, your Annuity Payments will decrease.
You (or someone you designate) will receive the Annuity Payments. You will
receive tax reporting on those payments.
Annuity Options
You can choose among income plans. We call those Annuity Options. You can choose
one of the Annuity Options described below or any other Annuity Option you want
and that Allianz Life agrees to provide. You may, at any time prior to the
Income Date, 30 days in advance, select and/or change the Annuity Option. After
Annuity Payments begin, you cannot change the Annuity Option. If you do not
choose an Annuity Option prior to the Income Date, we will assume that you
selected Option 2 which provides a life annuity with 5 years of monthly payments
guaranteed.
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 Monthly Payments Over 5, 10, 15 or 20 Years
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. Alternatively, if
you do not want to receive Annuity Payments after the Annuitant's death, you can
ask us for a single lump sum equal to the present value of the guaranteed
monthly Annuity Payments remaining, as of the date Allianz Life receives notice
of the Annuitant's death, commuted as set forth in the Contract.
During the lifetime of the Annuitant, and while the number of Annuity Payments
made is less than the guaranteed number of payments elected, and if you elected
to receive payments on a variable basis, you may request a withdrawal (partial
liquidation) of an amount up to 75% of the Total Liquidation Value, less any
previously liquidated amounts. The Total Liquidation Value is equal to the
present value of the remaining guaranteed Annuity Payments, to the end of the
period certain, commuted at the AIR, less a commutation fee. The minimum amount
that you can liquidate is the lesser of $500 or the remaining portion of the
Total Liquidation Value available. The partial liquidation will be processed on
the next annuity calculation date after your written request is received. The
liquidation feature allows any portion of the 75% that you do not use in a
Contract year to carry over from year to year. It will be based on the Total
Liquidation Value for the year that you make a liquidation.
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 Monthly Payments Over 5, 10, 15
or 20 Years 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. Alternatively, if you do not want
to receive Annuity Payments after the Annuitant's death, you can ask us for a
single lump sum equal to the present value of the guaranteed monthly Annuity
Payments remaining, as of the date Allianz Life receives notice of the
Annuitant's death, commuted as set forth in the Contract.
During the lifetime of the Annuitant and joint Annuitant, and while the number
of Annuity Payments made is less than the guaranteed number of payments elected,
and if you elected to receive payments on a variable basis, you may request a
withdrawal (partial liquidation) of an amount up to 75% of the Total Liquidation
Value, less any previously liquidated amounts. The minimum amount that you can
liquidate is the lesser of $500 or the remaining portion of the Total
Liquidation Value available. The partial liquidation will be processed on the
next annuity calculation date after your written request. The liquidation
feature allows any portion of the 75% that you do not use in a Contract year to
carry over from year to year. It will be based on the Total Liquidation Value
for the year that you make a liquidation.
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.
For a fixed annuity payout, the amount of the refund will be any excess of the
amount applied to this Annuity Option over the total of all payments made under
this option. For a variable annuity payment, the amount of the refund will be
the then value of the number of Annuity Units equal to (1) the value applied
to this Annuity Option divided by the value of Annuity Units used to determine
the first Annuity Payment, minus (2) the product of the number of Annuity
Units of each Annuity Payment and the number of payments made.
Option 6. Specified Period Certain Annuity. Under this option, we will make
monthly Annuity Payments for a specified period of time. You elect the specified
period which must be a whole number of years from 5 to 30. If at the time of the
death of the last Annuitant and any joint Annuitant, Annuity Payments have been
made for less than the specified period certain, then we will continue to make
Annuity Payments to you for the rest of the period certain. If you have selected
to receive payments on a variable basis, you may make a liquidation at least
once each Contract year of up to 100% of the Total Liquidation Value in the
Contract. The liquidation will be processed on the next annuity calculation date
after your written request is received commuted as set forth in the Contract.
Guaranteed Minimum Protection Benefits (GMPB) - Annuity Income Protection
The annuity contract automatically includes a basic Guaranteed Minimum
Protection Benefit (Traditional GMPB). At the time you buy the Contract, you can
elect the Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB), the
Enhanced Guaranteed Minimum Income Benefit (Enhanced GMIB) or both the Enhanced
GMDB and the Enhanced GMIB (together, the Enhanced Minimum Protection Benefit)
instead of the Traditional GMPB. Once selected, you cannot change it. If you
do not make an election, you will receive the Traditional GMPB. The
Traditional and Enhanced GMPB provide a death benefit protection benefit and an
annuity income protection benefit. The death benefit protection benefit is
described in the "Death Benefit" section of this prospectus. Please refer to
the applicable endorsements to your Contract for the specific terms and
conditions of these benefits. The mortality and expense risk charge is higher
for Contracts with the Enhanced GMDB, Enhanced GMIB and Enhanced GMPB. If
the Contract is owned by a non-natural person, then the GMPB only applies if
the Contract is owned for the benefit of an individual.
The annuity income benefits provided are described below and are used in
determining the amount of each Annuity Payment you receive during the Payout
Phase. The GMPB can be used with any Annuity Option provided for in the Contract
and provides for guaranteed minimum Annuity Payments during the Payout Phase.
The guaranteed minimum income benefit protection will apply only under the
following circumstances:
1) Your Income to date must be within 30 days following a Contract anniversary
beginning with the 7th Contract anniversary;
2) Annuity Payments can only be made under a fixed annuity payout (regardless
of the Annuity Option you select); and
3) If you choose an Annuity Option involving a period certain, the period
certain must be for at least 10 years.
The Traditional Guaranteed Minimum Income Benefit guarantees that your
Annuity Payments will be equal to the greater of:
* current fixed payout rates applied to the current Contract value
(less any premium tax); or
* guaranteed fixed payout rates applied to the guaranteed minimum income
benefit (GMIB) value.
The GMIB value is equal to Purchase Payments reduced by each
withdrawal's percentage of Contract value withdrawn (including any
contingent deferred sales charges paid on the withdrawals).
The Enhanced Guaranteed Minimum Income Benefit guarantees that your Annuity
Payments will be equal to the greater of:
* current fixed payout rates applied to the current Contract value
(less any premium tax); or
* guaranteed fixed payout rates applied to the enhanced guaranteed
minimum income benefit (Enhanced GMIB) value;
The Enhanced GMIB value is equal to the greater of A or B below:
A. 5% Annual Increase Amount
On the date your Contract is issued: the 5% Annual Increase
Amount is equal to your initial Purchase Payment.
On each business day other than a Contract anniversary: the 5%
Annual Increase Amount is equal to its value on the immediately
preceding business day reduced by the percentage of any Contract
value you withdraw (including any contingent deferred sales
charge) and increased by any additional Purchase Payments you
make.
On every Contract Anniversary: the 5% Annual Increase Amount is
equal to its value on the immediately preceding business day
increased by 5% prior to your 81st birthday, reduced by the
percentage of any Contract value you withdraw (including any
contingent deferred sales charge), increased by any additional
Purchase Payments you make.
B. Greatest Anniversary Value.
The anniversary value is equal to the value of your Contract on a
Contract anniversary, reduced by the percentage of any Contract
value you withdraw (including any contingent deferred sales
charge) since that Contract anniversary. When determining this
benefit, Allianz Life will not take into consideration any
Contract anniversaries occurring on or after your 81st birthday
or date of death.
If Joint Owners are named, Allianz Life will use the age of the oldest Joint
Owner to determine the GMIB. If a non-natural person owns the Contract, then for
purposes of these benefits, you means the Annuitant.
If your Income Date is before the 7th Contract anniversary or on any date other
than 30 days following a Contract anniversary after the 7th Contract
anniversary, or if you want to receive a variable annuity payout, or if you
select an Annuity Option involving a period certain and the period is for less
than 10 years, then the annuity payout for your Contract will be determined by
applying the current payout rates to the current Contract value.
The Appendix contains examples of how the Guaranteed Minimum Protection Benefits
are calculated. The amounts used in the examples are purely hypothetical and are
for illustrative purposes only.
PURCHASE
- --------------------------------------------------------------------------------
Purchase Payments
A Purchase Payment is the money you invest in the Contract. The Purchase Payment
requirements are:
* the minimum payment Allianz Life will accept is $5,000.
* 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.
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 90 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 Variable Options 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 USAllianz VIP 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 Alger American Growth Portfolio. 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 Alger American
Growth Portfolio is $13.25. We then divide $3,000 by $13.25 and credit your
Contract on Wednesday night with 226.42 Accumulation Units.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers Variable Options. Each Variable Option invests in one
of the Portfolios of the mutual funds listed below. Each portfolio has its own
investment objective. The Contract also offers a Fixed Account of Allianz Life.
Additional Portfolios may be available in the future.
You should read the fund prospectuses carefully before investing.
Franklin Templeton Variable Insurance Products Trust (formerly, Franklin
Valuemark Funds) issues two classes of shares. Only Class 2 shares are
available in connection with your Contract. Class 2 shares have Rule 12b-1
plan expenses.
Investment advisers for each Portfolio are listed in the table below. 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
and investment advisers for each Portfolio:
<TABLE>
<CAPTION>
Investment
Available Portfolios Advisers
- -------------------------------------------------------------------------------
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Growth Fund A I M Advisors, Inc.
AIM V.I. Value Fund A I M Advisors, Inc.
AIM V.I. International Equity Fund A I M Advisors, Inc.
AIM V.I. Capital Appreciation Fund A I M Advisors, Inc.
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Portfolio Fred Alger Management, Inc.
Alger American MidCap Growth Portfolio Fred Alger Management, Inc.
Alger American Growth Portfolio Fred Alger Management, Inc.
Alger American Leveraged AllCap Portfolio (seeks long
term capital appreciation) Fred Alger Management, Inc.
DAVIS VARIABLE ACCOUNT FUND, INC.:
Davis Value Portfolio Davis Selected Advisers, LP
Davis Financial Portfolio Davis Selected Advisers, LP
Davis Real Estate Portfolio Davis Selected Advisers, LP
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
Franklin U.S. Government Fund Franklin Advisers, Inc.
Franklin Growth and Income Fund Franklin Advisers, Inc.
Mutual Shares Securities Fund (capital appreciation with
income as a secondary goal) Franklin Mutual Advisers, LLC
Franklin Rising Dividends Securities Fund Franklin Advisory Services, LLC
Mutual Discovery Securities Fund (capital appreciation) Franklin Mutual Advisers, LLC
Franklin Small Cap Fund Franklin Advisers, Inc.
Templeton Developing Markets Equity Fund Templeton Asset Management Ltd.
Templeton Global Growth Fund Templeton Global Advisors Limited
Templeton Pacific Growth Fund Franklin Advisers, Inc.
JP MORGAN SERIES TRUST II:
J.P. Morgan International Opportunities Portfolio J.P. Morgan Investment Management Inc.
J.P. Morgan U.S. Disciplined Equity Portfolio J.P. Morgan Investment Management Inc.
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer VA Global Securities Fund OppenheimerFunds, Inc.
Oppenheimer VA High Income Fund OppenheimerFunds, Inc.
Oppenheimer VA Main Street Growth & Income Fund OppenheimerFunds, Inc.
PIMCO VARIABLE INSURANCE TRUST:
PIMCO VIT StocksPLUS Growth and Income Portfolio Pacific Investment Management Company
PIMCO VIT Total Return Bond Portfolio Pacific Investment Management Company
PIMCO VIT High Yield Bond Portfolio Pacific Investment Management Company
SELIGMAN PORTFOLIOS, INC.:
Seligman Henderson Global Technology Portfolio J & W Seligman & Co. Incorporated
Seligman Small-Cap Value Portfolio J & W Seligman & Co. Incorporated
USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST:
USAllianz VIP Growth Fund Allianz of America, Inc.
USAllianz VIP Global Opportunities Fund Allianz of America, Inc.
USAllianz VIP Fixed Income Fund Allianz of America, Inc.
USAllianz VIP Diversified Assets Fund Allianz of America, Inc.
USAllianz VIP Money Market Fund Allianz of America, Inc.
VAN KAMPEN LIFE INVESTMENT TRUST:
Van Kampen LIT Enterprise Portfolio (seeks capital
appreciation) Van Kampen Asset Management Inc.
Van Kampen LIT Growth and Income Portfolio Van Kampen Asset Management 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.
Transfers may be subject to a transfer fee. 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 investment 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.
The following applies to any transfer:
1. The minimum amount which you can transfer is $1,000 or your entire
value in the Variable Option or Fixed Account, if less. This
requirement is waived if the transfer is in connection with the Dollar
Cost Averaging Program or Flexible Rebalancing (which are described
below).
2. We may not allow you to make transfers during the free look period.
3. Your request for a transfer must clearly state:
* which Variable Option(s) and/or the Fixed Account is involved in
the transfer; and
* how much the transfer is for.
4. You cannot make any transfers within 7 calendar days prior to the date
your first Annuity Payment is due.
5. After the Income Date, you may not make a transfer from a fixed
Annuity Option to a variable Annuity Option.
6. After the Income Date, you can transfer from a variable Annuity
Option to a fixed Annuity Option.
7. Your right to make transfers is subject to modification if we
determine in our sole opinion that the service of the right by one or
more Contract Owners is, or would be, to the disadvantage of other
Contract Owners. Restrictions may be applied in any manner reasonably
designed to prevent any use of the transfer right which we consider to
be to the disadvantage of other Contract Owners. A modification could
be applied to transfers to or from one or more of the Variable Options
and could include, but is not limited to:
* the requirement of a minimum time period between each transfer;
* not accepting a transfer request from an agent acting under a
power of attorney on behalf of more than one Contract Owner; or
* limiting the dollar amount that may be transferred between the
Variable Options by a Contract Owner at any one time.
Allianz Life has reserved the right at any time without prior notice to any
party to modify the transfer provisions subject to the guarantees described
above and subject to applicable state law.
Telephone Transfers. You can make transfers by telephone. We may allow you to
authorize someone else to make transfers by telephone on your behalf. If you own
the Contract with a Joint Owner, unless you instruct Allianz Life otherwise, we
will accept instructions from either one of you. Allianz Life will use
reasonable procedures to confirm that instructions given to us by telephone are
genuine. If we do not use such procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. Allianz Life tape records all
telephone instructions.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount of money each month or quarter from any one Variable Option or the Fixed
Account to up to eight of the other Variable Options. The Variable Option(s) you
transfer from may not be the Variable Option(s) you transfer to in this program.
By allocating amounts on a regularly scheduled basis, as opposed to allocating
the total amount at one particular time, you may be less susceptible to the
impact of market fluctuations. You may only participate in this program during
the Accumulation Phase.
There are two Dollar Cost Averaging options. The first option is the Dollar Cost
Averaging Fixed Option. It is available for new Contracts and additional
Purchase Payments to new and existing Contracts. You will receive a special
fixed rate guaranteed for one year by Allianz Life. The Dollar Cost Averaging
Fixed Option may not be available in your state.
The second option is the Standard Dollar Cost Averaging Option. It requires a
$3,000 minimum investment and participation for at least six months (or two
quarters).
All Dollar Cost Averaging transfers will be made on the 10th day of the month
unless that day is not a business day. If it is not, then the transfer will be
made the next business day. You may elect either program by properly completing
the Dollar Cost Averaging form provided by Allianz Life.
Your participation in the program will end when any of the following occurs:
* the number of desired transfers have been made;
* 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);
* you request to terminate the program (your request must be received by
us by the first of the month to terminate that month); or
* 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.
The Fixed Account is not part of Flexible Rebalancing. 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
business day. If you participate in Flexible Rebalancing, the transfers made
under the program are not taken into account in determining any transfer fee.
Financial Advisers - Asset Allocation Programs
Allianz Life understands the importance of advice from a financial adviser
regarding your investments in the Contract (asset allocation program). Certain
investment advisers have made arrangements with us to make their services
available to you. Allianz Life has not made any independent investigation of
these advisers and is not endorsing such programs. You may be required to enter
into an advisory agreement with your investment adviser to have the fees paid
out of your Contract during the Accumulation Phase.
Allianz Life will, pursuant to an agreement with you, make a partial withdrawal
from the value of your Contract to pay for the services of the investment
adviser. If the Contract is Non-Qualified, the withdrawal will be treated like
any other distribution and may be included in gross income for federal tax
purposes and, if you are under age 59 1/2, may be subject to a tax penalty. If
the Contract is Qualified, the withdrawal for the payment of fees may not be
treated as a taxable distribution if certain conditions are met. You should
consult a tax adviser regarding the tax treatment of the payment of investment
adviser fees from your Contract.
Voting Privileges
Allianz Life is the legal owner of the Trust's Class 2 Portfolio shares.
However, when a Portfolio solicits proxies in conjunction with a shareholder
vote which affects your investment, Allianz Life will obtain from you and other
affected Contract Owners instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares that Allianz Life owns
on its own behalf. Should Allianz Life determine that it is no longer required
to comply with the above, we will vote the shares in our own right.
Substitution
Allianz Life may substitute one of the Variable Options you have selected with
another Variable Option. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this. We may also limit further investment in a Variable Option if we deem
the investment inappropriate.
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 consists of:
1) the mortality and expense risk charge,
2) the administrative charge, and
3) the distribution expense charge.
Mortality and Expense Risk Charge. The amount of the mortality and expense risk
charge depends on whether you select the Traditional GMPB, the Enhanced GMDB,
the Enhanced GMIB or the Enhanced GMDB and Enhanced GMIB.
* Traditional GMPB: The charge is equal, on an annual basis, to 1.25% of
the average daily value of the Contract invested in a Variable Option.
* Enhanced GMDB or Enhanced GMIB: The charge is equal, on an annual
basis, to 1.55% of the average daily value of the Contract invested in
a Variable Option.
* Enhanced GMDB and Enhanced GMIB: The charge is equal, on an annual
basis, to 1.75% 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).
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.
Distribution Expense Charge. Currently, Allianz Life is compensated for certain
of its costs associated with distributing the Contract from certain Funds
through their Rule 12b-1 plans. Allianz Life does not currently deduct a
Distribution Expense Charge. In the event that Allianz Life is no longer
compensated for its distribution expenses through the Funds, it may, in its sole
discretion, charge a Distribution Expense Charge. The charge is guaranteed not
to exceed .30% of the average daily net asset value of the Contract invested in
a Variable Option.
Contract Maintenance Charge
Every year, at each Contract anniversary, Allianz Life deducts $40 from your
Contract as a contract maintenance charge. The fee is assessed on the last day
of each Contract year. The charge is deducted pro rata from the Variable Options
and the Fixed Account. The charge is for administrative expenses (see above).
However, during the Accumulation Phase, if the value of your Contract is at
least $100,000 when the deduction for the charge is to be made, Allianz Life
will not deduct this charge. If you own more than one Contract offered under
this prospectus, Allianz Life will determine the total value of all your
Contracts. If the total value of all Contracts registered under the same social
security number is at least $100,000, 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
$100,000 (except in New Jersey). 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 other than on a Contract
anniversary, Allianz Life will deduct the contract maintenance charge. During
the Payout Phase, 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:
Number of Complete Contract Years
Since Receipt of Purchase
Payment Charge
- --------------------------------------------------------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 years or more 0%
However, after Allianz Life has had a Purchase Payment for 5 full years, there
is no charge when you withdraw that Purchase Payment. For purposes of the
contingent deferred sales charge, Allianz Life treats withdrawals as coming from
the oldest Purchase Payments first. Allianz Life does not assess the contingent
deferred sales charge on any payments paid out as Annuity Payments or as death
benefits. The contingent deferred sales charge compensates Allianz Life for
expenses associated with selling the Contract.
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.
Partial Withdrawal Privilege. Each Contract year, on a cumulative basis (minus
any previous withdrawals you have made which were not subject to the contingent
deferred sales charge) you can make multiple withdrawals up to 10% of Purchase
Payments and no contingent deferred sales charge will be deducted from the 10%
you take out. Cumulative means that if you do not use the 10% in a year, you may
carry it over to the next year. (The 10% may be increased when the Contract is
issued to a charitable remainder trust). If you make a withdrawal of more than
the free amount, the amount over the 10% free amount will be subject to the
contingent deferred sales charge. If you make a total withdrawal, Allianz Life
will assess the contingent deferred sales charge with no reductions for the
Partial Withdrawal Privilege.
You may also elect to participate in the Systematic Withdrawal Program or the
Minimum Distribution Program. These programs allow you to make withdrawals
without the deduction of the contingent deferred sales charge under certain
circumstances. See "Access to Your Money" for a description of the Systematic
Withdrawal Program and the Minimum Distribution Program.
Waiver of Contingent Deferred Sales Charge Benefits. Under certain
circumstances, after the first Contract 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;
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 money 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 10% partial withdrawal privilege 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
may 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.
Commutation Fee
If you elect Annuity Option 2, 4 or 6 and make a liquidation, a commutation fee
will be assessed. The commutation fee is a percentage of the amount liquidated
and is equal to:
Years Since Income Date Commutation Factor
- ----------------------- ------------------
0 - 1 5%
1 - 2 4%
2 - 3 3%
3 - 4 2%
Over 4 1%
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 for each additional transfer. The transfer fee will be
deducted from the account (Variable Option or Fixed Account) from which the
transfer is made. If the entire amount in the account is transferred, then the
transfer fee will be deducted from the amount transferred. If the transfer is
from or to multiple accounts, it will be treated as a single transfer. Any
transfer fee will be deducted proportionally from the source account if less
than the entire amount in the account is transferred. 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 prospectuses for the Funds.
TAXES
- --------------------------------------------------------------------------------
NOTE: Allianz Life has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice. You should consult
your own tax adviser about your own circumstances. Allianz Life has included
additional information regarding taxes in the Statement of Additional
Information.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on any earnings on the
money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract -
Qualified or Non-Qualified (see following sections).
You, as the Contract Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity Payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than a trust holding the Contract as
an agent for a natural person), the Contract will generally not be treated as an
annuity for tax purposes. This means that the Contract may not receive the
benefits of Tax Deferral. Income may be taxed as ordinary income every year.
Qualified and Non-Qualified Contracts
If you purchase the Contract under a Qualified plan, your Contract is referred
to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) contracts), and pension and profit-sharing plans, which include 401(k)
plans and H.R. 10 plans. If you do not purchase the Contract under a Qualified
plan, your Contract is referred to as a Non-Qualified Contract.
Multiple Contracts
The Code provides that multiple Non-Qualified annuity contracts which are issued
within a calendar year period to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange. You
should consult a tax adviser prior to purchasing more than one Non-Qualified
annuity contract in any calendar year period.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your Purchase Payments. In most
cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
With respect to (4) 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 Annuity Payment, then the tax for the year of the
modification is increased by the penalty tax that would have been imposed
without the exception, plus interest for the tax years in which the exception
was used. A partial liquidation (withdrawal) during the Payout Phase may result
in the modification of the series of Annuity Payments made after such
liquidation and therefore could result in the imposition of the 10% penalty tax
and interest for the period as described above unless another exception to the
penalty tax applies. You should obtain competent tax advice before you make any
liquidations from your Contract.
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
pursuant to 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.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can have access to the money in your Contract:
* by making a partial or total withdrawal;
* by receiving Annuity Payments; or
* when a death benefit is paid to your Beneficiary.
In general, withdrawals can only be made during the Accumulation Phase. Under
certain circumstances, you can take money out of the Contract during the Payout
Phase if you select Annuity Option 2, 4 or 6 (See "Annuity Payments (The Payout
Phase)").
When you make a complete withdrawal you will receive the value of the Contract
on the day the withdrawal request is received at the Service Center:
* less any applicable contingent deferred sales charge,
* less any premium tax, and
* less any contract maintenance charge.
(See "Expenses" for a discussion of the charges.)
Any partial withdrawal must be for at least $500. Unless you instruct Allianz
Life otherwise, the partial withdrawal will be made pro-rata from all the
Variable Options and the Fixed Account you selected. 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 "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
Systematic Withdrawal Program is subject to the Partial Withdrawal Privilege
which means that the total systematic withdrawals which you can make each year
without Allianz Life deducting a contingent deferred sales charge is limited to
10% of your Purchase Payments for that year. This is determined on the last
business day prior to the day your request is received. If the amount you take
out under the Systematic Withdrawal Program is less than the Partial Withdrawal
Privilege then the balance (in dollar value) is carried over to the following
year. All systematic withdrawals will be made on the 9th day of the month unless
that day is not a business day. If it is not, then the withdrawal will be made
the previous business day.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
Minimum Distribution Program
If you own a Contract that is an Individual Retirement Annuity (IRA), you may
select the Minimum Distribution Program. Under this program, Allianz Life will
make payments to you from your Contract that are designed to meet the applicable
minimum distribution requirements imposed by the Code for IRAs. If the value of
your Contract is at least $25,000, Allianz Life will make payments to you on a
monthly or quarterly basis. If the value of your Contract is less than $25,000
payments can only be made annually. The payments will not be subject to the
contingent deferred sales charge. However, they will be subject to the limits of
the 10% Partial Withdrawal Privilege.
You cannot participate in the Systematic Withdrawal Program and the Minimum
Distribution Program at the same time.
Suspension of Payments or Transfers
Allianz Life may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio
shares is not reasonably practicable or Allianz Life cannot reasonably
value the Portfolio shares;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners.
Allianz Life has reserved the right to defer payment for a withdrawal or
transfer from the Fixed Account for the period permitted by law but not for more
than six months.
PERFORMANCE
- --------------------------------------------------------------------------------
Allianz Life periodically advertises performance of the Variable Options.
Allianz Life will calculate performance by determining the percentage change in
the value of an Accumulation Unit by dividing the increase (decrease) for that
unit by the value of the Accumulation Unit at the beginning of the period. This
performance number reflects the deduction of the insurance charges and the
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 fund prospectuses for more information.
Certain Portfolios have been in existence for some time and have investment
performance history. However, the Contracts are new. In order to demonstrate how
the 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.
Allianz Life may in the future also advertise yield information. If it does, it
will provide you with information regarding how yield is calculated. More
detailed information regarding how performance is calculated is found in the
SAI.
Any performance advertised will be based on historical data. It does not
guarantee future results of the Portfolios.
DEATH BENEFIT
- --------------------------------------------------------------------------------
Upon Your Death
If you die during the Accumulation Phase, Allianz Life will pay a death benefit
to your Beneficiary (see below). If you die during the Payout Phase any benefit
will be as provided for in the Annuity Option selected.
Guaranteed Minimum Protection Benefits (GMPB) - Death Benefit Protection
The annuity provides a guaranteed death benefit (in addition to the guaranteed
annuity income protection benefit). The amount of the death benefit depends upon
whether you select the Traditional GMPB or the Enhanced GMPB. The mortality and
expense risk charge is higher for Contracts with the Enhanced GMPB. The
Traditional and Enhanced GMPB only apply to Contracts owned for the benefit of
an individual.
The Traditional Guaranteed Minimum Protection Benefit. If you select the
Traditional GMPB, the death benefit, less any applicable premium tax, will be
the greater of:
* the value of your Contract at the end of the business day when all
claim proofs and payment election forms are received by Allianz Life
at the Valuemark Service Center; or
* the guaranteed minimum death benefit which is equal to the Purchase
Payments you have made, reduced by each withdrawal's percentage of the
Contract value withdrawn (including any contingent deferred sales
charges paid on the withdrawals).
The Enhanced Guaranteed Minimum Protection Benefit. If you select the Enhanced
GMPB, the death benefit will be the greater of 1 or 2 below, less any applicable
premium tax:
1. the value of your Contract at the end of the business day when all
claim proofs and payment election forms are received by Allianz Life
at the Valuemark Service Center; or
2. the enhanced guaranteed minimum death benefit (Enhanced GMDB) as
described below and determined as of the date of death.
The Enhanced GMDB is the greater of A or B below:
A. 5% Annual Increase Amount
On the date your Contract is issued: the 5% Annual Increase
Amount is equal to your initial Purchase Payment.
On each business day other than a Contract anniversary: the 5%
Annual Increase Amount is equal to its value on the immediately
preceding business day reduced by the percentage of any Contract
value you withdraw (including any contingent deferred sales
charge) and increased by any additional Purchase Payments you
make.
On every Contract Anniversary: the 5% Annual Increase Amount is
equal to its value on the immediately preceding business day
increased by 5% prior to your 81st birthday, reduced by the
percentage of any Contract value you withdraw (including any
contingent deferred sales charge), increased by any additional
Purchase Payments you make.
B. Greatest Anniversary Value.
The anniversary value is equal to the value of your Contract on a
Contract anniversary, reduced by the percentage of any Contract
value you withdraw (including any contingent deferred sales
charge) since that Contract anniversary. When determining this
benefit, Allianz Life will not take into consideration any
Contract anniversaries occurring on or after your 81st birthday
or date of death.
Please refer to the applicable endorsements to your Contract for the specific
terms and conditions of the death benefits.
The Appendix contains examples of how the guaranteed death benefits are
calculated. The amounts in the examples are purely hypothetical and are for
illustrative purposes only.
If you do not receive either the Traditional or the Enhanced GMDB (either
alone or with the Enhanced GMIB), 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.
Any part of the death benefit amount that had been invested in the Variable
Options remains in the Variable Options until distribution begins. From the time
the death benefit is determined until we make a complete distribution, any
amount in the Variable Options will be subject to investment risk which will be
borne by the Beneficiary.
If you have a Joint Owner, the age of the oldest Contract Owner will be used to
determine the guaranteed minimum death benefit. 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 considered the Beneficiary. Any other Beneficiary designation on record
at the time of death will be treated as a contingent Beneficiary. Joint Owners
must be spouses (this requirement may not apply in certain states).
A Beneficiary must request that the death benefit be paid under one of the death
benefit options described below. 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 Contract value, or if greater, the death benefit value. If a
lump sum payment is elected and all the necessary requirements, including any
required tax consent from some states, are met, the payment will be made within
7 days. Payment of the death benefit may be delayed pending receipt of any
applicable tax consents and/or forms from a state.
Option A: lump sum payment of the death benefit. Allianz Life will not deduct
the contract maintenance charge at the time of a complete withdrawal if the
distribution is due to death.
Option B: the payment of the entire death benefit within 5 years of the date of
the Contract Owner's or any Joint Owner's death. Allianz Life will assess the
contract maintenance charge to each Beneficiary on each Contract anniversary.
Option C: payment of the death benefit under an Annuity Option over the lifetime
of the Beneficiary or over a period not extending beyond the life expectancy of
the Beneficiary. Distribution under this option must begin within one year of
the date of the Contract Owner's or any Joint Owner's death. The contract
maintenance charge will continue to be assessed to each Beneficiary's share pro
rata over the payments.
Any portion of the death benefit not applied under an Annuity Option within one
year of the date of the Contract Owner's death must be distributed within five
years of the date of death.
If the Beneficiary wants to receive the payment other than in a lump sum, he/she
may only make such an election during the 60 day period after the day that the
lump sum first became payable by Allianz Life.
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, subject to our underwriting
rules at that time. 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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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.
The Separate Account
Allianz Life established a separate account named Allianz Life Variable Account
B (Separate Account) to hold the assets that underlie the Contracts, except
assets allocated to the Fixed Account. The Board of Directors of Allianz Life
adopted a resolution to establish the Separate Account under Minnesota insurance
law on May 31, 1985. Allianz Life has registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into Variable
Options (also known as sub-accounts). Each Variable Option invests in one
Portfolio. The obligations under the Contracts are obligations of Allianz Life.
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
Contracts. 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 6% of Purchase Payments.
Sometimes, Allianz Life enters into an agreement with the broker-dealer to pay
the broker-dealer commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which when totaled could
exceed 6% 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.
Administration
Allianz Life has hired Delaware Valley Financial Services, Inc. (DVFS), 300
Berwyn Park, Berwyn, Pennsylvania, to perform certain administrative services
regarding the Contracts. The administrative services include issuance of the
Contracts and maintenance of Contract Owner's records.
Financial Statements
The consolidated financial statements of Allianz Life and the Separate Account
have been included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Insurance Company
Experts
Legal Opinions
Distributor
Reduction or Elimination of the
Contingent Deferred Sales Charge
Calculation of Performance Data
Federal Tax Status
Annuity Provisions
Mortality and Expense Risk Guarantee
Financial Statements
APPENDIX
- --------------------------------------------------------------------------------
Traditional Guaranteed Minimum Protection Benefit - Examples
Example 1
Assume you make one Purchase Payment of $100,000 on January 1, 2000 and
you do not make any withdrawals during the first seven years. Furthermore,
assume that your Contract value history unfolds as follows:
1/1/2001 $106,500 1/1/2005 $105,000
1/1/2002 $102,000 1/1/2006 $106,300
1/1/2003 $ 98,600 1/1/2007 $109,100
1/1/2004 $101,700
In this case your Traditional Guaranteed Minimum Protection Benefit (GMPB) would
be calculated on the following dates as follows:
<TABLE>
<CAPTION>
On January 1, 2003:
1) Purchase Payments Paid
<S> <C> <C>
Purchase Payment made on January 1, 2000 $100,000
2) Contract value
Equals: $ 98,600
- -------------------------------------------------------------------------------------------------------------------
Traditional GMPB equals: MAX [$100,000.00, $98,600.00]
= $100,000.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Death Benefit
o Your beneficiary would be guaranteed a death benefit payment of at least
$100,000.00 for death occurring between January 1, 2003 and December 31,
2003.
Annuity Income Benefit
o If you applied your Contract value to an Annuity Option on January 1, 2003,
the payment would be based on a Contract Value of $ 98,600.00 applied to
current rates since the Traditional GMPB does not apply before the 7th
policy anniversary.
<TABLE>
<CAPTION>
On January 1, 2007:
1) Purchase Payment Paid
<S> <C> <C>
Purchase Payment made on January 1, 2000 $100,000
2) Contract Value
Equals: $109,100.00
- -------------------------------------------------------------------------------------------------------------------
Traditional GMPB equals: MAX [$100,000.00, $109,100.00]
= $109,100.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Death Benefit
o Your beneficiary would receive a death benefit payment of $109,100.00 if it
occurred on January 1, 2007 and at least $100,000 for death occurring
between January 2, 2007 and December 31, 2007 regardless of fund
performance.
Annuity Income Benefit
o If you applied your Contract Value to an Annuity Option on January 1, 2007,
the guaranteed fixed payment would be based on $109,100.00 applied to
guaranteed rates. The current Contract value applied to current rates will
result in a greater initial payment.
Example 2
Same assumptions as Example 1 except you make a partial withdrawal of $6,000 on
January 1, 2006 which altered the anniversary Contract value history as follows:
1/1/2006 $100,300
1/1/2007 $102,942
On January 1, 2003:
Same calculations as Example 1.
<TABLE>
<CAPTION>
On January 1, 2007:
1) Purchase Payments Paid
<S> <C> <C>
Purchase Payment made on January 1, 2000 $100,000
Partial withdrawal adjustment x [1 - (6,000/106,300)]
Equals: $ 94,355.60
2) Contract Value
Equals: $102,942
- -------------------------------------------------------------------------------------------------------------------
Traditional GMPB equals: MAX [$94,355.60, $102,942.00]
= $102,942.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Death Benefit
o Your beneficiary would receive a death benefit payment of $102,942.00 if it
occurred on January 1, 2007 and at least $94,355.60 for death occurring
between January 2, 2007 and December 31, 2007 regardless of fund
performance.
Annuity Income Benefit
o If you applied your Contract Value to an Annuity Option on January 1, 2007,
the guaranteed fixed payment would be based on $102,942.00 applied to
guaranteed rates. The current Contract value applied to current rates will
result in a greater initial payment.
<TABLE>
<CAPTION>
Optional Enhanced Guaranteed Minimum Protection Benefit - Examples
Example 1
Assume you make one Purchase Payment of $100,000 on January 1, 2000 and you did not make a withdrawal during
the first seven years. Furthermore, assume that your Contract Value history (occurring prior to age 81)
unfolds as follows:
<S> <C> <C> <C> <C> <C> <C>
1/1/2001 $106,500 1/1/2005 $144,800
1/1/2002 $114,000 1/1/2006 $142,900
1/1/2003 $110,100 1/1/2007 $138,300
1/1/2004 $125,500
</TABLE>
<TABLE>
<CAPTION>
In this case your Enhanced Guaranteed Minimum Protection Benefit (GMPB) would be calculated on the following
dates as follows:
On January 1, 2003:
1) 5% Annual - Increase Amount
<S> <C> <C>
Purchase Payment made on January 1, 2000 $100,000
5% interest accumulation factor x [(1.05)(1.05)(1.05)]
Equals: $115,762.50
2) Greatest Anniversary Value
Maximum of MAX [$106,500, $114,000, $110,100]
Equals: $114,000.00
- -------------------------------------------------------------------------------------------------------------------
Enhanced GMPB equals: MAX [$115,762.50, $114,000.00]
= $115,762.50
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Death Benefit
o If you elected the optional Enhanced GMPB, your beneficiary would be
guaranteed a death benefit payment of at least $115,762.50 for death
occurring between January 1, 2003 and December 31, 2003.
Annuity Income Benefit
o If you applied your Contract value to an Annuity Option on January 1, 2003,
the payment would be based on a Contract value of $110,100.00 applied to
current rates since the Enhanced GMPB does not apply before the 7th
Contract anniversary.
<TABLE>
<CAPTION>
On January 1, 2007:
1) 5% Annual - Increase Amount
<S> <C> <C>
Purchase Payment made on January 1, 2000 $100,000
5% interest accumulation factor x [(1.05)(1.05)(1.05)(1.05)(1.05)(1.05)(1.05)]
Equals: $140,710.04
2) Greatest Anniversary Value
Maximum of MAX [$106,500, $114,000, $110,100,
$125,500, $144,800, $142,900, $138,300]
Equals: $144,800.00
- -------------------------------------------------------------------------------------------------------------------
Enhanced GMPB equals: MAX [$140,710.04, $144,800.00]
= $144,800.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Death Benefit
o If you elected the optional Enhanced GMPB, your Beneficiary would be
guaranteed a death benefit payment of at least $144,800.00 for death
occurring between January 1, 2007 and December 31, 2007.
Annuity Income Benefit
o If you applied your Contract value to an Annuity Option on January 1, 2007,
the guaranteed fixed payment would be based on $144,800.00 applied to
guaranteed rates. You would receive the greater of this guaranteed fixed
payment or the current fixed payment based on $138,300.00 applied to
current rates.
<TABLE>
<CAPTION>
Example 2
Same assumptions as Example 1 except you make a partial withdrawal of $12,000 on January 1,
2006 which altered the anniversary Contract value history as follows:
<S> <C> <C> <C>
1/1/2006 $130,900
1/1/2007 $126,686
</TABLE>
<TABLE>
<CAPTION>
On January 1, 2003:
Same calculations as Example 1.
On January 1, 2007:
1) 5% Annual - Increase Amount
<S> <C> <C>
Purchase Payment made on January 1, 2000 $100,000
5% accumulation factor to 1/1/2006 x [(1.05)(1.05)(1.05)(1.05)(1.05)(1.05)]
Equals: $134,009.56
Partial withdrawal adjustment x [1 - (12,000/142,900)]
Equals: $122,756.13
5% accumulation factor to 1/1/2007 x 1.05
Equals: $128,893.94
2) Greatest Anniversary Value
Maximum to 1/1/2006 MAX [$106,500, $114,000, $110,100,
$125,500,144,800, $142,900]
Equals: $144,800
Partial withdrawal adjustment x [1 - (12,000/142,900)]
Equals: $132,640.45
Maximum to 1/1/2007 MAX [$132,640.45, $126,686.00]
Equals: $132,640.45
- -------------------------------------------------------------------------------------------------------------------
Enhanced GMPB equals: MAX [$128,893.94, $132,640.45]
= $132,640.45
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Death Benefit
o If you elected the optional Enhanced GMPB, your Beneficiary would
guaranteed a death benefit payment of at least $132,640.45 for death
occurring between January 1, 2007 and December 31, 2007.
Annuity Income Benefit
o If you applied your Contract value to an Annuity Option on January 1, 2007,
the guaranteed fixed payment would be based on $132,640.45 applied to
guaranteed rates. You would receive the greater of this guaranteed fixed
payment or the current fixed payment based on $126,686.00 applied to
current rates.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
________________,
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
INSURANCE COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800)
342-3863.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED
____________, AND AS MAY BE AMENDED FROM TIME TO TIME.
Table of Contents
Page
Insurance Company .........................................
Experts ...................................................
Legal Opinions ............................................
Distributor ...............................................
Reduction or Elimination of the
Contingent Deferred Sales Charge .........................
Calculation of Performance Data ...........................
Federal Tax Status ........................................
Annuity Provisions ........................................
Mortality and Expense Risk Guarantee.
Financial Statements ......................................
Insurance Company
Allianz Life Insurance Company of North America (the "Insurance Company") is a
stock life insurance company organized under the laws of the state of Minnesota
in 1896. The Insurance Company is a wholly-owned subsidiary of Allianz
Versicherungs-AG Holding ("Allianz"). Allianz is headquartered in Munich,
Germany, and has sales outlets throughout the world. The Insurance Company
offers fixed and variable life insurance and annuities, and group life, accident
and health insurance. On April 1, 1993, the Insurance Company changed its name
from North American Life and Casualty Company to its present name.
The Insurance Company is rated A+ (Superior) by A.M. BEST, an independent
analyst of the insurance industry. The financial strength of an insurance
company may be relevant insofar as the ability of a company to make fixed
annuity payments from its general account.
Experts
- --------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the Insurance Company as of and for the year ended
December 31, 1998 included in this Statement of Additional Information have been
audited by KPMG 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 (i.e., the
expectation that the Contract owners will continue to hold the Contracts for
a certain period of time); 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 the Mortality and Expense Risk Charge, the
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.
With respect to the performance shown for the Portfolios of Franklin Templeton
Variable Insurance Products Trust for periods before a Portfolio's Class 2
shares commenced operations, the data will be based on historical results of
Class 1 shares. For periods after a Portfolio's Class 2 shares commenced
operations, the data will reflect the additional Class 2 rule 12b-1 plan fees,
currently equal to 0.25% per year. Prior to July 1, 1999, the rule 12b-1 plan
fees were equal to .30% per year.
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:
n
P(1+T) = 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 Money Market Fund. The Insurance Company may advertise yield information for
the Money Market Fund. The 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 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.)
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 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:
6
Yield = 2 [((a-b) + 1) - 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 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
Certain Portfolios have been in existence for some time and have investment
performance history. In order to show how investment performance of the
Portfolios affects accumulation unit values, the following performance
information was developed.
The charts below shows accumulation unit performance which assumes that the
accumulation units were invested in each of the Portfolios for the same periods.
Chart A is for Contracts with the Traditional GMPB, Chart B is for Contracts
with the Enhanced GMDB or the Enhanced GMIB and Chart C is for Contracts with
the Enhanced GMDB and Enhanced GMIB. 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>
Chart A
Total Return for the periods ended September 30, 1999:
Column I Column II
- -------------------------------------------------------------------------------------------------------------------------------
Inception 1999 One Three Five Ten Since 1999 One Three Five Ten
Portfolio Date YTD Year Year Year Year Inception YTD Year Year Year Year
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM VI Capital Appreciation Fund 5/5/1993 5.40% 30.27% 11.80% 16.51% 15.91% -1.00% 23.87% 10.76% 16.28%
AIM VI Growth Fund 5/5/1993 9.22% 39.10% 23.31% 22.56% 18.38% 2.82% 32.70% 22.45% 22.35%
AIM VI International Equity Fund 5/5/1993 8.15% 21.50% 11.12% 11.41% 11.69% 1.75% 15.10% 10.08% 11.13%
AIM VI Value Fund 5/5/1993 9.18% 38.18% 22.96% 21.23% 19.26% 2.78% 31.78% 22.10% 21.02%
Alger American Growth Portfolio 1/9/1989 8.79% 36.52% 26.67% 24.91% 18.66% 19.77% 2.39% 30.12% 25.86% 24.72% 18.60%
Alger American Leveraged AllCap
Portfolio 1/25/1995 25.72% 65.30% 32.04% 37.15% 19.32% 58.90% 31.28%
Alger American MidCap Growth
Portfolio 5/3/1993 3.88% 31.53% 15.32% 19.71% 19.73% -2.52% 25.13% 14.34% 19.50%
Alger American Small
Capitalization Portfolio 9/21/1988 8.29% 34.52% 9.18% 15.24% 13.14% 16.79% 1.89% 28.12% 8.09% 15.00% 13.07%
Davis VA Financial Portfolio* 7/1/1999 -11.21%
Davis VA Real Estate Portfolio* 7/1/1999 -10.61%
Davis VA Value Portfolio* 7/1/1999 -8.72%
Franklin Growth and Income Fund 1/24/1989 -1.02% 7.62% 12.73% 14.19% 9.37% 9.34% -7.42% 1.22% 11.72% 13.94% 9.29%
Franklin Rising Dividends
Securities Fund 1/27/1992 -9.53% 7.63% 11.51% 13.94% 8.83% -15.93% 1.23% 10.48% 13.69%
Franklin Small Cap Fund 11/1/1995 21.05% 50.05% 12.48% 15.66% 14.65% 43.65% 11.46%
Franklin U.S. Government Fund 3/14/1989 -1.76% -1.97% 4.83% 6.28% 6.38% 6.10% -8.16% -8.37% 3.67% 5.96% 6.30%
JP Morgan International
Opportunities Portfolio 1/3/1995 14.98% 38.66% 9.07% 9.31% 8.58% 32.26% 7.98%
JP Morgan US Disciplined Equity
Portfolio 1/3/1995 5.05% 26.44% 19.78% 21.49% -1.35% 20.04% 18.87%
Mutual Discovery Securities Fund 11/8/1996 6.95% 15.69% 6.52% 0.55% 9.29%
Mutual Shares Securities Fund 11/8/1996 3.66% 16.65% 7.33% -2.74% 10.25%
Oppenheimer VA Global
Securities Fund 11/12/1990 14.54% 37.57% 17.80% 10.85% 11.65% 8.14% 31.17% 16.86% 10.56%
Oppenheimer VA High Income
Fund 4/30/1986 1.56% 4.33% 4.84% 7.81% 10.74% 10.19% -4.84% -2.07% 3.67% 7.50% 10.67%
Oppenheimer VA Main Street
Growth & Income Fund 7/5/1995 7.77% 28.10% 15.74% 22.48% 1.37% 21.70% 14.78%
PIMCO VIT High Yield Bond
Portfolio 4/30/1998 0.05% 2.94% 0.63% -6.35% -3.46%
PIMCO VIT Stocks PLUS Growth &
Income Portfolio 12/31/1997 3.91% 26.28% 17.89% -2.49% 19.88%
PIMCO VIT Total Return Bond
Portfolio 12/31/1997 -2.02% -2.36% 2.80% -8.42% -8.76%
Seligman Henderson Global
Technology Fund 5/2/1996 38.04% 83.33% 31.65% 27.01% 31.64% 76.93% 30.88%
Seligman Small Cap Value Fund 5/1/1998 25.76% 62.01% 2.39% 19.36% 55.61%
Templeton Developing Markets
Equity Fund 3/15/1994 20.64% 44.98% -3.71% -1.58% -0.65% 14.24% 38.58% -5.11% -2.01%
Templeton Global Growth Fund 3/15/1994 7.14% 24.16% 11.71% 10.93% 10.58% 0.74% 17.76% 10.68% 10.65%
Templeton Pacific Growth Fund 1/27/1992 23.07% 64.47% -12.56% -5.94% -0.08% 16.67% 58.07% -14.27% -6.45%
Van Kampen LIT Enterprise
Portfolio 4/7/1986 0.82% 25.52% 17.44% 19.63% 13.12% 10.84% -5.58% 19.12% 16.50% 19.41% 13.05%
Van Kampen LIT Growth & Income
Portfolio 12/23/1996 1.49% 17.16% 14.56% -4.91% 10.76%
* For funds which have existed less than one year, non-standard cumulative total returns since inception are shown.
</TABLE>
<TABLE>
<CAPTION>
- --------
Since
Inception
- --------
<S> <C>
15.84%
18.30%
11.61%
19.19%
19.71%
36.99%
19.66%
16.75%
- -17.61%
- -17.01%
- -15.21%
9.26%
8.74%
15.17%
6.02%
8.99%
21.27%
5.34%
6.16%
11.57%
10.13%
22.22%
-2.91%
15.33%
-0.03%
26.51%
-1.12%
-0.76%
10.50%
-0.17%
10.77%
13.47%
</TABLE>
<TABLE>
<CAPTION>
Chart B
Total Return for the periods ended September 30, 1999:
Column I Column II
- -------------------------------------------------------------------------------------------------------------------------------
Inception 1999 One Three Five Ten Since 1999 One Three Five Ten
Portfolio Date YTD Year Year Year Year Inception YTD Year Year Year Year
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM VI Capital Appreciation
Fund 5/5/1993 5.17% 29.88% 11.46% 16.16% 15.57% -1.23% 23.48% 10.42% 15.92%
AIM VI Growth Fund 5/5/1993 8.97% 38.68% 22.94% 22.19% 18.03% 2.57% 32.28% 22.08% 21.98%
AIM VI International Equity
Fund 5/5/1993 7.90% 21.14% 10.79% 11.07% 11.36% 1.50% 14.74% 9.74% 10.79%
AIM VI Value Fund 5/5/1993 8.93% 37.76% 22.59% 20.86% 18.90% 2.53% 31.36% 21.73% 20.65%
Alger American Growth
Portfolio 1/9/1989 8.55% 36.11% 26.29% 24.54% 18.30% 19.41% 2.15% 29.71% 25.48% 24.34% 18.24%
Alger American Leveraged
AllCap Portfolio 1/25/1995 25.44% 64.80% 31.65% 36.74% 19.04% 58.40% 30.88%
Alger American MidCap Growth
Portfolio 5/3/1993 3.64% 31.14% 14.97% 19.35% 19.37% -2.76% 24.74% 13.99% 19.14%
Alger American Small
Capitalization Portfolio 9/21/1988 8.05% 34.12% 8.85% 14.90% 12.80% 16.44% 1.65% 27.72% 7.76% 14.66% 12.73%
Davis VA Financial Portfolio* 7/1/1999 -11.28%
Davis VA Real Estate Portfolio* 7/1/1999 -10.68%
Davis VA Value Portfolio* 7/1/1999 -8.79%
Franklin Growth and Income
Fund 1/24/1989 -1.24% 7.30% 12.39% 13.85% 9.04% 9.01% -7.64% 0.90% 11.38% 13.60% 8.96%
Franklin Rising Dividends
Securities Fund 1/27/1992 -9.73% 7.30% 11.17% 13.60% 8.50% -16.13% 0.90% 10.14% 13.35%
Franklin Small Cap Fund 11/1/1995 20.78% 49.60% 12.14% 15.31% 14.38% 43.20% 11.11%
Franklin U.S. Government Fund 3/14/1989 -1.98% -2.26% 4.52% 5.97% 6.06% 5.78% -8.38% -8.66% 3.35% 5.64% 5.98%
JP Morgan International
Opportunities Portfolio 1/3/1995 14.73% 38.25% 8.74% 8.98% 8.33% 31.85% 7.64%
JP Morgan US Disciplined Equity
Portfolio 1/3/1995 4.81% 26.06% 19.42% 21.13% -1.59% 19.66% 18.51%
Mutual Discovery Securities
Fund 11/8/1996 6.71% 15.35% 6.21% 0.31% 8.95%
Mutual Shares Securities Fund 11/8/1996 3.42% 16.30% 7.00% -2.98% 9.90%
Oppenheimer VA Global Securities
Fund 11/12/1990 14.28% 37.16% 17.44% 10.52% 11.31% 7.88% 30.76% 16.50% 10.22%
Oppenheimer VA High Income
Fund 4/30/1986 1.34% 4.02% 4.53% 7.48% 10.40% 9.86% -5.06% -2.38% 3.35% 7.18% 10.34%
Oppenheimer VA Main Street
Growth & Income Fund 7/5/1995 7.53% 27.71% 15.40% 22.11% 1.13% 21.31% 14.43%
PIMCO VIT High Yield Bond
Portfolio 4/30/1998 -0.18% 2.64% 0.33% -6.58% -3.76%
PIMCO VIT Stocks PLUS Growth &
Income Portfolio 12/31/1997 3.68% 25.90% 17.53% -2.72% 19.50%
PIMCO VIT Total Return Bond
Portfolio 12/31/1997 -2.24% -2.65% 2.49% -8.64% -9.05%
Seligman Henderson Global
Technology Fund 5/2/1996 37.73% 82.78% 31.25% 26.63% 31.33% 76.38% 30.48%
Seligman Small Cap Value Fund 5/1/1998 25.48% 61.53% 2.09% 19.08% 55.13%
Templeton Developing Markets
Equity Fund 3/15/1994 20.37% 44.54% -4.00% -1.87% -0.95% 13.97% 38.14% -5.40% -2.31%
Templeton Global Growth Fund 3/15/1994 6.90% 23.79% 11.38% 10.60% 10.25% 0.50% 17.39% 10.34% 10.31%
Templeton Pacific Growth Fund 1/27/1992 22.80% 63.97%-12.82% -6.23% -0.37% 16.40% 57.57% -14.54% -6.74%
Van Kampen LIT Enterprise
Portfolio 4/7/1986 0.59% 25.14% 17.09% 19.27% 12.78% 10.51% -5.81% 18.74% 16.15% 19.05% 12.71%
Van Kampen LIT Growth & Income
Portfolio 12/23/1996 1.27% 16.80% 14.22% -5.13% 10.40%
* For funds which have existed less than one year, non-standard cumulative total returns since inception are shown.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------
Since
Inception
- --------
<S> <C>
15.50%
17.95%
11.28%
18.83%
19.35%
36.58%
19.30%
16.40%
- -17.68%
- -17.08%
- -15.19%
8.94%
8.42%
14.82%
5.71%
8.66%
20.90%
5.02%
5.83%
11.24%
9.80%
21.85%
-3.22%
14.97%
-0.35%
26.13%
-1.44%
-1.06%
10.16%
-0.47%
10.43%
13.12%
</TABLE>
<TABLE>
<CAPTION>
Chart C
Total Return for the periods ended September 30, 1999:
Column I Column II
- -------------------------------------------------------------------------------------------------------------------------------
Inception 1999 One Three Five Ten Since 1999 One Three Five Ten
Portfolio Date YTD Year Year Year Year Inception YTD Year Year Year Year
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIM VI Capital Appreciation Fund 5/5/1993 5.01% 29.62% 11.24% 15.93% 15.34% -1.39% 23.22% 10.20% 15.69%
AIM VI Growth Fund 5/5/1993 8.81% 38.40% 22.69% 21.94% 17.79% 2.41% 32.00% 21.83% 21.74%
AIM VI International Equity Fund 5/5/1993 7.74% 20.90% 10.57% 10.85% 11.14% 1.34% 14.50% 9.51% 10.57%
AIM VI Value Fund 5/5/1993 8.77% 37.49% 22.35% 20.62% 18.67% 2.37% 31.09% 21.48% 20.41%
Alger American Growth Portfolio 1/9/1989 8.38% 35.84% 26.04% 24.29% 18.07% 19.17% 1.98% 29.44% 25.22% 24.09% 18.00%
Alger American Leveraged AllCap
Portfolio 1/25/1995 25.25% 64.47% 31.38% 36.46% 18.85% 58.07% 30.62%
Alger American MidCap Growth
Portfolio 5/3/1993 3.49% 30.87% 14.74% 19.11% 19.13% -2.91% 24.47% 13.76% 18.90%
Alger American Small
Capitalization Portfolio 9/21/1988 7.88% 33.85% 8.63% 14.67% 12.57% 16.21% 1.48% 27.45% 7.53% 14.42% 12.51%
Davis VA Financial Portfolio* 7/1/1999 -11.32%
Davis VA Real Estate Portfolio* 7/1/1999 -10.72%
Davis VA Value Portfolio* 7/1/1999 -8.83%
Franklin Growth and Income Fund 1/24/1989 -1.39% 7.08% 12.17% 13.62% 8.82% 8.80% -7.79% 0.68% 11.15% 13.37% 8.74%
Franklin Rising Dividends
Securities Fund 1/27/1992 -9.86% 7.09% 10.95% 13.38% 8.29% -16.26% 0.69% 9.91% 13.12%
Franklin Small Cap Fund 11/1/1995 20.60% 49.30% 11.92% 15.08% 14.20% 42.90% 10.89%
Franklin U.S. Government Fund 3/14/1989 -2.13% -2.46% 4.31% 5.75% 5.85% 5.57% -8.53% -8.86% 3.13% 5.43% 5.77%
JP Morgan International
Opportunities Portfolio 1/3/1995 14.55% 37.97% 8.52% 8.77% 8.15% 31.57% 7.42%
JP Morgan US Disciplined Equity
Portfolio 1/3/1995 4.66% 25.81% 19.18% 20.88% -1.74% 19.41% 18.27%
Mutual Discovery Securities
Fund 11/8/1996 6.55% 15.12% 5.99% 0.15% 8.72%
Mutual Shares Securities Fund 11/8/1996 3.27% 16.07% 6.79% -3.13% 9.67%
Oppenheimer VA Global Securities
Fund 11/12/1990 14.11% 36.89% 17.21% 10.30% 11.09% 7.71% 30.49% 16.26% 10.00%
Oppenheimer VA High Income
Fund 4/30/1986 1.19% 3.81% 4.32% 7.27% 10.18% 9.64% -5.21% -2.59% 3.14% 6.96% 10.12%
Oppenheimer VA Main Street
Growth & Income Fund 7/5/1995 7.37% 27.46% 15.16% 21.86% 0.97% 21.06% 14.19%
PIMCO VIT High Yield Bond
Portfolio 4/30/1998 -0.33% 2.43% 0.13% -6.73% -3.97%
PIMCO VIT Stocks PLUS Growth &
Income Portfolio 12/31/1997 3.53% 25.65% 17.30% -2.87% 19.25%
PIMCO VIT Total Return Bond
Portfolio 12/31/1997 -2.38% -2.84% 2.29% -8.78% -9.24%
Seligman Henderson Global
Technology Fund 5/2/1996 37.53% 82.41% 30.99% 26.37% 31.13% 76.01% 30.22%
Seligman Small Cap Value Fund 5/1/1998 25.29% 61.21% 1.88% 18.89% 54.81%
Templeton Developing Markets
Equity Fund 3/15/1994 20.19% 44.25% -4.19% -2.07% -1.15% 13.79% 37.85% -5.60% 2.51%
Templeton Global Growth Fund 3/15/1994 6.74% 23.54% 11.16% 10.37% 10.03% 0.34% 17.14% 10.11% 10.09%
Templeton Pacific Growth Fund 1/27/1992 22.61% 63.65% -13.00% -6.41% -0.57% 16.21% 57.25% -14.72% -6.93%
Van Kampen LIT Enterprise
Portfolio 4/7/1986 0.44% 24.89% 16.85% 19.03% 12.55% 10.29% -5.96% 18.49% 15.91% 18.81% 12.48%
Van Kampen LIT Growth &
Income Portfolio 12/23/1996 1.11% 16.57% 13.99% -5.29% 10.17%
* For funds which have existed less than one year, non-standard cumulative total returns since inception are shown.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
- --------
Since
Inception
- --------
<C>
15.26%
17.71%
11.06%
18.59%
19.11%
36.30%
19.07%
16.16%
- -17.72%
- -17.12%
- -15.23%
8.72%
8.21%
14.58%
5.49%
8.44%
20.66%
4.80%
5.62%
11.01%
9.58%
21.61%
-3.42%
14.73%
-0.55%
25.87%
-1.64%
-1.26%
9.94%
-0.67%
10.21%
12.89%
</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 withdrawal (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 of Franklin Templeton Variable
Insurance Products Trust underlying the Contracts will be managed by the
investment managers for Franklin Templeton Variable Insurance Products 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 withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 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.
A partial liquidation (withdrawal) during the Payout Phase may result in the
modification of the series of Annuity Payments made after such liquidation and
therefore could result in the imposition of the 10% penalty tax and interest for
the period as described above unless another exception to the penalty tax
applies. You should obtain competent tax advice before you make any liquidations
from your Contract.
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 withdrawal 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.
A partial liquidation (withdrawal) during the Payout Phase may result in the
modification of the series of Annuity Payments made after such liquidation and
therefore could result in the imposition of the 10% penalty tax and interest for
the period as described above unless another exception to the penalty tax
applies. You should obtain competent tax advice before you make any liquidations
from your Contract.
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 Variable Option the
fixed number of Annuity Units is determined by dividing the amount of the
initial Annuity Payment determined for each Variable Option by the Annuity Unit
value on the Income Date. Thereafter, the number of Annuity Units in each
Variable Option remains unchanged unless the Contract Owner elects to transfer
between Variable Options. 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 Variable Option. The Annuity Payment in each
Variable Option is determined by multiplying the number of Annuity Units then
allocated to such Variable Option by the Annuity Unit value for that Variable
Option. 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 either 3%, 5% or 7%, based on the
Contract Owner's selection and any applicable state laws.
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 September 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
September 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,
17,989 shares, cost $266,022 $308,690 - - - - - -
Global Health Care Securities Fund,
1,039 shares, cost $ 9,967 - 8,531 - - - - -
Global Utilities Securities Fund,
38,733 shares, cost $648,116 - - 732,826 - - - -
Growth and Income Fund,
53,886 shares, cost $869,438 - - - 947,854 - - -
High Income Fund,
27,456 shares, cost $357,860 - - - - 305,583 - -
Income Securities Fund,
54,010 shares, cost $827,136 - - - - - 807,445 -
Money Market Fund,
362,234 shares, cost $362,234 - - - - - - 362,234
- -------------------------------------------------------------------------------------------------------------------
Total assets 308,690 8,531 732,826 947,854 305,583 807,445 362,234
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 80 4 71 82 12 159 135
Accrued mortality and expense risk charges -
Valuemark IV 10 5 6 10 9 9 7
Accrued administrative charges - Valuemark II & III 10 1 9 10 2 19 16
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 101 11 87 103 24 188 159
Net assets $308,589 8,520 732,739 947,751 305,559 807,257 362,075
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $181,360 5,004 691,925 790,851 216,635 688,969 287,413
Contracts in accumulation period -
Valuemark IV (note 5) 121,887 3,516 37,996 148,220 87,947 112,433 72,428
Contracts in annuity payment period (note 2) 5,342 - 2,818 8,680 977 5,855 2,234
- -------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $308,589 8,520 732,739 947,751 305,559 807,257 362,075
- -------------------------------------------------------------------------------------------------------------------
<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.)
September 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,
14,903 shares, cost $174,536 $176,601 - - - - - -
Mutual Shares Securities Fund,
33,893 shares, cost $394,424 - 414,167 - - - - -
Natural Resources Securities Fund,
3,939 shares, cost $44,605 - - 42,817 - - - -
Real Estate Securities Fund,
11,317 shares, cost $202,176 - - - 170,201 - - -
Rising Dividends Fund,
33,367 shares, cost $465,923 - - - - 459,798 - -
Small Cap Fund,
17,020 shares, cost $232,635 - - - - - 284,068 -
Templeton Developing Markets Equity Fund,
17,972 shares, cost $176,931 - - - - - - 146,632
- -------------------------------------------------------------------------------------------------------------------
Total assets 176,601 414,167 42,817 170,201 459,798 284,068 148,632
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 49 113 6 7 37 71 35
Accrued mortality and expense risk charges -
Valuemark IV 9 14 5 6 8 8 6
Accrued administrative charges - Valuemark II & III 6 13 1 1 5 8 4
Accrued administrative charges - Valuemark IV 1 2 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 65 142 13 15 51 88 46
Net assets $176,356 414,025 42,804 170,186 459,747 283,980 148,586
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $76,205 165,904 36,336 134,464 371,452 187,818 115,265
Contracts in accumulation period -
Valuemark IV (note 5) 96,642 242,510 6,462 34,922 84,229 92,013 32,514
Contracts in annuity payment period (note 2) 3,689 5,611 6 800 4,066 4,149 807
- -------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $176,536 414,025 42,804 170,186 459,747 283,980 148,586
- -------------------------------------------------------------------------------------------------------------------
<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.)
September 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,
5,272 shares, cost $64,124 $59,679 - - - - - -
Templeton Global Growth Fund,
45,319 shares, cost $580,686 - 633,556 - - - - -
Templeton Global Income Securities Fund,
7,925 shares, cost $99,990 - - 91,137 - - - -
Templeton International Equity Fund,
43,808 shares, cost $621,277 - - - 690,406 - - -
Templeton International Smaller Companies Fund,
2,115 shares, cost $22,909 - - - - 22,079 - -
Templeton Pacific Growth Fund,
9,785 shares, cost $97,911 - - - - - 91,393 -
U.S. Government Securities Fund,
39,484 shares, cost $518,777 - - - - - - 502,626
- -------------------------------------------------------------------------------------------------------------------
Total assets 59,679 633,556 91,137 690,406 22,079 91,393 502,626
Liabilities:
Accrued mortality and expense risk charges -
Valuemark II & III 43 162 7 142 8 19 20
Accrued mortality and expense risk charges -
Valuemark IV 5 10 5 8 5 5 8
Accrued administrative charges - Valuemark II & III 5 19 1 17 1 2 2
Accrued administrative charges - Valuemark IV 1 1 1 1 1 1 1
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 54 192 14 168 15 27 31
Net assets $59,625 633,364 91,123 690,238 22,064 91,366 502,595
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period -
Valuemark II and III (note 5) $38,641 470,102 79,622 601,570 11,839 80,952 430,178
Contracts in accumulation period -
Valuemark IV (note 5) 19,312 156,143 11,415 85,843 9,678 10,019 71,926
Contracts in annuity payment period (note 2) 1,672 7,119 86 2,825 547 395 491
- -------------------------------------------------------------------------------------------------------------------
Total contract owners' equity $59,625 633,364 91,123 690,238 22,064 91,366 502,595
- -------------------------------------------------------------------------------------------------------------------
<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.)
SEPTEMBER 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,
1,321 shares, cost $10,630 $ 9,973 - - -
Zero Coupon Fund - 2000
4,688 shares, cost $65,804 - 63,241 - -
Zero Coupon Fund - 2005
4,072 shares, cost $62,971 - - 64,127 -
Zero Coupon Fund - 2010
4,437 shares, cost $74,546 - - - 69,755
- -------------------------------------------------------------------------------------------------------------------
Total assets 9,973 63,241 64,127 69,755 7,467,419
Liabilities:
Accrued mortality and expense risk charges - Valuemark II & III 15 6 7 6 1,296
Accrued mortality and expense risk charges - Valuemark IV 5 5 6 6 180
Accrued administrative charges - Valuemark II & III 2 1 1 1 157
Accrued administrative charges - Valuemark IV 1 1 1 1 26
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 23 13 15 14 1,659
Net assets $9,950 63,228 64,112 69,741 7,465,760
- -------------------------------------------------------------------------------------------------------------------
Contract owners' equity:
Contracts in accumulation period - Valuemark II and III (note 5) $5,379 57,912 51,343 52,384 5,829,523
Contracts in accumulation period - Valuemark IV (note 5) 4,145 5,304 12,769 17,350 1,577,623
- -------------------------------------------------------------------------------------------------------------------
Contracts in annuity payment period (note 2) 426 12 - 7 58,614
Total contract owners' equity $9,950 $63,228 64,112 69,741 7,465,760
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 1,404 23 30,155 38,834 42,592 74,850 11,931
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges-Valuemark II & III 1,761 56 7,278 8,592 2,573 8,176 2,735
Mortality and expense risk charges - Valuemark IV 1,103 31 343 1,486 935 1,116 618
Administrative charges - Valuemark II & III 211 7 873 1,031 309 981 328
Administrative charges - Valuemark IV 123 3 38 166 105 125 69
- -------------------------------------------------------------------------------------------------------------------
Total expenses 3,198 97 8,532 11,275 3,922 10,398 3,750
Investment income (loss), net (1,794) (74) 21,623 27,559 38,670 64,452 8,181
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions on mutual funds - - 73,027 108,254 11,372 26,820 -
Realized gains (losses) on sales of investments,net 9,589 (265) 44,603 64,493 (6,146) 21,879 -
Realized gains (losses) on investments, net 9,589 (265) 117,630 172,747 5,226 48,699 -
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 8,041 (2,244) (100,332) (205,447) (49,290) (125,011) -
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 17,630 (2,509) 17,298 (32,700) (44,064) (76,312) -
Net increase (decrease) in net assets from operations15,836 (2,583) 38,921 (5,141) (5,394) (11,860) 8,181
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 5,527 11,481 684 16,917 8,456 1,420 3,258
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III847 1,864 360 1,636 4,394 1,837 1,221
Mortality and expense risk charges - Valuemark IV 999 2,509 66 393 910 842 324
Administrative charges - Valuemark II & III 102 224 43 196 527 220 147
Administrative charges - Valuemark IV 112 281 7 44 102 94 36
- -------------------------------------------------------------------------------------------------------------------
Total expenses 2,060 4,878 476 2,269 5,933 2,993 1,728
Investment income (loss), net 3,467 6,603 208 14,648 2,523 (1,573) 1,530
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions on mutual funds - - - 23,442 84,717 198 -
Realized gains (losses) on sales of investments, net136 7,576 (8,053) 4,049 37,969 7,909 (13,661)
Realized gains (losses) on investments, net 136) 7,576 (8,053) 27,491 122,686 8,107 (13,661)
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 9,356 2,344 19,478 (54,305) (180,402) 43,915 42,412
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) and unrealized
appreciation (depreciation) on investments, net 9,492 9,920 11,425 (26,814) (57,716) 52,022 28,751
Net increase (decrease) in net assets from operations12,959 16,523 11,663 (12,166) (55,193) 50,449 30,281
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 2,949 14,804 5,900 28,395 658 - 40,331
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charges - Valuemark II & III 437 4,900 940 6,586 119 796 4,672
Mortality and expense risk charges - Valuemark IV 199 1,539 117 848 94 73 667
Administrative charges - Valuemark II & III 52 588 113 790 14 96 561
Administrative charges - Valuemark IV 22 172 13 95 10 8 75
- -------------------------------------------------------------------------------------------------------------------
Total expenses 710 7,199 1,183 8,319 237 973 5,975
Investment income (loss), net 2,239 7,605 4,717 20,076 421 (973) 34,356
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions on mutual funds 4,294 71,620 - 22,510 - - -
Realized gains (losses) on sales of investments, net 568 24,266 (1,421) 45,678 (857) (7,843) 4,768
- -------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net 4,862 95,886 (1,421) 68,188 (857) (7,843) 4,768
Net change in unrealized appreciation
(depreciation) on investments (7,427) (56,643) (10,745) (26,971) 3,558 29,542 (49,604)
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net (2,565) 39,243 (12,166) 41,217 2,701 21,699 (44,836)
Net increase (decrease) in net assets from operations(326) 46,848 (7,449) 61,293 3,122 20,726 (10,480)
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 27 5,582 4,161 4,491 354,830
Expenses:
Mortality and expense risk charges - Valuemark II & III 52 608 537 566 63,543
Mortality and expense risk charges - Valuemark IV 37 46 116 157 15,568
Administrative charges - Valuemark II & III 6 73 64 68 7,624
Administrative charges - Valuemark IV 4 5 13 18 1,740
- -------------------------------------------------------------------------------------------------------------------
Total expenses 99 732 730 809 88,475
Investment income (loss), net (72) 4,850 3,431 3,682 266,355
Realized gains (losses) and unrealized appreciation (depreciation) on
investments:
Realized capital gain distributions on mutual funds - 1,456 407 2,122 430,239
Realized gains (losses) on sales of investments, net (346) 664 1,321 1,219 238,095
- -------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on investments, net (346) 2,120 1,728 3,341 668,334
Net change in unrealized appreciation
(depreciation) on investments (249) (6,300) (9,288) (15,528)(741,140)
- -------------------------------------------------------------------------------------------------------------------
Total realized gains (losses)
and unrealized appreciation
(depreciation) on investments, net (595) (4,180) (7,560) (12,187) (72,806)
Net increase (decrease) in net assets from operations (667) 670 (4,129) (8,505) 193,549
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 ($1,794) (1,497) (74) (42) (21,623) 25,465 (27,559) 22,488
Realized gains (losses) on investments,net 9,589 3,101 (265) (205) 117,630 99,245 172,747 128,386
Net change in unrealized appreciation
(depreciation) on investments 8,041 24,031 (2,244) 808 (100,332) (40,032) 205,447 (73,442)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 15,836 25,635 (2,583) 561 38,921 84,678 (5,141) 77,432
Contract transactions - Valuemark II & III (note 5):
Purchase payments 2,631 3,713 88 194 2,756 7,461 6,808 16,130
Transfers between funds 103,481 55,930 2,628 5,818 (23,683) (39,931) (4,729)20,093
Surrenders and terminations (64,338) (17,886) (2,204) (190) (197,607)(198,959) (267,428)(195,983)
Rescissions (230) (8) - - (248) (241) (594) (276)
Other transactions (note 2) 123 (19) (2) (1) 465 155 506 356
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III 41,667 41,730 510 5,821 (218,317)(231,515) (265,437)(159,680)
- -------------------------------------------------------------------------------------------------------------------
Contract transactions - Valuemark IV (note 5):
Purchase payments 8,409 21,127 482 1,428 2,994 12,583 8,876 51,280
Transfers between funds 51,711 17,665 1,736 1,051 8,007 6,950 19,942 25,926
Surrenders and terminations (13,642) (2,192) (219) (7) (2,994) (1,068) (13,433) (5,388)
Rescissions (55) (556) (1) (258) (15) (88) (126) (943)
Other transactions (note 2) 185 1 (1) - 2 5 10 46
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 46,608 36,045 1,997 2,214 8,044 18,382 15,269 70,921
Increase (decrease) in net assets 104,111 103,410 (76) 8,596 (171,352)(128,455) (255,309)(11,327)
Net assets at beginning of period 204,478 101,068 8,596 - 904,091 1,032,546 1,203,060 1,214,387
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $308,589 204,478 8,520 8,596 732,739 904,091 947,751 1,203,060
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 $38,670 33,766 64,452 77,877 8,181 12,915 3,467 (64)
Realized gains (losses) on investments, net5,226 4,702 48,699 48,389 - - 136 1,768
Net change in unrealized appreciation
(depreciation) on investments (49,290) (38,630) (125,011)(126,374) - - 9,356 (23,026)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (5,394) (162) (11,860) (108) 8,181 12,915 12,959 (21,322)
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,243 4,834 3,469 13,275 7,361 11,342 738 6,337
Transfers between funds (18,275) (19,142) (52,821)(51,375) 174,365 207,647 (9,457) 18,856
Surrenders and terminations (80,240) (71,048) (241,577)(219,332) (222,443)(204,171) (30,521)(22,824)
Rescissions (146) (154) (373) (278) (165) (341) (62) (132)
Other transactions (note 2) 144 455 717 411 4,714 824 114 5
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (97,274) (85,055) (290,585)(257,299) (36,168) 15,301 (39,188) 2,242
Contract transactions - Valuemark IV (note 5):
Purchase payments 6,758 39,346 8,557 42,572 8,904 44,229 3,171 35,649
Transfers between funds 4,367 8,234 7,761 14,799 15,807 (20,238) (2,708) 12,085
Surrenders and terminations (8,743) (4,106) (8,197) (3,538) (15,952) (6,316) (9,082) (3,935)
Rescissions (890) (1,327) (61) (530) (29) (1,952) (117) (577)
Other transactions (note 2) 259 50 45 (5) 397 199 72 59
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 1,751 42,197 8,105 53,298 9,127 15,922 (8,664) 43,281
Increase (decrease) in net assets (100,917) (43,020) (294,340)(204,109) (18,860) 44,138 (34,893) 24,201
Net assets at beginning of period 406,476 449,496 1,101,597 1,305,706 380,935 336,797 211,429 187,228
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $305,559 406,476 807,257 1,101,597 362,075 380,935 176,536 211,429
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 ($6,603) (1,566) (208) 75 14,648 9,568 2,523 (2,149)
Realized gains (losses) on investments,net7,576 4,339 (8,053) (13,600) 27,491 25,702 122,686 134,667
Net change in unrealized appreciation
(depreciation) on investments 2,344 (15,031) 19,478 (3,804) (54,305)(105,327) (180,402)(101,514)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 16,523 (12,258) 11,633 (17,329) (12,166) (70,057) (55,193) 31,004
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,867 11,748 244 899 689 4,373 2,363 10,801
Transfers between funds 461 28,224 (4,321) (5,230) (23,418) (48,548) (26,989) 17,226
Surrenders and terminations (59,089) (42,653) (7,355) (7,877) (55,811) (49,929) (144,004)(135,412)
Rescissions (412) (194) (53) (49) (112) (148) (183) (207)
Other transactions (note 2) 382 59 (4) 15 23 161 111 239
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (56,791) (2,816) (11,489)(12,242) (78,629) (94,091) (168,702)(107,353)
Contract transactions - Valuemark IV (note 5):
Purchase payments 8,883 85,482 382 1,717 1,373 16,008 5,392 36,972
Transfers between funds 10,612 28,604 618 841 (2,531) 1,947 3,221 17,333
Surrenders and terminations (19,346) (8,498) (492) (188) (3,169) (1,625) (8,369) (3,213)
Rescissions (112) (1,549) (57) (52) (7) (202) (109) (691)
Other transactions (note 2) 206 92 (2) (15) 28 13 108 3
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 243 104,131 449 2,303 (4,306) 16,141 243 50,404
Increase (decrease) in net assets (40,025) 89,057 593 (27,268) (95,101)(148,007) (223,652)(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 $414,025 454,050 42,804 42,211 170,186 265,287 459,747 683,399
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 ($1,573) (4,034) (1,530) 3,912 2,239 1,887 7,605 8,781
Realized gains (losses) on investments,net8,107 24,392 (13,661) (8,736) 4,862 4,396 95,886 82,495
Net change in unrealized appreciation
(depreciation) on investments 43,915 (31,057) 42,412 (51,993) (7,427) (8,198) (56,643)(44,136)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 50,449 (10,699) 30,281 (56,817) (326) (1,915) 46,848 47,140
Contract transactions - Valuemark II & III (note 5):
Purchase payments 1,447 6,424 930 4,084 535 1,787 2,943 10,586
Transfers between funds (8,452) 4,845 (10,560)(39,497) (5,878) (8,074) (19,782)(41,415)
Surrenders and terminations (55,799) (36,786) (27,744)(26,039) (11,053) (8,859) (107,777)(79,015)
Rescissions (80) (186) (98) (68) (16) (7) (196) (300)
Other transactions (note 2) 253 (15) 129 (56) 46 30 322 78
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (62,631) (25,718) (37,343)(61,576) (16,366) (15,123) (124,490)(110,066)
Contract transactions - Valuemark IV (note 5):
Purchase payments 3,218 26,375 1,831 9,390 1,688 6,881 10,291 47,491
Transfers between funds (484) 13,910 (145) (1,057) (980) 525 5,250 11,653
Surrenders and terminations (6,354) (2,749) (1,831) (1,050) (1,489) (519) (12,987) (4,558)
Rescissions (55) (368) (6) (129) (2) (14) (116) (653)
Other transactions (note 2) 57 32 11 (13) 40 11 60 (12)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV (3,618) 37,200 (140) 7,141 (743) 6,884 2,498 53,921
Increase (decrease) in net assets (15,800) 783 (7,202)(111,252) (17,435) (10,154) (75,144) (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 $283,980 299,780 148,586 155,788 59,625 77,060 633,364 708,508
- -------------------------------------------------------------------------------------------------------------------
<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 SEPTEMBER 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 $4,717 9,058 20,076 18,022 421 290 (973) 3,442
Realized gains (losses) on investments,net(1,421) 263 68,188 112,100 (857) (547) (7,843)(66,038)
Net change in unrealized appreciation
(depreciation) on investments (10,745) (1,320) (26,971)(88,725) 3,558 (3,830) 29,542 39,890
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (7,449) 8,001 61,293 41,397 3,122 (4,087) 20,726 (22,706)
Contract transactions - Valuemark II & III (note 5):
Purchase payments 320 983 2,164 8,884 87 865 577 1,634
Transfers between funds (7,558) (13,288) (57,252)(92,026) (1,865) (3,005) (1,688)(21,917)
Surrenders and terminations (31,077) (30,382) (213,758)(171,313) (2,543) (2,234) (23,164)(20,611)
Rescissions (275) (42) (1,165) (404) (2) (24) (35) (54)
Other transactions (note 2) 38 154 947 252 36 10 16 48
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (38,552) (42,575) (269,064)(254,607) (4,287) (4,388) (24,294)(40,900)
Contract transactions - Valuemark IV (note 5):
Purchase payments 891 3,461 2,724 21,502 332 2,980 523 2,042
Transfers between funds 834 1,385 1,636 6,064 (274) (467) 3,106 282
Surrenders and terminations (1,155) (377) (5,866) (2,654) (706) (365) (512) (205)
Rescissions (5) (12) (20) (95) (3) (85) (3) (42)
Other transactions (note 2) 5 2 45 45 4 (15) 22 (1)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 570 4,459 (1,481) 24,862 (647) 2,048 3,136 2,076
Increase (decrease) in net assets (45,431) (30,115) (209,252)(188,348) (1,812) (6,427) (432)(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 $91,123 136,554 690,238 899,490 22,064 23,876 91,366 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 SEPTEMBER 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 $34,356 36,201 (72) (47) 4,850 5,241 3,431 3,261
Realized gains (losses) on investments, net4,768 8,286 (346) (74) 2,120 2,396 1,728 2,485
Net change in unrealized appreciation
(depreciation) on investments (49,604) (7,222) (249) (407) (6,300) (2,765) (9,288) 1,608
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (10,480) 37,265 (667) (528) 670 4,872 (4,129) 7,354
Contract transactions - Valuemark II & III (note 5):
Purchase payments 2,181 5,708 277 190 177 498 164 759
Transfers between funds (8,804) 12,261 2,024 6,072 (999) (4,978) (466) 3,490
Surrenders and terminations (132,949)(126,296) (1,973) (129) (16,346) (14,347) (10,799)(10,720)
Rescissions (966) (188) - - (4) (4) (15) (11)
Other transactions (note 2) 201 860 (2) (1) 119 165 75 105
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (140,337)(107,655) 326 6,132 (17,053) (18,666) (11,041) (6,377)
Contract transactions - Valuemark IV (note 5):
Purchase payments 7,365 20,857 532 916 325 864 1,545 3,307
Transfers between funds 13,998 12,943 1,512 2,211 1,341 1,107 3,215 2,192
Surrenders and terminations (5,616) (2,139) (423) (62) (218) (68) (759) (284)
Rescissions (116) (701) (1) (4) (8) (23) (88) (68)
Other transactions (note 2) 177 4 6 - 3 (6) 90 (4)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 15,808 30,964 1,626 3,061 1,443 1,874 4,004 5,143
IIncrease (decrease) in net assets (135,009) (39,426) 1,285 8,665 (14,940) (11,920) (11,166) 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 $502,595 637,604 9,950 8,665 63,228 78,168 64,112 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 SEPTEMBER 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 $3,682 3,294 266,355 266,144
Realized gains (losses) on investments, net 3,341 5,443 668,334 603,355
Net change in unrealized appreciation
(depreciation) on investments (15,528) 769 (741,140) (699,727)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations (8,505) 9,506 193,549 169,772
Contract transactions - Valuemark II & III (note 5):
Purchase payments 187 682 42,246 134,191
Transfers between funds 2,387 4,057 (1,651) (3,907)
Surrenders and terminations (15,607) (15,533) (2,023,206)(1,708,528)
Rescissions (7) (2) (5,437) (3,318)
Other transactions (note 2) 235 49 9,708 4,339
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark II & III (12,805) (10,747) (1,978,340)(1,577,223)
Contract transactions - Valuemark IV (note 5):
Purchase payments 2,359 5,944 97,805 540,403
Transfers between funds 4,393 3,245 151,946 169,190
Surrenders and terminations (980) (458) (142,484) (55,562)
Rescissions (84) (20) (2,086) (10,939)
Other transactions (note 2) 6 (2) 1,835 489
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from contract
transactions - Valuemark IV 5,694 8,709 107,016 643,581
Increase (decrease) in net assets (15,616) 7,468 (1,677,775)(763,870)
Net assets at beginning of period 85,357 77,889 9,143,535 9,907,405
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period $69,741 85,357 7,465,760 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
September 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.
A Flexible Fixed Account investment option and a Dollar Cost Averaging Fixed
Account investment option are available to 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.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
September 30, 1999 (unaudited)
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 September 30, 1999 (unaudited) and the year ended December 31, 1998
were$3,507,536 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 II Valuemark III Valuemark IV
0-1 5% 6% 6%
1-2 5% 5% 6%
2-3 4% 4% 6%
3-4 3% 3% 5%
4-5 1.5% 1.5% 4%
5-6 0% 0% 3%
6-7 0% 0% 2%
7+ 0% 0% 0%
and (c) adding the products of each multiplication in (b) above.
A Valuemark II or Valuemark III deferred annuity contract owner may, not more
frequently than once annually on a cumulative basis, make a surrender each
contract year of fifteen percent (15%) of purchase payments paid, less any prior
surrenders, without incurring a contingent deferred sales charge. 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 nine-month period ended September 30, 1999 (unaudited) and the year
ended December 31, 1998 were $12,991,484 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 nine-month period
ended September 30,1999 (unaudited) and the year ended December 31, 1998 were
$114,760 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 during the nine-month period ended
September30,1999(unaudited) and the year ended December 31,1998 were
$150,295,141 and $165,283,144, respectively.
<PAGE>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
September 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 September 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)
September 30, 1999 (unaudited)
5. CONTRACT TRANSACTIONS - ACCUMULATION UNIT ACTIVITY (IN THOUSANDS)
Transactions in units for each fund for the period ended September 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 116 10 83 166 58 106 147 50 111
Transfers between funds 6,306 266 (830) (167) (859) (2,132) 12,294 (861) (54)
Surrenders and terminations (3,888) (241) (6,833) (10,012) (3,759) (9,673)(15,263) (2,564) (4,666)
Rescissions (14) - (9) (22) (7) (15) (11) (5) (33)
Other transactions 7 - 16 19 7 29 323 10 30
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,527 35 (7,573) (10,016) (4,560) (11,685) (2,510) (3,370) (4,612)
Accumulation units outstanding at
September 30,1999 (unaudited) 10,981 621 23,278 30,464 10,427 27,735 19,522 6,348 13,521
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 517 52 105 339 319 348 619 269 705
Transfers between funds 3,201 184 281 753 209 314 (1,087) (247) 802
Surrenders and terminations (825) (24) (102) (508) (414) (331) (1,107) (769) (1,533)
Rescissions (3) - (1) (5) (42) (3) (2) (10) (9)
Other transactions 11 - - - 12 2 28 6 16
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 2,901 212 283 579 84 330 (625) (751) (19)
Accumulation units outstanding at
September 30,1999 (unaudited) 7,403 436 1,289 5,764 4,275 4,569 4,967 8,071 19,815
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
September 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 26 25 86 81 94 19 137 18 105
Transfers between funds (443) (1,037) (1,320) (730) (1,177) (436) (1,241) (442) (3,009)
Surrenders and terminations (749) (2,409) (7,049) (3,590) (2,956) (782) (6,223) (1,806) (11,058)
Rescissions (5) (5) (9) (5) (9) (1) (11) (16) (61)
Other transactions 0 1 5 16 13 3 19 2 48
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions(1,171) (3,425) (8,287) (4,228) (4,035) (1,197) (7,319) (2,244) (13,975)
Accumulation units outstanding at
September 30,1999 (unaudited) 3,282 6,214 19,396 10,628 11,954 2,859 26,907 4,732 30,281
- -------------------------------------------------------------------------------------------------------------------
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 38 60 268 207 194 124 601 52 140
Transfers between funds 92 (116) 148 (67) (40) (75) 283 48 84
Surrenders and terminations (49) (139) (416) (408) (191) (109) (763) (68) (302)
Rescissions (5) - (6) (4) (1) - (7) - (1)
Other transactions - 1 5 4 1 3 4 - 2
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions 76 (194) (1) (268) 37 (57) 118 32 (77)
Accumulation units outstanding at
September 30,1999 (unaudited) 590 1,629 4,427 5,224 3,388 1,434 8,982 683 4,350
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
September 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 6 61 116 9 9 7 7 1,653
Transfers between funds (197) (43) (471) 256 (49) (19) 89 3,694
Surrenders and terminations (252) (2,544) (7,073) (258) (789) (450) (599)(105,486)
Rescissions - (4) (51) - - (1) - (294)
Other transactions 4 2 11 - 6 (3) 9 583
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (439) (2,528) (7,468) 7 (823) (460) (494) (99,850)
Accumulation units outstanding at
September 30,1999 (unaudited) 1,094 8,141 23,032 726 2,772 2,175 2,088 299,178
- -------------------------------------------------------------------------------------------------------------------
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 3,040 367 188 380 478 89,535
- -------------------------------------------------------------------------------------------------------------------
Contract transactions (unaudited):
Purchase payments 33 55 393 68 16 64 90 5,676
Transfers between funds (35) 354 751 177 65 134 172 8,559
Surrenders and terminations (69) (53) (302) (54) (11) (32) (38) (8,617)
Rescissions - - (6) - - (4) (3) (112)
Other transactions - 2 9 1 - 4 - 111
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in accumulation
units resulting from contract transactions (71) 358 845 192 70 166 221 5,617
Accumulation units outstanding at
September 30,1999 (unaudited) 896 1,013 3,885 559 258 546 699 95,152
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANZ LIFE VARIABLE ACCOUNT B
OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements (CONTINUED)
September 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 nine-month period ended September 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
September 30, 1999 (unaudited)
10,981 $16.517 $181,360 2.17% 7,403 $16.466 $121,887 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
September 30, 1999 (unaudited)
621 8.067 5,004 2.21 436 8.057 3,516 2.30
December 31,
19982 586 10.610 6,215 2.24+ 224 10.604 2,381 2.33+
GLOBAL UTILITIES SECURITIES FUND
September 30, 1999 (unaudited)
23,278 29.723 691,925 1.91 1,289 29.466 37,996 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
September 30, 1999 (unaudited)30,464 25.960 790,851 1.89 5,764 25.711 148,220 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
September 30, 1999 (unaudited)10,427 20.775 216,635 1.95 4,275 20.576 87,947 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
September 30, 1999 (unaudited)27,735 24.841 688,969 1.92 4,569 24.603 112,433 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)
September 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
September 30, 1999 (unaudited)19,522 $14.723 287,413 1.92% 4,967 $14.584 $72,428 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
September 30, 1999 (unaudited) 6,348 $12.006 $76,205 2.38 8,071 $11.975 $96,642 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
September 30, 1999 (unaudited)13,521 12.270 165,904 2.18 19,815 12.238 242,510 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
September 30, 1999 (unaudited) 3,282 11.070 36,336 2.07 590 10.964 6,462 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
September 30, 1999 (unaudited) 6,214 21.634 134,464 1.97 1,629 21.427 34,922 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
September 30, 1999 (unaudited)19,396 19.149 371,452 2.14 4,427 19.017 84,229 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)
September 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
September 30, 1999 (unaudited)10,628 $17.673 $187,818 2.20% 5,224 $17.611 $92,013 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
September 30, 1999 (unaudited)11,954 9.643 115,625 2.80 3,388 9.595 32,514 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
September 30, 1999 (unaudited) 2,859 13.521 38,641 2.23 1,434 13.467 19,312 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
September 30, 1999 (unaudited)26,907 17.472 470,102 2.28 8,982 17.385 156,143 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
September 30, 1999 (unaudited) 4,732 16.827 79,622 2.06 683 16.666 11,415 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
September 30, 1999 (unaudited) 30,281 19.866 601,570 2.31 4,350 19.729 85,843 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)
September 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
September 30, 1999 (unaudited) 1,094 $10.828 $11,839 2.53% 896 $10.795 $9,678 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
September 30, 1999 (unaudited) 8,141 9.942 80,952 2.49 1,013 9.874 10,019 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
September 30, 1999 (unaudited)23,032 18.679 430,178 1.94 3,885 18.502 71,926 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
September 30, 1999 (unaudited) 726 7.419 5,379 2.27+ 559 7.410 4,145 2.36+
December 31,
19982 719 7.717 5,542 2.52+ 367 7.713 2,834 2.61+
ZERO COUPON FUND - 2000
September 30, 1999 (unaudited) 2,772 20.897 57,8912 2.06 258 20.699 5,304 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
September 30, 1999 (unaudited) 2,175 23.599 51,343 2.06 546 23.378 12,769 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)
September 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
September 30, 1999 (unaudited) 2,088 $25.073 $52,383 2.06% 699 $24.835 $17,350 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 September 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
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 September 30, 1999
(unaudited).
2. Statements of Operations for the period ended September 30, 1999
(unaudited).
3. Statements of Changes in Net Assets for the period ended September
30, 1999 (unaudited).
4. Notes to Financial Statements - September 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
4.a. Waiver of Contingent Deferred Sales Charge Endorsement(3)
4.b. Traditional Death Benefit Endorsement
4.c. Enhanced Death Benefit Endorsement
4.d. Traditional Guaranteed Minimum Income Benefit Endorsement
4.e. Enhanced Guaranteed Minimum Income Benefit Endorsement
4.f. Charitable Remainder Trust Endorsement(3)
4.g. Individual Retirement Annuity Endorsement
4.h. Unisex Endorsement
4.i. Pension Plan and Profit Sharing Plan Endorsement
4.j. Group Pension Plan Death Benefit Endorsement(3)
4.k. 403(b) Annuity Endorsement
5. Application for Individual Variable Annuity Contract(3)
6. (i) Copy of Articles of Incorporation of the Company(1)
(ii) Copy of the Bylaws of the Company(1)
7. Not Applicable
8.a. Form of Fund Participation Agreement between North American
Life and Casualty Company and Franklin Valuemark Funds(1)
8.b. Form of Fund Participation Agreement between AIM Variable
Insurance Funds, Inc., Allianz Life Insurance Company of North
America and NALAC Financial Plans LLC(4)
8.c. Form of Fund Participation Agreement between Alger American
Fund, Allianz Life Insurance Company of North America and Fred
Alger and Company(4)
8.d. Form of Fund Participation Agreement between USAllianz Variable
Insurance Products Trust, Allianz Life Insurance Company of
North America and BISYS Fund Services Limited Partnership(4)
8.e. Form of Fund Participation Agreement between Davis Variable
Account Fund, Inc., Davis Distributors, LLC and Allianz Life
Insurance Company of North America
8.f. Form of Fund Participation Agreement between Van Kampen Life
Investment Trust, Van Kampen Funds, Inc., Van Kampen Asset
Management Inc. and Allianz Life Insurance Company of North
America
8.g. Form of Fund Participation Agreement between Allianz Life
Insurance Company of North America and J.P. Morgan Series Trust
II
8.h. Form of Fund Participation Agreement between Oppenheimer Variable
Account Funds, Oppenheimer Funds Inc. and Allianz Life Insurance
Company of North America
8.i. Form of Fund Participation Agreement between Allianz Life Insurance
Company of North America, PIMCO Variable Insurance Trust, and PIMCO
Fund Distributors, LLC
8.j. Form of Fund Participation Agreement between Seligman Portfolios,
Inc. and Allianz Life Insurance Company of North America
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Company Organizational Chart(2)
(1) Incorporated by reference to Registrant's Form N-4 (File Nos. 333-06709 and
811-05618) electronically filed on June 24, 1996.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Form N-4 (File Nos. 333-06709 and 811-05618) electronically filed on
December 13, 1996.
(3) Incorporated by reference to Registrant's Form N-4 (File Nos. 333-82329 and
811-05618) electronically filed on July 6, 1999.
(4) Incorporated by reference to Registrant's Form N-4 (File Nos. 333-06709 and
811-05618) electronically filed on November 12, 1999.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Insurance Company:
Name and Principal Positions and Offices
Business Address with Depositor
- - ---------------------------- ---------------------------------
Lowell C. Anderson Chairman of the Board
1750 Hennepin Avenue
Minneapolis, MN 55403
Robert W. MacDonald Director and Chief
1750 Hennepin Avenue Executive Officer
Minneapolis, MN 55403
Margery G. Hughes President and Chief
1750 Hennepin Avenue Administrative Officer
Minneapolis, MN 55403
Mark A. Zesbaugh Senior Vice President and
1750 Hennepin Avenue Chief Financial Officer
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 Markets
1750 Hennepin Avenue Division
Minneapolis, MN 55403
Robert S. James President - Individual
1750 Hennepin Avenue 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
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
The Company organizational chart is incorporated herein by reference to
Pre-Effective Amendment No. 1 (File Nos. 333-06709 and 811-05618)
Item 27. Number of Contract Owners
Not Applicable.
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:
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
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 has caused this Registration
Statement to be signed on its behalf in the City of Minneapolis and State of
Minnesota, on this 20th day of December, 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
Chairman of the Board, 12/20/99
Lowell C. Anderson* President ------
Lowell C. Anderson and Chief Executive Officer Date
12/20/99
Director and Chief Executive ------
Robert W. MacDonald* Officer Date
Robert W. MacDonald
12/20/99
Margery G. Hughes* President and Chief Administrative ------
Margery G. Hughes Officer Date
12/20/99
Mark A. Zesbaugh* Chief Financial Officer and ------
Mark A. Zesbaugh Senior Vice President Date
Herbert F. Hansmeyer* Director 12/20/99
Herbert F. Hansmeyer ------
Date
Michael P. Sullivan* Director 12/20/99
Michael P. Sullivan ------
Date
Dr. Gerhard Rupprecht* Director 12/20/99
Dr. Gerhard Rupprecht ------
Date
Rev. Dennis Dease* Director 12/20/99
Rev. Dennis Dease ------
Date
James R. Campbell* Director 12/20/99
James R. Campbell ------
Date
Robert M. Kimmitt* Director 12/20/99
Robert M. Kimmitt ------
Date
*By Power of Attorney
By: /S/ MICHAEL T. WESTERMEYER
--------------------------------
Michael T. Westermeyer
Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Lowell C. Anderson, Chairman of
the Board, President & Chief Executive Officer of Allianz Life Insurance Company
of North America (Allianz Life), a corporation duly organized under the laws of
Minnesota, do hereby appoint Michael T. Westermeyer, as my attorney and agent,
for me, and in my name as Chairman of the Board, President & Chief Executive
Officer on behalf of Allianz Life, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of aforesaid Acts.
WITNESS my hand and seal this 3rd day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Lowell C. Anderson
___________________________ _____________________________
Lowell C. Anderson
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, 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, 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, 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
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Herbert F. Hansmeyer, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 29th day of September 1997.
WITNESS
/s/ Kathleen Doolwith /s/ Herbert Hansmeyer
___________________________ _____________________________
Herbert Hansmeyer
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Michael P Sullivan, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 5th day of September 1997.
WITNESS
/s/ Karen M Amundson /s/ Michael P. Sullivan
___________________________ _____________________________
Michael P. Sullivan
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Gerhard G. Rupprecht, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this ____ day of ___________ 1997.
WITNESS
/s/ Gerhard G. Rupprecht
___________________________ _____________________________
Gerhard G Rupprecht
I hereby certify that the above is the true signature, acknowledged in my
presence of
Dr. Gerhard Rupprecht
Chairman of the Board of Management
Reinsburgstrabe 19, 70178 Stuttgart, Germany
personally known to me.
Stuttgart, den 17.09.1997
/s/ Dr. Kubler
Dr. Kubler
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Dennis J. Dease, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 5th day of September 1997.
WITNESS
/s/ Sandra J. Schwartz /s/ Dennis J. Dease
___________________________ _____________________________
Dennis J. Dease
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, James R. Campbell, a Director
of Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 8th day of September 1997.
WITNESS
/s/ Carrie Knowles /s/ James R. Campbell
___________________________ _____________________________
James R. Campbell
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that I, Robert M. Kimmitt, a Director of
Allianz Life Insurance Company of North America (Allianz Life), a corporation
duly organized under the laws of Minnesota, do hereby appoint Lowell C. Anderson
and Michael T. Westermeyer, each individually, as my attorney and agent, for me,
and in my name as Director of Allianz Life on behalf of Allianz Life, with full
power to execute, deliver and file with the Securities and Exchange Commission
all documents required for registration of a security under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, and to
do and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of aforesaid Acts.
WITNESS my hand and seal this 6th day of April 1998.
WITNESS
/s/ Mary Ann Lemke /s/ Robert M. Kimmitt
___________________________ _____________________________
Robert M. Kimmitt
EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
EXHIBIT PAGE
EX-99.B4 Individual Variable Annuity Contract
EX-99.B.4.b. Traditional Death Benefit Endorsement
EX-99.B.4.c. Enhanced Death Benefit Endorsement
EX-99.B.4.d. Traditional Guaranteed Minimum Income Benefit Endorsement
EX-99.B.4.e. Enhanced Guaranteed Minimum Income Benefit Endorsement
EX-99.B.4.g. Individual Retirement Annuity Endorsement
EX-99.B.4.h. Unisex Endorsement
EX-99.B.4.i. Pension Plan and Profit Sharing Plan Endorsement
EX-99.B.4.k. 403(b) Annuity Endorsement
EX-99.B.8.e. Form of Fund Participation Agreement between Davis Variable
Account Fund, Inc., Davis Distributors, LLC and Allianz Life
Insurance Company of North America
EX-99.B.8.f. Form of Fund Participation Agreement between Van Kampen Life
Investment Trust, Van Kampen Funds, Inc., Van Kampen Asset
Management Inc. and Allianz Life Insurance Company of North
America
EX-99.B.8.g. Form of Fund Participation Agreement between Allianz Life
Insurance Company of North America and J.P. Morgan Series Trust
II
EX-99.B.8.h. Form of Fund Participation Agreement between Oppenheimer Variable
Account Funds, Oppenheimer Funds Inc. and Allianz Life Insurance
Company of North America
EX-99.B.8.i. Form of Fund Participation Agreement between Allianz Life Insurance
Company of North America, PIMCO Variable Insurance Trust, and PIMCO
Fund Distributors, LLC
EX-99.B.8.j. Form of Fund Participation Agreement between Seligman Portfolios,
Inc. and Allianz Life Insurance Company of North America
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
A Stock Company
This is a legal Contract between the Contract Owner (referred to in this
Contract as you and your) and Allianz Life Insurance Company of North America
(herein referred to as we, us and our). We will make Annuity Payments as set
forth in this Contract beginning on the Income Date.
This Contract is issued in consideration of the payment of the initial Purchase
Payment.
READ YOUR CONTRACT CAREFULLY
RIGHT TO EXAMINE: This Contract may be returned within 10 days after you receive
it. It can be mailed or delivered to either us or the agent who sold it. Return
of this Contract by mail is effective on being postmarked, properly addressed
and postage prepaid. The returned Contract will be treated as if we had never
issued it. We will promptly refund the Contract Value in states where permitted.
This may be more or less than the Purchase Payments. We have the right to
allocate payments to the Money Market Fund until the expiration of the Right to
Examine period. If we so allocate payments, we will refund the greater of the
Purchase Payments, less any withdrawals, or the Contract Value.
Benefits available under this Contract are not less than those required by
statute of the state in which this Contract is delivered.
This is a Variable Annuity Contract with Annuity Payments and Contract Values
increasing or decreasing depending on the experience of the Variable Account
which is set forth in the Contract Schedule.
Signed for Allianz Life Insurance Company of North America by:
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY
NON-PARTICIPATING
L30800
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RIGHT TO EXAMINE..................................................................................................1
CONTRACT SCHEDULE..............................................................................................i -v
DEFINITIONS.......................................................................................................2
PURCHASE PAYMENTS.................................................................................................4
PURCHASE PAYMENTS........................................................................................4
CHANGE IN PURCHASE PAYMENTS..............................................................................4
NO DEFAULT...............................................................................................4
ALLOCATION OF PURCHASE PAYMENTS..........................................................................4
VARIABLE ACCOUNT..................................................................................................4
THE VARIABLE ACCOUNT.....................................................................................4
VALUATION OF ASSETS......................................................................................5
ACCUMULATION UNITS.......................................................................................5
ACCUMULATION UNIT VALUE..................................................................................5
NET INVESTMENT FACTOR....................................................................................5
MORTALITY AND EXPENSE RISK CHARGE........................................................................6
ADMINISTRATIVE CHARGE....................................................................................6
DISTRIBUTION EXPENSE CHARGE..............................................................................6
MORTALITY AND EXPENSE GUARANTEE..........................................................................6
CONTRACT VALUE....................................................................................................6
CONTRACT MAINTENANCE CHARGE.......................................................................................6
TRANSFERS.........................................................................................................6
WITHDRAWAL PROVISIONS.............................................................................................8
WITHDRAWALS..............................................................................................8
CONTINGENT DEFERRED SALES CHARGE.........................................................................8
PROCEEDS PAYABLE ON DEATH.........................................................................................8
DEATH OF CONTRACT OWNER DURING THE ACCUMULATION PERIOD...................................................8
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD......................................................8
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD.....................................................8
DEATH OF CONTRACT OWNER DURING THE ANNUITY PERIOD........................................................9
DEATH OF ANNUITANT.......................................................................................9
PAYMENT OF DEATH BENEFIT.................................................................................9
BENEFICIARY.............................................................................................10
CHANGE OF BENEFICIARY...................................................................................10
SUSPENSION OR DEFERRAL OF PAYMENTS PROVISION.....................................................................10
CONTRACT OWNER, ANNUITANT, ASSIGNMENT PROVISIONS.................................................................11
CONTRACT OWNER...........................................................................................11
JOINT OWNER..............................................................................................11
ANNUITANT................................................................................................11
ASSIGNMENT OF A CONTRACT.................................................................................11
ANNUITY PROVISIONS...............................................................................................11
GENERAL.................................................................................................11
INCOME DATE.............................................................................................11
SELECTION OF AN ANNUITY OPTION..........................................................................12
ANNUITY OPTIONS.........................................................................................12
OPTION 1 - LIFE ANNUITY...........................................................................12
OPTION 2 - LIFE ANNUITY WITH MONTHLY PAYMENTS OVER 5, 10, 15,
OR 20 YEARS GUARANTEED............................................................................12
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY........................................................12
OPTION 4 - JOINT AND LAST SURVIVOR ANNUITY WITH MONTHLY
PAYMENTS OVER 5, 10, 15, OR 20 YEARS GUARANTEED..................................................13
OPTION 5 - REFUND LIFE ANNUITY...................................................................13
OPTION 6 - SPECIFIED PERIOD CERTAIN ANNUITY.............................................................14
ANNUITY..........................................................................................................14
FIXED ANNUITY...........................................................................................14
VARIABLE ANNUITY........................................................................................14
GENERAL PROVISIONS...............................................................................................15
THE CONTRACT............................................................................................15
NON-PARTICIPATING IN SURPLUS............................................................................15
MISSTATEMENT OF AGE OR SEX..............................................................................15
CONTRACT SETTLEMENT.....................................................................................16
REPORTS.................................................................................................16
TAXES...................................................................................................16
EVIDENCE OF SURVIVAL....................................................................................16
PROTECTION OF PROCEEDS..................................................................................16
MODIFICATION OF CONTRACT................................................................................16
</TABLE>
15
L30800
v
S40010
<TABLE>
<CAPTION>
CONTRACT SCHEDULE
<S> <C>
CONTRACT OWNER: [John Doe] CONTRACT NUMBER: [??687456]
JOINT OWNER: [Jane Doe] ISSUE DATE: [04/15/99]
ANNUITANT: [John Doe] INCOME DATE: [04/15/09]
PURCHASE PAYMENTS:
INITIAL PURCHASE PAYMENT: [$5,000]
MINIMUM SUBSEQUENT
PURCHASE PAYMENT: [$250 or $100 if you have selected AIP]
MAXIMUM TOTAL
PURCHASE PAYMENTS: [$1 million; higher amounts may be accepted with our prior
approval]
ALLOCATION GUIDELINES:
[1. Currently, you can select up to 10 of the Funds and the Fixed Account.
2. If allocations are made in percentages, whole numbers must be used.]
</TABLE>
VARIABLE ACCOUNT: [Allianz Life Variable Account B]
ELIGIBLE INVESTMENTS:
[Investment Options]
[AIM V.I. CAPITAL APPRECIATION]
[AIM V.I. GROWTH]
[AIM V.I. INTERNATIONAL EQUITY]
[AIM V.I. VALUE]
[ALGER AMERICAN GROWTH]
[ALGER AMERICAN LEVERAGED ALLCAP]
[ALGER AMERICAN MIDCAP GROWTH]
[ALGER AMERICAN SMALL CAPITALIZATION]
[DAVIS FINANCIAL]
[DAVIS REAL ESTATE]
[DAVIS VALUE]
[FRANKLIN GROWTH AND INCOME]
[FRANKLIN RISING DIVIDENDS]
[FRANKLIN SMALL CAP]
[FRANKLIN U.S. GOVERNMENT SECURITIES]
[J.P. MORGAN INTERNATIONAL OPPORTUNITIES]
[J.P. MORGAN U.S. DISCIPLINED EQUITY]
[MUTUAL DISCOVERY SECURITIES]
[MUTUAL SHARES SECURITIES]
[OPPENHEIMER GLOBAL SECURITIES]
[OPPENHEIMER HIGH INCOME]
[OPPENHEIMER MAIN STREET GROWTH & INCOME]
[PIMCO HIGH YIELD BOND]
[PIMCO STOCKS PLUS GROWTH AND INCOME]
[PIMCO TOTAL RETURN BOND]
[SELIGMAN HENDERSON GLOBAL TECHNOLOGY]
[SELIGMAN SMALL-CAP VALUE]
[TEMPLETON DEVELOPING MARKETS EQUITY]
[TEMPLETON GLOBAL GROWTH]
[TEMPLETON PACIFIC GROWTH]
[USALLIANZ VIP DIVERSIFIED ASSETS]
[USALLIANZ VIP FIXED INCOME]
[USALLIANZ VIP GLOBAL OPPORTUNITIES]
[USALLIANZ VIP GROWTH]
[USALLIANZ VIP MONEY MARKET]
[VAN KAMPEN LIT ENTERPRISE]
[VAN KAMPEN LIT GROWTH & INCOME]
[Allianz Life General Account]
[ALLIANZ LIFE FIXED ACCOUNT]
MORTALITY AND EXPENSE RISK CHARGE: During the Accumulation Period, the Mortality
and Expense Risk Charge is equal on an annual basis to [1.25%] of the average
daily net asset value of the Variable Account. During the Annuity Period, the
Mortality and Expense Risk Charge is equal on an annual basis to [1.25%] of the
average daily net asset value of the Variable Account. We may decrease this
charge, but we may not increase it.
ADMINISTRATIVE CHARGE: Equal on an annual basis to [.15%] of the average daily
net asset value of the Variable Account.
DISTRIBUTION EXPENSE CHARGE: [None]
CONTRACT MAINTENANCE CHARGE: The Contract Maintenance Charge is currently
[$40.00] each Contract Year. The Contract Maintenance Charge will be deducted
from the Contract Value the day before each Contract Anniversary while this
Contract is in force. However, during the Accumulation Period, if your Contract
Value on a Contract Anniversary is at least [$100,000], then no Contract
Maintenance Charge is deducted. If a total withdrawal is made on a date other
than a Contract Anniversary and your Contract Value for the Valuation Period
during which the total withdrawal is made is less than [$100,000]; the full
Contract Maintenance Charge will be deducted at the time of the total
withdrawal. The Contract Maintenance Charge will be deducted from the Funds [and
the Fixed Account] in the same proportion that the amount of the Contract Value
in each Fund [and/or Fixed Account] bears to the total Contract Value. During
the Annuity Period, the Contract Maintenance Charge will be collected pro rata
from each Annuity Payment. In the event you own more than one Contract, we will
determine the total Contract Value for all of the Contracts. If the total
Contract Value is at least [$100,000], we will not assess the Contract
Maintenance Charge. If the Contract Owner is not a natural person, we will look
to the Annuitant in determining the foregoing.
COMMUTATION FEE APPLICABLE TO ANNUITY OPTIONS 2, 4 AND 6:
[Years Since Income Date Commutation Factor
------------------------ ------------------
0 - 1 5%
1 - 2 4%
2 - 3 3%
3 - 4 2%
Over 4 1%]
MAXIMUM CUMULATIVE PERCENTAGE FOR PARTIAL LIQUIDATION FOR ANNUITY OPTIONS 2 AND
4:
[75%] of the Total Liquidation Value less any previously liquidated amounts.
TRANSFERS:
NUMBER OF FREE TRANSFERS PERMITTED: Currently, there are no limits on the
number of transfers that can be made. We reserve the right to change this,
but you will always be allowed at least 12 free transfers in any Contract
Year. Currently, you are allowed [12] free transfers each Contract Year.
This applies to transfers prior to and after the Income Date.
TRANSFER FEE: For each transfer in excess of the free transfers permitted,
the Transfer Fee is [$25]. Transfers made at the end of the Right to
Examine period by us and any transfers made pursuant to a regularly
scheduled transfer will not be counted in determining the application of
the Transfer Fee.
MINIMUM AMOUNT TO BE TRANSFERRED: [$1,000 (from any Fund or the Fixed
Account) or your entire interest in the Fund or the Fixed Account, if
less.] This requirement is waived if the transfer is pursuant to a
pre-scheduled transfer.
WITHDRAWALS:
CONTINGENT DEFERRED SALES CHARGE: A Contingent Deferred Sales Charge is
assessed against Purchase Payments withdrawn. The charge is calculated at
the time of each withdrawal. For partial withdrawals, the charge is
deducted from the remaining Contract Value and is deducted from the Funds
[and the Fixed Account] in the same proportion that the amount of
withdrawal from the Fund [or Fixed Account] bears to the total of the
partial withdrawal. The Contingent Deferred Sales Charge is based upon the
length of the time from receipt of the Purchase Payment. Withdrawals are
deemed to have come from the oldest Purchase Payments first. Each Purchase
Payment is tracked as to its date of receipt and the Contingent Deferred
Sales Charges are determined in accordance with the following.
[CONTINGENT DEFERRED SALES CHARGE
Number of Complete Contract
Years from Receipt Charge
------------------ ------
0 7%
1 6%
2 5%
3 4%
4 3%
5 years or more 0%]
PARTIAL WITHDRAWAL PRIVILEGE: [Each Contract Year, on a cumulative basis,
you can withdraw up to 10% of Purchase Payments (minus any previous
withdrawals taken which were not subject to a Contingent Deferred Sales
Charge) without incurring a Contingent Deferred Sales Charge. Complete
withdrawals are assessed a Contingent Deferred Sales Charge on the full
Contingent Deferred Sales Charge Basis Amount with no reductions for the
Partial Withdrawal Privilege.]
[If your Contract Value is $25,000 or more you can elect the Systematic
Withdrawal Option. The total of systematic withdrawals in a Contract Year
which can be made without incurring a Contingent Deferred Sales Charge is
limited to not more than 10% of Purchase Payments. There is no limit to the
amount or percentage of the systematic withdrawal if all your Purchase
Payments are no longer subject to a Contingent Deferred Sales Charge. If
you have elected the Systematic Withdrawal Option, any additional
withdrawals will be subject to any applicable Contingent Deferred Sales
Charge. We reserve the right to modify the eligibility rules at any time,
without notice.]
[If you have a Qualified Contract, you can elect the Minimum Distribution
Program with respect to your Contract. Withdrawals will not be subject to a
Contingent Deferred Sales Charge. Such payments will be designed to meet
the applicable minimum distribution requirements imposed by the Internal
Revenue Code on Qualified Contracts. Withdrawals from your Qualified
Contract pursuant to the Minimum Distribution Program are in lieu of the
Free Withdrawal Privilege described above. If you have elected the Minimum
Distribution Program, any additional withdrawals will be subject to any
applicable Contingent Deferred Sales Charge.]
MINIMUM PARTIAL WITHDRAWAL: [$500]
MINIMUM CONTRACT VALUE THAT MUST REMAIN IN THE CONTRACT AFTER A PARTIAL
WITHDRAWAL: [$2,000]
FIXED ACCOUNT INITIAL RATE: [3%]
We guarantee this rate for one year from the Issue Date.
RIDERS:
[Individual Retirement Annuity Endorsement]
[Roth Individual Retirement Annuity Endorsement]
[403 (b) Endorsement]
[Unisex Endorsement]
[Group Pension Plan Death Benefit Endorsement]
[Pension Plan and Profit Sharing Plan Endorsement]
[Declared Interest Rate Fixed Account Endorsement]
[Charitable Remainder Trust Endorsement]
[Waiver of Contingent Deferred Sales Charge Endorsement]
[Traditional Death Benefit Endorsement]
[Enhanced Death Benefit Endorsement]
[Traditional Guaranteed Minimum Income Benefit Endorsement]
[Enhanced Guaranteed Minimum Income Benefit Endorsement]
SERVICE OFFICE: [USALLIANZ] SERVICE CENTER
[300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
800-624-0197]
DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to calculate the Contract
Value prior to the Income Date.
ACCUMULATION PERIOD: The period prior to the Income Date during which you can
make Purchase Payments.
ADJUSTED CONTRACT VALUE: The Contract Value less any applicable Premium Tax.
This amount is used to determine the death benefit or the initial Annuity
Payment.
AGE: Age on last birthday unless otherwise specified.
ANNUITANT(S): The natural person upon whose continuation of life any Annuity
Payment involving life contingencies depends. You may change the Annuitant at
any time prior to the Income Date unless the Contract Owner is a non-individual.
ANNUITY CALCULATION DATE: The date on which the first Annuity Payment is
calculated which will be no more than ten (10) business days prior to the Income
Date.
ANNUITY OPTION: An arrangement under which Annuity Payments are made under this
Contract.
ANNUITY PAYMENTS: The series of payments made to you or any named payee after
the Income Date under the Annuity Option selected.
ANNUITY PERIOD: The period of time beginning on the Income Date during which
Annuity Payments are made.
ANNUITY RESERVE: The assets which support the Annuity Option you have selected
during the Annuity Period.
ANNUITY UNIT: An accounting unit of measure used to calculate Annuity Payments
after the Income Date.
ASSUMED INVESTMENT RETURN: The investment return upon which the Annuity Payments
in the Contract are based.
AUTHORIZED REQUEST: A request, in a form satisfactory to the Company, which is
received by the [Service Center].
BENEFICIARY: The person(s) or entity(ies) who will receive any death benefit
payable under this Contract during the Accumulation Period.
COMMUTATION FEE: A fee assessed by the Company equal to the percentage of the
amount liquidated as shown on the Contract Schedule.
COMPANY: Allianz Life Insurance Company of North America.
CONTINGENT DEFERRED SALES CHARGE BASIS AMOUNT: The amount which may be subject
to Contingent Deferred Sales Charges upon withdrawal.
CONTRACT ANNIVERSARY: An anniversary of the Issue Date of this Contract.
CONTRACT OWNER: The person(s) or entity(ies) entitled to the ownership rights
stated in this Contract. If Joint Owners are named, all references to Contract
Owner shall mean the Joint Owners.
CONTRACT SURRENDER VALUE: The Contract Value less any applicable Premium Tax,
less any Contingent Deferred Sales Charge and less any applicable Contract
Maintenance Charge.
CONTRACT VALUE: The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
CONTRACT YEAR: Any period of twelve (12) months commencing with the Issue Date
and each Contract Anniversary thereafter.
ELIGIBLE INVESTMENT(S): Those investments available under the Contract. Current
Eligible Investments are shown on the Contract Schedule.
FUND: A segment of an Eligible Investment which constitutes a separate and
distinct class of interests under an Eligible Investment.
GENERAL ACCOUNT: Our general investment account which contains all the assets of
the Company with the exception of the Variable Account and other segregated
asset accounts.
INCOME DATE: The date on which Annuity Payments are to begin.
ISSUE DATE: The date shown on the Contract Schedule on which the first Contract
Year begins.
JOINT OWNER: If there is more than one Contract Owner, each Contract Owner shall
be a Joint Owner of the Contract. Joint Owners have equal ownership rights and
must both authorize any exercising of those ownership rights unless otherwise
allowed by us. Any Joint Owner must be the spouse of the other Contract Owner.
PREMIUM TAX: Any premium taxes owed to any governmental entity and assessed
against Purchase Payments or Contract Value.
PURCHASE PAYMENT: A payment made toward this Contract.
SUB-ACCOUNT: Variable Account assets are divided into Sub-Accounts. Assets of
each Sub-Account will be invested in shares of an Eligible Investment or Fund.
In this Contract, "Fund" may also refer to the Sub-Accounts from which the Fund
investment is made.
TOTAL LIQUIDATION VALUE: The present value of any remaining guaranteed variable
Annuity Payments after the Income Date.
VALUATION DATE: The Variable Account will be valued each day that the New York
Stock Exchange is open for trading.
VALUATION PERIOD: The period commencing at the close of business of the New York
Stock Exchange on each Valuation Date and ending at the close of business for
the next succeeding Valuation Date.
[SERVICE CENTER]: The office indicated on the Contract Schedule of this Contract
to which notices, requests and Purchase Payments must be sent.
VARIABLE ACCOUNT: A separate account maintained by us in which a portion of our
assets has been allocated for this and certain other contracts. It has been
designated on the Contract Schedule.
PURCHASE PAYMENTS
PURCHASE PAYMENTS: Purchase Payments are payable according to the frequency and
in the amount selected by you. The initial Purchase Payment is due on the Issue
Date. We reserve the right to decline any Purchase Payment. The Minimum
Subsequent Purchase Payment and the Maximum Total Purchase Payments allowed are
shown on the Contract Schedule.
CHANGE IN PURCHASE PAYMENTS: You may elect to increase or decrease or to change
the frequency of Purchase Payments.
NO DEFAULT: Unless surrendered, this Contract remains in force and will not be
in default if no additional Purchase Payments are made.
ALLOCATION OF PURCHASE PAYMENTS: Purchase Payments are allocated to one or more
of the Funds of the Variable Account [or the Fixed Account] in accordance with
your selection. The allocation of the initial Purchase Payment is made in
accordance with your selection made at the Issue Date. Unless you inform us
otherwise, subsequent Purchase Payments are allocated in the same manner as the
initial Purchase Payment. However, the Company has reserved the right to
allocate the initial Purchase Payment to the Money Market Fund until the
expiration of the Right to Examine period. All allocations of Purchase Payments
are subject to the Allocation Guidelines shown on the Contract Schedule. We
guarantee that you will be allowed to select at least five Funds [or the Fixed
Account] for allocation of Purchase Payments.
VARIABLE ACCOUNT
THE VARIABLE ACCOUNT: The Variable Account is designated on the Contract
Schedule. It consists of assets we have set aside and have kept separate from
the rest of our assets and those of our other separate accounts. The assets of
the Variable Account, equal to reserves and other liabilities of your Contract
and those of other Contract Owners, will not be charged with liabilities arising
out of any other business we may conduct.
The Variable Account assets are divided into Funds. The Funds which are
available under this Contract are listed on the Contract Schedule. The assets of
the Fund are allocated to the Eligible Investments (and/or the Funds, if any,
within an Eligible Investment) shown on the Contract Schedule. We may add
additional Eligible Investments or Funds to those shown. You may be permitted to
transfer your Contract Value or allocate Purchase Payments to the additional
Fund(s). However, the right to make such transfers or allocations will be
limited by any terms and conditions we may impose.
Should the shares of any Eligible Investment(s), or any Fund(s) within an
Eligible Investment, become unavailable for investment by the Variable Account,
or our Board of Directors deems further investment in the shares inappropriate,
we may limit further purchase of such shares or substitute shares of another
Eligible Investment or Fund for shares already purchased.
VALUATION OF ASSETS: Assets of Eligible Investments within each Fund will be
valued at their net asset value on each Valuation Date.
ACCUMULATION UNITS: Accumulation Units shall be used to account for all amounts
allocated to or withdrawn from the Funds of the Variable Account as a result of
Purchase Payments, withdrawals, transfers, or fees and charges. We will
determine the number of Accumulation Units of a Sub-Account purchased or
canceled. This will be done by dividing the amount allocated to (or the amount
withdrawn from) the Sub-Account by the dollar value of one Accumulation Unit of
the Sub-Account as of the end of the Valuation Period during which the
transaction is processed at the [Service Center].
ACCUMULATION UNIT VALUE: The Accumulation Unit Value for each Fund was
arbitrarily set initially at $10. Subsequent Accumulation Unit Values for each
Fund are determined by multiplying the Accumulation Unit Value for the
immediately preceding Valuation Period by the Net Investment Factor for the Fund
for the current period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
NET INVESTMENT FACTOR: The Net Investment Factor for each Fund is determined by
dividing A by B and multiplying by (1 - C) where:
A is (i) the net asset value per share of the Eligible Investment or the
Fund of an Eligible Investment held by the Fund at the end of the
current Valuation Period; plus
(ii) any dividend or capital gains per share declared on behalf of
such Eligible Investment or Fund that has an ex-dividend date
within the current Valuation Period.
B is the net asset value per share of the Eligible Investment or Fund
held by the Fund for the immediately preceding Valuation Period.
C is (i) the Valuation Period equivalent of the daily Mortality and
Expense Risk Charge, for the Administrative Charge and for the
Distribution Expense Charge, if any, which are shown on the Contract
Schedule; plus
(ii) a charge factor, if any, for any taxes or any tax reserve we have
established as a result of the operation or maintenance of the
Fund.
MORTALITY AND EXPENSE RISK CHARGE: Each Valuation Period, we deduct a Mortality
and Expense Risk Charge from the Variable Account which is equal, on an annual
basis, to the amount shown on the Contract Schedule. The Mortality and Expense
Risk Charge compensates us for assuming the mortality and expense risks under
this Contract.
ADMINISTRATIVE CHARGE: Each Valuation Period, we deduct an Administrative Charge
from the Variable Account which is equal, on an annual basis, to the amount
shown on the Contract Schedule. The Administrative Charge compensates us for the
costs associated with the administration of this Contract and the Variable
Account.
DISTRIBUTION EXPENSE CHARGE: Each Valuation Period, we deduct a Distribution
Expense Charge from the Separate Account which is equal, on an annual basis, to
the amount shown on the Contract Schedule. The Distribution Expense Charge
compensates the Company for costs associated with the distribution of Contracts.
MORTALITY AND EXPENSE GUARANTEE: We guarantee that the dollar amount of each
annuity payment after the first will not be affected by variations in mortality
or expense experience.
CONTRACT VALUE
The Contract Value for any Valuation Period is equal to the total dollar value
accumulated under this Contract in any of the Funds of the Variable Account or
the Fixed Account. The Contract Value in a Fund of the Variable Account is
determined by multiplying the number of Accumulation Units allocated to the
Contract Value for the Fund by the Accumulation Unit Value. Purchase Payments,
withdrawals and transfers from or to a Fund will result in the addition of or
the cancellation of Accumulation Units in a Fund.
CONTRACT MAINTENANCE CHARGE
We deduct an annual Contract Maintenance Charge shown on the Contract Schedule.
Prior to the Income Date, this will be deducted from the Contract Value. The
number of Accumulation Units to be canceled from each applicable Fund is in the
ratio that the value of each Fund bears to the total Contract Value.
TRANSFERS
You may transfer all or a part of your interest in an Eligible Investment to
another Eligible Investment. We reserve the right to charge for transfers if
there are more than the number of free transfers shown on the Contract Schedule.
All transfers are subject to the following:
1. The deduction of any Transfer Fee that may be imposed as shown on the
Contract Schedule. The Transfer Fee will be deducted from the Eligible
Investment from which the transfer is made. If the entire amount in the
Eligible Investment is transferred, then the Transfer Fee will be deducted
from the amount transferred. If there are multiple source Eligible
Investments, it will be treated as a single transfer. Any Transfer Fee will
be deducted proportionally from the source Eligible Investment if less than
the entire amount in the Eligible Investment is transferred.
2. We reserve the right to limit transfers until the expiration of the Right
to Examine period.
3. The minimum amount which can be transferred is shown on the Contract
Schedule.
4. No transfer will be effective within seven calendar days prior to the date
on which the first Annuity Payment is due.
5. Any transfer direction must clearly specify:
a. the amount which is to be transferred; and
b. the Eligible Investments which are to be affected.
6. After the Income Date, transfers may not be made from a fixed annuity
option to a variable annuity option.
7. After the Income Date, you can make at least one transfer from a variable
annuity option to a fixed annuity option. The number of Annuity Units
canceled from the variable annuity option will be equal in value to the
amount of the annuity reserve transferred out of the Variable Account. The
amount transferred will purchase fixed annuity payments under the Annuity
Option in effect and based on the age and sex of the Annuitant at the time
of the transfer where allowed.
8. Your right to make transfers is subject to modification if we determine in
our sole opinion, that the exercise of the right by one or more Contract
Owners is, or would be, to the disadvantage of other Contract Owners.
Restrictions may be applied in any manner reasonably designed to prevent
any use of the transfer right which we consider to be to the disadvantage
of other Contract Owners. A modification could be applied to transfers to
or from one or more of the Funds, and could include, but is not limited to:
a. the requirement of a minimum time period between each transfer;
b. not accepting a transfer request from an agent acting under a power of
attorney on behalf of more than one Contract Owner; or
c. limiting the dollar amount that may be transferred between the Funds
by a Contract Owner at any one time;
9. We reserve the right at any time and without prior notice to any party to
modify the transfer provisions described above. However, if we do modify
these provisions we guarantee that they will not be any more restrictive
than the above.
If you elect to use this transfer privilege, we will not be liable for transfers
made in accordance with your instructions. All amounts and Accumulation Units
will be determined as of the end of the Valuation Period during which the
request for transfer is received at the [Service Center].
WITHDRAWAL PROVISIONS
WITHDRAWALS: During the Accumulation Period, you may, upon Authorized Request,
make a total or partial withdrawal of the Contract Surrender Value. Withdrawals
will result in the cancellation of Accumulation Units from each Eligible
Investment or a reduction in the Fixed Account Contract Value in the ratio that
the value of each Eligible Investment bears to the total Contract Value. You
must specify, by Authorized Request, which Accumulation Units are to be canceled
if other than the above mentioned method of cancellation is desired.
The Company will pay the amount of any withdrawal from the Variable Account
within seven (7) days of receipt of a request in good order unless the
Suspension or Deferral of Payments Provision is in effect.
Each partial withdrawal must be for an amount which is not less than the amount
shown on the Contract Schedule. The minimum Contract Value which must remain in
the Contract after a partial withdrawal is shown on the Contract Schedule.
CONTINGENT DEFERRED SALES CHARGE: Upon a withdrawal of Contract Value a
Contingent Deferred Sales Charge as set forth on the Contract Schedule may be
assessed. Under certain circumstances, we allow withdrawals without the
Contingent Deferred Sales Charge as set forth on the Contract Schedule.
PROCEEDS PAYABLE ON DEATH
DEATH OF CONTRACT OWNER DURING THE ACCUMULATION PERIOD: Upon the death of the
Contract Owner, or any Joint Owner, during the Accumulation Period, the death
benefit will be paid to the Beneficiary(ies) designated by the Contract Owner.
Upon the death of a Joint Owner, the surviving Joint Owner, if any, will be
treated as the primary Beneficiary. Any other Beneficiary designation on record
at the time of death will be treated as a contingent Beneficiary.
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD: The death benefit will be
the Adjusted Contract Value determined as of the end of the Valuation Period
during which the Company receives both due proof of death and an election for
the payment method.
Any part of the Death Benefit Amount that had been invested in the separate
account remains in the separate account until distribution begins. From the time
the Death Benefit is determined until complete distribution is made, any amount
in the separate account will be subject to investment risk which is borne by the
Beneficiary.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD: If the Owner has not
previously designated a Death Benefit Option, a Beneficiary must request that
the death benefit be paid under one of the Death Benefit Options below. In
addition, if the Beneficiary is the spouse of the Contract Owner, he or she may
elect to continue the Contract in his or her own name and exercise all the
Contract Owner's rights under the Contract. In this event, the Contract Value
for the Valuation Period during which this election is implemented will be
adjusted to equal the death benefit. On each Contract Anniversary the full
Contract Maintenance Charge will be deducted.
Option A - lump sum payment of the death benefit. (The Contract Maintenance
Charge will not be deducted at the time of a complete withdrawal if the
distribution is due to death.); or
Option B - the payment of the entire death benefit within 5 years of the
date of the death of the Contract Owner or any Joint Owner. The Contract
Maintenance Charge is assessed to each Beneficiary on each Contract
Anniversary; or
Option C - payment of the death benefit under an Annuity Option over the
lifetime of the Beneficiary or over a period not extending beyond the life
expectancy of the Beneficiary with distribution beginning within one year
of the date of death of the Contract Owner or any Joint Owner. The Contract
Maintenance Charge will continue to be assessed to each Beneficiary's share
pro rata over the annual payment.
Any portion of the death benefit not applied under Option C within one year of
the date of the Contract Owner's death, must be distributed within five years of
the date of death.
If a lump sum payment is requested, the amount will be paid within seven (7)
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments Provision is in effect.
Payment to the Beneficiary, other than in a lump sum, may only be elected during
the sixty-day period after the day on which such lump sum first became payable
by the Company.
DEATH OF CONTRACT OWNER DURING THE ANNUITY PERIOD: If you, or any Joint Owner,
dies during the Annuity Period, and you are not an Annuitant, any remaining
payments under the Annuity Option elected will continue at least as rapidly as
under the method of distribution in effect at such Contract Owner's death. Upon
your death during the Annuity Period, the Beneficiary becomes the Contract
Owner.
DEATH OF ANNUITANT: Upon the death of an Annuitant, who is not the Contract
Owner, during the Accumulation Period, you may designate a new Annuitant,
subject to our underwriting rules then in effect. If no designation is made
within 30 days of the death of the Annuitant, you will become the Annuitant. If
the Contract Owner is a non-individual, the death of the Annuitant will be
treated as the death of the Contract Owner and a new Annuitant may not be
designated.
Upon the death of the Annuitant during the Annuity Period, the death benefit, if
any, will be as specified in the Annuity Option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
PAYMENT OF DEATH BENEFIT: The Company will require due proof of death and
payment election before any death benefit is paid. Due proof of death will be:
1. a certified death certificate; or
2. a certified decree of a court of competent jurisdiction as to the
finding of death; or
3. any other proof satisfactory to the Company.
All death benefits will be paid in accordance with applicable law or regulations
governing death benefit payments.
BENEFICIARY: The Beneficiary designation in effect on the Issue Date will remain
in effect until changed. The Beneficiary is entitled to receive the benefits to
be paid at your death.
Unless you provide otherwise, the death benefit will be paid in equal shares to
the survivor(s) as follows:
1. to the primary Beneficiary(ies) who survive you and/or the Annuitant's
death, as applicable; or if there are none;
2. to the contingent Beneficiary(ies) who survive you and/or the Annuitant's
death, as applicable; or if there are none;
3. to your estate.
CHANGE OF BENEFICIARY: Subject to the rights of any irrevocable
Beneficiary(ies), you may change the primary Beneficiary(ies) or contingent
Beneficiary(ies). A change may be made by Authorized Request. The change will
take effect as of the date the Authorized Request is signed. The Company will
not be liable for any payment made or action taken before it records the change.
SUSPENSION OR DEFERRAL OF PAYMENTS PROVISION
The Company reserves the right to suspend or postpone payments from the Variable
Account for a withdrawal or transfer for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities held
in the Variable Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Variable
Account's net assets; or
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Contract Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2) and (3)
exist.
CONTRACT OWNER, ANNUITANT, ASSIGNMENT PROVISIONS
CONTRACT OWNER: As the Contract Owner you have all the interest and rights under
this Contract. The Contract Owner is the person designated as such on the Issue
Date, unless changed.
You may change owners of the Contract at any time by Authorized Request. A
change of Contract Owner will automatically revoke any prior designation of
Contract Owner. The change will become effective as of the date the Authorized
Request is signed. We will not be liable for any payment made or action taken
before the change is recorded.
JOINT OWNER: A Contract may be owned by Joint Owners. If Joint Owners are named,
any Joint Owner must be the spouse of the other Contract Owner. Upon the death
of either Contract Owner, the surviving spouse will be the primary Beneficiary.
Any other Beneficiary designation will be treated as a contingent Beneficiary
unless otherwise indicated in an Authorized Request.
ANNUITANT: The Annuitant is the person on whose life Annuity Payments are based.
The Annuitant is the person designated by you subject to our underwriting rules
then in effect. The Annuitant may not be changed in a Contract which is owned by
a non-individual.
ASSIGNMENT OF A CONTRACT: An Authorized Request specifying the terms of an
assignment of a Contract must be provided to the Service Center. We will not be
liable for any payment made or action taken before we record the assignment.
We will not be responsible for the validity or tax consequences of any
assignment. Any assignment made after the death benefit has become payable will
be valid only with our consent.
If the Contract is assigned, your rights may only be exercised with the consent
of the assignee of record.
ANNUITY PROVISIONS
GENERAL: On the Income Date, the Adjusted Contract Value will be applied under
the Annuity Option you have selected. You may elect to have the Adjusted
Contract Value applied to provide a Fixed Annuity, a Variable Annuity or a
combination Fixed and Variable Annuity. If a combination is elected, you must
specify what part of the Adjusted Contract Value is to be applied to the Fixed
and Variable Annuity Options.
INCOME DATE: You select an Income Date at the time of issue. The Income Date
must always be the first day of a calendar month. The earliest Income Date you
can select is two years after the Issue Date. The latest Income Date you can
select is the later of the first day of the first calendar month following the
Annuitant's 90th birthday or 10 years from the Issue Date, or the maximum date
permitted under state law. You may, at any time prior to the Income Date, change
the Income Date by Authorized Request 30 days in advance.
SELECTION OF AN ANNUITY OPTION: You can select an Annuity Option by Authorized
Request. If no Annuity Option is selected, Option 2, with 60 Monthly Payments
Guaranteed, will automatically be applied. You may, at any time prior to the
Income Date, by Authorized Request 30 days in advance, select and/or change the
Annuity Option.
ANNUITY OPTIONS: This Contract provides for Annuity Payments under one of the
Annuity Options described below. Any other Annuity Option acceptable to us may
be selected.
OPTION 1 - LIFE ANNUITY. We will make monthly Annuity Payments during the life
of the Annuitant and ceasing with the last Annuity Payment due prior to the
Annuitant's death.
OPTION 2 - LIFE ANNUITY WITH MONTHLY PAYMENTS OVER 5, 10, 15 OR 20 YEARS
GUARANTEED. We will make monthly Annuity Payments during the life of the
Annuitant with a guarantee that if at the Annuitant's death there have been less
than 60, 120, 180 or 240 monthly Annuity Payments made as selected, monthly
Annuity Payments will continue for the remainder of the guaranteed period.
Alternatively, the Contract Owner may elect to receive a lump-sum payment equal
to the present value of the guaranteed monthly Annuity Payments remaining, as of
the date the notice of the Annuitant's death is received at the [Service
Center], commuted at an appropriate rate. Proof of the Annuitant's death and
return of the Contract are required prior to the payment of any commuted values.
For a fixed annuitization, the commutation rate will be the Statutory Calendar
Year Interest Rate based on the NAIC Standard Valuation Law for Single Premium
Immediate Annuities corresponding to the Income Date. For a variable
annuitization, the commutation rate will be the Assumed Investment Return.
During the lifetime of the Annuitant and while the number of Annuity Payments
made is less than the guaranteed number of payments elected, the Contract Owner
electing variable annuitization may request a withdrawal representing a partial
liquidation of up to the percentage shown on the Contract Schedule of the Total
Liquidation Value. The Total Liquidation Value is equal to the present value of
the remaining guaranteed Annuity Payments, to the end of the period certain,
commuted at the AIR, less a Commutation Fee. The Commutation Fee is a charge
collected by the Company equal to a percentage of the amount liquidated as shown
on the Contract Schedule. The Company guarantees to make this provision
available to the Contract Owner at least once per Contract Year. Partial
liquidations will be processed on the next Annuity Calculation Date following
your written request. The minimum allowable partial liquidation will be the
lesser of $500 or the remaining portion of the Total Liquidation Value
available.
After a partial liquidation, the subsequent monthly Annuity Payments during the
guaranteed period certain will be reduced by the percentage of the Total
Liquidation Value liquidated, including the Commutation Fee. After the
guaranteed number of payments has been made, the number of Annuity Units used in
calculating the monthly payments will be restored to their original values as if
no liquidations had taken place.
OPTION 3 - JOINT AND LAST SURVIVOR ANNUITY. We will make monthly Annuity
Payments during the joint lifetime of the Annuitant and the Joint Annuitant.
Upon the death of the Annuitant, if the Joint Annuitant is then living, Annuity
Payments will continue to be paid during the remaining lifetime of the Joint
Annuitant at a level of 100%, 75% or 50% of the previous level, as selected.
Monthly Annuity Payments cease with the final Annuity Payment due prior to the
last survivor's death.
OPTION 4 - JOINT AND LAST SURVIVOR ANNUITY WITH MONTHLY PAYMENTS OVER 5, 10, 15,
OR 20 YEARS GUARANTEED. We will make monthly Annuity Payments during the joint
lifetime of the Annuitant and the Joint Annuitant. Monthly Annuity Payments will
continue to be paid during the remaining lifetime of the Joint Annuitant at 100%
of the previous level, as selected. The Company guarantees that if at the last
death of the Annuitant and the Joint Annuitant, there have been less than 60,
120, 180, or 240 monthly Annuity Payments made as selected, monthly Annuity
Payments will continue to be made for the remainder of the guaranteed period.
Alternatively, the Contract Owner may elect to receive a lump-sum payment equal
to the present value of the guaranteed monthly Annuity Payments remaining, as of
the date the notice of the Annuitant's and Joint Annuitant's death is received
at the [Service Center], commuted at an appropriate rate. Proof of death of the
Annuitant and Joint Annuitant and return of this Contract are required prior to
the payment of any commuted values. For a fixed annuitization, the commutation
rate will be the Statutory Calendar Year Interest Rate based on the NAIC
Standard Valuation Law for Single Premium Immediate Annuities corresponding to
the Income Date. For a variable annuitization, the commutation rate will be the
Assumed Investment Return.
During the lifetime of the Annuitant and Joint Annuitant and while the number of
Annuity Payments made is less than the guaranteed number of payments elected,
the Contract Owner electing variable annuitization may request a withdrawal
representing a partial liquidation of up to the percentage shown on the Contract
Schedule of the Total Liquidation Value. The Total Liquidation Value is equal to
the present value of the remaining guaranteed Annuity Payments, to the end of
the period certain, commuted at the AIR, less a Commutation Fee. The Commutation
Fee is a charge collected by the Company equal to a percentage of the amount
liquidated as shown on the Contract Schedule. The Company guarantees to make
this provision available to the Contract Owner at least once per Contract Year.
Partial liquidations will be processed on the next Annuity Calculation Date
following your written request. The minimum allowable partial liquidation will
be the lesser of $500 or the remaining portion of the Total Liquidation Value
available.
After a partial liquidation, the subsequent monthly Annuity Payments during the
guaranteed period certain will be reduced by the percentage of the Total
Liquidation Value liquidated, including the Commutation Fee. After the
guaranteed number of payments has been made, the number of Annuity Units used in
calculating the monthly payments will be restored to their original values as if
no liquidations had taken place.
OPTION 5 - REFUND LIFE ANNUITY. We will make monthly Annuity Payments during the
lifetime of the Annuitant ceasing with the last Annuity Payment due prior to the
Annuitant's death with a guarantee that at the Annuitant's death, you will
receive a refund. For a Fixed Annuity the amount of the refund will be any
excess of the amount of the Adjusted Contract Value applied under this Option
over the total of all Annuity Payments made under this Option. For a Variable
Annuity the amount of the refund will be the then dollar value of the number of
Annuity Units equal to (1) the Adjusted Contract Value applied to this Option
divided by the Annuity Unit value used to determine the first Annuity Payment,
minus (2) the product of the number of the Annuity Units represented by each
monthly Annuity Payment and the number of payments made. This calculation will
be based upon the assumption that the allocation of Annuity Units actually
in-force at the time of the Annuitant's death had been the allocation of Annuity
Units at issue and at all times thereafter. If the refund calculated above is
not greater than zero there will be no refund paid.
OPTION 6: SPECIFIED PERIOD CERTAIN ANNUITY: Monthly Annuity Payments are paid
for a specified period of time. The Specified Period Certain is elected by the
Contract Owner and must be specified as a whole number of years from 5 to 30. If
at the time of the last death of the Annuitant and any Joint Annuitant, the
Annuity Payments actually made have been for less than the Specified Period
Certain, then Annuity Payments will be continued thereafter to the Contract
Owner for the remainder of the Specified Period Certain. If you have selected a
variable payment option, a liquidation may be made at least once per Contract
Year up to 100% of the Total Liquidation Value in the Contract. The Total
Liquidation Value is equal to the present value of the remaining Annuity
Payments, to the end of the Specified Period Certain, commuted at the Assumed
Investment Return less a Commutation Fee. The Commutation Fee is a percentage of
the amount withdrawn as shown on the Contract Schedule. Partial liquidation will
be processed on the next Annuity Calculation Date following your written
request. The Company will require the return of the Contract prior to the
payment of the entire commuted value.
ANNUITY: If you select a Fixed Annuity, the Adjusted Contract Value is allocated
to the General Account and the Annuity is paid as a Fixed Annuity. If you select
a Variable Annuity, the Adjusted Contract Value will be allocated to the Funds
of the Variable Account in accordance with your selection, and the Annuity will
be paid as a Variable Annuity. Unless you designate another payee, you will be
the payee of the Annuity Payments. The Adjusted Contract Value will be applied
to the applicable annuity rate based upon the Annuity Option you have selected.
We may offer more favorable rates than those guaranteed here at the time your
first Annuity Payment is calculated. Where permitted, Annuity Payments will
depend on the Age and sex of the Annuitant.
FIXED ANNUITY: You may elect to have the Adjusted Contract Value applied to
provide a Fixed Annuity. The dollar amount of each Fixed Annuity Payment is
guaranteed to be at least an amount equal to the Adjusted Contract Value,
divided first by $1000 and then multiplied by the appropriate Annuity Payment
amount for each $1000 of value for the Annuity Option selected. The guaranteed
rates are based on an interest rate of 2 1/2% per year and the 1983(a)
Individual Annuity Mortality Table with mortality improvement projected 30 years
using Mortality Projection Scale G.
VARIABLE ANNUITY: You may elect to have the Adjusted Contract Value applied to
provide a Variable Annuity. Variable Annuity Payments reflect the investment
performance of the Variable Account in accordance with the allocation of the
Adjusted Contract Value to the Funds during the Annuity Period. Variable Annuity
Payments are not guaranteed as to dollar amount. 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 $1000 and then multiplied by the appropriate Annuity Payment amount for each
$1000 of value for the Annuity Option selected. In each Fund the fixed number of
Annuity Units is determined by dividing the amount of the initial Annuity
Payment determined for each Fund by the Annuity Unit value on the Income Date.
Thereafter, the number of Annuity Units in each Fund remains unchanged unless
you elect to transfer between Funds. 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 Fund. The Annuity Payment in each Fund is
determined by multiplying the number of Annuity Units then allocated to such
Fund by the Annuity Unit value for that Fund.
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 under "Variable
Account - Net Investment Factor" above.
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 we will use is 5%. However, we may agree with you to use a different
value. The Assumed Investment Return will never exceed 7%.
L30800 17
GENERAL PROVISIONS
THE CONTRACT: The entire Contract consists of this Contract, and any attached
application, endorsements or riders. This Contract may be changed or altered
only by our President or Secretary. Any change, modification or waiver must be
made in writing.
NON-PARTICIPATING IN SURPLUS: This Contract does not share in any distribution
of our profits or surplus.
MISSTATEMENT OF AGE OR SEX: We may require proof of Age of the Annuitant before
making any life contingent Annuity Payment provided for by this Contract. If the
Age or sex of the Annuitant has been misstated the amount payable will be the
amount that the Contract Value would have provided at the true Age or sex.
Once Annuity Payments have begun, any underpayments will be made up in one sum
with the next Annuity Payment, and overpayments will be deducted from the future
Annuity Payments until the total is repaid.
CONTRACT SETTLEMENT: This Contract must be returned to us upon any settlement.
Prior to any settlement as a death claim, due proof of death must be submitted
to us. Any paid-up annuity, cash surrender or death benefits that may be
available are not less than the minimum benefits required by statute.
REPORTS: We will furnish you with a report showing the Contract Value at least
once each calendar year. This report will be sent to your last known address.
TAXES: Any taxes paid to any governmental entity will be charged against the
Contract Value. We will, in our sole discretion, determine when taxes have
resulted from: the investment experience of the Variable Account; receipt by us
of the Purchase Payment(s); or commencement of Annuity Payments. We may, at our
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 we may have to
deduct amounts at a later date. We reserve the right to establish a provision
for federal income taxes if we determine, in our sole discretion, that we will
incur a tax as a result of the operation of the Variable Account. We will deduct
for any income taxes incurred by it as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it was
sufficient. We will deduct any withholding taxes required by applicable law.
EVIDENCE OF SURVIVAL: Where any benefits under this Contract are contingent upon
the recipient being alive on a given date, we may require proof satisfactory to
us that the condition has been met.
PROTECTION OF PROCEEDS: No Beneficiary may commute, encumber, alienate or assign
any payments under this Contract before they are due. To the extent permitted by
law, no payments will be subject to the debts, contracts or engagements of any
Beneficiary or to any judicial process to levy upon or attach the same for
payment thereof.
MODIFICATION OF CONTRACT: This Contract may be modified by us in order to
maintain compliance with state and federal law. This Contract may be changed or
altered only by our President or our Secretary. A change or alteration will be
made in writing.
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY
NON-PARTICIPATING
1
S40020
S40020
TRADITIONAL DEATH BENEFIT ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract. In the case of a conflict with
any provision in the Contract, the provisions of this Endorsement will control.
The following hereby amends and supersedes the section of the Contract entitled
"Proceeds Payable On Death - Death Benefit Amount During The Accumulation
Period."
PROCEEDS PAYABLE ON DEATH
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD: The death benefit, less any
applicable Premium Tax, is equal to the greater of:
1. The Contract Value determined as of the end of the Valuation Period during
which we received at the [Service Center] both due proof of death and an
election of the payment method; or
2. The Guaranteed Minimum Death Benefit (GMDB) which is equal to Purchase
Payments reduced by each withdrawal's percentage of the Contract Value
withdrawn, including any Contingent Deferred Sales Charge.
If a non-natural person owns the Contract, then Contract Owner shall mean
Annuitant.
Any part of the death benefit amount that had been invested in the separate
account remains in the separate account until distribution begins. From the time
the death benefit is determined until complete distribution is made, any amount
in the separate account will be subject to investment risk, which is borne by
the Beneficiary.
Allianz Life Insurance Company of North America
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
1
S40052
ENHANCED DEATH BENEFIT ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract. In the case of a conflict with
any provision in the Contract, the provisions of this Endorsement will control.
The following hereby amends and supersedes the section of the Contract entitled
"Proceeds Payable On Death - Death Benefit Amount During The Accumulation
Period."
PROCEEDS PAYABLE ON DEATH
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD: The death benefit payable
will be the greater of 1 or 2, less any applicable Premium Tax.
1. The Contract Value, determined as of the end of the Valuation Period during
which we received at the [Service Center] both due proof of death and an
election of the payment method.
2. The Guaranteed Minimum Death Benefit (GMDB) as defined below.
The GMDB is valued as of the date of the Contract Owner's death and is equal to
the greater of A or B.
A. 5%-Annual-Increase Amount.
On the Issue Date the 5%-Annual-Increase amount is set equal to the initial
Purchase Payment.
On every Valuation Date other than a Contract Anniversary the
5%-Annual-Increase amount is equal to the value on the Valuation Date
immediately preceding it adjusted as follows:
1) Reduced by the percentage of any Contract Value withdrawn, including any
Contingent Deferred Sales Charge.
2) Increased by any additional Purchase Payments.
On every Contract Anniversary the 5%-Annual-Increase amount is equal to the
value on the Valuation Date immediately preceding it adjusted as follows:
1) Increased by a multiple of 1.05 if the Contract Owner's attained age is
less than 81.
2) Reduced by the percentage of any Contract Value withdrawn, including any
Contingent Deferred Sales Charge.
3) Increased by any additional Purchase Payments.
B. The greatest Anniversary Value. The Anniversary Value is equal to the
Contract Value on a Contract Anniversary, reduced by the percentage of any
Contract Value withdrawn, including any Contingent Deferred Sales Charge,
since that Contract Anniversary. Contract Anniversaries occurring on or
after the Contract Owner's 81st birthday or date of death will not be taken
into consideration in determining this benefit.
If Joint Owners are named, the Age of the oldest Contract Owner will be used to
determine the GMDB. If a non-natural person owns the Contract, then Contract
Owner shall mean Annuitant.
Any part of the death benefit amount that had been invested in the separate
account remains in the separate account until distribution begins. From the time
the death benefit is determined until complete distribution is made, any amount
in the separate account will be subject to investment risk, which is borne by
the Beneficiary.
Allianz Life Insurance Company of North America
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
2
S40021
S40093
TRADITIONAL GUARANTEED MINIMUM INCOME BENEFIT ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract. In the case of a conflict with
any provision in the Contract, the provisions of this Endorsement will control.
The following hereby amends and supplements the section of the Contract entitled
"Annuity Provisions".
GUARANTEED MINIMUM INCOME BENEFIT (GMIB): The GMIB guarantees that the Contract
Owner may annuitize the Contract under a fixed payment option*, on any Contract
Anniversary, beginning with the 7th Contract Anniversary, with payments to be
determined by the greater of:
1. Current fixed annuitization rates applied to the current Adjusted Contract
Value; or
2. Guaranteed fixed annuitization rates applied to the Guaranteed Minimum
Income Benefit Value.
The GMIB Value is equal to Purchase Payments reduced by each withdrawal's
percentage of the Contract Value withdrawn, including any Contingent Deferred
Sales Charge.
The GMIB is effective only when the Contract is annuitized within 30 days
following a Contract Anniversary.
*Any Annuity Option available under this Contract may be used for this benefit.
However, the Annuity Payments can only be made under a Fixed Annuity for the
GMIB. If the Annuity Option chosen for the GMIB involves a period certain, the
duration of the period certain must be at least 10 years.
Allianz Life Insurance Company of North America
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
1
S40094
ENHANCED GUARANTEED MINIMUM INCOME BENEFIT ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract. In the case of a conflict with
any provision in the Contract, the provisions of this Endorsement will control.
The following hereby amends and supplements the section of the Contract entitled
"Annuity Provisions".
GUARANTEED MINIMUM INCOME BENEFIT (GMIB): The GMIB guarantees that the Contract
Owner may annuitize the Contract under a fixed payment option*, as of any
Contract Anniversary, beginning with the 7th Contract Anniversary, with payments
to be determined by the greater of 1 or 2.
1. Current fixed annuitization rates applied to the current Adjusted Contract
Value.
2. Guaranteed fixed annuitization rates applied to the Guaranteed Minimum Income
Benefit Value.
The GMIB Value is equal to the greater of A or B.
A. 5%-Annual-Increase Amount.
On the Issue Date the 5%-Annual-Increase amount is set equal to the initial
Purchase Payment.
On every Valuation Date other than a Contract Anniversary the
5%-Annual-Increase amount is equal to the value on the Valuation Date
immediately preceding it adjusted as follows:
1) Reduced by the percentage of any Contract Value withdrawn, including any
Contingent Deferred Sales Charge.
2) Increased by any additional Purchase Payments.
On every Contract Anniversary the 5%-Annual-Increase amount is equal to the
value on the Valuation Date immediately preceding it adjusted as follows:
1) Increased by a multiple of 1.05 if the Contract Owner's attained age is
less than 81.
2) Reduced by the percentage of any Contract Value withdrawn, including any
Contingent Deferred Sales Charge.
3) Increased by any additional Purchase Payments.
B. The greatest Anniversary Value. The Anniversary Value is equal to the
Contract Value on a Contract Anniversary, reduced by the percentage of any
Contract Value withdrawn, including any Contingent Deferred Sales Charge,
since that Contract Anniversary. Contract Anniversaries occurring on or
after the Contract Owner's 81st birthday or date of death will not be taken
into consideration in determining this benefit.
The GMIB is effective only when the Contract is annuitized within 30 days
following a Contract Anniversary.
If Joint Owners are named, the Age of the oldest Contract Owner will be used to
determine the GMIB. If a non-natural person owns the Contract, then Contract
Owner shall mean Annuitant.
*Any Annuity Option available under this Contract may be used for this benefit.
However, the Annuity Payments can only be made under a Fixed Annuity for the
GMIB. If the Annuity Option chosen for the GMIB involves a period certain, the
duration of the period certain must be at least 10 years.
Allianz Life Insurance Company of North America
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
1
S40014
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract.
The following provisions apply to a Contract which is issued on a qualified
basis under Internal Revenue Code ("IRC") Section 408(b). In the case of a
conflict with any provision in the Contract, the provisions of this Endorsement
will control. The Contract is amended as follows:
1. This Contract Owner is the Annuitant. There shall be no Joint Owner.
2. This Contract is not transferable.
3. This Contract, and the benefits under it, cannot be sold, assigned or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than to the issuer
of the Contract.
4. The Contract Owner's entire interest in this Contract is nonforfeitable.
5. This Contract is established for the exclusive benefit of the Annuitant and
the Annuitant's Beneficiary(ies).
6. Purchase Payments shall be flexible and not fixed. Except in the case of a
rollover contribution (as permitted by IRCss.402(c), 403(a)(4), 403(b)(8),
or 408(d)(3)) or a contribution made in accordance with the terms of a
Simplified Employee Pension (SEP) as described in IRCss.408(k), the total
of any contributions shall not exceed $2,000 for any taxable year. No
contribution will be accepted unless it is in cash.
No contribution will be accepted under a SIMPLE plan established by any
employer pursuant to Code section 408(p). No transfer or rollover of funds
attributable to contributions made by a particular employer under its
SIMPLE plan will be accepted from a SIMPLE IRA; that is, an IRA used in
conjunction with a SIMPLE plan, prior to the expiration of the 2-year
period beginning on the date the individual first participated in that
employer's SIMPLE plan.
7. Distributions under the Contract must commence to be distributed, no later
than the first day of April following the calendar year in which the
Annuitant attains age 70 1/2 (required beginning date), over (a) the life
of the Annuitant, or the lives of the Annuitant and his or her designated
Beneficiary, or (b) a period certain not extending beyond the life
expectancy of the Annuitant, or the joint and last survivor expectancy of
the Annuitant and his or her designated Beneficiary. Payments must be made
in periodic payments at intervals of no longer than one year. In addition,
payments must be either non-increasing or they may increase only as
provided in Q&A F-3 ofss.1.401(a)(9)-1 of the Proposed Income Tax
Regulations.
All distributions made hereunder shall be made in accordance with the
requirements of ss.401(a)(9) of the IRC, including the incidental death
benefit requirements of ss.401(a)(9)(G) of the IRC, and the regulations
thereunder, including the minimum distribution incidental benefit
requirement of ss.1.401(a)(9)-2 of the Proposed Income. Tax Regulations. If
Annuity Option 3, 4 or 6 is elected and the Joint Annuitant is not the
Annuitant's spouse, then the annuity payment to the survivor may not exceed
the percentage allowed under Section 1.401(a)(9)-2 of the Proposed Income
Tax Regulations
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of ss.1.72-9 of the Income Tax Regulations. Life expectancy
for distributions under an Annuity Option may not be recalculated. The
Annuitant may satisfy the minimum distribution requirements of the Code by
receiving a distribution from one Individual Retirement Arrangement that is
equal to the amount required to satisfy the minimum distribution
requirements for two or more Individual Retirement Arrangements. For this
purpose, the owner of two or more Individual Retirement Arrangements may
use the alternative method described in Notice 83-38, 1988-1 C.B. 524 to
satisfy the minimum distribution requirements described above.
8. If required distributions are to be made in a form other than one of the
Annuity Options contained in the Contract, then the entire value of the
Contract will commence to be distributed no later than the first day of
April following the calendar year in which the Annuitant attains age 70 1/2
(required beginning date), over (a) the life of the Annuitant, or the lives
of the Annuitant and his or her designated Beneficiary, or (b) a period
certain not extending beyond the life expectancy of the Annuitant, or the
joint and last survivor expectancy of the Annuitant and his or her
designated Beneficiary.
The amount to be distributed each year, beginning with the first calendar
year for which distributions are required and then for each succeeding
calendar year, shall not be less than the quotient obtained by dividing the
Annuitant's benefit by the lesser of (1) the applicable life expectancy or
(2) if the Annuitant's spouse is not the designated beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 or Q&A-5,
as applicable, of ss.1.401(a)(9)-2 of the Proposed Income Tax Regulations.
Distributions after the death of the Annuitant shall be distributed using
the applicable life expectancy as the relevant divisor without regard to
Proposed Income Tax Regulations ss.1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of ss.1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the Annuitant by the time distributions are required
to begin, life expectancies shall be recalculated annually. Such election
shall be irrevocable by the Annuitant and shall apply to all subsequent
years. The life expectancy of a non-spouse Beneficiary may not be
recalculated. Instead, life expectancy will be calculated using the
attained age of such Beneficiary during the calendar year in which the
Annuitant attains age 70 1/2, and payments for subsequent years shall be
calculated based on such life expectancy reduced by one for each calendar
year which has elapsed since the calendar year life expectancy was first
calculated.
9. The Contract Owner shall be permitted to withdraw the required distribution
in any year from another Individual Retirement Arrangement or annuity
maintained for the benefit of the Contract Owner in accordance with IRS
Notice 88-38. The Contract Owner shall be responsible for determining
whether the minimum distribution requirements are met and the Company shall
have no responsibility for such determination.
10. Upon the death of the Annuitant: (a) if the Annuitant dies after
distribution of benefits has commenced, the remaining portion of such
interest will continue to be distributed at least a rapidly as under the
method of distribution being used prior to the Annuitiant's death; (b) if
the Annuitant dies before distribution of benefits commences, the entire
amount payable to the Beneficiary will be distributed no later than
December 31 of the calendar year which contains the fifth anniversary of
the date of the Annuitant's death except to the extent that an election is
made to receive distributions in accordance with (I) (ii) or (iii) below:
(i) if any portion of the policy proceeds is payable to a designated
Beneficiary, distributions may be made in installments over the life
or over a period not extending beyond the life expectancy of the
designated Beneficiary commencing no later than December 31 of the
calendar year immediately following the calendar year in which the
Annuitant died;
(ii) if the designated Beneficiary is the Annuitant's surviving spouse, and
benefits are to be distributed in accordance with (i) above,
distributions must begin on or before the later of (a) December 31 of
the calendar year immediately following the calendar year in which the
Annuitant died, or (b) December 31 of the calendar year in which the
Annuitant would have attained age 70 1/2;
(iii)if the designated Beneficiary is the Annuitant's surviving spouse,
the spouse may treat the Contract as his or her own IRA. This election
will be deemed to have been made if such surviving spouse makes a
regular IRA contribution to the Contract, makes a rollover to or from
such Contract, or fails to elect any of the above provisions.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of ss.1.72-9 of the Income Tax Regulations. Life
expectancy for distributions under an Annuity Option may not be
recalculated.
Distributions under this section are considered to have begun if
distributions are made on account of the individual reaching his or
her required beginning date or if prior to the required beginning date
distributions irrevocably commence to an individual over a period
permitted and in an annuity form acceptable under ss.1.401(a)(9) of
the Income Tax Regulations.
11. Separate records will be maintained by the Company for the interest of each
Contract Owner and the Company shall furnish annual calendar year reports
concerning the status of the Contract.
12. The Company may at its option either accept additional future payments or
terminate the Contract by a lump sum payment of the then present value of
the paid up benefit if no premiums have been received for two full
consecutive policy years and the paid up annuity benefit at maturity would
be less than $20 per month.
Within ten (10) days of the date you receive your Contract, you may revoke
it and receive a refund of purchase payments less any withdrawals. If the
Company pursuant to the Right to Examine provision allocates payment to the
Money Market Sub-Account, then the refund will be the greater of the
purchase payments or the Contract Value. A refund period of greater than
ten (10) days will be allowed in those states where it is required.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
S20146
UNISEX ENDORSEMENT
This Endorsement modifies the Contract to which it is attached for use in
connection with a retirement plan which receives favorable income tax
treatment under Sections 401, 403, 408 or 457 of the Internal Revenue Code,
or where required by state law. In the case of a conflict with any
provision in the Contract, the provisions of this Endorsement will control.
The Company may further amend the Contract from time to time to meet any
requirements applicable to such plans or laws. The effective date of this
Endorsement is the Issue Date shown on the Contract Schedule. The
provisions of the Contract are modified as follows:
1. Deleting any reference to sex; and
2. Deleting any Contract charges uniquely applicable to females. Male Contract
charge rates shall apply to both males and females; and
3. Deleting the settlement option rates applicable to males. Female settlement
option rates shall apply to both males and females.
Allianz Life Insurance Company of North America
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
S20205
PENSION PLAN AND PROFIT SHARING PLAN ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract.
THE FOLLOWING PROVISIONS APPLY TO A CONTRACT WHICH IS ISSUED UNDER A PLAN
QUALIFIED UNDER INTERNAL REVENUE CODE ("IRC") SECTION 401. IN THE CASE OF A
CONFLICT WITH ANY PROVISION IN THE CONTRACT, THE PROVISIONS OF THIS ENDORSEMENT
WILL CONTROL.
1. The Annuitant of this Contract will be the applicable Participant under the
Plan and the Contract Owner of this Contract will be as designated in the
Plan.
2. This Contract, and the benefits under it, cannot be assigned, discounted,
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than the Company.
3. The terms of this Contract and Endorsement are subject to the provisions of
the Plan under which this Contract and Endorsement are issued.
4. The MISSTATEMENT OF AGE OR SEX section of the Contract is deleted and
replaced by the following section entitled "MISSTATEMENT OF AGE":
We may require proof of Age of the Annuitant before making any life
contingent annuity payment provided for by this Contract. If the Age of the
Annuitant has been misstated, the amount payable will be the amount that
the Purchase Payments would have provided at the true Age. Once Annuity
Payments have begun, any underpayments will be made up in one sum with the
next Annuity Payment and over payments will be deducted from the future
Annuity Payments until the total is repaid.
All other terms and conditions of the Contract remain unchanged.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Signed for the Company
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
S30072 (4-99)
403(B) ANNUITY ENDORSEMENT
This Endorsement forms a part of the Contract to which it is attached and is
effective as of the Issue Date of the Contract. The following provisions apply
to a Contract which is issued on a qualified basis under Internal Revenue Code
("Code") Section 403(b). In the case of a conflict with any provision in the
Contract, the provisions of this Endorsement will control. The Contract is
amended as follows:
1. Contract Owner. The Contract Owner must be either an organization described
in Section 403(b)(1)(A) of the Code or an individual employee of such an
organization. If the Contract Owner is an organization described in Section
403(b)(1)(A) of the Code, then the individual employee for whose benefit
the organization has established an annuity plan under section 403(b) of
the Code must be the Annuitant under the Contract. If the Contract Owner is
an employee of an organization described in Section 403(b)(1)(A) of the
Code, then such employee must be the Annuitant under the Contract. There
shall be no Joint Owner.
2. The interest of the Annuitant in the Contract is non-forfeitable.
3. Purchase Payments must be made by an organization described in Code Section
403(b)(1)(A), except in the case of a rollover contribution under Code
Sections 403(b)(8) or 408(d)(3), or a nontaxable transfer from another
contract qualifying under Code Section 403(b) or a custodial account
qualifying under Code Section 403(b)(7). All Purchase Payments must be made
in cash.
If Purchase Payments are made pursuant to a salary reduction agreement, the
maximum contribution when combined with all other plans, contracts or
arrangements may not exceed the amount of the limitation provided for in
Code Section 402(g). Purchase Payments must not exceed the amount allowed
by Code Sections 403(b) and 415.
4. The interest of the Annuitant under this Contract is nontransferable and
may not be sold, assigned, discounted or pledged as collateral for a loan
or as security for the performance of an obligation or for any other
purpose, to any person other than the issuer of this Contract. This
restriction shall not apply to a "qualified domestic relations order" as
defined in Code Section 414(p).
5. Distributions During Annuitant's Life. Distributions under this Contract
must commence no later than the later of April 1 following: (a) the
calendar year during which the Annuitant attains age 70 1/2; or (b) the
calendar year in which the Annuitant retires (the required beginning date)
over (i) the life of the Annuitant or the lives of the Annuitant and his or
her designated Beneficiary (within the meaning of Section 401(a)(9) of the
Code), or (ii) a period certain not extending beyond the life expectancy of
the Annuitant or the joint and last survivor expectancy of the Annuitant
and his or her designated Beneficiary.
If distributions under an Annuity Option in the Contract are to be made for
a definite or fixed period, said period cannot, at the time payments are to
commence, exceed the life expectancy of the Annuitant or, if applicable,
the joint and last survivor expectancy of the Annuitant and a designated
Beneficiary, nor may it exceed the applicable maximum period under Section
1.401(a)(9)-2 of the Proposed Income Tax Regulations.
Distributions must be made in periodic payments at intervals of no longer
than one year. In addition, distributions must either be non-increasing or
may increase only as provided in Q&A F-3 of Section 1.401(a)(9)-1 of the
Proposed Income Tax Regulations.
All distributions under this Contract are subject to the distribution
requirements of Code Section 403(b)(10) and will be made in accordance with
the requirements of Section 401(a)(9) of the Code, including the incidental
death benefit requirements of Section 401(a)(9)G) of the Code, and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
6. Minimum Distribution Requirements - After Death. If the Annuitant dies
after required distributions under this Contract are deemed to have begun,
all amounts payable under this Contract must be distributed to the
Beneficiary or to such other person entitled to receive them at least as
rapidly as under the method of distribution in effect prior to the
Annuitant's death.
If the Annuitant dies before distribution has begun, the entire interest
will be distributed by December 31 of the calendar year containing the
fifth anniversary of the Annuitant's death, except that:
(a) if the interest is payable to an individual who is the Annuitant's
designated Beneficiary, the designated Beneficiary may elect to
receive the entire interest over the life of the designated
Beneficiary or over a period not extending beyond the life expectancy
of the designated Beneficiary, commencing on or before December 31 of
the calendar year immediately following the calendar year in which the
Annuitant dies; or
(b) if the designated Beneficiary is the Annuitant's surviving spouse, the
surviving spouse may elect to receive the entire interest over the
life of the surviving spouse or over a period not extending beyond the
life expectancy of the surviving spouse, commencing at any date on or
before the later of:
(i) December 31 of the calendar year immediately following the
calendar year in which the Annuitant died; or
(ii) December 31 of the calendar year in which the Annuitant would
have attained age 70 1/2.
If the surviving spouse dies before distributions begin, the
limitations of this Section 6 (without regard to this paragraph
(b)) will be applied as if the surviving spouse were the
Annuitant.
An irrevocable election of the method of distribution by a
designated Beneficiary who is the surviving spouse must be made
no later than the earlier of December 31 of the calendar year
containing the fifth anniversary of the Annuitant's death or the
date distributions are required to begin pursuant to this
paragraph (b). If no election is made, the entire interest will
be distributed in accordance with the method of distribution in
this paragraph (b).
An irrevocable election of the method of distribution by a designated
Beneficiary who is not the surviving spouse must be made within one
year of the Annuitant's death. If no such election is made, the entire
interest will be distributed by December 31 of the calendar year
containing the fifth anniversary of the Annuitant's death.
Distributions under this section are considered to have begun if
distributions are made on account of the Annuitant reaching his or her
required beginning date or if prior to the required beginning date
distributions irrevocably commence to the Annuitant over a period
permitted and in an annuity form acceptable under Section 1.401(a)(9)
of the Proposed Income Tax Regulations.
7. Life Expectancy Calculations. Life expectancy is computed by use of the
expected return multiples in Tables V and VI of Section 1.72-9 of the
Income Tax Regulations. If benefits under the Contract are payable in
accordance with the Annuity Options contained in the Contract, life
expectancy will not be recalculated. If required distributions are payable
in a form other than under such Annuity Option, life expectancy will not be
recalculated unless permitted by the Company and annual recalculation is
elected at the time distributions are required to begin (a) by the
Annuitant, or (b) for purposes of distributions beginning after the
Annuitant's death, by the surviving spouse. Such an election will be
irrevocable as to the Annuitant and the surviving spouse, and will apply to
all subsequent years.
The life expectancy of a non-spouse designated Beneficiary (a) may not be
recalculated, and (b) will be calculated using the attained age of such
designated Beneficiary during the calendar year in which distributions are
required to begin pursuant to this Endorsement. Payments for any subsequent
calendar year will be calculated based on such life expectancy reduced by
one for each calendar year which has elapsed since the calendar year in
which life expectancy was first calculated.
8. Annuity Options. Except to the extent Treasury regulations allow the
Company to offer different Annuity Options that are agreed to by the
Company, only Annuity Options offered in the Contract will be available to
the Annuitant. Under Annuity Options 3 and 4 any Joint Annuitant must
either be the Annuitant's spouse or if a non-spouse, then the level of
payment to the survivor cannot exceed the applicable limitations set forth
under Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations
9. Premature Distribution Restrictions. Any amounts in the Contract
attributable to contributions made pursuant to a salary reduction agreement
after December 31, 1988, and the earnings on such contributions and on
amounts held on December 31, 1988, may not be distributed unless the
Annuitant has reached age 59 1/2, separated from service, died, become
disabled (within the meaning of Code Section 72(m)(7)) or incurred
hardship; provided, that amounts permitted to be distributed in the event
of hardship shall be limited to actual salary deferral contributions
(excluding earnings thereon); and provided further, that amounts may be
distributed pursuant to a qualified domestic relations order to the extent
permitted by section 414(p) of the Code.
Purchase Payments made by a nontaxable transfer from a custodial account
qualifying under Code Section 403(b)(7), and earnings on such amounts, will
not be paid or made available before the Annuitant dies, attains age 59
1/2, separates from service, becomes disabled (within the meaning of Code
Section 72(m)(7)), or in the case of such amounts attributable to
contributions made under the custodial account pursuant to a salary
reduction agreement, encounters financial hardship; provided, that amounts
permitted to be paid or made available in the event of hardship will be
limited to actual salary deferral contributions made under the custodial
account (excluding earnings thereon); and provided further, that amounts
may be distributed pursuant to a qualified domestic relations order to the
extent permitted by Section 414(p) of the Code.
10. Direct Rollovers. The Annuitant subject to the terms of the Contract, may
elect to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Annuitant. An
eligible rollover distribution is any distribution of all or any portion of
the balance to the credit of the Annuitant, except that an eligible
rollover distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Annuitant or the
joint lives (or joint life expectancies) of the Annuitant and the
Annuitant's Beneficiary or for a specified period of ten years or more; any
distribution required under Code Section 401(a)(9), hardship distributions,
and the portion of any distribution that is not includable in gross income.
An eligible retirement plan is an individual retirement account described
in Code Section 408(a), an individual retirement annuity described in Code
Section 408(b), or another Code Section 403(b) tax-sheltered annuity, that
accepts the Annuitant's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is only an individual retirement account or
individual retirement annuity. A direct rollover is a payment by the
Company to the eligible retirement plan specified by the Annuitant.
11. If this Contract is part of a plan which is subject to Title 1 of the
Employees Retirement Income Security Act of 1974 ("ERISA"), any payments
and distributions under this Contract (whether as income, as proceeds
payable at the Annuitant's death, upon partial redemption or full surrender
or otherwise), and any Beneficiary designation, shall be subject to the
joint and survivor annuity and preretirement survivor annuity requirements
of ERISA Section 205.
12. The Company will furnish annual calendar year reports concerning the status
of the Contract.
13. Amendments. The Company may further amend this Contract from time to time
in order to meet any requirements which apply to it under Code Section
403(b) or ERISA.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Secretary President
PARTICIPATION AGREEMENT
Among
DAVIS VARIABLE ACCOUNT FUND, INC.
DAVIS DISTRIBUTORS, LLC.
and
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
THIS AGREEMENT, made and entered into this 1st day of November, 1999,
by and among ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA (hereinafter the
"Insurance Company"), a Delaware corporation, on its own behalf and on behalf of
each segregated asset account of the Insurance Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), DAVIS VARIABLE ACCOUNT FUND, INC., a Maryland
Corporation (the "Company") and Davis Distributors, LLC, a Delaware Limited
Liability Company ("Davis Distributors").
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
variable annuity and life insurance contracts to be offered by separate accounts
of insurance companies which have entered into participation agreements
substantially similar to this Agreement ("Participating Insurance Companies")
and for qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained, or warrants and agrees that prior to
any issuance or sale of shares it will obtain an order from the Securities and
Exchange Commission (the "SEC"), 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 Investment Company Act of 1940, as amended, (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 Company to be sold to and held by Qualified
Plans and by variable annuity and variable life insurance separate accounts of
Participating Insurance Companies that may or may not be affiliated with one
another (the "Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Company has registered, or warrants and agrees that prior
to any issuance or sale of its shares it will register as an open-end management
investment company under the 1940 Act and the offering of its shares has been
registered, or warrants and agrees that prior to any issuance or sale its shares
will be registered under the Securities Act of 1933, as amended (hereinafter the
"1933 Act"); and
WHEREAS, Davis Distributors is duly registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended, (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, Davis Distributors is a wholly owned subsidiary of Davis
Selected Advisers, L.P. which is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or
will register under the 1933 Act, certain variable annuity or variable life
insurance contracts identified on Schedule B to this Agreement, as amended from
time to time hereafter by mutual written agreement of all the parties hereto
(the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds
listed on Schedule C to this Agreement as amended from time to time, at net
asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the
Insurance Company, the Company and Davis Distributors agree as follows:
ARTICLE I. SALE OF COMPANY SHARES
1.1. Davis Distributors agrees to sell to the Insurance Company those
shares of the Company which each Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Company or
its designee of the order for the shares of the Company. For purposes of this
Section 1.1, the Insurance Company, or its designee, shall be the designee of
the Company for receipt of such orders from the Accounts and receipt by such
designee shall constitute receipt by the Company; provided that the Company
receives notice of such order by 10:00 a.m., Eastern Time, on the next following
Business Day. In this Agreement, "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Company calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Company agrees to make its shares available for purchase at
the applicable net asset value per share by the Insurance Company and its
Accounts on those days on which the Company calculates its Funds' net asset
values pursuant to rules of the SEC and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the directors of
the Company 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 is, in the sole discretion
of the directors of the Company acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of that Fund.
1.3. The Company agrees that shares of the Company will be sold only to
Accounts of Participating Insurance Companies and to Qualified Plans. No shares
of any Fund will be sold to the general public.
1.4. The Company will not sell its shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Sections 2.4, 3.4, 3.5, and Article VII of this Agreement is in effect
to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request,
any full or fractional shares of the Company held by the Account, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Company or its designee of the request for redemption. However, if one or
more Funds has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one business day, but in no event
more than three Business Days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the SEC under Section 22(e)
of the 1940 Act), the Company shall be permitted to delay sending redemption
proceeds to the Insurance Company by the same number of days that the Company is
delaying sending redemption proceeds to the other shareholders of the Fund. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 10:00 a.m., Eastern Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund listed on Schedule C to this Agreement, as amended from time to time,
and offered by the then-current prospectus of the Company in accordance with the
provisions of that prospectus.
1.7. Each purchase, redemption and exchange order placed by the
Insurance Company shall be placed separately for each Fund and shall not be
netted with respect to any Fund. However, with respect to payment of the
purchase price by the Insurance Company and of redemption proceeds by the
Company, the Insurance Company and the Company shall net purchase and redemption
orders with respect to each Fund and shall transmit one net payment for all of
the Funds. Payment shall be in federal funds transmitted by wire. In the event
of net purchase, the Insurance Company shall pay for the Funds' shares by 3:00
p.m. Eastern time on the next Business Day after an order to purchase shares is
made in accordance with the provisions of Section 1.1 hereof. For the purpose of
Sections 2.9 and 2.10, upon receipt by the Company of the wired federal funds,
such funds shall cease to be the responsibility of the Insurance Company and
shall become the responsibility of the Company. In the event of net redemption,
the Company shall pay the redemption proceeds by 3:30 p.m. Eastern time on the
next Business Day after an order to redeem the shares is made in accordance with
the provisions of Section 1.5 hereof. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange, an emergency as defined by the SEC exists, or as
permitted by the SEC.
1.8. Issuance and transfer of the Company's shares will be by book
entry only. Stock certificates will not be issued to the Insurance Company or
any Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each
Fund available to the Insurance Company 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 those per-share net asset values available by 7:00 p.m.,
Eastern Time. In the event that the Company is unable to meet the 7:00 p.m.
Eastern time stated herein, it shall provide additional time for the Insurance
Company to place orders for the purchase and redemption of shares. Such
additional time shall be equal to the additional time which the Company takes to
make the net asset value available to the Insurance Company. In accordance with
Section 8.3(a)(iii) hereof, if the Company provides materially incorrect share
net asset value information, the Company may make an adjustment to the number of
shares purchased or redeemed for the Account 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 gains information shall be reported to the
Insurance Company promptly upon discovery.
ARTICLE II. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
2.1. The Insurance Company represents, warrants and agrees that the
offerings of the Contracts are, or will be, registered under the 1933 Act; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws and that the sale of the Contracts
shall comply in all material respects with applicable state insurance
suitability requirements. The Insurance Company further represents and warrants
that it is an insurance company duly organized and in good standing under
applicable law and that it has legally and validly established the Account prior
to any issuance or sale thereof as a segregated asset account under Delaware
insurance law and has registered, or warrants and agrees that prior to any
issuance or sale of the Contracts it will register, the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Company warrants and agrees that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company warrants and agrees that it shall
amend the registration statement for its shares 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 Company shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Company or Davis Distributors.
2.3. The Company represents and warrants that each Fund is currently,
or will elect at the earliest opportunity to be, qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and warrants and agrees that it will make all reasonable
efforts to maintain each Fund's qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Insurance Company
immediately upon having a reasonable basis for believing that any Fund has
ceased to so qualify or might not so qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts
are currently treated as annuity or life insurance contracts under applicable
provisions of the Code and warrants and agrees that it will make every effort to
maintain such treatment and that it will notify the Company and Davis
Distributors immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Company may elect to make payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Company
undertakes to have a board of directors, a majority of whom are not interested
persons of the Company, formulate and approve any plan under Rule 12b-1 to
finance distribution expenses.
2.6. The Company makes no representation or warranty as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) complies or will comply with the insurance laws or
regulations of the various states.
2.7. The Company represents and warrants that it is lawfully organized
and validly existing under the laws of the State of Maryland and represents,
warrants and agrees that it does and will comply in all material respects with
the 1940 Act and the laws of the State of Maryland.
2.8. Davis Distributors represents that it is and warrants that it
shall remain duly registered as a broker-dealer under all applicable federal and
state securities laws and agrees that it shall perform its obligations for the
Company in compliance in all material respects with the laws of the State of New
Mexico and any applicable state and federal securities laws.
2.9. The Company and Davis Distributors represent and warrant that all
of their officers, employees, investment advisers, investment sub-advisers, and
other individuals or entities described in Rule 17g-1 under the 1940 Act dealing
with the money and/or securities of the Company are, and shall continue to be at
all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Company in an amount not less than the minimum coverage required
currently by Rule 17g-1 under the 1940 Act or related provisions as may be
promulgated from time to time. That fidelity bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.10. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not less than $1 million. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company.
2.11. Each party represents that it will use its best efforts to ensure
that the systems that would materially affect the performance of this Agreement
will be fully tested and year 2000 compliant prior to December 31, 1999 and they
will function without material disruption of such party's ability to perform
this Agreement in the year 2000 and beyond.
ARTICLE III. DISCLOSURE DOCUMENTS AND VOTING
3.1. Davis Distributors shall provide the Insurance Company (at the
Insurance Company's expense) with as many copies of the current prospectus for
each Fund listed on Schedule C herein as the Insurance Company may reasonably
request for distribution to prospective purchasers of contracts. Davis
Distributors shall also provide the Insurance Company (free of charge) with as
many copies of the current prospectus for each Fund listed on Schedule C herein
as the Insurance Company may reasonably request for distribution to existing
Contract owners whose Contracts are funded by shares of such Fund(s). If
requested by the Insurance Company in lieu thereof, the Company shall provide
such documentation (including a final copy of the new prospectus as set in type
at the Company's expense) and other assistance as is reasonably necessary in
order for the Insurance Company once each year (or more frequently if the
prospectus for the Company is amended) to have the prospectus for the Contracts
and the Company's prospectus printed together in one document (at the Insurance
Company's expense).
3.2. The Company's prospectus shall state that the Statement of
Additional Information for the Company (the "SAI") is available from the
Company, and Davis Distributors (or the Company), at its expense, shall print
and provide the SAI free of charge to the Insurance Company and to any owner of
a Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company
with copies of its proxy material, reports to shareholders and other
communications to shareholders in such quantity as the Insurance Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company
shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares of each Fund in accordance with instructions
received from Contract owners; and (iii) vote Company shares for which no
instructions have been received in the same proportion as Company shares of that
Fund for which instructions have been received;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligation under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Company will either
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or, as the Company currently
intends, comply with Section 16(c) of the 1940 Act as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company 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.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Insurance Company shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, Davis Selected Advisers, L.P.,
or Davis Distributors is named, at least five Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within five Business Days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the Company's registration statement, prospectus or
SAI, as that registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by Davis Distributors, except with the permission of
the Company or Davis Distributors.
4.3. The Company, Davis Distributors, or its designee shall furnish, or
shall cause to be furnished, to the Insurance Company or its designee, each
piece of sales literature or other promotional material in which the Insurance
Company or the Account is named at least five Business Days prior to its use. No
such material shall be used if the Insurance Company or its designee reasonably
objects to such use within five Business Days after receipt of that material.
4.4. The Company and Davis Distributors shall not give any information
or make any representations on behalf of the Insurance Company or concerning the
Insurance Company, any Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as that registration statement,
prospectus or statement of additional information may be amended or supplemented
from time to time, or in published reports for any Account which are in the
public domain or approved by the Insurance Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Insurance Company or its designee, except with the permission of the Insurance
Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the SEC, the
NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no-action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the SEC, the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, 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, shareholder
newsletters, 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, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested.
ARTICLE V. FEES AND EXPENSES
5.1. The Company and Davis Distributors shall pay no fee or other
compensation to the Insurance Company under this agreement, except as set forth
in Section 5.4.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that any
offering of its shares is registered and that all of its shares are authorized
for issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Company or Davis Distributors, in accordance with
applicable state laws prior to their sale. The Company shall bear the cost of
registration and qualification of the Company's shares, preparation and filing
of the Company's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders, the preparation of all statements and
notices required by any federal or state law, and all taxes on the issuance or
transfer of the Company's shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
5.4. The Insurance Company bears the responsibility and correlative
expense for administrative and support services for Contract owners. Davis
Distributors recognizes the Insurance Company, on behalf of each Account, as the
sole shareholder of shares of the Company issued under this Agreement. From time
to time, Davis Distributors may pay amounts from its past profits to the
Insurance Company for providing certain administrative services for the Company
or for providing other services that relate to the Company. In consideration of
the savings resulting from such arrangement, and to compensate the Insurance
Company for its costs, Davis Distributors agrees to pay to the Insurance Company
an amount equal to 25 basis points (0.25%) per annum of the average aggregate
amount invested by the Insurance Company in the Company under this Agreement.
Such payments will be made monthly. The parties agree that such payments are for
administrative services and investor support services, and do not constitute
payment for investment advisory, distribution or other services. Payment of such
amounts by Davis Distributors shall not increase the fees paid by the Company or
its shareholders.
ARTICLE VI. DIVERSIFICATION
6.1. The Company represents and warrants that it will comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation at all times necessary to satisfy those requirements.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The directors of the Company will monitor each Fund for the
existence of any material irreconcilable conflict between the interests of the
variable Contract owners of all separate accounts investing in the Company and
the participants of all Qualified Plans investing in the Company. An
irreconcilable material 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 interpretive 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 owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of variable contract owners. The
directors of the Company shall promptly inform the Insurance Company if they
determine that an irreconcilable material conflict exists and the implications
thereof. The directors of the Company shall have sole authority to determine
whether an irreconcilable material conflict exists and their determination shall
be binding upon the Insurance Company.
7.2. The Insurance Company and Davis Distributors each will report
promptly any potential or existing conflicts of which it is aware to the
directors of the Company. The Insurance Company and Davis Distributors each will
assist the directors of the Company in carrying out their responsibilities under
the Mixed and Shared Funding Exemptive Order, by providing the directors of the
Company with all information reasonably necessary for them to consider any
issues raised. This includes, but is not limited to, an obligation by the
Insurance Company to inform the directors of the Company whenever Contract owner
voting instructions are to be disregarded. These responsibilities shall be
carried out by the Insurance Company with a view only to the interests of the
Contract owners and by Davis Distributors with a view only to the interests of
Contract owners and Qualified Plan participants.
7.3. If it is determined by a majority of the directors of the Company,
or a majority of the directors who are not interested persons of the Company,
any of its Funds, or Davis Distributors (the "Independent Directors"), that a
material irreconcilable conflict exists, the Insurance Company and/or other
Participating Insurance Companies or Qualified Plans that have executed
participation agreements shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets attributable to some
or all of the separate accounts from the Company or any Fund and reinvesting
those assets in a different investment medium, including (but not limited to)
another Fund of the Company, or submitting the question whether such segregation
should be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (E.G., 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 variable contract owners the option of
making such a change; and (2) establishing a new registered management
investment company or managed separate account and obtaining any necessary
approvals or orders of the SEC in connection therewith.
7.4. If a material irreconcilable conflict arises because of a decision
by the Insurance Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Insurance Company may be required, at the Company's election, to withdraw
the affected Account's investment in the Company and terminate this Agreement
with respect to that 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 Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Company gives written notice that this provision is being
implemented, and, until the end of that six month period, the Company shall
continue to accept and implement orders by the Insurance Company for the
purchase (and redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the directors of the Company inform the Insurance Company in writing that they
have determined that the state insurance regulator's decision has created an
irreconcilable material 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 Independent
Directors. Until the end of the foregoing six month period, the Company shall
continue to accept and implement orders by the Insurance Company for the
purchase (and redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 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 irreconcilable material conflict. In the event that the directors of the
Company determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Insurance Company will withdraw the
Account's investment in the Company and terminate this Agreement within six (6)
months after the directors of the Company inform the Insurance Company in
writing of the foregoing determination, provided, however, that the withdrawal
and termination shall be limited to the extent required by the material
irreconcilable conflict, as determined by a majority of the Independent
Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are 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 Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE INSURANCE COMPANY
8.1(A). The Insurance Company agrees to indemnify and hold harmless the
Company and each director, officer, employee or agent of the Company, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Insurance Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, acquisition,
or redemption of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or
sales literature 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 in writing to the Insurance Company by or
on behalf of the Company for use in the registration statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement to any of the foregoing) or otherwise for
use in connection with the sale of the Contracts or shares of the
Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature of the Company not supplied by
the Insurance Company, or persons under its control) or wrongful
conduct of the Insurance Company or persons under its control,
with respect to the sale or distribution of the Contracts or
Company Shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information or
sales literature of the Company or any amendment thereof or
supplement thereto 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 information
furnished in writing to the Company by or on behalf of the
Insurance Company;
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by the Insurance
Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(B). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(C). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(D). The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Company's shares or the Contracts or
the operation of the Company.
8.2. INDEMNIFICATION BY DAVIS DISTRIBUTORS
8.2(A). Davis Distributors agrees to indemnify and hold harmless the
Insurance Company and each of its directors, officers, employees or agents, and
each person, if any, who controls the Insurance Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Davis
Distributors) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale, acquisition
or redemption of the Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional
information or sales literature of the Company (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 the statement or omission or alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to Davis Distributors or the
Company by or on behalf of the Insurance Company for use in the
registration statement, prospectus, or statement of additional
information for the Company or in sales literature (or any
amendment or supplement to any of the foregoing) or otherwise for
use in connection with the sale of the Contracts or Company
shares;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature for the Contracts not supplied by
Davis Distributors or persons under its control) or wrongful
conduct of the Company, Davis Distributors or persons under their
control, with respect to the sale or distribution of the
Contracts or shares of the Company;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information or
sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished in writing to the Insurance Company by
or on behalf of the Company;
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by Davis Distributors
in this Agreement or arise out of or result from any other
material breach of this Agreement by Davis Distributors;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(B). Davis Distributors shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by reason of
the Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to the Insurance Company or the Account, whichever is applicable.
8.2(C). Davis Distributors shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless the Indemnified Party shall have notified Davis Distributors in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve Davis Distributors of its obligations hereunder except to the extent
that Davis Distributors has been prejudiced by such failure to give notice. In
addition, any failure by the Indemnified Party to notify Davis Distributors of
any such claim shall not relieve Davis Distributors from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, Davis Distributors will be entitled to
participate, at its own expense, in the defense thereof. Davis Distributors also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action; provided, however, that if the Indemnified Party
shall have reasonably concluded that there may be defenses available to it which
are different from or additional to those available to Davis Distributors, Davis
Distributors shall not have the right to assume said defense, but shall pay the
costs and expenses thereof (except that in no event shall Davis Distributors be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from Davis Distributors to the Indemnified Party of
Davis Distributors' election to assume the defense thereof, and in the absence
of such a reasonable conclusion that there may be different or additional
defenses available to the Indemnified Party, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and Davis
Distributors will not be liable to that party under this Agreement for any legal
or other expenses subsequently incurred by that party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(D). The Insurance Company agrees to notify Davis Distributors
promptly of the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3 INDEMNIFICATION BY THE COMPANY
8.3(A). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents, and each
person, if any, who controls the Insurance Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, damages, liabilities (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of any
director(s) of the Company, are related to the operations of the Company or:
(i) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement);
(ii) arise out of or result from any material breach of any
representation, warranty or agreement 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
(iii) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate for any
Fund. With respect to net asset value information, the Company
will make a determination , in accordance with SEC guidelines, as
to whether an error has occurred. Any correction of pricing
errors shall be accomplished using the least costly corrective
action, as agreed to by the Company in writing. In no event shall
the Company be required to reimburse for pricing errors caused by
conditions beyond the control of the Company or its agent,
including, but not limited to, Acts of God, fires, electrical or
phone outages.
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(B). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, Davis Distributors or the Account, whichever
is applicable.
8.3(C). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Company of its
obligations hereunder except to the extent that the Company has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Company
will be entitled to participate, at its own expense, in the defense thereof. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; provided, however, that if the
Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Company, the Company shall not have the right to assume said defense, but shall
pay the costs and expenses thereof (except that in no event shall the Company be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from the Company to the Indemnified Party of the
Company's election to assume the defense thereof, and in the absence of such a
reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Company will not
be liable to that party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(D). The Insurance Company and Davis Distributors agree promptly to
notify the Company of the commencement of any litigation or proceedings against
it or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, the operation of the Account,
or the sale or acquisition of shares of the Company.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and provisions hereof
interpreted under and in accordance with the laws of the State of Minnesota.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including any exemptions from those statutes, rules and regulations the SEC may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months' advance written
notice to the other parties; or
(b) at the option of the Insurance Company to the extent that
shares of Funds are not reasonably available to meet the
requirements of the Contracts as determined by the Insurance
Company, provided, however, that such a termination shall apply
only to the Fund(s) not reasonably available. Prompt written
notice of the election to terminate for such cause shall be
furnished by the Insurance Company to the Company and Davis
Distributors; or
(c) at the option of the Company or Davis Distributors, in the
event that formal administrative proceedings are instituted
against the Insurance Company by the NASD, the SEC, an insurance
commissioner or any other regulatory body regarding the Insurance
Company's duties under this Agreement or related to the sale of
the Contracts, the operation of any Account, or the purchase of
the Company's shares, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Insurance Company to perform its
obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that
formal administrative proceedings are instituted against the
Company or Davis Distributors by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body,
provided, however, that the Insurance Company determines in its
sole judgement exercised in good faith, that any such
administrative proceedings will have a material adverse effect
upon the ability of the Company or Davis Distributors to perform
its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in that Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Fund shares in accordance with the
terms of the Contracts for which those Fund shares had been
selected to serve as the underlying investment media. The
Insurance Company will give at least 30 days' prior written
notice to the Company of the date of any proposed vote to replace
the Company's shares; or
(f) at the option of the Insurance Company, in the event any of
the Company's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or exemptions
therefrom, or such law precludes the use of those shares as the
underlying investment media of the Contracts issued or to be
issued by the Insurance Company; or
(g) at the option of the Insurance Company, if the Company ceases
to qualify as a regulated investment company under Subchapter M
of the Code or under any successor or similar provision, or if
the Insurance Company reasonably believes that the Company may
fail to so qualify; or
(h) at the option of the Insurance Company, if the Company fails
to meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or Davis Distributors, if
(1) the Company or Davis Distributors, respectively, shall
determine, in their sole judgment reasonably exercised in good
faith, that the Insurance Company has suffered a material adverse
change in its business or financial condition or is the subject
of material adverse publicity and that material adverse change or
material adverse publicity will have a material adverse impact
upon the business and operations of either the Company or Davis
Distributors, (2) the Company or Davis Distributors shall notify
the Insurance Company in writing of that determination and its
intent to terminate this Agreement, and (3) after considering the
actions taken by the Insurance Company and any other changes in
circumstances since the giving of such a notice, the
determination of the Company or Davis Distributors shall continue
to apply on the sixtieth (60th) day following the giving of that
notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably
exercised in good faith, that either the Company or Davis
Distributors has suffered a material adverse change in its
business or financial condition or is the subject of material
adverse publicity and that material adverse change or material
adverse publicity will have a material adverse impact upon the
business and operations of the Insurance Company, (2) the
Insurance Company shall notify the Company and Davis Distributors
in writing of the determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the
Company and/or Davis Distributors and any other changes in
circumstances since the giving of such a notice, the
determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be
the effective date of termination.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. No termination of this Agreement shall be effective
unless and until the party terminating this Agreement gives prior written
notice to all other parties to this Agreement of its intent to terminate,
which notice shall set forth the basis for the termination. Furthermore,
(a) in the event that any termination is based upon the provisions
of Article VII, or the provision of Section 10.1(a), 10.1(i)
or 10.1(j) of this Agreement, the prior written notice shall
be given in advance of the effective date of termination as
required by those provisions; and
(b) in the event that any termination is based upon the provisions
of Section 10.1(c) or 10.1(d) of this Agreement, the prior
written notice shall be given at least ninety (90) days before
the effective date of termination; provided that any party may
terminate this Agreement immediately with respect to any Fund
if such party reasonably determines that continuing to perform
under this Agreement would violate any state or federal law.
10.4. Notwithstanding any termination of this Agreement, subject to
Section 1.2 of this Agreement and for so long as the Company continues to exist,
the Company and Davis Distributors shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments from any other investment option to any
Fund, redeem investments in the Company and/or invest in the Company upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.4 shall not apply to any terminations under Article
VII and the effect of Article VII terminations shall be governed by Article VII
of this Agreement.
10.5. The Insurance Company shall not redeem Company shares
attributable to the Contracts (as opposed to Company shares attributable to the
Insurance Company's assets held in the Account) except (i) as necessary to
implement Contract-owner-initiated transactions, or (ii) as required by state
and/or federal laws or regulations or judicial or other legal precedent of
general application (a "Legally Required Redemption"). Upon request, the
Insurance Company will promptly furnish to the Company and Davis Distributors
the opinion of counsel for the Insurance Company (which counsel shall be
reasonably satisfactory to the Company and Davis Distributors) to the effect
that any redemption pursuant to clause (ii) above is a Legally Required
Redemption.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party set forth
below or at such other address as the other party may from time to time specify
in writing.
If to the Company:
124 East Marcy Street
Santa Fe, New Mexico 87501
Attention: Thomas Tays, Vice President
If to the Insurance Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, Minnesota 55403
Attention: Tom Clifford
If to Davis Distributors:
124 East Marcy Street
Santa Fe, New Mexico 87501
Attention: Thomas Tays, Vice President
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall 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, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. 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.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. 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.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit those authorities
reasonable access to its books and records in connection with any lawful
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. 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.
12.7. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns; provided, that no party
may assign this Agreement without the prior written consent of the others.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified below.
ALLIANZ LIFE INSURANCE COMPANY
OF NORTH AMERICA
By its authorized officer,
By: /s/ Michael T. Westermeyer
_______________________________
Title: Vice President Corporate
Legal Officer & Secretary
Date: 11-4-99
_____________________
DAVIS VARIABLE ACCOUNT FUND
("Company")
By its authorized officer,
By: /s/ Kenneth Eich
________________________________
Title: Vice President
Date: 11/6/99
_______________________
DAVIS DISTRIBUTORS, LLC
("Davis Distributors")
By its authorized officer,
By: /s/ Kenneth Eich
_________________________________
Title: President
Date: 11/6/99
_______________________
SCHEDULE A
ACCOUNTS
NAME OF ACCOUNT
Allianz Life Variable Account B
SCHEDULE B
CONTRACTS
Allianz Variable Account B
USAllianz Alterity
<PAGE>
SCHEDULE C
TO
PARTICIPATION AGREEMENT
NAME OF FUND
Davis Financial Portfolio
Davis Real Estate Portfolio
Davis Value Portfolio
Dated: November 1, 1999
SCHEDULE D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding
responsibilities for the handling of proxies relating to the Company by Davis
Distributors, the Company and the Insurance Company. The defined terms herein
shall have the meanings assigned in the Participation Agreement except that the
term "Insurance Company" shall also include the department or third party
assigned by the Insurance Company to perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by
Davis Distributors as early as possible before the date set by the
Company for the shareholder meeting to facilitate the establishment of
tabulation procedures. At this time Davis Distributors will inform the
Insurance Company of the Record, Mailing and Meeting dates. This will
be done verbally, with confirmation following promptly in writing,
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a
"tape run", or other activity, which will generate the names, addresses
and number of units which are attributed to each
contract-owner/policyholder (the "Customer") as of the Record Date.
Allowance should be made for account adjustments made after this date
that could affect the status of the Customers' accounts of the Record
Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best efforts to call in
the number of Customers to Davis Distributors, as soon as possible, but no later
than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Insurance Company by the Company. The
Insurance Company, at its expense, shall produce and personalize the
Voting Instruction cards. Davis Distributors must approve the Card
before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the
Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as
printed by the Company).
(This and related steps may occur later in the chronological process
due to possible uncertainties relating to the proposals.)
4. During this time, Davis Distributors will develop, produce, and the
Company will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Insurance Company for insertion into envelopes (envelopes and return
envelopes are provided and paid for by the Insurance Company). Contents
of envelope sent to customers by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance
Company) addressed to the Insurance Company or
its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests Contract
owners to vote as quickly as possible and that their
vote is important. One copy will be supplied by the
Company.)
e. Cover letter - optional, supplied by Insurance
Company and reviewed and approved in advance by Davis
Distributors.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date, and in no event later
than 3 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing
package to ensure correctness and completeness. Copy of this approval
sent to Davis Distributors.
6. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation time to
the Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days
from (but not including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often-used procedure is to sort cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance
company's internal procedure.
8. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to the Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified,"
I.E., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
10. The actual tabulation of votes is done in units and then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.) Davis
Distributors must review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company
to Davis Distributors on the day of the meeting not later than 1:00
p.m. Eastern time. Davis Distributors may request an earlier deadline
if required to calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be
required from the Insurance Company as well as an original copy of the
final vote. Davis Distributors will provide a standard form for each
Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged
or if otherwise necessary for legal, regulatory, or accounting
purposes, Davis Distributors will be permitted reasonable access to
such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing. For this purpose, signatures transmitted by
facsimile will be acceptable.
PARTICIPATION AGREEMENT
AMONG
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
AND
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
DATED AS OF
NOVEMBER 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements; Voting 7
ARTICLE IV. Sales Material and Information 9
ARTICLE V Reserved 10
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 16
ARTICLE X. Termination 16
ARTICLE XI. Notices 18
ARTICLE XII. Foreign Tax Credits 19
ARTICLE XIII. Miscellaneous 19
SCHEDULE A Separate Accounts and Contracts 22
SCHEDULE B Participating Life Investment
Trust Portfolios 23
SCHEDULE C Proxy Voting Procedures 24
PARTICIPATION AGREEMENT
Among
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
THIS AGREEMENT, made and entered into as of the 1st day of November,
1999 by and among ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA (hereinafter
the "Company"), a Minnesota corporation, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule A hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
and VAN KAMPEN LIFE INVESTMENT TRUST (hereinafter the "Fund"), a Delaware
business trust, VAN KAMPEN FUNDS INC. (hereinafter the "Underwriter"), a
Delaware corporation, and VAN KAMPEN ASSET MANAGEMENT INC. (hereinafter the
"Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Products are required to enter
into participation agreements with the Fund and the Underwriter (the
"Participating Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1990 (File No. 812-7552), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter 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 Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as
a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I. Fund Shares
1.1. The Fund and the Underwriter agree to make available for purchase
by the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and Underwriter for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
Houston time on the next following Business Day. Notwithstanding the foregoing,
the Company shall use its best efforts to provide the Fund with notice of such
orders by 9:15 a.m. Houston time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission, as set forth in the Fund's prospectus
and statement of additional information. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to permit the
Fund 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 is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.2. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares of any Portfolio will be sold to the general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4. The Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Fund for receipt of requests for redemption from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the
Underwriter receives notice of such request for redemption on the next following
Business Day in accordance with the timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Underwriter sixty (60) days
written notice of its intention to make available in the future, as a funding
vehicle under the Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem
shares of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs, and if the
Portfolio has determined to settle redemption transactions for all shareholders
on a delayed basis, proceeds shall be wired to the Company within seven (7) days
and the Portfolio shall notify in writing the person designated by the Company
as the recipient for such notice of such delay by 3:00 p.m. Houston time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Underwriter shall use its best efforts to furnish same day
notice by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Underwriter shall make the net asset value per share of each
Portfolio available to the Company 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 by 6:00 p.m.
Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time
stated immediately above, then Underwriter shall provide the Company with
additional time to notify Underwriter of purchase or redemption orders pursuant
to Sections 1.1 and 1.4, respectively, above. Such additional time shall be
equal to the additional time that Underwriter takes to make the net asset values
available to the Company; provided, however, that notification must be made by
10:00 a.m. Houston time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
1.10. If Underwriter provides materially incorrect share net asset
value information through no fault of the Company, the Company shall be entitled
to an adjustment with respect to the Fund shares purchased or redeemed to
reflect the correct net asset value per share. The determination of the
materiality of any net asset value pricing error shall be based on the SEC's
recommended guidelines regarding such errors. The correction of any such errors
shall be made at the Company level pursuant to the SEC's recommended guidelines.
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.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued and sold in
compliance with all applicable federal and state laws and regulations. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the Minnesota Insurance Code and the regulations
thereunder and has registered or, prior to any issuance or sale of the
Contracts, will register and will maintain the registration of each Account as a
unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund and the Underwriter represent and warrant that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and the regulations thereunder to the extent required by the 1933 Act, duly
authorized for issuance in accordance with the laws of the State of Delaware and
sold in compliance with all applicable federal and state securities laws and
regulations and that the Fund is and shall remain registered under the 1940 Act
and the regulations thereunder to the extent required by the 1940 Act. The Fund
shall amend the registration statement for its shares 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 Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund.
2.3. The Fund and the Adviser represent and warrant that the Fund is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code") and that each will make
every effort to maintain such qualification (under Subchapter M or any successor
or similar provision) and that each will notify the Company immediately upon
having a reasonable basis for believing that the Fund has ceased to so qualify
or that the Fund might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to
be a "segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a 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.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent and warrant that the Fund is
duly organized and validly existing under the laws of the State of Delaware and
that the Fund does and will comply in all material respects with the 1940 Act.
2.8. The Underwriter represents and warrants that it is and shall
remain duly registered under all applicable federal and state laws and
regulations and that it will perform its obligations for the Fund and the
Company in compliance with the laws and regulations of its state of domicile and
any applicable state and federal laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy
Statements; Voting
3.1. The Fund shall provide the Company with as many printed copies of
the Fund's current prospectus and statement of additional information as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2., all expenses
of preparing, setting in type and printing and distributing Fund prospectuses
and statements of additional information shall be the expense of the Company.
For prospectuses and statements of additional information provided by the
Company to its existing owners of Contracts in order to update disclosure as
required by the 1933 Act and/or the 1940 Act, the cost of setting in type,
printing and distributing shall be borne by the Fund. If the Company chooses to
receive camera-ready film or computer diskettes in lieu of receiving printed
copies of the Fund's prospectus and/or statement of additional information, the
Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or
statement of additional information to the Company in the format in which the
Fund is accustomed to formatting prospectuses and statements of additional
information, respectively, and the Company shall bear the expense of adjusting
or changing the format to conform with any of its prospectuses and/or statements
of additional information. In such event, the Fund will reimburse the Company in
an amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b). The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in Section 3.2(a) above) to shareholders in such quantity as the Company
shall reasonably require for distributing to Contract owners. The Fund shall not
pay any costs of distributing such proxy-related material, reports to
shareholders, and other communications to prospective Contract owners.
3.2(c). The Company agrees to provide the Fund or its designee with
such information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of typesetting, printing or distributing
any of the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund
pursuant to Section 3.2 hereof, incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.4. If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such Portfolio for which instructions have been
received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund 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, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund, the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund, the
Adviser, the Underwriter or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or Fund prospectus, as such registration statement or Fund prospectus
may be amended or supplemented from time to time, or in reports to shareholders
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3. The Fund shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material prepared by the Fund in which the Company or its Accounts, are named at
least ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
4.4. Neither the Fund nor the Underwriter shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract, contemporaneously with the filing of such document
with the Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: 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), 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, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. Diversification
6.1. The Fund will use its best efforts to at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event the Fund ceases to so qualify, it will take all
reasonable steps (a) to notify Company of such event and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material 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 owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether 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 policy
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 (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. 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 Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); 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 members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 through 7.4 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 irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are 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 Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
7.7 Each of the Company and the Adviser shall at least annually submit
to the Board such reports, materials or data as the Board may reasonably request
so that the Board may fully carry out the obligations imposed upon them by the
provisions hereof and in the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board. All reports received by the Board of potential or existing conflicts,
and all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, shall be properly
recorded in the minutes of the Board or other appropriate records, and such
minutes or other records shall be made available to the Securities and Exchange
Commission upon request.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) 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 Contracts or
contained in the Contracts or sales literature 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 the Company by or
on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control
and other than statements or representations authorized by the
Fund or the Underwriter) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) 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.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross 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.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim 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 the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such 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.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of the Fund shares or the Contracts, or the
operation of the Fund.
8.2. Indemnification by Underwriter
8.2(a). The Underwriter agrees, with respect to each Portfolio that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares that it distributes or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (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 the Fund or the
Underwriter by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Underwriter or persons
under their respective control and other than statements or
representations authorized by the Company) or unlawful conduct of
the Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Portfolio
shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund
or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and in
accordance with the provisions of Section 8.2(b) and 8.2(c)
hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross 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.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim 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 the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such 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.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts or the operation of each Account.
8.3. Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless the Company
and its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the operations of the
Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (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 the Adviser, the
Fund or the Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Adviser or persons under
its control and other than statements or representations
authorized by the Company) or unlawful conduct of the Fund, the
Adviser or persons under their control, with respect to the sale
or distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished To the
Company by or on behalf of the Fund or the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or the Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Fund or the Adviser, including
without limitation any failure by the Fund to comply with the
conditions of Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross 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.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim 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 the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such 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.
8.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Adviser.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon
six-months advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts. Reasonable advance notice of
election to terminate shall be furnished by the Company, said
termination to be effective ten (10) days after receipt of
notice unless the Fund makes available a sufficient number of
shares to reasonably meet the requirements of the Account
within said ten (10) day period; or
(c) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event any of the Portfolio's shares 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 medium of the Contracts issued or to
be issued by the Company. The terminating party shall give
prompt notice to the other parties of its decision to
terminate; or
(d) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund, the Adviser or the
Underwriter by written notice to the Company, if either one or
more of the Fund, the Adviser or the Underwriter, shall
determine, in its or their sole judgment exercised in good
faith, that the Company and/or their 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, provided that the Fund, the Adviser or the
Underwriter will give the Company sixty (60) days' advance
written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any
other changes in circumstances since the giving of such
notice, the determination of the Fund, the Adviser or the
Underwriter shall continue to apply on the 60th day since
giving of such notice, then such 60th day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good faith, that
either the Fund, the Adviser or the Underwriter 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, provided that the
Company will give the Fund, the Adviser and the Underwriter
sixty (60) days' advance written notice of such determination
of its intent to terminate this Agreement, and provided
further that after consideration of the actions taken by the
Fund, the Adviser or the Underwriter and any other changes in
circumstances since the giving of such notice, the
determination of the Company shall continue to apply on the
60th day since giving of such notice, then such 60th day shall
be the effective date of termination; or
(h) termination by the Fund, the Adviser or the Underwriter by
written notice to the Company, if the Company gives the Fund,
the Adviser and the Underwriter the written notice specified
in Section 1.5 hereof and at the time such notice was given
there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective sixty (60) days
after the notice specified in Section 1.5 was given; or
(i) termination by any party upon the other party's breach of
any representation in Section 2 or any material provision of
this Agreement, which breach has not been cured to the
satisfaction of the terminating party within ten (10) days
after written notice of such breach is delivered to the Fund
or the Company, as the case may be; or
(j) termination by the Fund, Adviser or Underwriter by written
notice to the Company in the event an Account or Contract is
not registered or sold in accordance with applicable federal
or state law or regulation, or the Company fails to provide
pass-through voting privileges as specified in Section 3.4.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the 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 "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 90 days notice of its intention to do so.
ARTICLE XI. Notices
11.1 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 Fund:
Van Kampen Life Investment Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Underwriter:
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Adviser:
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, Minnesota 55403
Attention: Tom Clifford
ARTICLE XII. Foreign Tax Credits
12.1. The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
ARTICLE XIII. Miscellaneous
13.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. Each of the
Company, Adviser and Underwriter acknowledges and agrees that, as provided by
Article 8, Section 8.1, of the Fund's Agreement and Declaration of Trust, the
shareholders, trustees, officers, employees and other agents of the Fund and its
Portfolios shall not personally be bound by or liable for matters set forth
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder. A Certificate of Trust
referring to the Fund's Agreement and Declaration of Trust is on file with the
Secretary of State of Delaware.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall 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, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. 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.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers 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.
13.7. 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.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared
under statutory accounting principles) and annual
report (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of each
fiscal year;
(b) the Company's June 30th quarterly
statements (statutory), as soon as practical and in
any event within 45 days following such period;
(c) any financial statement, proxy
statement, notice or report of the Company sent to
stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without
exhibits) and financial reports of the Company filed
with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after
the filing thereof;
(e) any other public report submitted to the
Company by independent accountants in connection with
any annual, interim or special audit made by them of
the books of the Company, as soon as practical after
the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified above.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA on behalf of itself and each of
its Accounts named in Schedule A hereto, as amended from time to time
By: /s/ Michael T. Westermeyer
________________________________________________
Vice President Corporate Legal Officer & Secretary
VAN KAMPEN LIFE INVESTMENT TRUST
By: /s/ Dennis J McDonell
_______________________________________________
Dennis J. McDonnell
Executive Vice President
VAN KAMPEN FUNDS INC.
By: /s/ Patrick Woelfel
________________________________________________
Patrick Woelfel
Senior Vice President
VAN KAMPEN ASSET MANAGEMENT INC.
By: /s/ Dennis J McDonnell
________________________________________________
Dennis J. McDonnell
President
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
Variable Account B US Allianz Alterity
Established: May 31, 1985 Form No. L30800
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
Enterprise Portfolio
Growth and Income Portfolio
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units (or equivalent shares)
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the
Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid
for by the Company). Contents of envelope sent to Customers by the
Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that
requests Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A.
Smith, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number
of shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 1st day of November, 1999, between
Allianz Life Insurance Company of North America ("Insurance Company"), a life
insurance company organized under the laws of the State of Minnesota, and J.P.
Morgan Series Trust II ("Fund"), a business trust organized under the laws of
Delaware, with respect to the Fund's portfolio or portfolios set forth on
Schedule 1 hereto, as such Schedule may be revised from time to time (the
"Series"; if there are more than one Series to which this Agreement applies, the
provisions herein shall apply severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1. "Act" shall mean the Investment Company Act of 1940, as amended.
1.2. "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3. "Business Day" shall mean any day for which the Fund calculates net
asset value per share as described in the Fund's Prospectus.
1.4. "Commission" shall mean the Securities and Exchange Commission.
1.5. "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are "Participants".
1.6. "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company.
1.7. "Disinterested Board Members" shall mean those members of the Board
that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8. "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an
agreement with the Fund for the purpose of making Fund shares
available to serve as the underlying investment medium for the
aforesaid Contracts.
1.9. "Plans" shall mean qualified pension and retirement benefit plans.
1.10. "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission,
with respect to the Series.
1.11. "Separate Account" shall mean an Insurance Company Variable Annuity
Separate Account, a separate account established by Insurance Company
in accordance with applicable state law.
1.12. "Software Program" shall mean the software program used by the Fund
for providing Fund and account balance information including net asset
value per share.
1.13. "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Account pursuant to
applicable state law for the purpose of offering to the public certain
individual variable annuity contracts; (c) it has registered the
Separate Account as a unit investment trust under the Act to serve as
the segregated investment account for the Contracts; (d) each Separate
Account is eligible to invest in shares of the Fund without such
investment disqualifying the Fund as an investment medium for insurance
company separate accounts supporting variable annuity contracts or
variable life insurance contracts; and (e) each Separate Account shall
comply with all applicable legal requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities Act
of 1933, as amended ("1933 Act"); (b) the Contracts will be issued and
sold in compliance in all material respects with all applicable federal
and state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Account without regard to
other income, gains or losses from assets allocated to any other
accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Account are and will be kept
separate from Insurance Company's General Account and any other
separate accounts Insurance Company may have, and will not be charged
with liabilities from any business that Insurance Company may conduct
or the liabilities of any companies affiliated with Insurance Company.
2.4 Fund represents and warrants that the Fund is registered with the
Commission under the Act as an open-end management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Fund to operate
and offer its shares as an underlying investment medium for
Participating Companies. The Fund has established five portfolios and
may in the future establish other portfolios.
2.5 Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every
effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify Insurance
Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the
future.
2.6 Insurance Company represents and warrants that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
its investment adviser immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future. Insurance Company agrees that
any prospectus offering a Contract that is a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
identify such Contract as a modified endowment contract (or policy).
2.7 Fund represents and warrants that the Fund's assets shall be managed
and invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall 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 that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce
any and all rights conferred by virtue of this Agreement.
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series'shares
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates and to Plans. No
shares of any Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern
Time on each Business Day. Any material errors in the calculation of
net asset value, dividend and capital gain information shall be
reported immediately upon discovery to Insurance Company. Non-material
errors will be corrected in the next Business Day's net asset value per
share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the Separate
Account unit values for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received
by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of Series shares which will be purchased or redeemed at that
day's closing net asset value per share for such Series. The net
purchase or redemption orders will be transmitted to the Fund by
Insurance Company by 8:30 a.m. Eastern Time on the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of the relevant Series next calculated after receipt of the order
by the Fund or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each
Series for the Separate Account. Fund will execute orders for any
Series at the applicable net asset value per share determined as of the
close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 8:30 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase of
Series shares, the conditions specified in Section 3.8, as applicable,
are satisfied. A redemption or purchase request for any Series that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value computed for such
Series on the Business Day immediately preceding the next following
Business Day upon which such conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance
of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds
to Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by the close of the
Federal Reserve wire system on the Business Day the Fund receives the
notice of the order pursuant to Section 3.5. Fund will execute such
orders at the applicable net asset value per share determined as of the
close of trading on the effective trade date if Fund receives payment
in Federal Funds by the close of the Federal Reserve wire system on the
Business Day the Fund receives the notice of the order pursuant to
Section 3.5. If payment in Federal Funds for any purchase is not
received on such Business Day, Insurance Company shall promptly upon
the Fund's request, reimburse the Fund for any charges, costs, fees,
interest or other expenses incurred by the Fund in connection with any
advances to, or borrowings or overdrafts by, the Fund, or any similar
expenses incurred by the Fund, as a result of portfolio transactions
effected by the Fund based upon such purchase request. If Insurance
Company's order requests the redemption of Series shares valued at or
greater than $1 million dollars, the Fund may wire such amount to
Insurance Company within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company
will record shares ordered from Fund in an appropriate title for the
corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a
Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and extraordinary
expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares.
Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as the Fund's investment
adviser and Insurance Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of Fund materials or marketing materials
for Insurance Company Contractholders and Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 1996
of the Securities and Exchange Commission under Section 6(c) of the Act
and, in particular, has reviewed the conditions to the relief set forth
in the related Notice. As set forth therein, Insurance Company agrees
to report any potential or existing conflicts promptly to the Board,
and in particular whenever contract voting instructions are
disregarded, and recognizes that it will be responsible for assisting
the Board in carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a view
to the interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in the Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that Insurance Company is responsible for causing or creating said
conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from
the Series and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to withdraw
the Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants on a
timely basis and in accordance with applicable law;
(b) vote the Series shares in accordance with instructions received
from Contractholders or Participants; and
(c) vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting
Series shares for the Separate Account is conducted in a manner
consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add to or
delete the Fund from the current investment media for the Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or the administrator is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless the Fund approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. The
Fund shall use all reasonable efforts to respond within ten days of
receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other promotional
material in which Insurance Company or the Separate Account is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless Insurance Company approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material.
Insurance Company shall use all reasonable efforts to respond within
ten days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, 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), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or 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
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the Fund or with respect to the Separate Account
or Contracts, 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;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which Series shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or Series shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund specifically for use therein; and
provided, further, that Insurance Company shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which Insurance Company may
otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the 1933 Act
against any losses, claims, damages or liabilities to which Insurance
Company or any such director, officer, employee, agent or controlling
person may become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) (1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the Fund any material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (3) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Fund will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus, sales
literature or advertisements in conformity with written information
furnished to the Fund by Insurance Company specifically for use
therein; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against
any and all liability, loss, damages, costs or expenses which Insurance
Company may incur, suffer or be required to pay due to the Fund's (1)
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Series; (2) incorrect reporting of
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate
or capital gain distribution rate; provided that the Fund shall have no
obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or incorrect or untimely reporting was the result
of incorrect information furnished by Insurance Company or information
furnished untimely by Insurance Company or otherwise as a result of or
relating to a breach of this Agreement by Insurance Company; and
provided, further, that the Fund shall not be liable for special,
consequential or incidental damages.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and to the extent
that the indemnifying party has given notice to such effect to the
indemnified party and is performing its obligations under this Article,
the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time from the
date hereof upon 180 days' notice, unless a
shorter time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of
notice unless the Fund makes available a sufficient number of
shares to meet the requirements of the Contracts within said
ten-day period;
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by
the Fund with said termination to be effective upon receipt of
notice;
e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change
or material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund or
its investment adviser, the Fund shall notify Insurance
Company in writing of such determination and its intent to
terminate this Agreement, and after considering the actions
taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund shall continue to apply on the
sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of termination;
f. Upon termination of the Investment Advisory Agreement between
the Fund and its investment adviser or its successors unless
Insurance Company specifically approves the selection of a new
Fund investment adviser. The Fund shall promptly furnish
notice of such termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately upon such
occurrence without notice;
h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify;
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l. Upon assignment of this Agreement, unless made with the written consent of
the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and its investment adviser may, at the option of
the Fund, continue to make available additional Series shares for so
long as the Fund desires pursuant to the terms and conditions of this
Agreement as provided below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if the
Fund so elects to make additional Series shares available, the owners
of the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments
in the Series, redeem investments in the Fund and/or invest in the Fund
upon the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, the Fund, as promptly as is practicable under the
circumstances, shall notify Insurance Company whether the Fund will
continue to make Series shares available after such termination. If
Series shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect and thereafter
either the Fund or Insurance Company may terminate the Agreement, as so
continued pursuant to this Section 10.3, upon prior written notice to
the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more
than six months.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company
and Fund.
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company:
Allianz Life Insurance Company
of North America
1750 Hennepin Avenue
Minneapolis, Minnesota 55403
Att: Tom Clifford
Fund:
J.P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Kathleen H. Tripp
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of Minnesota, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
Allianz Life Insurance Company of North America
By: /s/ Michael T. Westermeyer
______________________________
Michael T. Westermeyer
Its: Vice President Corporate Legal
Officer and Secretary
J.P.MORGAN SERIES TRUST II
By: /s/ Stephanie Pierce
_______________________________
Stephanie Pierce
Its: Vice President
SCHEDULE 1
Name of Series
J.P. Morgan International Opportunities Portfolio
J.P. Morgan U.S. Disciplined Equity Portfolio
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
THIS AGREEMENT (the "Agreement"), made and entered into as of
the 1st day of December, 1999 by and among Allianz Life Insurance Company of
North America (hereinafter the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement, as
may be amended from time to time by mutual consent (hereinafter collectively the
"Accounts"), Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser").
WHEREAS, the Fund is an open-end management investment company
and is available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies, variable annuity contracts and other tax-deferred products
(collectively, the "Variable Insurance Products") offered by insurance companies
(hereinafter "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio", and each representing
the interests in a particular managed pool of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission, dated July 16, 1986 (File No. 812-6324) granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter 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 Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance company (hereinafter the "Mixed
and Shared Funding Exemptive Order")
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts") (unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly
existing segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable contracts (the Contract(s) and the Account(s) covered by the
Agreement are specified in Schedule 1 attached hereto, as may be modified by
mutual consent from time to time);
WHEREAS, the Company has registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless an exemption from
registration is available);
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 1, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2. The Company shall pay for Fund shares by 2 p.m. New York
time on the next Business Day after it places an order to purchase Fund shares
in accordance with Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire or by a credit for any shares redeemed.
1.3. The Fund agrees to make Fund shares available for
purchase at the applicable net asset value per share by the Company for its
separate Account listed in Schedule 1 on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter 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 is, 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, in the best interests of the shareholders of any
Portfolio.
1.4. The Fund agrees to redeem, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund; provided that the Fund receives written (or facsimile) notice of such
request for redemption by 9:30 a.m. New York time on the next following Business
Day. Payment shall be made within the time period specified in the Fund's
prospectus or statement of additional information, in federal funds transmitted
by wire to the Company's account as designated by the Company in writing from
time to time.
1.5. The Company shall pay for the Fund shares on the next
Business Day after an order to purchase shares is made in accordance with the
provisions of Section 1.4 hereof. Payment shall be in federal funds transmitted
by wire pursuant to the instructions of the Fund's treasurer or by a credit for
any shares redeemed.
1.6. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
1.7. If the Fund 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.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. "Business Day" shall mean any day in which the New
York Stock Exchange is open for trading and in which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sale literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales
literature or other promotional material" means 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
billboard or electronic media), and sales literature (such as brochures,
circulars, market letters and form letters), distributed or made generally
available to customers or the public.
2.4. The Fund shall provide a copy of its current prospectus
within a reasonable period of its filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the Fund's prospectus printed together in
one document (such printing to be at the Company's expense). The Adviser shall
be permitted to review and approve the typeset form of the Fund's Prospectus
prior to such printing.
2.5. The Fund or the Adviser shall provide the Company with
either: (i) a copy of the Fund's proxy material, reports to shareholders, other
information relating to the Fund necessary to prepare financial reports, and
other communications to shareholders for printing and distribution to Contract
owners at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company's expense, within a reasonable period of the filing date for definitive
copies of such material. The Adviser shall be permitted to review and approve
the typeset form of such proxy material, shareholder reports and communications
prior to such printing provided such materials have been provided within a
reasonable period.
ARTICLE III. Fees and Expenses
3.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein.
3.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus, proxy materials and reports to
owners of Contracts issued by the Company.
3.4. In the event the Fund adds one
or more additional Portfolios and the parties desire to make such Portfolios
available to the respective Contract owners as an underlying investment medium,
a new Schedule 1 or an amendment to this Agreement shall be executed by the
parties authorizing the issuance of shares of the new Portfolios to the
particular Account. The amendment may also provide for the sharing of expenses
for the establishment of new Portfolios among Participating Insurance Companies
desiring to invest in such Portfolios and the provision of funds as the initial
investment in the new Portfolios.
ARTICLE IV. Potential Conflicts
4.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material 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 Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance company as set forth in the Mixed
and Shared Funding Exemptive Order, including without limitation the requirement
that the Company report any potential or existing conflicts of which it is aware
to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company are unaware of any such potential or
existing material irreconcilable conflicts.
4.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall, at its expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether 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 (2) 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 could conflict with the majority of Contract owner instructions, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; 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 members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
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 Account's investment in the Fund and terminate this Agreement
within six months after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable material 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 members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund,
subject to applicable regulatory limitation.
4.6. For purposes of Sections 4.3 through 4.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 4.3 to
establish a new funding medium for Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the particular Account's investment in
the Fund and terminate this Agreement within six (6) months after the Board
informs 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 members of the Board.
ARTICLE V. Applicable Law
5.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of
Minnesota.
5.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE VI. Termination
6.1 This Agreement shall terminate with respect to some or all
Portfolios:
(a) at the option of any party upon six
month's advance written notice to the other parties;
(b) at the option of the Company to the
extent that shares of Portfolios are not reasonably available to meet
the requirements of its Contracts or are not appropriate funding vehicles
for the Contracts, as determined by the Company reasonably and in good faith.
Prompt notice of the election to terminate for such cause and an explanation
of such cause shall be furnished by the Company; or
(c) as provided in Article IV
6.2. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 6.1(a) may be exercised
for cause or for no cause.
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 to
the other party.
If to the Fund:
Oppenheimer Variable Account Funds
6803 S. Tucson Way
Englewood, Colorado 80112
Attn: Brian W. Wixted, Treasurer
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Andrew J. Donohue, General Counsel
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Attn: Thomas Clifford
ARTICLE VIII. Miscellaneous
8.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall 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, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as it may come into the
public domain.
8.2. 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.
8.3. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
8.4. 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.
8.5. Each party hereto shall cooperate with, and promptly
notify each other party and all appropriate governmental authorities (including
without limitation the Securities and Exchange 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.
8.6. 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.
8.7. It is understood by the parties that this
Agreement is not an exclusive arrangement in any respect.
8.8. The Company and the Adviser each understand and agree that
the obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
8.9. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
8.10. This Agreement sets forth the entire agreement between
the parties and supercedes all prior communications, agreements and
understandings, oral or written, between the parties regarding the subject
matter hereof. The agreement by and among the Company, Preferred Life Insurance
Company of New York, the Fund and the Adviser, dated November 15, 1999, is
hereby replaced in its entirety by this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
By: /s/ Michael T. Westermeyer
__________________________________
Michael T. Westermeyer
Vice President Corporate
Title: Legal Officer and Secretary
_______________________________
Date: Dec 6, 1999
________________________________
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
By: /s/ Andrew J. Donohue
__________________________________
Title: Vice President and Secretary
_______________________________
Date: December 2, 1999
________________________________
OPPENHEIMERFUNDS, INC.
By: /s/ Andrew J. Donohue
__________________________________
Title: Executive Vice President
__________________________________
Date: December 2, 1999
________________________________
SCHEDULE 1
Separate Accounts Contracts
Allianz Life Insurance Company of North America U.S. Allianz Alterity
Variable Account B
SCHEDULE 2
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
PARTICIPATION AGREEMENT
AMONG
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of December 1999 by and among
Allianz Life Insurance Company of North America, (the "Company"), a Minnesota
life insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), PIMCO
Variable Insurance Trust (the "Fund"), a Delaware business trust, and PIMCO
Funds Distributors LLC (the "Underwriter"), a Delaware limited liability
company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC") granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or fractional
Designated Portfolio shares held by the Company on behalf of the Account, such
redemptions to be effected at net asset value in accordance with Section 1.3 of
this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem
Fund shares attributable to Contract owners except in the circumstances
permitted in Section 10.3 of this Agreement, and (ii) the Fund may delay
redemption of Fund shares of any Designated Portfolio to the extent permitted by
the 1940 Act, and any rules, regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund for the
limited purpose of receiving purchase and redemption requests on
behalf of the Account (but not with respect to any Fund shares that
may be held in the general account of the Company) for shares of those
Designated Portfolios made available hereunder, based on allocations
of amounts to the Account or subaccounts thereof under the Contracts
and other transactions relating to the Contracts or the Account.
Receipt of any such request (or relevant transactional information
therefor) on any day the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the
rules of the SEC (a "Business Day") by the Company as such limited
agent of the Fund prior to the time that the Fund ordinarily
calculates its net asset value as described from time to time in the
Fund Prospectus (which as of the date of execution of this Agreement
is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on
that same Business Day, provided that the Fund receives notice of such
request by 9:00 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on the
same day that it notifies the Fund of a purchase request for such
shares. Payment for Designated Portfolio shares shall be made in
federal funds transmitted to the Fund by wire to be received by the
Fund by 4:00 p.m. Eastern Time on the day the Fund is notified of the
purchase request for Designated Portfolio shares (unless the Fund
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Designated Portfolios
effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If federal funds are not received on time,
such funds will be invested, and Designated Portfolio shares purchased
thereby will be issued, as soon as practicable and the Company shall
promptly, upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of
portfolio transactions effected by the Fund based upon such purchase
request. Upon receipt of federal funds so wired, such funds shall
cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by the Account or the
Company shall be made in federal funds transmitted by wire to the
Company or any other designated person on the next Business Day after
the Fund is properly notified of the redemption order of such shares
(unless redemption proceeds are to be applied to the purchase of
shares of other Designated Portfolios in accordance with Section
1.3(b) of this Agreement), except that the Fund reserves the right to
redeem Designated Portfolio shares in assets other than cash and to
delay payment of redemption proceeds to the extent permitted under
Section 22(e) of the 1940 Act and any Rules thereunder, and in
accordance with the procedures and policies of the Fund as described
in the then current prospectus. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be
responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio shares held
or to be held in the Company's general account shall be effected at the
net asset value per share next determined after the Fund's receipt of
such request, provided that, in the case of a purchase request, payment
for Fund shares so requested is received by the Fund in federal funds
prior to close of business for determination of such value, as defined
from time to time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the net asset value per share
for each Designated Portfolio available to the Company by 7:00 p.m. Eastern Time
each Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such Designated Portfolio is calculated, and shall
calculate such net asset value in accordance with the Fund's Prospectus. Neither
the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates
shall be liable for any information provided to the Company pursuant to this
Agreement which information is based on incorrect information supplied by the
Company or any other Participating Insurance Company to the Fund or the
Underwriter. 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 shares. 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.
1.5. The Fund shall furnish notice (by wire or telephone followed by written
confirmation) to the Company as soon as reasonably practicable of any income
dividends or capital gain distributions payable on any Designated Portfolio
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any Designated
Portfolio shares in the form of additional shares of that Designated Portfolio.
The Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company promptly of the number
of Designated Portfolio shares so issued as payment of such dividends and
distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry only. Stock
certificates will not be issued to the Company or the Account. Purchase and
redemption orders for Fund shares shall be recorded in an appropriate ledger for
the Account or the appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.8 hereof) and the cash value of the
Contracts may be invested in other investment companies, provided, however, that
until this Agreement is terminated pursuant to Article X, the Company shall
promote the Designated Portfolios on the same basis as other funding vehicles
available under the Contracts. Funding vehicles other than those listed on
Schedule A to this Agreement may be available for the investment of the cash
value of the Contracts, provided, however, (i) any such vehicle or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of the Designated Portfolios
available hereunder; (ii) the Company gives the Fund and the Underwriter 45 days
written notice of its intention to make such other investment vehicle available
as a funding vehicle for the Contracts; and (iii) unless such other investment
company was available as a Funding vehicle for the Contracts prior to the date
of this Agreement and the Company has so informed the Fund and the Underwriter
prior to their signing this Agreement, the Fund or Underwriter consents in
writing to the use of such other vehicle, such consent not to be unreasonably
withheld.
The Company shall not, without prior notice to the Underwriter (unless
otherwise required by
applicable law), take any action to operate the Account as a management
investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Underwriter (unless
otherwise required by applicable law), induce Contract owners to change or
modify the Fund or change the Fund's distributor or investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
Contract owners to
vote on any matter submitted for consideration by the shareholders of the Fund
in a manner other than as recommended by the Board of Trustees of the Fund.
1.8. The Underwriter and the Fund shall sell Fund shares only to Participating
Insurance Companies and their separate accounts and to persons or plans
("Qualified Persons") that communicate to the Underwriter and the Fund that they
qualify to purchase shares of the Fund under Section 817(h) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder
without impairing the ability of the Account to consider the portfolio
investments of the Fund as constituting investments of the Account for the
purpose of satisfying the diversification requirements of Section 817(h). The
Underwriter and the Fund shall not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VI of this Agreement
is in effect to govern such sales, to the extent required. The Company hereby
represents and warrants that it and the Account are Qualified Persons. The Fund
reserves the right to cease offering shares of any Designated Portfolio in the
discretion of the Fund.
ARTICLE II. Representations and Warranties
The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under Minnesota insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in accordance with the laws of the various
states only if and to the extent deemed advisable by the Company.
2.2. The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with applicable state and federal securities laws and
that the Fund is and shall remain registered under the 1940 Act. The Fund shall
amend the registration statement for its shares 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 Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act. Prior to financing distribution expenses pursuant
to Rule 12b-1, the Fund will have the Board, a majority of whom are not
interested persons of the Fund, formulate and approve a plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund makes no representations as to whether any aspect of its
operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
2.5. The Fund represents and warrants that it is lawfully 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.
2.6. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents and warrants that it will sell and distribute the
Fund shares in accordance with any applicable state and federal securities laws.
2.7. The Fund and the Underwriter represent and warrant that all of their
trustees/directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund are
and shall 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
minimum 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 shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.8. The Company represents and warrants that all of its directors, officers,
employees, and other individuals/entities employed or controlled by the Company
dealing with the money and/or securities of the Account are covered by a blanket
fidelity bond or similar coverage for the benefit of the Account, in an amount
not less than $5 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees to
hold for the benefit of the Fund and to pay to the Fund any amounts lost from
larceny, embezzlement or other events covered by the aforesaid bond to the
extent such amounts properly belong to the Fund pursuant to the terms of this
Agreement. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) or, to the extent permitted, the Fund's profiles as the
Company may reasonably request. The Company shall bear the expense of printing
copies of the current prospectus and profiles for the Contracts that will be
distributed to existing Contract owners, and the Company shall bear the expense
of printing copies of the Fund's prospectus and profiles that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the Fund's expense)
and other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus for the Fund is amended) to have
the prospectus for the Contracts and the Fund's prospectus or profile printed
together in one document (such printing to be at the Company's expense).
3.2. The Fund's prospectus shall state that the current Statement of Additional
Information ("SAI") for the Fund is available, and the Underwriter (or the
Fund), at its expense, shall provide a reasonable number of copies of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3. The Fund shall provide the Company with information regarding the Fund's
expenses, which information may include a table of fees and related narrative
disclosure for use in any prospectus or other descriptive document relating to a
Contract. The Company agrees that it will use such information in the form
provided. The Company shall provide prior written notice of any proposed
modification of such information, which notice will describe in detail the
manner in which the Company proposes to modify the information, and agrees that
it may not modify such information in any way without the prior consent of the
Fund.
3.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.5. The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from Contract
owners; and
(iii) vote Fund shares for which no instructions
have been received in the same proportion as
Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company will vote Fund shares held in any
segregated asset account in the same proportion as Fund shares of such portfolio
for which voting instructions have been received from Contract owners, to the
extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or
its designee, each piece of sales literature or other promotional material that
the Company develops and in which the Fund (or a Designated Portfolio thereof)
or the Adviser or the Underwriter is named. No such material shall be used until
approved by the Fund or its designee, and the Fund will use its best efforts for
it or its designee to review such sales literature or promotional material
within ten Business Days after receipt of such material. The Fund or its
designee reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Fund (or a
Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no
such material shall be used if the Fund or its designee so object.
4.2. The Company shall not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund or the Adviser or the
Underwriter in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus or SAI for the Fund shares, as such registration statement and
prospectus or SAI may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or other
promotional material approved by the Fund or its designee or by the Underwriter,
except with the permission of the Fund or the Underwriter or the designee of
either.
4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to
be furnished, to the Company, each piece of sales literature or other
promotional material that it develops and in which the Company, and/or its
Account, is named. No such material shall be used until approved by the Company,
and the Company will use its best efforts to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Company reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Company and/or
its Account is named, and no such material shall be used if the Company so
objects.
4.4. The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus (which shall include an offering memorandum,
if any, if the Contracts issued by the Company or interests therein are not
registered under the 1933 Act), or SAI for the Contracts, as such registration
statement, prospectus, or SAI may be amended or supplemented from time to time,
or in published reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, promptly after the filing of such document(s)
with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
4.7. The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: 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), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, 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, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Fund or Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement shall
be paid by the Fund. The Fund shall see to it that all its shares are registered
and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Fund, in accordance with applicable
state laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's prospectus
to owners of Contracts issued by the Company and of distributing the Fund's
proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
The Fund represents and warrants that it will invest its
assets in such a manner as to ensure that the Contracts will be treated as
annuity or life insurance contracts, whichever is appropriate, under the Code
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, each Designated Portfolio has complied and
will continue to comply with Section 817(h) of the Code and Treasury Regulation
ss.1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 1.817-5.
6.2. The Fund represents and warrants that it is or will be qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
6.3. The Company represents and warrants that the Contracts are currently, and
at the time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts, and then only to the extent required under the 1940 Act.
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Contract owners of all
separate accounts investing in the Fund. An irreconcilable material 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 Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it is
aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether 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 (2) establishing a new
registered management investment company or managed separate account.
7.4. 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 Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each 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 members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. 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 Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
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 members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs 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 members
of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption Order or any
amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are 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 Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and
each of its trustees/directors and officers, and each person, if any, who
controls the Fund or Underwriter within the meaning of Section 15 of the 1933
Act or who is under common control with the Underwriter (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue
statements of any material fact contained in the registration
statement, prospectus (which shall include a written description of a
Contract that is not registered under the 1933 Act), or SAI for the
Contracts or contained in the Contracts or sales literature 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 the Company by or on behalf of the Fund for use in the
registration statement, prospectus or SAI for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI, or sales literature of the Fund not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or its agents or persons under the Company's
authorization or control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
or sales literature of the Fund or any amendment thereof or supplement
thereto 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 information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the qualification requirements specified
in Article VI of this Agreement); or
(v) 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
(vi) as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to
any losses, claims, damages, liabilities or litigation to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall
have notified the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim 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 the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against an Indemnified Party, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such 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.
8.1(d). The Indemnified Parties will promptly
notify the Company of the commencement of any
litigation or proceedings against them in connection with the issuance or sale
of the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify
and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature of the Fund (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 the Underwriter
or Fund by or on behalf of the Company for use in the registration
statement, prospectus or SAI for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI
or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter to
provide the services and furnish the materials under the terms of this
Agreement (including a failure of the Fund, whether unintentional or
in good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b)
and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under
this indemnification provision with respect
to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
or such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under
this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim 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 the Underwriter of any such claim shall not
relieve the Underwriter from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Party, the Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such 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.
The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of the Contracts or the operation of the Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold
harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 8.3) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other expenses) to which
the Indemnified Parties may be required to pay or may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages, liabilities or expenses (or actions in respect
thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any
losses, claims, damages, liabilities or litigation to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Company, the
Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have
notified the Fund in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim 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 the Fund of any such claim shall not relieve the Fund from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Fund will
not be liable to such 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.
8.3(d). The Company and the Underwriter
agree promptly to notify the Fund of the commencement
of any litigation or proceeding against it or any of its respective officers or
directors in connection with the Agreement, the issuance or sale of the
Contracts, the operation of the Account, or the sale or acquisition of shares of
the Fund.
ARTICLE IX. Applicable Law
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, the Mixed and Shared Funding Exemptive Order should no longer
be necessary under applicable law, then Article VII shall no longer apply.
ARTICLE X. Termination
This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with respect
to some or all Designated Portfolios, by six (6)
months advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter in the event any of the
Designated Portfolio's shares 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
Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event
that formal administrative proceedings are instituted
against the Company by the NASD, the SEC, the
Insurance Commissioner or like official of any state
or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of
the Contracts, the operation of any Account, or the
purchase of the Fund's shares; provided, however,
that the Fund or Underwriter determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material
adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the
Fund or Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body; provided, however, that the Company
determines in its sole judgment exercised in good
faith, that any such administrative proceedings will
have a material adverse effect upon the ability of
the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Designated Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company
under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified
in Article VI hereof, or if the Company reasonably
believes that such Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the Contracts
fail to meet the qualifications specified in Article
VI hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both
of the Fund or the Underwriter respectively, shall
determine, in their sole judgment exercised in good
faith, that the Company 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; or
(i) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or the Underwriter 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; or
(j) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund
and the Underwriter the written notice specified in
Section 1.7(a)(ii) hereof and at the time such notice
was given there was no notice of termination
outstanding under any other provision of this
Agreement; provided, however, any termination under
this Section 10.1(j) shall be effective forty-five
days after the notice specified in Section 1.7(a)(ii)
was given; or
(k) termination by the Company upon any substitution of
the shares of another investment company or series
thereof for shares of a Designated Portfolio of the
Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 45 days
prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the Fund's
Board of Trustees determines that a material
irreconcilable conflict exists as provided in Article
VII.
10.2. Notwithstanding any termination of this Agreement, the Fund and the
Underwriter shall, at the option of the 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 "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to Section 26(b) of
the 1940 Act to permit the substitution of other securities for the shares of
the Designated Portfolios. The Underwriter agrees to split the cost of seeking
such an order, and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request. Specifically, the owners of
the Existing Contracts may be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts (subject to any such
election by the Underwriter). The parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any terminations under
Section 10.1(g) of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the Account)
except (i) as necessary to implement Contract owner initiated or approved
transactions, (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"), (iii) upon 45 days prior written notice
to the Fund and Underwriter, as permitted by an order of the SEC pursuant to
Section 26(b) of the 1940 Act, but only if a substitution of other securities
for the shares of the Designated Portfolios is consistent with the terms of the
Contracts, or (iv) as permitted under the terms of the Contract. Upon request,
the Company will promptly furnish to the Fund and the Underwriter reasonable
assurance that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contacts, the Company shall not prevent Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 45 days notice of its
intention to do so.
10.4. Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties shall survive.
<PAGE>
ARTICLE XI. 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 Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
If to the Company: Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
All persons dealing with the Fund must look solely to the
property of the Fund, and in the case of a series company, the respective
Designated Portfolios listed on Schedule A hereto as though each such Designated
Portfolio had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2. Subject to the requirements of legal process and regulatory authority,
each party hereto shall 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, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information has come into the
public domain.
12.3. 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.
12.4. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.5. 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.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Minnesota Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Minnesota variable annuity laws and regulations and any other applicable law or
regulations.
12.7. 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.
12.8. This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
12.9. The Company shall furnish, or shall cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles) filed with any state or federal
regulatory body or otherwise made available to the
public, as soon as practicable and in any event
within 90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulatory, as soon as practicable after
the filing thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA:
By its authorized officer
By: /s/ Michael T. Westermeyer
Name: Michael T. Westermeyer
Title: Vice President Corporate
Legal Officer & Secretary
Date: 11-18-99
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By: /s/ Brent R. Harris
Name: Brent R. Harris
Title: Chairman
Date: 12-9-99
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By: /s/ Newton B. Schott Jr.
Name: Newton B. Schott, Jr.
Title: Executive Vice President
Date: 11/30/99
Schedule A
PIMCO VARIABLE INSURANCE TRUST PORTFOLIOS:
1. PIMCO StocksPLUS Growth and Income Portfolio
2. PIMCO Total Return Bond Portfolio
3. PIMCO High Yield Bond Portfolio
SEGREGATED ASSET ACCOUNTS:
Variable Account B
Dated _________________, 199___.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of Dec, 1999 between Seligman
Portfolios, Inc., an open-end management investment company organized as a
Maryland Corporation (the "Fund"), and Allianz Life Insurance Company of North
America, a life insurance company organized 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 on Schedule A, as may be amended from
time to time (the "Account").
W I T N E S S E T H :
WHEREAS, the Fund is a registered open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has filed a currently effective registration statement to offer and sell of
its shares under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Fund desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Fund (the "Participating Insurance
Companies"); and
WHEREAS, the shares of the Fund are divided into several series of
shares, each series representing an interest in a particular managed portfolio
of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has applied for an order from the Securities and
Exchange Commission ("SEC") granting Participating Insurance Companies (as
defined in the Fund's application for such order) 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 Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies and certain qualified pension and
retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable
life insurance policies and/or variable annuity contracts under the 1933 Act
(the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle of the
Accounts;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
ARTICLE I.
Sale of Fund Shares
1.1. The Fund shall make shares of its Portfolios available to the Accounts at
the net asset value next computed after receipt of such purchase order by the
Fund (or its agent), as established in accordance with the provisions of the
then current prospectus of the Fund. Shares of a particular Portfolio of the
Fund shall be ordered in such quantities and at such times as determined by the
Company to be necessary to meet the requirements of the Contracts. The Directors
of the Fund (the "Directors") 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
is, 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, necessary in
the best interests of the shareholders of such Portfolio.
1.2. The Fund will redeem 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 Fund (or its agent) of the request for redemption,
as established in accordance with the provisions of the then current prospectus
of the Fund. The Fund shall make payment for such shares in the manner
established from time to time by the Fund, but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act.
1.3. For the purposes of Sections 1.1 and 1.2, the Fund hereby appoints the
Company as its agent for the limited purpose of receiving and accepting purchase
and redemption orders resulting from investment in and payments under the
Contracts. Receipt by the Company shall constitute receipt by the Fund provided
that (i) such orders are received by the Company in good order prior to the time
the net asset value of each Portfolio is priced in accordance with its
prospectus and (ii) the Fund receives notice of such orders by 10:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.4. Purchase orders that are transmitted to the Fund in accordance with Section
1.3 shall be paid for on the same Business Day that the Fund receives notice of
the order. Payments shall be made in federal funds transmitted by wire.
1.5. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Fund will be recorded in the appropriate title for each Account
or the appropriate subaccount of each Account.
1.6. The Fund shall furnish prompt notice to the Company of any income dividends
or capital gain distributions payable on the Fund's shares. 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
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.7. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall us its best efforts to
make such net asset value per share available by 6 p.m. New York time.
1.8. The Fund agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Exemptive Order. No shares
of any Portfolio will be sold directly to the general public. The Company agrees
that Fund shares will be used only for the purposes of funding the Contracts and
Accounts listed in Schedule A, as amended from time to time.
1.9. The Fund and the Company agree that they shall amend any provision of this
Agreement to the extent that it is inconsistent with any condition imposed by
the SEC in the Exemptive Order.
1.10. If the Fund 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.
ARTICLE II.
Obligations of the Parties
2.1. The Fund shall prepare and be responsible for filing with the SEC 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 Fund.
The Fund shall bear the cost of registration and qualification of its shares,
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. At the option of the Company, the Fund shall either (i) provide the Company
(at the Company's expense) with as many copies of the Fund's current prospectus,
annual reports, semi-annual report and other shareholder communications,
including any amendments or supplements to any of the foregoing, as the Company
shall reasonably request; or (ii) provide the Company with a camera ready copy
of such documents in a form suitable for printing. The Fund shall provide the
Company with a copy of its statement of additional information in a form
suitable for duplication by the Company. The Fund (at its expense) shall provide
the Company with copies of any Fund-sponsored proxy materials in such quantity
as the Company shall reasonably require for distribution to Contract owners.
2.3. The Company shall bear the costs of printing and distributing the Fund's
prospectus, statement of additional information, shareholder reports and other
shareholder communications to owners of and applicants for policies for which
the Fund is serving or is to serve as an investment vehicle. The Company shall
bear the costs of distributing proxy materials (or similar materials such as
voting solicitation instructions) to Contract owners. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
2.4 The Company agrees and acknowledges that the Fund's manager, J. &
W. Seligman & Co. Incorporated ("Seligman"), is the sole owner of the name and
mark "Seligman" and that all use of any designation comprised in whole or part
of Seligman (a "Seligman Mark") under this Agreement shall inure to the benefit
of Seligman. Except as provided in section 2.5, the Company shall not use any
Seligman 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
Seligman. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Seligman Mark(s) as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Fund or its
designee, a copy of each Contract prospectus or statement of additional
information in which the Fund or Seligman is named prior to the filing of such
document with the SEC. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of advertising, sales
literature or other promotional material in which the Fund or Seligman is named,
at least fifteen Business Days prior to its use. No such material shall be used
if the Fund or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
2.6. The Company shall not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund or Seligman 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 Fund shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Fund, Fund-sponsored proxy statements, or in any advertisements, sales
literature or other promotional material approved by the Fund or its designee,
except as required by legal process or regulatory authorities or with the
written permission of the Fund or its designee.
2.7. The Fund shall not 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 advertisements, sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.8. So long as, and to the extent that the SEC interprets the 1940 Act
to require pass-through voting privileges for variable policyowners, the Company
will provide pass-through voting privileges to owners of policies whose cash
values are invested, through the Accounts, in shares of the Fund. The Fund 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 Fund. With
respect to each Account, the Company will vote shares of the Fund held by the
Account and for which no timely voting instructions for policyowners are
received as well as shares it owns that are held by that Account, 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 Fund shares held by Contract owners without the
prior written consent of the Fund, which consent may be withheld in the Fund's
sole discretion.
2.9 The Company shall establish and disclose to Contract owners a
reasonable policy designed to discourage frequent and disruptive purchases and
redemptions of Fund shares by Contract owners and shall cooperate with the Fund
to minimize the impact on the Fund of such transactions.
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 on the date set forth in Schedule A.
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 to serve
as a segregated investment account for the Contracts.
3.3. The Company represents that it has full power and authority under
applicable law and has taken all actions necessary, to enter into this
Agreement. The Company represents and warrants that the Contracts will be
registered under the 1933 Act 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 suitability requirements.
3.4. The Fund represents and warrants that it is duly organized and
validly existing under the laws of the State of Maryland.
3.5. The Fund represents and warrants that the Fund shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Fund shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Fund 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 Fund shall make notice or other filings in
accordance with the laws of the various states only if and to the extent deemed
necessary by the Fund.
3.6 The Fund represents and warrants that the investments of each Portfolio will
comply with the diversification requirements set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder.
3.7 The Fund represents and warrants that it has full power and
authority under applicable law and has taken all actions necessary, to enter
into this Agreement.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that the Fund's shares may be made
available for investment to other Participating Insurance Companies and
qualified pension and retirement plans ("Qualified Plans"). In such event, the
Directors will monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies and of Qualified Plans. An irreconcilable material 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 Directors shall promptly inform the Company
if they determine that an irreconcilable material conflict exists and the
implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Directors. The Company will assist the
Directors in carrying out their responsibilities under the Exemptive Order by
providing the Directors with all information reasonably necessary for the
Directors to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contact owner voting
instructions.
4.3 If it is determined by a majority of the Directors, or a majority
of its disinterested Directors, 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 expense and to the extent reasonably practicable (as determined
by the Directors) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (i) withdrawing the
assets allocable to some or all of the Accounts from the Fund or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Fund, 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., variable annuity contract owners or variable, life insurance contract
owners that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (ii) 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 Fund's election, to withdraw the affected Account if
requested by the Fund's Directors, terminate this Agreement with respect to such
Account within six months after the Directors inform the Company in writing that
it 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 Directors. Until the end of
such six month period, the Fund shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Fund.
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 Fund and, if requested by the Fund's
Directors, terminate this Agreement with respect to such Account within six
months after the Directors inform the Company in writing that it has determined
that such decision has created an irreconcilable material 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 Directors. Until the end of such six month period,
the Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company 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 irreconcilable material conflict. In the
event that the Directors determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Directors 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 Directors.
4.7. The Company shall at least annually submit to the Directors such
reports, materials or data as the Directors may reasonable request so that the
Directors may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Directors.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are 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 Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and 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 Fund and each of its Directors, officers, employees and
agents and each person, if any, who controls the Fund within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
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:
(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 any advertising, sales literature or other
promotional 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
Fund for use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Fund Documents as defined in Section 5.2(a)) or wrongful
conduct of the Company or persons under its control, or subject to its
authorization or supervisions with respect to the sale or acquisition
of the Contracts or Fund shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Fund 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 Fund 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.
5.2 Indemnification By the Fund. The Fund 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 purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) 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:
(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 Fund (or any amendment or
supplement thereto), (collectively, "Fund 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 Fund by or on behalf
of the Company for use in Fund Documents or otherwise for use in
connection with the sale of the Contracts or Fund 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 Fund or
persons under its control, or subject to its authorization or
supervision with respect to the sale or acquisition of the Contracts or
Fund 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
statement 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 Fund; or
(d) arise out of or result from any failure by the Fund 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 Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund.
5.3. Neither the Company nor the Fund 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 gross 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. Neither the Company nor the Fund shall be liable under the
indemnification provisions of sections 5.1 or 5.2, as applicable, with respect
to any claim made against any 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 the Indemnified
Parties, 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 may be terminated by either party for any reason by
sixty (60) days advance written notice delivered to the other party.
6.2. Notwithstanding any termination of this Agreement, the Fund shall,
at the option of the Company, continue to make available additional shares of
the Fund (or 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, provided that the Company continues to pay the costs set forth
in section 2.3.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Fund are held on behalf
of the 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 Fund:
100 Park Avenue
New York, New York 10017
Attention: General Counsel, Law & Regulation
If to the Company:
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Attention: Tom 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 simultaneously 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 State of Minnesota. Each
party hereto unconditionally submits to the jurisdiction of any Minnesota state
court or federal court of the United States sitting in Minneapolis, and any
appellate court thereof, in any action or proceeding arising out of or relating
to this Agreement.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Fund and that no Director, officer, agent or holder of shares of
beneficial interest of the Fund 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 SEC, the
National Association of Securities Dealers 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. The parties to this Agreement acknowledge and agree that 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 This Agreement constitutes the entire contract between the parties
relating to the subject matter hereof and supersedes any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.
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.
Seligman Portfolios, Inc. Allianz Life Insurance Company of
North America
By: /s/ Brian Zino By: /s/ Michael T. Westemeyer
______________________________ ______________________________
Name: Brian Zino Name: Michael T. Westermeyer
____________________________ ____________________________
Title: President Title: Vice President Corporate
Legal Officer & Secretary
_____________________________ _____________________________
A-1
Schedule A
Separate Accounts and Associated Contracts
Names of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
Allianz Life - Variable US Allianz Alterity
Account B
(5-31-85)
00256.001 #125136
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
December 29, 1999
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Re: Opinion of Counsel - Allianz Life Variable Account B
Gentlemen:
You have requested our Opinion of Counselin connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for the Individual Flexible Payment Deferred
Variable Annuity Contract (the "Contract") to be issued by Allianz Life
Insurance Company of North America and its separate account, Allianz Life
Variable Account B.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as the 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 a copy thereof, 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."
/S/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
December 27, 1999
