File Nos. 33-76190
811-05618
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 10/ (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 48 (X)
(Check appropriate box or boxes.)
ALLIANZ LIFE VARIABLE ACCOUNT B
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(Exact Name of Registrant)
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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(Name of Depositor)
1750 Hennepin Avenue, Minneapolis, MN 55403
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 347-6596
Name and Address of Agent for Service
-------------------------------------
Michael T. Westermeyer
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph(b) of Rule 485
_X_ on May 1, 1999 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Registered:
Individual Immediate Variable Annuity Contracts
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART A
Item 1. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . . . Index of Terms
Item 3. Synopsis or Highlights. . . . . . . . . . . . . Profile
Item 4. Condensed Financial Information . . . . . . . . Appendix
Item 6. Deductions. . . . . . . . . . . . . . . . . . . Expenses
Item 7. General Description of Variable Annuity
Contracts . . . . . . . . . . . . . . . . . . . The Franklin
Templeton Valuemark
Income Plus Immediate
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 . . . . . . . . . . . . . . . Not Applicable
Item 14. Table of Contents of the Statement of
Additional Information. . . . . . . . . . . . . Table of Contents of
the Statement of Ad-
ditional Information
</TABLE>
CROSS REFERENCE SHEET (cont'd)
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
<S> <C> <C>
PART B
Item 15. Cover Page. . . . . . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . . . . . The Company
Item 18. Services. . . . . . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered. . . . . . Not Applicable
Item 20. Underwriters. . . . . . . . . . . . . . . . . . Distributor
Item 21. Calculation of Performance Data . . . . . . . . Calculation of
Performance Data
Item 22. Annuity Payments. . . . . . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements. . . . . . . . . . . . . . Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
PROFILE OF THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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May 1, 1999
This profile is a summary of some of the more important points that you should
consider and know before purchasing the Franklin Templeton Valuemark Income Plus
immediate variable annuity contract. The contract is more fully described in the
prospectus which accompanies this profile. Please read the prospectus carefully.
1. THE FRANKLIN TEMPLETON
VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
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The Franklin Templeton Valuemark Income Plus immediate variable annuity contract
with variable and fixed payment options (Contract) is a contract between you,
the owner, and Allianz Life Insurance Company of North America (Allianz Life),
an insurance company. In this profile and the prospectus, "we," "us" and "our"
refers to Allianz Life. In return for your one time payment, the Contract
provides for income to you and another person (if elected) under a payment plan
you select.
The variable payment options offer a choice of 18 Class 1 portfolios of Franklin
Valuemark Funds which are listed in Section 4. Depending on market conditions
and the portfolios you choose, payments may go up or down. No minimum payment is
guaranteed under a variable payment option. The variable payment option is
designed to offer a better return than the fixed payment option. However, this
is not guaranteed.
The fixed payment option offers fixed annuity payments that are guaranteed by
Allianz Life. Any portion of your purchase payment allocated to the fixed
payment option will be temporarily allocated to the Money Market Fund on the day
we allocate your purchase payment. It will then be allocated to the fixed
payment option when you begin receiving annuity payments from your Contract (if
you choose a fixed payout).
You can allocate your money in up to ten variable options or 9 variable options
and the fixed payment option (total of 10). We may limit the number of variable
options which you may invest in at any one time (except in Texas). The requested
allocation to each variable option and the fixed payment option must be made in
whole percentages and each must be at least 10%.
2. ANNUITY PAYMENTS
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Under this Contract, you are the owner and the annuitant. You may name a joint
annuitant, if you choose. You select an income date when you buy the Contract.
The income date must not be later than 60 days after we allocate your purchase
payment.
You can receive annuity payments from your Contract by selecting one of the
following annuity options:
(1) payments for your life;
(2) payments for your life, but if you die before payments have been made for
the guaranteed period you selected, payments will continue to the
beneficiary for the remainder of the guaranteed period (5, 10, 15, 20
years);
(3) payments during the joint lifetime of you and the joint annuitant - when
either of you die, payments will continue as long as the survivor lives;
(4) payments during the joint lifetime of you and the joint annuitant, but if
you and the joint annuitant die before payments have been made for the
guaranteed period you selected, payments will continue to the beneficiary
for the remainder of the guaranteed period (5, 10, 15 or 20 years);
(5) payments for your life and ending with the last payment due prior to your
death with a guarantee that at your death, the beneficiary will receive a
single cash payment as set forth in the Contract; and
(6) payments for a specified period of time (5 - 30 years) with payments
continuing to the beneficiary for the remainder of the period certain if
you and any joint annuitant die before the end of the specified period.
Under certain circumstances, if you selected annuity option 6, you can exchange
it for a life contingent payout (options 1-5). Annuity payments can be based on
the available portfolios (variable payout) and/or the fixed payment option
(fixed payout) under all annuity options except annuity payments under Option 6.
Annuity payments under Option 6 may only come from the portfolios (variable
payout). If you choose to have any part of your payments based on the
performance of the portfolios (i.e., variable payout), the dollar amount of your
annuity payments may go up or down, depending on the investment performance of
the portfolio(s) you choose.
3. PURCHASE
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You can buy the Contract with $35,000 or more under most circumstances. You
cannot add to your Contract at a later date (i.e., it is a single purchase
payment contract). Your investment representative can help you complete the
appropriate forms.
4. INVESTMENT OPTIONS
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You may invest in the Allianz Life fixed payment option and/or the following
Class 1 portfolios of Franklin Valuemark Funds listed below. Franklin Valuemark
Funds are managed by Franklin Advisers, Inc. and its Templeton and Franklin
affiliates.
PORTFOLIO SEEKING CAPITAL
PRESERVATION AND INCOME
Money Market Fund
PORTFOLIO SEEKING INCOME
High Income Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller
Companies Fund
Templeton Pacific Growth Fund
The portfolios are fully described in the attached prospectus for Franklin
Valuemark Funds. Your income will fluctuate up or down based on the portfolios'
performance. No minimum payment amount is guaranteed.
5. EXPENSES
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The Contract has insurance features and investment features, and there are costs
related to each.
o The annual insurance charges consist of the Mortality and Expense Risk
Charge and the Administrative Expense Charge. Together these charges total
1.40% of the average daily value of your Contract allocated to the variable
options.
o If you choose Annuity Options 2 or 4 and make a liquidation, a commutation
fee of 5% in Contract year 2, reducing by 1% each year until it is 1% for
Contract year 6 and thereafter will apply. If you choose Annuity Option 6
and make a liquidation, a commutation fee of 5% in Contract years 1 and 2,
reducing by 1% each year until it is 1% for Contract year 6 and thereafter
will apply. (If you bought your Contract before May 1, 1998, the
commutation fee under Annuity Option 6 is 1% in the first Contract year.)
o There are also annual portfolio operating expenses, which vary depending
upon the portfolios you select. In 1998, these expenses ranged from .49% to
1.41% of the average daily value of the Class 1 portfolios.
o Allianz Life may assess a state premium tax charge, which ranges from 0% to
3.5% of your purchase payment (depending upon the state).
We have provided the following chart to help you understand the expenses in your
Contract.
o The column "Total Annual Expenses" shows the 1.40% insurance charges and
the total annual portfolio expenses for 1998 for each portfolio.
o The next two columns show you two examples of the expenses, in dollars, you
would pay under a Contract. The examples assume that you invested $1,000 in
a Contract which earns 5% annually and that you liquidate all your money:
(1) at the end of year 1, and (2) at the end of year 10. The examples
assume that you selected Annuity Option 6 and chose a 15 year specified
period certain annuity option and a 5% assumed investment return. For year
1, the Total Annual Expenses are assessed as well as the commutation fee.
For year 10, the example shows the total of all the annual expenses for the
10 years, but there is no commutation fee.
o The premium tax is assumed to be 0% in both examples.
o The examples are purely hypothetical. They should not be considered a
representation of past or future expenses. Actual expenses may be more or
less than those shown.
<PAGE>
<TABLE>
<CAPTION>
TOTAL ANNUAL TOTAL ANNUAL EXAMPLES:
INSURANCE CLASS 1 PORTFOLIO TOTAL ANNUAL EXPENSES AT END OF
VARIABLE OPTION CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
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<S> <C> <C> <C> <C> <C>
Capital Growth 1.40% .77% 2.17% $67 $140
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Global Utilities Securities 1.40% .50% 1.90% $64 $124
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Growth and Income 1.40% .49% 1.89% $64 $124
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High Income 1.40% .53% 1.93% $65 $126
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Income Securities 1.40% .49% 1.89% $64 $124
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Money Market 1.40% .53% 1.93% $65 $126
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Mutual Discovery Securities 1.40% 1.00% 2.40% $69 $153
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Mutual Shares Securities 1.40% .77% 2.17% $67 $140
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Real Estate Securities 1.40% .54% 1.94% $65 $126
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Rising Dividends 1.40% .72% 2.12% $66 $137
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Small Cap 1.40% .77% 2.17% $67 $140
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Templeton Developing Markets Equity 1.40% 1.41% 2.81% $72 $175
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Templeton Global Asset Allocation 1.40% .84% 2.24% $67 $144
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Templeton Global Growth 1.40% .88% 2.28% $68 $146
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Templeton International Equity 1.40% .88% 2.28% $68 $146
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Templeton International Smaller Companies 1.40% 1.10% 2.50% $70 $158
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Templeton Pacific Growth 1.40% 1.10% 2.50% $70 $158
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Value Securities 1.40% .83% 2.23% $67 $143
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For more detailed information, see the Fee Table in the prospectus for the Contract.
</TABLE>
6. TAXES
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For federal tax purposes, annuity payments will be treated as partly a return of
your original investment. That part of each payment is not taxable as income. If
the Contract is tax-qualified, the entire payment may be taxable. If you make a
partial liquidation, the earnings come out first and are taxed as income. If you
are younger than 591/2 when you make a liquidation, you may be charged a 10%
federal tax penalty on the taxable amount you withdraw. You should consult your
tax counsel or other tax adviser regarding any liquidations.
7. ACCESS TO YOUR MONEY
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Generally, you may not make liquidations from your Contract. However, under
certain circumstances, you may make one liquidation (withdrawal) each Contract
year after the income date if you selected Annuity Options 2, 4 or 6. The amount
that you may liquidate is set forth in your Contract and is described in the
prospectus for the Contract. There may be a fee assessed when you make a
liquidation (commutation fee). Also, there may be adverse tax consequences,
leading to lower annuity payments than those that would have been paid without
the partial liquidation (during the period certain). You may not make any
liquidations before your income date.
<PAGE>
8. PERFORMANCE
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<TABLE>
<CAPTION>
If you choose to receive variable payments, your payments will vary up or down.
The increase or decrease will depend on whether the variable options you choose
perform better or worse than the "benchmark" assumed investment return (3%, 5%
or 7% per year) you choose.
The following chart shows total returns for the periods shown. Performance is
not shown for the Value Securities Fund because it was first offered for sale on
May 1, 1998. These numbers reflect the insurance charges and the operating
expenses of the portfolios, but are not adjusted for the assumed investment
return. Past performance does not guarantee or predict future results.
CALENDAR YEAR
----------------------------------------------------------------------------------
VARIABLE OPTION 1998 1997 1996 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 18.62% 16.66% 12.54% NA NA NA NA NA NA
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Global Utilities Securities 9.64% 25.00% 5.57% 29.53% -12.79% 9.00% 7.20% 22.87% 0.44%
- -------------------------------------------------------------------------------------------------------------------
Growth and Income 6.83% 25.97% 12.59% 30.99% -3.38% 8.77% 5.22% 21.09% -3.70%
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High Income -0.48% 10.00% 12.31% 18.10% -3.61% 14.14% 14.63% 28.33% -9.94%
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Income Securities 0.23% 15.46% 9.72% 20.70% -7.57% 16.96% 11.65% 37.98% -8.73%
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Money Market 3.76% 3.78% 3.69% 4.29% 2.39% 1.12% 1.62% 4.02% 6.12%
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Mutual Discovery Securities -6.32% 17.71% 1.80% NA NA NA NA NA NA
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Mutual Shares Securities -1.30% 16.10% 3.30% NA NA NA NA NA NA
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Real Estate Securities -17.97% 19.02% 30.96% 15.90% 1.46% 17.36% 10.53% 31.65% -13.20%
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Rising Dividends 5.44% 31.18% 22.44% 27.94% -5.41% -4.80% 8.48% NA NA
- -------------------------------------------------------------------------------------------------------------------
Small Cap -2.36% 15.79% 27.26% 1.46% NA NA NA NA NA
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Templeton Developing Markets
Equity -22.70% -9.99% 19.89% 1.35% -5.46% NA NA NA NA
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Templeton Global Asset
Allocation -1.43% 10.16% 18.16% 5.91% NA NA NA NA NA
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Templeton Global Growth 7.46% 11.92% 19.58% 11.16% 2.01% NA NA NA NA
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Templeton International Equity 4.09% 10.14% 21.25% 9.06% -0.53% 26.79% -3.58% NA NA
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Templeton International
Smaller Companies -13.49% -2.87% 11.45% NA NA NA NA NA NA
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Templeton Pacific Growth -14.34% -36.84% 9.55% 6.47% -10.06% 45.82% -2.39% NA NA
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. DEATH BENEFIT
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If you die before the income date and there is no joint annuitant, the Contract
will be treated as if it had never been issued. We will return your purchase
payment to your estate. If you have chosen an annuity option with a joint
annuitant and either you or the joint annuitant dies before the income date, the
annuity option will be changed to option 2 (with 10 years of payments guaranteed
or 5 years of payments guaranteed if the survivor's life expectancy is less than
10 years).
10. OTHER INFORMATION
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FREE LOOK. If you cancel the Contract within 10 days after receiving it (or
whatever period is required in your state), you will receive back the value of
your Contract on the day we receive your request, less any annuity payments paid
in states where permitted (this may be more or less than your original payment).
In certain states, or if you have purchased the Contract as an IRA, we may be
required to return your purchase payment if you decide to cancel your Contract
within 10 days after receiving it (or the period required in your state).
PURCHASING CONSIDERATIONS. The Franklin Templeton Valuemark Income Plus
immediate variable annuity contract is designed for investors seeking a medium
to long-term periodic payment plan. Many options provide for payments guaranteed
for as long as you live. We do not recommend buying this Contract if you cannot
accept the risk of getting back less money than you put in. Since certain
payment options do not permit you to liquidate (withdraw) money, and all options
limit payments to your heirs, we generally recommend you set other money aside
for nonroutine expenses and bequests.
<PAGE>
11. INQUIRIES
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If you have any questions about your Contract or need more information, please
contact us at:
VIP Service Center
P.O. Box 30343
Tampa, Florida 33630-3343
(800) 774-5001
<PAGE>
THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY CONTRACT
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
This prospectus describes the Franklin Templeton Valuemark Income Plus Immediate
Variable Annuity Contract with a Fixed Payment Option. The Contract is offered
by Allianz Life Insurance Company of North America (Allianz Life).
The annuity has 19 investment choices -- the 18 Variable Options which each
invest in one Class 1 Portfolio of Franklin Valuemark Funds and a Fixed Payment
Option of Allianz Life. You can select up to 10 investment choices (which
includes any of the Variable Options and the Fixed Payment Option).
FRANKLIN VALUEMARK FUNDS:
PORTFOLIO SEEKING CAPITAL
PRESERVATION AND INCOME
Money Market Fund
PORTFOLIO SEEKING INCOME
High Income Fund
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Value Securities Fund
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund
Mutual Discovery Securities Fund
Small Cap Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Please read this prospectus before investing and keep it for future reference.
It contains important information about the Franklin Templeton Valuemark Income
Plus Immediate Variable Annuity Contract with a Fixed Payment Option.
To learn more about the annuity offered by this prospectus, you can receive a
copy of the Statement of Additional Information (SAI) dated May 1, 1999. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. The Table of Contents of the SAI is on Page 17 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 or write us at the VIP Service Center at the address and telephone number
listed in the Profile.
THE FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
IMMEDIATE 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 NOR HAS IT DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is not an offering of the securities in any state, country, or
jurisdiction in which we are not authorized to sell the Contracts. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
In the state of Oregon, all references to Franklin Templeton Valuemark Income
Plus refer to Valuemark Income Plus.
Dated: May 1, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INDEX OF TERMS 3
FEE TABLE 4
1. THE FRANKLIN TEMPLETON
VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE
ANNUITY CONTRACT 8
Ownership 8
Contract Owner/Annuitant 8
Joint Owner/Joint Annuitant 8
Beneficiary 8
Assignment 8
2. ANNUITY PAYMENTS 9
(THE PAYOUT PHASE)
Income Date 9
Annuity Payments 9
Assumed Investment Return 9
Annuity Options 9
3. PURCHASE 10
Purchase Payment 10
Allocation of Purchase Payment 10
Free Look 10
VIP Units 11
4. INVESTMENT OPTIONS 11
Transfers 12
Telephone Transfers 12
Voting Privileges 12
Substitution 12
5. EXPENSES 12
Insurance Charges 12
Mortality and Expense Risk Charge 12
Administrative Charge 12
Commutation Fee 13
Premium Taxes 13
Income Taxes 13
Portfolio Expenses 13
6. TAXES 13
Annuity Contracts in General 13
Qualified and Non-Qualified Contracts 13
Liquidations - Non-Qualified Contracts 13
Liquidations - Qualified Contracts 14
Diversification 14
7. ACCESS TO YOUR MONEY 15
Suspension of Payments or Transfers 15
8. PERFORMANCE 15
9. DEATH BENEFIT 16
10. OTHER INFORMATION 16
Allianz Life 16
Year 2000 16
The Separate Account 16
Distribution 16
Administration 17
Financial Statements 17
TABLE OF CONTENTS OF THE STATEMENT OF 17
ADDITIONAL INFORMATION
APPENDIX A - Condensed Financial Information 18
APPENDIX B - Illustration of Annuity Income 21
<PAGE>
INDEX OF TERMS
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This prospectus is written in plain English to make it as understandable as
possible. However, there are some technical terms used, which are capitalized in
the prospectus. The page that is indicated below is where you will find the
definition for the word or term in this prospectus.
Annuitant 8
Annuity Calculation Date 10
Annuity Options 9
Annuity Payments 9
Annuity Unit 11
Assumed Investment Return (AIR) 9
Beneficiary 8
Contract 8
Contract Owner 8
Fixed Payment Option 8
Income Date 9
Joint Annuitant 8
Joint Owner 8
Non-Qualified 13
Payout Phase 9
Portfolios 11
Purchase Payment 10
Qualified 13
Tax Deferral 13
Total Liquidation Value 15
Variable Option 8
VIP Unit 11
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
The purpose of this Fee Table is to help you understand the costs of investing
in the Contract. It reflects expenses of the separate account as well as the
Class 1 Portfolios.
We have provided "Illustrations of Annuity Income" in Appendix B to show you the
effects of the charges, expenses and investment performance on annuity income.
CONTRACT OWNER TRANSACTION FEES
COMMUTATION FEE *
(as a percentage of the amount taken out (liquidated))
CONTRACT YEAR CHARGE
-----------------------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
*After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year. If you have chosen Annuity Option 6 and bought your Contract before
May 1, 1998, the commutation fee is 1% of the amount liquidated in the first
Contract year.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Charge .15%
-----
Total Separate Account Annual Expenses 1.40%
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS' ANNUAL EXPENSES: CLASS 1 SHARES
(as a percentage of Franklin Valuemark Funds' average net assets)
The Management and Portfolio Administration Fees and Total Annual Expenses for
each Portfolio are based on a percentage of that Portfolio's average net assets
for the most recent fiscal year. See the prospectus for Franklin Valuemark Funds
for more information.
MANAGEMENT TOTAL
AND PORTFOLIO OTHER ANNUAL
ADMINISTRATION FEES1 EXPENSES EXPENSES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund .75% .02% .77%
- --------------------------------------------------------------------------------------------------
Global Utilities Securities Fund .47% .03% .50%
- --------------------------------------------------------------------------------------------------
Growth and Income Fund .47% .02% .49%
- --------------------------------------------------------------------------------------------------
High Income Fund .50% .03% .53%
- --------------------------------------------------------------------------------------------------
Income Securities Fund .47% .02% .49%
- --------------------------------------------------------------------------------------------------
Money Market Fund .51% .02% .53%
- --------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund .95% .05% 1.00%
- --------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund .74% .03% .77%
- --------------------------------------------------------------------------------------------------
Real Estate Securities Fund .52% .02% .54%
- --------------------------------------------------------------------------------------------------
Rising Dividends Fund .70% .02% .72%
- --------------------------------------------------------------------------------------------------
Small Cap Fund .75% .02% .77%
- --------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund 1.25% .16% 1.41%
- --------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund .80% .04% .84%
- --------------------------------------------------------------------------------------------------
Templeton Global Growth Fund .83% .05% .88%
- --------------------------------------------------------------------------------------------------
Templeton International Equity Fund .80% .08% .88%
- --------------------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund 1.00% .10% 1.10%
- --------------------------------------------------------------------------------------------------
Templeton Pacific Growth Fund .99% .11% 1.10%
- --------------------------------------------------------------------------------------------------
Value Securities Fund2 .75% .08% .83%
- --------------------------------------------------------------------------------------------------
<FN>
1. The Portfolio Administration Fee is a direct expense for the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset
Allocation Fund, the Templeton International Smaller Companies Fund and the
Value Securities Fund. Other Portfolios pay for similar services indirectly
through the Management Fee. See the Franklin Valuemark Funds prospectus for
further information regarding these fees.
2. The Value Securities Fund commenced operations May 1, 1998. The expenses
shown for this Portfolio are therefore estimated for 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
o The examples below should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
o Premium taxes are not reflected in the tables. Premium taxes may apply.
o The examples assume you invested $1,000 with annual payments based on a 15
year period certain payout under Annuity Option 6 with a 5% Assumed
Investment Return.
o For additional information, see Section 5 - "Expenses" and the Franklin
Valuemark Funds prospectus.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money (compounded annually) if you surrender your Contract
under Annuity Option 6 at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $67 $88 $99 $140
- -------------------------------------------------------------------------------------------------------------------
Global Utilities Securities Fund $64 $81 $89 $124
- -------------------------------------------------------------------------------------------------------------------
Growth and Income Fund $64 $81 $89 $124
- -------------------------------------------------------------------------------------------------------------------
High Income Fund $65 $82 $90 $126
- -------------------------------------------------------------------------------------------------------------------
Income Securities Fund $64 $81 $89 $124
- -------------------------------------------------------------------------------------------------------------------
Money Market Fund $65 $82 $90 $126
- -------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund $69 $93 $108 $153
- -------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund $67 $88 $99 $140
- -------------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund $65 $82 $91 $126
- -------------------------------------------------------------------------------------------------------------------
Rising Dividends Fund $66 $87 $97 $137
- -------------------------------------------------------------------------------------------------------------------
Small Cap Fund $67 $88 $99 $140
- -------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund $72 $103 $123 $175
- -------------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund $67 $89 $102 $144
- -------------------------------------------------------------------------------------------------------------------
Templeton Global Growth Fund $68 $90 $103 $146
- -------------------------------------------------------------------------------------------------------------------
Templeton International Equity Fund $68 $90 $103 $146
- -------------------------------------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund $70 $96 $111 $158
- -------------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth Fund $70 $96 $111 $158
- -------------------------------------------------------------------------------------------------------------------
Value Securities Fund* $67 $89 $101 $143
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money (compounded annually) if your Contract is not
surrendered:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $20 $56 $86 $136
- ---------------------------------------------------------------------------------------------------------------------------
Global Utilities Securities Fund $18 $49 $76 $121
- ---------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund $17 $49 $75 $120
- ---------------------------------------------------------------------------------------------------------------------------
High Income Fund $18 $50 $77 $122
- ---------------------------------------------------------------------------------------------------------------------------
Income Securities Fund $17 $49 $75 $120
- ---------------------------------------------------------------------------------------------------------------------------
Money Market Fund $18 $50 $77 $122
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund $22 $61 $94 $149
- ---------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund $20 $56 $86 $136
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Securities Fund $18 $50 $77 $123
- ---------------------------------------------------------------------------------------------------------------------------
Rising Dividends Fund $20 $54 $84 $133
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Fund $20 $56 $86 $136
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Equity Fund $26 $72 $110 $172
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund $21 $57 $88 $140
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Global Growth Fund $21 $58 $90 $143
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Equity Fund $21 $58 $90 $143
- ---------------------------------------------------------------------------------------------------------------------------
Templeton International Smaller Companies Fund $23 $64 $98 $155
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Pacific Growth Fund $23 $64 $98 $155
- ---------------------------------------------------------------------------------------------------------------------------
Value Securities Fund* $20 $57 $88 $140
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
*Estimated
</FN>
See Appendix A for VIP Unit Values - Condensed Financial Information.
</TABLE>
<PAGE>
1. THE FRANKLIN TEMPLETON
VALUEMARK INCOME PLUS
IMMEDIATE VARIABLE ANNUITY
CONTRACT
- --------------------------------------------------------------------------------
This prospectus describes an immediate variable annuity contract with a Fixed
Payment Option (Contract) offered by Allianz Life.
An annuity is a contract between you, the owner, and an insurance company (in
this case Allianz Life), where the insurance company promises to pay you (or
someone else you choose) an income, in the form of Annuity Payments. The Annuity
Payments must begin on a designated date that is no later than 60 days after we
allocate your Purchase Payment.
This is called the Income Date.
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.
The Contract is called a variable annuity because you can choose among 18
Variable Options, and depending upon market conditions, your payments can go up
or down based on the Portfolios' investment performance. The Portfolios are
designed to offer a better return than the Fixed Payment Option. However, this
is not guaranteed. If you select the variable annuity portion of the Contract,
your payments may go up or down based on the investment performance of the
Portfolio(s) you select.
The Contract also contains a Fixed Payment Option (referred to in the Contract
as the "Fixed Account"). The Fixed Payment Option offers an interest rate that
is guaranteed by Allianz Life. If you select the Fixed Payment Option, your
money will be placed with the other general assets of Allianz Life. Any portion
of your Purchase Payment allocated to the Fixed Payment Option will be
temporarily allocated to the Money Market Fund on the day we allocate your
Purchase Payment. It will then be allocated to the Fixed Payment Option when you
begin receiving Annuity Payments from your Contract.
We will not make any changes to your Contract without your permission except as
may be required by law. We may, however, add endorsements to your Contract from
time to time.
OWNERSHIP
- --------------------------------------------------------------------------------
CONTRACT OWNER/ANNUITANT
You are the Contract Owner and the Annuitant. 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.
An Annuitant is the natural person on whose life we base Annuity Payments.
JOINT OWNER/JOINT ANNUITANT
If there is more than one Contract Owner, each Contract Owner is a Joint Owner
of the Contract. Joint Owners have equal ownership rights. You both must
authorize those ownership rights unless otherwise allowed by Allianz Life. You
can name a Joint Annuitant. Each Joint Owner must be either an Annuitant or
Joint Annuitant.
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
THE CONTRACT AS IF WE NEVER ISSUED IT AND WILL RETURN THE PURCHASE PAYMENT TO
YOUR ESTATE.
If you die while the Contract is in force, the Joint Annuitant (if not already a
Joint Owner) will become the Contract Owner. On or after the Income Date, if
there is no Joint Annuitant or when the Joint Annuitant dies, the
Beneficiary(ies) will be the Owner(s) of their respective shares.
BENEFICIARY
The Beneficiary is the person(s) or entity you name to receive any death
benefit. You can also name a contingent Beneficiary. The contingent Beneficiary
will receive any death benefit if the Beneficiary is not alive when you and any
Joint Annuitant die. 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. We will not be liable for any payment we make, or other action we
take, in accordance with the Contract before we receive written notice of the
assignment. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued under a Qualified plan, you may be unable to assign
the Contract.
2. ANNUITY PAYMENTS
(THE PAYOUT PHASE)
- --------------------------------------------------------------------------------
INCOME DATE
You can receive regular income payments under your Contract as long as you and
any Joint Annuitant are alive on the Income Date. We call the date that you
receive your first Annuity Payment the Income Date. We ask you to choose your
Income Date when you purchase the Contract. Your Income Date must be the first
or fifteenth day of a calendar month and must not be later than 60 days from the
day we allocate your Purchase Payment.
ANNUITY PAYMENTS
Under Annuity Options 1-5, you may elect to receive your Annuity Payments as a
variable payout, a fixed payout, or a combination of both. Under Annuity Option
6, Annuity Payments will come from the Variable Options only (variable payout).
If you choose a Fixed Payment Option, 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 choose to receive variable payments, we determine the amount of your
first variable payment based on:
1) your Contract value on the Annuity Calculation Date (no more than 10 days
before the first payment),
2) your age and the age of any Joint Annuitant on the Annuity Calculation Date
(except in Option 6);
3) the Assumed Investment Return (AIR), a benchmark you select, and
4) the Annuity Option you select.
We credit your Contract with a fixed number of Annuity Units for each Variable
Option you select. We do this by allocating the first payment amount among the
Variable Options according to your instructions, and dividing the amount
allocated to each Variable Option by the Annuity Unit Value on the Annuity
Calculation Date. The number of Annuity Units in your Contract remains the same
unless you make a liquidation or transfer.
After the first payment, your payments will change based on the change in value
of the Annuity Units credited to your Contract. The amount of each change will
depend on how the Annuity Units in your Contract perform as compared to your AIR
benchmark.
You can choose the frequency of Annuity Payments (for example, monthly,
quarterly, semi-annually or annually).
The SAI contains a discussion of how we calculate Annuity Unit values.
ASSUMED INVESTMENT RETURN
We base your Annuity Payments on the Assumed Investment Return. You can choose
either a 7%, 5% or 3% per year AIR. The 7% AIR is not available in all states
(check with your registered representative for availability). If you do not
choose one, the 5% AIR will automatically apply. If the actual performance
exceeds the AIR you chose, your Annuity Payments will increase. Similarly, if
the actual rate is less than the AIR you chose, your Annuity Payments will
decrease. If you choose a higher AIR, the initial amount of income will be
higher, but income will increase more slowly during periods of good investment
performance and decrease faster during periods of poor investment performance.
ANNUITY OPTIONS
You can choose among income plans. We call those Annuity Options. Except for
Annuity Option 6, once you select an Annuity Option you may not change it.
You can choose one of the following Annuity Options. You can also choose any
other Annuity Option you want as long as Allianz Life agrees to provide it.
OPTION 1. LIFE ANNUITY. Under this option, we will make periodic Annuity
Payments so long as the Annuitant is alive. After the Annuitant dies, we will
stop making Annuity Payments.
OPTION 2. LIFE ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS GUARANTEED. Under this
option, we will make periodic Annuity Payments so long as the Annuitant is
alive. However, if the Annuitant dies before the end of the selected guaranteed
period, we will continue to make Annuity Payments to the Beneficiary for the
rest of the guaranteed period. If the Beneficiary does not want to receive
Annuity Payments after the Annuitant's death, he or she can ask us for a single
lump sum. The amount of the lump sum payment is described in your Contract.
OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. Under this option, we will make
periodic Annuity Payments during the joint lifetime of you and the Joint
Annuitant. When you die, if the Joint Annuitant is still alive, we will continue
to make Annuity Payments during the Joint Annuitant's life. The amount of the
Annuity Payments we will make can be equal to 100%, 75% or 50% of the amount
that was being paid when both you and the Joint Annuitant were alive. You choose
this percentage when you apply for the Contract. The Annuity Payments will end
when the last surviving Annuitant dies.
OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH 5, 10, 15 OR 20 YEAR PAYMENTS
GUARANTEED. Under this option, we will make periodic Annuity Payments during the
joint lifetime of you and the Joint Annuitant. When you die, if the Joint
Annuitant is still alive, we will continue to make Annuity Payments during the
life of the surviving Annuitant. The payments will be 100% of the amount that
was being paid when you were both 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 the Beneficiary for the rest of the
guaranteed period. If the Beneficiary does not want to receive Annuity Payments,
he or she can ask us for a single lump sum. The amount of the lump sum payment
is described in your Contract.
OPTION 5. REFUND LIFE ANNUITY. Under this option, we will make periodic Annuity
Payments during your lifetime. The last Annuity Payment will be made before you
die. If the value of the Annuity Payments is made less than the value applied to
the Annuity Option, then the Beneficiary will receive a refund as set forth in
the Contract.
OPTION 6. SPECIFIED PERIOD CERTAIN ANNUITY. Under this option, we will make
periodic Annuity Payments for a specified period that you choose. The period can
be from 5 to 30 years (you must use whole numbers of years). If at the time both
you and any Joint Annuitant die, we have made Annuity Payments for less than the
selected guaranteed period, we will continue to make Annuity Payments to the
Beneficiary for the rest of the guaranteed period. This option may not be
available in all states. This option can only be elected as a variable payout.
After the first Contract anniversary, you can exchange an Annuity Option 6
payout for a payout under Annuity Options 1-5. You can do this if the Total
Liquidation Value of your Contract is at least $25,000. Furthermore, if you own
a Non-Qualified Contract you must be 591/2 or older. If you own a Qualified
Contract you may make the exchange after the later of your reaching age 591/2 or
5 years from the date of the first Annuity Payment and prior to the year in
which you reach age 701/2. A new Contract will be issued to you for your
existing Contract. You must return your existing Contract to us. The Contract
Owner/Annuitant and Joint Annuitant (if any) must be the same under both
Contracts.
3. PURCHASE
- --------------------------------------------------------------------------------
PURCHASE PAYMENT
The Purchase Payment is the money you put into the Contract. The minimum payment
Allianz Life will accept is $35,000. The Contract is a single payment Contract.
This means that you cannot add to your Contract after you buy it. If you buy
more than one Contract, the Purchase Payment for each Contract does not need to
be $35,000 if the average payment for each Contract is $35,000 or more. When you
make your Purchase Payment, we will deduct any premium taxes that you owe before
we allocate it to the Variable Options.
This product is not designed for market timers.
ALLOCATION OF PURCHASE PAYMENT
When you purchase a Contract, we will allocate your Purchase Payment to one or
more of the Variable Options you have selected. If you want any portion of the
Purchase Payment to be allocated to the Fixed Annuity Option, we will
temporarily allocate it to the Money Market Fund. It will be moved to the Fixed
Annuity Option on the day we calculate your first Annuity Payment (Annuity
Calculation Date). The Annuity Calculation Date will be no more than 10 business
days before the Income Date. We ask that you allocate your money in whole
percentages. Each allocation must be at least 10%.
Currently, you may invest in 10 investment choices (which includes the Variable
Options and the Fixed Payment Option). We may, in the future, limit the number
of Variable Options that you may invest in at one time (except in Texas).
Once we receive your Purchase Payment and the necessary information, we will
issue your Contract and allocate your 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. Our business day closes when the New York Stock Exchange closes,
which is usually at 4:00 p.m. Eastern Time.
FREE LOOK
If you change your mind about owning the Contract, you can cancel it within 10
days after receiving it (or the period required in your state). You will receive
back the value of your Contract on the day we receive your request, less any
Annuity Payments paid in states where permitted. 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 the period required in your state). If that is the case, we
reserve the right to allocate your Purchase Payment to the Money Market Fund for
15 days after we receive it. (In some states, the period may be longer.) At the
end of that period, we will re-allocate your money as you selected. Currently,
however, we will directly allocate your money to the Variable Option(s) you have
selected.
VIP 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 prior to the
Annuity Calculation Date, we use a measurement called a VIP Unit (which is like
a share of a mutual fund). On and after the Annuity Calculation Date, we call it
an Annuity Unit.
Every business day we determine the value of a VIP Unit for each Variable Option
by:
1. determining the total amount of money invested in the particular Variable
Option;
2. subtracting from that amount any insurance charges and any other charges
such as taxes we have deducted; and
3. dividing this amount by the number of outstanding VIP Units.
The value of a VIP Unit may go up or down from day to day.
When you make the Purchase Payment, we credit your Contract with VIP Units. The
number of VIP 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 VIP Unit.
We calculate the value of each VIP Unit after the New York Stock Exchange closes
each day and then credit your Contract.
EXAMPLE:
On Monday we receive your Purchase Payment of $35,000. You have told us you want
this to go to the Growth and Income Fund. When the New York Stock Exchange
closes on that Tuesday, we determine that the value of a VIP Unit based on an
investment in the Growth and Income Fund is $12.50. We then divide $35,000 by
$12.50 and credit your Contract on Tuesday night with 2800 VIP Units. (This
example assumes there are no premium taxes in your state.)
4. INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract offers Variable Options, which invest in Class 1 shares of 18
Portfolios of Franklin Valuemark Funds. The Contract also offers a Fixed Payment
Option of Allianz Life. Additional Portfolios may be available in the future.
You should read the Franklin Valuemark Funds prospectus (which is attached to
this prospectus) carefully before investing.
Franklin Valuemark Funds (Trust) is the mutual fund underlying your Contract.
Each Portfolio has its own investment objective. The Trust issues two classes of
shares which are described in the attached Trust prospectus. Only Class 1 shares
are available with your Contract. Investment managers for each Portfolio are
listed in the table below and are as follows: Franklin Advisers, Inc. (FA),
Franklin Advisory Services, LLC (FAS), Franklin Mutual Advisers, LLC (FMA),
Templeton Asset Management Ltd. (TAM), Templeton Global Advisors Limited (TGA),
and Templeton Investment Counsel, Inc. (TIC). Certain managers have retained one
or more affiliated subadvisers to help them manage the Portfolios.
The following is a list of the Portfolios available under the Contract:
Investment
Available Portfolios Managers
- ---------------------------------------------------------
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
Money Market Fund FA
PORTFOLIO SEEKING INCOME
High Income Fund FA
PORTFOLIOS SEEKING GROWTH AND INCOME
Global Utilities Securities Fund FA
Growth and Income Fund FA
Income Securities Fund FA
Mutual Shares Securities Fund FMA
Real Estate Securities Fund FA
Rising Dividends Fund FAS
Templeton Global Asset Allocation Fund TGA
Value Securities Fund FAS
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund FA
Mutual Discovery Securities Fund FMA
Small Cap Fund FA
Templeton Developing Markets Equity Fund TAM
Templeton Global Growth Fund TGA
Templeton International Equity Fund FA
Templeton International Smaller Companies Fund TIC
Templeton Pacific Growth Fund FA
Franklin Valuemark Funds serves as the underlying mutual fund for variable life
insurance policies offered by Allianz Life and other variable annuity contracts
offered by Allianz Life and its affiliates. Franklin Valuemark Funds believes
that offering its shares in this manner will not be disadvantageous to you.
TRANSFERS
You can transfer money among the 18 Variable Options. You cannot make transfers
from the Fixed Payment Option to the Variable Options.
We currently allow you to make as many transfers as you want each year. We may
limit this in the future. However, you will always be allowed at least 6
transfers each year. 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 may reject any specific
Purchase Payment allocation or transfer request from any person, if in the
Portfolio managers' judgment, a Portfolio would be unable to invest effectively
in accordance with its investment objectives and policies, or if the Portfolio
would be potentially adversely affected.
The following applies to any transfer:
1. You cannot make transfers during the free look period.
2. Your request for a transfer must clearly state which Variable Options or
the Fixed Payment Option is involved in the transfer.
3. Your request for a transfer must clearly state how much the transfer is
for.
4. You cannot make a transfer if it would cause any Variable Option or the
Fixed Payment Option to provide less than 10% of the benefits under your
Contract.
5. You can make at least one allocation to the Fixed Payment Option. Both your
initial allocation to the Fixed Payment Option and each transfer to the
Fixed Payment Option will be treated as an allocation.
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, we will accept instructions from either one of you unless you
instruct us otherwise. We 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. We tape record all telephone instructions.
VOTING PRIVILEGES
We are the legal owner of the Trust's Class 1 Portfolio shares. However, when a
Portfolio solicits proxies in conjunction with a shareholder vote, which affects
your investment, we will obtain from you and other 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 we own on our own behalf. If we determine that we are 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 will not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
5. EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
Each day, we make a deduction for insurance charges. We do this as part of our
calculation of the value of the VIP Units and the Annuity Units. The insurance
charge has two parts: 1) the mortality and expense risk charge, and 2) the
administrative charge.
o MORTALITY AND EXPENSE RISK CHARGE. During the Accumulation Phase, this
charge is equal, on an annual basis, to 1.25% of the average daily value of
the Contract invested in a Variable Option, after the deduction of
expenses. This charge compensates us for all the insurance benefits
provided by your Contract (for example, our contractual obligation to make
Annuity Payments, 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).
o ADMINISTRATIVE CHARGE. This charge is equal, on an annual basis, to .15% of
the average daily value of the Contract invested in a Variable Option after
the deduction of expenses. This charge 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.
COMMUTATION FEE
Under certain circumstances, you can liquidate (withdraw) all or part of a
Variable Option of the Contract. When you make a liquidation, the amount you
receive will be reduced by the commutation fee. The commutation fee is a
percentage of the amount withdrawn. The commutation fee is equal to:
CONTRACT YEAR CHARGE
-------------------------------------------
1 5%
2 5%
3 4%
4 3%
5 2%
6 (& thereafter) 1%
After the first Contract year, you may make one liquidation from your Contract
each year if you have selected Annuity Options 2 or 4. If you have selected
Annuity Option 6, you may make a liquidation once each year beginning in the
first year. If you have chosen Annuity Option 6 and you bought your Contract
before May 1, 1998, the commutation fee is 1% of the amount liquidated in
Contract year 1.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are 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. Premium taxes generally range from 0% to 3.5% of the Purchase
Payment, depending on the state. For information regarding premium taxes in your
state, contact your agent or our VIP Service Center.
INCOME TAXES
We reserve the right to deduct from the Contract for any income taxes which we
may incur because of the Contract. Currently, we are 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 above in the Fee Table
and in the attached prospectus for Franklin Valuemark Funds.
6. TAXES
- --------------------------------------------------------------------------------
NOTE: Allianz Life has prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. Allianz
Life has included in the Statement of Additional Information an additional
discussion regarding taxes.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress recognized how important saving for retirement was and provided special
rules in the Internal Revenue Code (Code) for annuities.
Simply stated these rules provide that you will not be taxed on the 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 as to how you will be
taxed depending on how you take the money out and the type of Contract --
Qualified or Non-Qualified (see following sections).
You, as the Owner, will not be taxed on increases in the value of your Contract
until a distribution occurs -- either as a surrender or as Annuity Payments.
When you make a surrender you are taxed on the amount of the surrender that is
earnings. For Annuity Payments, different rules apply. A portion of each Annuity
Payment is treated as a partial return of your Purchase Payment 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
Payment are fully includible in income.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract as an individual and not as an individual
retirement annuity, your Contract is referred to as a Non-Qualified Contract.
If you purchase the Contract as an individual retirement annuity, your Contract
is referred to as a Qualified Contract.
LIQUIDATIONS -- NON-QUALIFIED CONTRACTS
If the value of your Contract exceeds your Purchase Payment, any withdrawals
will be included in taxable income to the extent of earnings in your Contract.
The Code also provides that any amount received under an annuity contract, which
is included in income, may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some distributions will
be exempt from the penalty. They include any amounts:
(1) paid on or after you reach age 591/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the Code);
(4) paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
(5) paid as annuity payments under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
The Code does not specifically address withdrawals (liquidations) from immediate
annuity contracts. A Private Letter Ruling issued by the Internal Revenue
Service concludes that the ability to make withdrawals does not prevent a
contract from qualifying as an immediate annuity. However, the Ruling does not
address the issue of whether a withdrawal would affect the favorable tax
treatment of the annuity payments made before and after the withdrawal under the
requirement that all immediate annuity payment must be substantially equal. The
loss of favorable tax treatment would mean that the income portion of each
annuity payment received prior to your attaining age 591/2 would be subject to a
10% penalty tax unless another exception to the penalty tax applies. While
Allianz Life currently believes that such withdrawals will not adversely affect
the favorable tax treatment of annuity payments received before or after a
withdrawal and Allianz Life intends to perform its tax reporting functions
accordingly, there can be no assurance that the Internal Revenue Service will
not take a contrary position. You should obtain competent tax advice prior to
making a partial or total liquidation (withdrawal).
LIQUIDATIONS -- QUALIFIED CONTRACTS
If you make a withdrawal under an IRA Contract, a portion of the amount is
taxable, generally based on the ratio of your cost basis to the total accrued
benefit under the contract. Often in the case of IRA's, there is no cost basis
which results in the full amount of the withdrawal being included in taxable
income. The Code imposes a 10% penalty tax on the taxable portion of any
distributions from qualified retirement plans, including IRA Contracts. The
penalty tax will not apply to the following distributions:
(a) distributions made on or after the date you reach age 591/2;
(b) distributions following your death or disability (for this purpose
disability is as defined in Section 72(m)(7) of the Code);
(c) distributions that are part of a series of substantially equal periodic
payments made at least yearly for your life (or life expectancy) or the
joint lives (or joint life expectancies) of you and your designated
Beneficiary;
(d) distributions made to you to the extent such distributions do not exceed
the amount allowable as a deduction under Code Section 213 for amounts paid
during the taxable year for medical care;
(e) distributions for the purchase of medical insurance (as described in
Section 213(d)(1)(D) of the Code) for you and your spouse and dependents if
you have received unemployment compensation for at least 12 weeks (this
exception will no longer apply after you have been re-employed for at least
60 days);
(f) distributions made to you to the extent such distributions do not exceed
your qualified higher education expenses (as defined in Section 72(t)(7) of
the Code) for the taxable year; and
(g) distributions which are qualified first time home buyer distributions (as
defined in Section 72(t)(8) of the Code).
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 591/2 or 5 years
from the date of the first 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 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. You should obtain competent tax advice before you make any liquidations
from an IRA Contract. Any amounts distributed will only be paid to you, your
Annuitant or your Beneficiary. Allianz Life will not transfer or pay such
amounts to another IRA or tax qualified plan.
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 of Franklin
Valuemark Funds 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 Contract Owners are
permitted to select Portfolios, to make transfers among the Portfolios or the
number and type of Portfolios Contract Owners may select from without being
considered the owner of the shares. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the Owner of the
Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, Allianz Life reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
If you have chosen Annuity Options 2, 4 or 6 you may make liquidations
(withdrawals) from your Contract under the certain circumstances described
below.
Annuity Options 2 and 4: If you have selected Annuity Option 2 or 4 and a
portion of your payments come from the Variable Options, you may make partial
liquidations (withdrawals) from your Contract. You can only make liquidations
after the first Contract year. During the lifetime of the Annuitant(s) and while
the number of Annuity Payments made is less than the guaranteed number of
payments elected under the Annuity Option, you can request a liquidation once
each year. You can liquidate a portion of the Total Liquidation Value. (Total
Liquidation Value is referred to as "Total Withdrawal Value" in your Contract
and endorsement.) The Total Liquidation Value is equal to the present value of
the remaining guaranteed Annuity Payments (allocated to the Variable Options) to
the end of the period certain commuted at the AIR, less a commutation fee. The
total amount you can liquidate is guaranteed to not be less than 25% of the
Total Liquidation Value. Currently, you may liquidate up to 75% of the Total
Liquidation Value. Allianz Life may change this amount in the future. The
minimum amount you can liquidate is the lesser of $2,500 or the remaining
portion of the Total Liquidation Value available to be liquidated. Partial
liquidations may not be available in your state.
After a partial liquidation, the subsequent monthly Annuity Payment during the
guaranteed period certain will be reduced by the percentage of the Total
Liquidation Value liquidated, including the commutation fee.
Annuity Option 6: If you have selected Annuity Option 6, you can currently make
one liquidation each year. You may liquidate the Total Liquidation Value of your
Contract. The Total Liquidation Value is equal to the present value of the
remaining Annuity Payments to the end of the period certain commuted at the AIR
less a commutation fee. The amount of the commutation fee depends on whether you
bought your Contract before May 1, 1998. Allianz Life may restrict the amount of
a partial liquidation to a minimum of $2,500. We may require a complete
liquidation of your Contract if the remaining Total Liquidation Value after you
request a partial liquidation would be less than $35,000. Allianz Life will
require you to return your Contract before we pay the entire commuted value.
We will process partial liquidations on the next Annuity Calculation Date after
your written request for a liquidation.
Income taxes, tax penalties and certain restrictions may apply to any
liquidation you make.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments for liquidations 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 we 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.
8. PERFORMANCE
- --------------------------------------------------------------------------------
We periodically advertise performance. We will calculate performance by
determining the percentage change in the value of a VIP Unit by dividing the
increase (decrease) for that unit by the value of the VIP Unit at the beginning
of the period. This performance number reflects the deduction of the insurance
charges and the expenses of the Portfolios. We may also advertise cumulative
total return information. Cumulative total return is determined the same way
except that the results are not annualized. Performance information for the
underlying Portfolios may also be advertised -- see the Franklin Valuemark Funds
prospectus for more information.
We may in the future also advertise yield information. If we do, we will provide
you with information regarding how yield is calculated. More detailed
information regarding how performance is calculated is found in the SAI.
We base any performance advertised on historical data. This performance does not
guarantee future results of the Portfolios.
9. DEATH BENEFIT
- --------------------------------------------------------------------------------
IF YOU DIE BEFORE THE INCOME DATE AND THERE IS NO JOINT ANNUITANT, WE WILL TREAT
YOUR CONTRACT AS IF WE HAD NEVER ISSUED IT. WE WILL RETURN THE PURCHASE PAYMENT
TO YOUR ESTATE.
If you have chosen either Annuity Option 3, 4 or 6 with a Joint Annuitant and
either you or the Joint Annuitant dies before the Income Date, the Annuity
Option will be changed to Option 2 with 10 years of payments guaranteed. If the
survivor's life expectancy is less than 10 years, the period of guaranteed
payments will be 5 years instead.
If you or the Joint Annuitant dies on or after the Income Date, the death
benefit, if any, will be paid under the Annuity Option selected. We will require
proof of death. We may delay paying the death benefit until we receive any tax
consents and/or forms from a state.
10. 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.
YEAR 2000
Allianz Life has initiated programs to ensure that all of the computer systems
utilized to provide services and administer policies will function properly in
the year 2000. An assessment of the total expected costs specifically related to
the year 2000 conversion has been completed. These costs are expensed as
incurred and total costs are not expected to have a significant effect on
Allianz Life's financial position or results of operations. Allianz Life
believes it is taking steps that are reasonably designed to address the
potential failure of computer systems used by its service providers and to
ensure its year 2000 program is completed on a timely basis. There can be no
assurance, however, that the steps taken by Allianz Life will be adequate to
avoid any adverse impact.
THE SEPARATE ACCOUNT
Allianz Life established a separate account named Allianz Life Variable Account
B (Separate Account). The Separate Account holds the assets that underlie the
Contracts (except assets allocated to the Fixed Payment Option). The Board of
Directors of Allianz Life adopted a resolution to establish the Separate Account
under Minnesota insurance law on May 31, 1985. Allianz Life has registered the
Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into Variable Options (also known as sub-accounts). Each Variable
Option invests in one class of shares of a Portfolio.
The assets of the Separate Account are held in Allianz Life's name on behalf of
the Separate Account and legally belong to Allianz Life. However, those assets
that underlie the variable Contracts are not chargeable with liabilities arising
out of any other business Allianz Life may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Contracts and not against any other contracts Allianz Life
may issue.
DISTRIBUTION
NALAC Financial Plans, LLC (NFP), 1750 Hennepin Avenue, Minneapolis, MN 55403,
acts as the distributor of the Contracts. NFP is a wholly-owned subsidiary of
Allianz Life. NFP has subcontracted with Franklin Advisers, Inc. ("Advisers")
for it and/or certain of its affiliates to provide certain marketing support
services. NFP compensates these entities for their services.
Commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions at the time of purchase up to 4.0% of
the Purchase Payment. Broker-dealers are also paid a trail commission of up to
.40% of the remaining payout value that remains under your Annuity Option
invested in a Portfolio (trail commissions are not paid on amounts invested in
the Fixed Payment Option.). We (by agreement with the broker-dealer) pay
commissions as a combination of a certain percentage amount at the time of sale
and a trail commission (which when combined could be more than 4% of the
Purchase Payment). In addition, Allianz Life and Advisers and/or its affiliates
may pay certain sellers for other services not directly related to the sale of
the Contracts (such as special marketing support allowances).
ADMINISTRATION
We have hired Templeton Funds Annuity Company (in California, doing business as
"Templeton Funds Life & Annuity Insurance Company") (VIP Service Center) to
perform certain administrative services regarding the Contracts. The
administrative services include issuance of the Contracts and maintenance of
Contract Owner's records. Templeton Funds Annuity Company has entered into a
reinsurance agreement with us regarding certain risks under the Contracts.
FINANCIAL STATEMENTS
The consolidated financial statements of Allianz Life and the Separate Account
have been included in the Statement of Additional Information.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Insurance Company 2
Experts 2
Legal Opinions 2
Distributor 2
Calculation of Performance Data 2
Federal Tax Status 5
Annuity Provisions 8
Financial Statements 9
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements of Allianz Life Insurance Company of North
America and the financial statements of Allianz Life Variable Account B may be
found in the Statement of Additional Information (SAI).
The table below gives per VIP Unit information about the financial history of
each Sub-Account from the inception of each to December 31, 1998.
This information should be read in conjunction with the financial statements and
related notes to the Separate Account included in the SAI.
(Number of units in Thousands)
GLOBAL MUTUAL
CAPITAL UTILITIES GROWTH & HIGH INCOME MONEY DISCOVERY
SUB-ACCOUNTS: GROWTH SECURITIES INCOME INCOME SECURITIES MARKET SECURITIES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $13.130 $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Unit value at end of period $15.574 $28.308 $26.226 $21.208 $25.122 $14.386 $11.226
Number of units outstanding
at end of period 8,454 30,851 40,480 14,987 39,420 22,032 9,718
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $11.254 $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Unit value at end of period $13.130 $25.818 $24.551 $21.312 $25.065 $13.865 $11.983
Number of units outstanding
at end of period 5,673 39,623 46,962 18,871 49,812 20,982 9,940
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $10.000* $19.565 $17.310 $17.252 $19.785 $12.883 $10.000*
Unit value at end of period $11.254 $20.654 $19.490 $19.375 $21.708 $13.359 $10.180
Number of units outstanding
at end of period 3,722 53,086 50,027 20,736 57,504 28,060 1,471
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Unit value at end of period NA $19.565 $17.310 $17.252 $19.785 $12.883 NA
Number of units outstanding
at end of period NA 66,669 46,893 !8,756 59,309 31,040 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Unit value at end of period NA $15.104 $13.215 $14.608 $16.392 $12.354 NA
Number of units outstanding
at end of period NA 70,082 35,695 15,679 56,569 39,437 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Unit value at end of period NA $17.319 $13.677 $15.155 $17.734 $12.066 NA
Number of units outstanding
at end of period NA 84,217 24,719 11,787 38,967 10,247 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA $14.821 $11.949 $11.583 $13.580 $11.742 NA
Unit value at end of period NA $15.889 $12.574 $13.278 $15.163 $11.932 NA
Number of units outstanding
at end of period NA 39,387 17,144 4,780 11,397 6,951 NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period NA $12.062 $ 9.803 $9.026 $9.842 $11.288 NA
Unit value at end of period NA $14.821 $11.949 $11,583 $13.580 $11.742 NA
Number of units outstanding
at end of period NA 16,188 9,671 1,923 4,472 5,682 NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period NA $12.010 $10.180 $10.021 $10.783 $10.637 NA
Unit value at end of period NA $12.062 $9.803 $9.026 $9.842 $11.288 NA
Number of units outstanding
at end of period NA 6,300 5,356 1,056 3,011 5,768 NA
PERIOD FROM INCEPTION* TO DEC. 31, 1989
Unit value at beginning of period NA $10.000 $10.000 $10.000 $10.000 $10.000 NA
Unit value at end of period NA $12.010 $10.180 $10.021 $10.783 $10.637 NA
Number of units outstanding
at end of period NA 1,173 1,662 612 1,508 1,199 NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Number of units in Thousands)
TEMPLETON TEMPLETON
MUTUAL DEVELOPING GLOBAL TEMPLETON
SHARES REAL ESTATE RISING SMALL MARKETS ASSET GLOBAL
SUB-ACCOUNTS: SECURITIES SECURITIES DIVIDENDS CAP EQUITY ALLOCATION GROWTH
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $11.993 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Unit value at end of period $11.837 $23.107 $21.165 $14.600 $ 7.993 $13.589 $16.309
Number of units outstanding
at end of period 18,133 9,639 27,683 14,856 15,989 4,056 34,226
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $10.330 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Unit value at end of period $11.993 $28.169 $20.074 $14.952 $10.340 $13.786 $15.176
Number of units outstanding
at end of period 18,744 13,445 33,250 16,924 23,007 5,229 41,432
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $10.000* $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Unit value at end of period $10.330 $23.668 $15.303 $12.913 $11.487 $12.514 $13.560
Number of units outstanding
at end of period 2,613 12,757 35,569 12,784 22,423 4,104 40,327
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period NA $15.594 $ 9.769 $10.000* $ 9.454 $10.000* $10.201
Unit value at end of period NA $18.073 $12.498 $10.146 $ 9.582 $10.591 $11.339
Number of units outstanding
at end of period NA 10,998 33,789 1,302 15,618 1,338 28,309
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period NA $15.369 $10.327 NA $10.000* NA $10.000*
Unit value at end of period NA $15.594 $9.769 $ 9.454 NA $10.201
Number of units outstanding
at end of period NA 11,645 28,778 NA 9,774 NA 14,637
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period NA $13.095 $10.848 NA NA NA NA
Unit value at end of period NA $15.369 $10.327 NA NA NA NA
Number of units outstanding
at end of period NA 5,589 26,256 NA NA NA NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period NA $11.848 $10.000* NA NA NA NA
Unit value at end of period NA $13.095 $10.848 NA NA NA NA
Number of units outstanding
at end of period NA 1,052 8,388 NA NA NA NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period NA $ 9.000 NA NA NA NA NA
Unit value at end of period NA $11.848 NA NA NA NA NA
Number of units outstanding
at end of period NA 394 NA NA NA NA NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period NA $10.368 NA NA NA NA NA
Unit value at end of period NA $ 9.000 NA NA NA NA NA
Number of units outstanding
at end of period NA 200 NA NA NA NA NA
PERIOD FROM INCEPTION* TO DEC. 31, 1989
Unit value at beginning of period NA $10.000 NA NA NA NA NA
Unit value at end of period NA $10.368 NA NA NA NA NA
Number of units outstanding
at end of period NA 57 NA NA NA NA NA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Number of units in Thousands)
TEMPLETON
TEMPLETON INTERNATIONAL TEMPLETON
INTERNATIONAL SMALLER PACIFIC VALUE
SUB-ACCOUNTS: EQUITY COS GROWTH SECURITIES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DEC. 31, 1998
Unit value at beginning of period $17.711 $10.825 $ 9.431 $10.000
Unit value at end of period $18.437 $ 9.364 $ 8.078 $7.717
Number of units outstanding
at end of period 44,256 1,533 10,669 719
YEAR ENDED DEC. 31, 1997
Unit value at beginning of period $16.081 $11.145 $14.932 NA
Unit value at end of period $17.711 $10.825 $ 9.431 NA
Number of units outstanding
at end of period 58,179 1,998 15,833 NA
YEAR ENDED DEC. 31, 1996
Unit value at beginning of period $13.263 $10.000* $13.630 NA
Unit value at end of period $16.081 $11.145 $14.932 NA
Number of units outstanding
at end of period 64,375 1,388 22,061 NA
YEAR ENDED DEC. 31, 1995
Unit value at beginning of period $12.161 NA $12.802 NA
Unit value at end of period $13.263 NA $13.630 NA
Number of units outstanding
at end of period 59,883 NA 22,483 NA
YEAR ENDED DEC. 31, 1994
Unit value at beginning of period $12.226 NA $14.233 NA
Unit value at end of period $12.161 NA $12.802 NA
Number of units outstanding
at end of period 60,464 NA 27,231 NA
YEAR ENDED DEC. 31, 1993
Unit value at beginning of period $ 9.642 NA $ 9.761 NA
Unit value at end of period $12.226 NA $14.233 NA
Number of units outstanding
at end of period 24,026 NA 14,240 NA
YEAR ENDED DEC. 31, 1992
Unit value at beginning of period $10.000* NA $10.000* NA
Unit value at end of period $ 9.642 NA $ 9.761 NA
Number of units outstanding
at end of period 1,329 NA 534 NA
YEAR ENDED DEC. 31, 1991
Unit value at beginning of period NA NA NA NA
Unit value at end of period NA NA NA NA
Number of units outstanding
at end of period NA NA NA NA
YEAR ENDED DEC. 31, 1990
Unit value at beginning of period NA NA NA NA
Unit value at end of period NA NA NA NA
Number of units outstanding
at end of period NA NA NA NA
PERIOD FROM INCEPTION* TO DEC. 31, 1989
Unit value at beginning of period NA NA NA NA
Unit value at end of period NA NA NA NA
Number of units outstanding
at end of period NA NA NA NA
<FN>
*Unit Value at inception was $10.00.
</FN>
The VIP Unit Value at inception was $10.00 for each Sub-Account. Inception was
1/24/89 for the Global Utilities Securities, Growth and Income, High Income,
Income Securities, Money Market, and Real Estate Securities Sub-Accounts;
1/27/92 for the Rising Dividends, Templeton International Equity, and Templeton
Pacific Growth Sub-Accounts; 3/15/94 for the Templeton Developing Markets
Equity, and Templeton Global Growth Sub-Accounts; 5/1/95 for the Templeton
Global Asset Allocation Sub-Account; 11/1/95 for the Small Cap Sub-Account;
5/1/96 for the Capital Growth, and Templeton International Smaller Companies
Sub-Accounts; 11/8/96 for the Mutual Discovery Securities, and Mutual Shares
Securities Sub-Accounts; and 5/1/98 for the Value Securities Sub-Account.
</TABLE>
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
ILLUSTRATION OF ANNUITY INCOME
We have prepared the following tables to show you how investment performance
affects variable annuity income over time. The variable annuity income amounts
reflect three different assumptions for a constant investment return before all
expenses: 0%, 6% and 12%. These are hypothetical rates of return. Allianz Life
does not guarantee that the Contract will earn these returns for any one year or
any sustained period of time. The tables are for illustrative purposes only.
They do not represent past or future investment returns.
Your variable annuity income may be more or less than the income shown if the
actual returns of the Portfolios you select are different than those shown
below. Since it is very likely that investment returns will fluctuate over time,
the amount of variable annuity income you will receive will also fluctuate. The
total amount of annuity income you actually receive will depend on the
cumulative investment returns of the Portfolios you choose, how long you live
and the Annuity Option you choose.
Another factor which will affect the amount of variable annuity income you will
receive is the Assumed Investment Return (AIR). Income will increase from one
Income Date to the next if the annualized net rate of return during that time is
greater than the AIR you choose. It will decrease if the annualized net rate of
return is less than the AIR.
There are three illustrations. The first is based on a 3% AIR, the second is
based on a 5% AIR, and the third is based on a 7% AIR. The 7% AIR may not be
available in your state. (Check with your registered representative regarding
availability).
The income amounts shown reflect the deduction of all fees and expenses. Actual
Portfolio fees and expenses will vary from year to year and from Portfolio to
Portfolio. Actual expenses may be higher or lower than the rate used in the
illustrations. The illustrations assume that each Portfolio will incur expenses
at an average annual rate of 0.79% of the average daily net assets of the
Portfolio. The insurance charges are calculated at an annual rate of 1.40% of
the average daily net assets of the Separate Account. After taking these
expenses and charges into consideration, the illustrated gross investment
returns of 0%, 6% and 12% are approximately equal to net rates (which means
after expenses have been deducted) of -2.16%, 3.71% and 9.58%, respectively.
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1930 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 3%
The amount of monthly variable annuity income shown in the table below and the graph that follows assumes a
constant annual investment return. The amount of variable annuity income that you actually receive will depend on
the investment performance of the Portfolio(s) you choose. The variable annuity income can go up or down. No
minimum dollar amount of variable annuity income is guaranteed. The amounts shown are based on a 3% AIR. Income
will remain constant at $625 per month when the net rate of return after expenses is 3% (annually).
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.16% 3.71% 9.58%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2000 70 $622 $625 $628
January 1, 2001 71 591 629 668
January 1, 2002 72 561 634 711
January 1, 2003 73 533 638 756
January 1, 2004 74 506 642 805
January 1, 2009 79 391 665 1,097
January 1, 2014 84 303 688 1,494
January 1, 2019 89 234 712 2,037
January 1, 2024 94 181 737 2,776
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them to represent past or future investment performance. Actual rates
of return may be more or less than those shown and will depend on a number of
factors.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 3%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-2.16% 3.71% 9.58%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 622 $ 625 $ 628
2 591 629 668
3 561 634 711
4 533 638 756
5 506 642 805
6 481 647 856
7 457 651 911
8 434 656 969
9 412 660 1,031
10 391 665 1,097
11 372 669 1,167
12 353 674 1,241
13 336 679 1,320
14 319 683 1,405
15 303 688 1,494
16 288 693 1,590
17 273 697 1,691
18 259 702 1,799
19 246 707 1,914
20 234 712 2,037
21 222 717 2,167
22 211 722 2,305
23 201 727 2,452
24 191 732 2,609
25 181 737 2,776
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1930 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 5%
The amount of monthly variable annuity income shown in the table below and the graph that follows assumes a
constant annual investment return. The amount of variable annuity income that you actually receive will depend on
the investment performance of the Portfolio(s) you choose. The variable annuity income can go up or down. No
minimum dollar amount of variable annuity income is guaranteed. The amounts shown are based on a 5% AIR. Income
will remain constant at $742 per month when the net rate of return after expenses is 5% (annually).
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.16% 3.71% 9.58%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2000 70 $738 $741 $745
January 1, 2001 71 687 732 778
January 1, 2002 72 640 723 811
January 1, 2003 73 597 714 847
January 1, 2004 74 556 706 884
January 1, 2009 79 391 663 1,094
January 1, 2014 84 274 623 1,354
January 1, 2019 89 193 586 1,676
January 1, 2024 94 135 551 2,075
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them to represent past or future investment performance. Actual rates
of return may be more or less than those shown and will depend on a number of
factors.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 5%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-2.16% 3.71% 9.58%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 738 $ 741 $ 745
2 687 732 778
3 640 723 811
4 597 714 847
5 556 706 884
6 518 697 922
7 483 688 962
8 450 680 1,004
9 419 671 1,048
10 391 663 1,094
11 364 655 1,142
12 339 647 1,191
13 316 639 1,243
14 294 631 1,298
15 274 623 1,354
16 256 616 1,413
17 238 608 1,475
18 222 601 1,539
19 207 593 1,606
20 193 586 1,676
21 180 579 1,749
22 167 572 1,826
23 156 565 1,905
24 145 558 1,988
25 135 551 2,075
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUEMARK INCOME PLUS ILLUSTRATION
ANNUITANT: John Doe ANNUITY PURCHASE AMOUNT: $100,000
DATE OF BIRTH: 1/1/1930 EFFECTIVE DATE: 12/1/1999
ANNUITY INCOME OPTION: Single Life Annuity FIRST ANNUITY INCOME DATE: 1/1/2000
PREMIUM TAX: 0% FREQUENCY OF ANNUITY INCOME: Monthly
ASSUMED INVESTMENT RETURN: 7%
The amount of monthly variable annuity income shown in the table below and the graph that follows assumes a
constant annual investment return. The amount of variable annuity income that you actually receive will depend on
the investment performance of the Portfolio(s) you choose. The variable annuity income can go up or down. No
minimum dollar amount of variable annuity income is guaranteed. The amounts shown are based on a 7% AIR. Income
will remain constant at $861 per month when the net rate of return after expenses is 7% (annually). The 7% AIR may
not be available in your state.
MONTHLY ANNUITY PAYMENTS
Annual rate of return before expenses: 0% 6% 12%
Annuity Income Date Age Annual rate of return after expenses: -2.16% 3.71% 9.58%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 2000 70 $859 $864 $868
January 1, 2001 71 786 837 889
January 1, 2002 72 719 811 910
January 1, 2003 73 657 786 932
January 1, 2004 74 601 762 955
January 1, 2009 79 384 652 1,075
January 1, 2014 84 245 558 1,211
January 1, 2019 89 157 477 1,365
January 1, 2024 94 100 408 1,537
</TABLE>
<PAGE>
The investment rates of return shown are hypothetical only. You should not
consider them to represent past or future investment performance. Actual rates
of return may be more or less than those shown and will depend on a number of
factors.
<TABLE>
<CAPTION>
The following table summarizes Annuity Income with an Assumed Investment Return
of 7%. This table is presented graphically in the printed prospectus.
Monthly Payment Amount
------------------------------------------------------------
-2.16% 3.71% 9.58%
Annual Rate Annual Rate Annual Rate
of Return of Return of Return
Year After Expenses After Expenses After Expenses
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 859 $ 864 $ 868
2 786 837 889
3 719 811 910
4 657 786 932
5 601 762 955
6 549 739 978
7 502 716 1,001
8 459 694 1,025
9 420 673 1,050
10 384 652 1,075
11 351 632 1,101
12 321 612 1,128
13 294 594 1,155
14 268 575 1,183
15 245 558 1,211
16 224 541 1,241
17 205 524 1,271
18 188 508 1,301
19 172 492 1,333
20 157 477 1,365
21 143 462 1,398
22 131 448 1,431
23 120 434 1,466
24 110 421 1,501
25 100 408 1,537
</TABLE>
This page intentionally left blank.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL IMMEDIATE
VARIABLE ANNUITY CONTRACTS
issued by
ALLIANZ LIFE VARIABLE ACCOUNT B
and
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
MAY 1, 1999
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL IMMEDIATE VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, CALL OR WRITE THE
COMPANY AT: 1750 Hennepin Avenue, Minneapolis, MN 55403-2195, (800) 542-5427.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1999, AND AS MAY BE AMENDED FROM TIME TO TIME.
TABLE OF CONTENTS
- -------------------------------------------------------
CONTENTS PAGE
Company ......................................... 2
Experts ......................................... 2
Legal Opinions .................................. 2
Distributor ..................................... 2
Calculation of Performance Data ................. 2
Federal Tax Status .............................. 5
Annuity Provisions .............................. 8
Financial Statements ............................ 9
VIP SAI 05/99
<PAGE>
COMPANY
- --------------------------------------------------------------------------------
Information regarding Allianz Life Insurance Company of North America (the
"Company") and its ownership is contained in the Prospectus. On April 1, 1993,
the Company changed its name from North American Life and Casualty Company to
its present name. The Company is rated A+ (Superior) by A.M. BEST, an
independent analyst of the insurance industry. The financial strength of an
insurance company may be relevant insofar as the ability of a company to make
fixed annuity payments from its general account.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Allianz Life Variable Account B and the consolidated
financial statements of the Company as of and for the year ended December
31,1998, included in this Statement of Additional Information have been audited
by KPMG Peat Marwick LLP, independent auditors, as indicated in their reports
included in this Statement of Additional Information and are included herein in
reliance upon such reports and upon the authority of said firm as experts in
accounting and auditing.
LEGAL OPINIONS
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTOR
- --------------------------------------------------------------------------------
NALAC Financial Plans, LLC, a subsidiary of the Company, acts as the
distributor. The offering is on a continuous basis.
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
TOTAL RETURN
From time to time, the Company may advertise the performance data for the
Variable Options (also known as Sub-Accounts) in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications. Such data will show the percentage change in the value of a VIP
Unit based on the performance of a Sub-Account over a stated period of time
which is determined by dividing the increase (or decrease) in value for that
unit by the VIP Unit Value at the beginning of the period.
Any such performance data will include total return figures for the one, five,
and ten year (or since inception) time periods indicated. Such total return
figures will reflect the deduction of a 1.25% Mortality and Expense Risk Charge,
a 0.15% Administrative Expense Charge and the operating expenses of the
underlying Portfolios.
The hypothetical value of a Contract purchased for the time periods described
will be determined by using the actual VIP Unit Values for an initial $1,000
purchase payment. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 purchase payment made at
the beginning of the period at the end of the period. The Company may
also advertise cumulative and total return information over different
periods of time. Cumulative total return is calculated in a similar manner
as described above except that the results are not annualized.
YIELD
The Money Market Sub-Account. The Company may advertise yield information for
the Money Market Sub-Account. The Money Market Sub-Account's current yield may
vary each day, depending upon, among other things, the average maturity of the
underlying Portfolio's investment securities and changes in interest rates,
operating expenses, the deduction of the Mortality and Expense Risk Charge, the
Administrative Expense Charge and, in certain instances, the value of the
underlying Portfolio's investment securities. The fact that the Sub-Account's
current yield will fluctuate and that the principal is not guaranteed should be
taken into consideration when using the Sub-Account's current yield as a basis
for comparison with savings accounts or other fixed-yield investments. The yield
at any particular time is not indicative of what the yield may be at any other
time.
The Money Market Sub-Account's current yield is computed on a base period return
of a hypothetical Contract having a beginning balance of one VIP 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 VIP 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 and the Administrative Expense Charge.
The effective yield reflects the effects of compounding and represents an
annualization of the current return with all dividends reinvested.
(Effective yield = [(Base Period Return + 1)365/7]-1.)
For the seven-day period ending on 12/31/98, the Money Market Sub-Account had a
current yield of 3.38% and an effective yield of 3.44%.
Other Sub-Accounts. The Company may also quote yield in sales literature,
advertisements, personalized hypothetical illustrations, and Contract Owner
communications for the other Sub-Accounts. Each Sub-Account (other than the
Money Market Sub-Account) will publish standardized total return information
with any quotation of current yield.
The yield computation is determined by dividing the net investment income per
VIP Unit earned during the period (minus the deduction for the Mortality and
Expense Risk Charge and Administrative Expense Charge) by the VIP Unit Value on
the last day of the period and annualizing the resulting figure, according to
the following formula:
Yield = 2 [((a-b) + 1)6 - 1]
---
cd
where:
a = net investment income earned during the period by the Portfolio attributable
to shares owned by the Sub-Account;
b = expenses accrued for the period (net of reimbursements, if applicable);
c = the average daily number of VIP Units outstanding during the period;
d = the maximum offering price per VIP 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. The Company does not currently advertise yield
information for any Sub-Account (other than the Money Market Sub-Account).
PERFORMANCE RANKING
The performance based on each or all of the Sub-Accounts of the Variable Account
may be compared in its advertising and sales literature to the performance of
other variable annuity issuers in general or to the performance of particular
types of variable annuities investing in mutual funds, or series of mutual funds
with investment objectives similar to each of the Sub-Accounts of the Variable
Account or indices. Lipper Analytical Services, Inc. ("Lipper") and the Variable
Annuity Research and Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS rank such issuers on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level into
consideration. In addition, VARDS prepares risk adjusted rankings, which
consider the effects of market risk on total return performance. This type of
ranking may address the question as to which portfolios provide the highest
total return with the least amount of risk. Other ranking services may be used
as sources of performance comparison, such as CDA/ Weisenberger and Morningstar.
PERFORMANCE INFORMATION
Total returns reflect all aspects of a Sub-Account's return, including the
automatic reinvestment by Allianz Life Variable Account B of all distributions
and any change in a Sub-Account's value over the period. The performance of the
Sub-Accounts reflects results achieved prior to the date the Contracts first
invested in the Sub-Accounts.
The returns reflect the deduction of the Mortality and Expense Risk Charge,
Administrative Expense Charge and the operating expenses of each Portfolio. Past
performance does not guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN
Average Annual Total Return for the periods ended December 31, 1998
INCEPTION ONE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEARS INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth 5/1/96 18.62% NA 18.06%
Global Utilities Securities 1/24/89 9.64% 10.33% 11.04%
Growth and Income 1/24/89 6.83% 13.91% 10.19%
High Income. 1/24/89 -0.48% 6.95% 7.86%
Income Securities 1/24/89 0.23% 7.21% 9.71%
Money Market1 1/24/89 3.76% 3.68% 3.73%
Mutual Discovery Securities 11/8/96 -6.32% NA 5.54%
Mutual Shares Securities 11/8/96 -1.30% NA 8.18%
Real Estate Securities 1/24/89 -17.97% 8.50% 8.79%
Rising Dividends 1/27/92 5.44% 15.43% 11.42%
Small Cap 11/1/95 -2.36% NA 12.69%
Templeton Developing Markets Equity 3/15/94 -22.70% NA -4.56%
Templeton Global Asset Allocation 5/1/95 -1.43% NA 8.71%
Templeton Global Growth 3/15/94 7.46% NA 10.73%
Templeton International Equity 1/27/92 4.09% 8.56% 9.23%
Templeton International Smaller Companies 5/1/96 5.59% NA -2.43%
Templeton Pacific Growth 1/27/92 -14.34% -10.71% -3.03%
Value Securities 5/1/98 NA NA 12.70%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN
Total Return for the periods ended December 31, 1998
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
----------------------------------------------- -------------------------
INCEPTION ONE THREE FIVE SINCE THREE FIVE SINCE
SUB-ACCOUNT DATE YEAR YEAR YEAR INCEPTION YEAR YEAR INCEPTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth 5/1/96 18.62% NA NA 18.06% NA NA 55.74%
Global Utilities Securities 1/24/89 9.64% 13.10% 10.33% 11.04% 44.69% 63.45% 183.08%
Growth and Income 1/24/89 6.83% 14.86% 13.91% 10.19% 51.51% 91.76% 162.26%
High Income 1/24/89 -0.48% 7.13% 6.95% 7.86% 22.93% 39.94% 112.08%
Income Securities 1/24/89 0.23% 8.29% 7.21% 9.71% 26.97% 41.66% 151.22%
Money Market1 1/24/89 3.76% 3.74% 3.58% 3.73% 11.66% 19.23% 43.86%
Mutual Discovery Securities 11/8/96 -6.32% NA NA 5.54% NA NA 12.26%
Mutual Shares Securities 11/8/96 -1.30% NA NA 8.18% NA NA 18.37%
Real Estate Securities 1/24/89 -17.97% 8.54% 8.50% 8.79% 27.85% 50.35% 131.07%
Rising Dividends 1/27/92 5.44% 19.20% 15.43% 11.42% 69.35% 104.95% 111.65%
Small Cap 11/1/95 -2.36% 12.90% NA 12.69% 43.89% NA 46.00%
Templeton Developing Markets Equity 3/15/94 -22.70% -5.87% NA -4.56% -16.58% NA -20.07%
Templeton Global Asset Allocation 5/1/95 -1.43% 8.66% NA 8.71% 28.30% NA 35.89%
Templeton Global Growth 3/15/94 7.46% 12.88% NA 10.73% 43.83% NA 63.09%
Templeton International Equity 1/27/92 4.09% 11.60% 8.56% 9.23% 39.01% 50.80% 84.37%
Templeton International Smaller Companies 5/1/96 5.59% NA NA -2.43% NA NA -6.36%
Templeton Pacific Growth 1/27/92 -14.34% -16.00% -10.71% -3.03% -40.73% -43.24% -19.22%
Value Securities 5/1/98 NA NA NA 12.70% NA NA 7.26%
<FN>
1. Calculated with waiver of fees
</FN>
</TABLE>
The Company may also present performance information computed on a different
basis.
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 Owner's total return
may be in any future period.
ANNUITY INCOME
Periodic annuity income amounts may be illustrated using the historical
performance of the Sub-Accounts, the Standard & Poor's 500 Composite Stock Price
Index or other recognized investment benchmark portfolios. All illustrations
will reflect the 1.25% annual Mortality and Expense Risk Charge and the 0.15%
Administrative Expense Charge and actual or assumed Portfolio expenses.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "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 annuity
payments, the portion of a payment includible in income equals the excess of the
payment over the exclusion amount. The exclusion amount for payments based on a
variable annuity option is determined by dividing the investment in the Contract
(adjusted for any period certain or refund guarantee) by the number of years
over which the annuity is expected to be paid (determined by Treasury
Regulations). 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 guarantee) bears to the
expected return under the Contract. Payments received after the investment in
the Contract has been recovered (i.e. the total of the excludable amounts equal
the investment in the Contract) are fully taxable. The taxable portion of an
annuity payment is taxed at ordinary income rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Contract Owners, annuitants and beneficiaries under the
Contracts should seek competent financial advice about the tax consequences of
any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Trust underlying the Contracts
will be managed by the investment managers for the Trust in such a manner as to
comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Contract Owner control
of the investments of the Separate Account will cause the Contract Owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Contract Owner's ability to transfer
among investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets of
the Separate Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
Section 72(e)(11) of 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. The legislative history of Section 72(e)(11) indicates
that it was not intended to apply to immediate annuities. However, the
legislative history also states that no inference is intended as to whether the
Treasury Department, under its authority to prescribe rules to enforce the tax
laws, may treat the combination purchase of a deferred annuity contract with an
immediate annuity contract as a single contract for purposes of determining the
tax consequences of any distribution.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 591/2; (b) after the death of the Contract Owner;
(c) if the taxpayer is totally disabled (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer and his Beneficiary; (e) as an annuity payment under
an immediate annuity; or (f) which are allocable to purchase payments made prior
to August 14, 1982.
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 Distributions -IRA Contracts.")
The availability of total or partial withdrawals from an immediate annuity is
not expressly provided for in the Code or Treasury Regulations. The only tax
guidance currently available for such issue is a Private Letter Ruling holding
that the right to make withdrawals does not prevent a contract from qualifying
as an immediate annuity. However, the Private Letter Ruling does not address the
issue of whether the making of a withdrawal would adversely affect the favorable
tax treatment of annuity payments made before or after such partial withdrawal
because of the requirement that all immediate annuity payments must be
"substantially equal." The loss of favorable tax treatment would mean that the
income portion of each annuity payment received prior to the taxpayer's
attaining age 591/2 would be subject to a 10% penalty tax unless another
exception to the penalty tax applies. While the Company currently believes that
such withdrawals will not adversely affect the favorable tax treatment of
annuity payments received before or after a withdrawal and the Company intends
to perform its tax reporting functions accordingly, there can be no assurance
that the Internal Revenue Service will not take a contrary position. Contract
Owners should obtain competent tax advice prior to making a partial or total
withdrawal.
QUALIFIED PLANS
The Contracts offered by the Prospectus may also be used with a plan qualified
under Section 408(b) of the Code ("IRA Contracts"). Contract Owners, annuitants
and beneficiaries are cautioned that benefits under an IRA Contract 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. The following
discussion of IRA Contracts is not exhaustive and is for general informational
purposes only. The tax rules regarding IRA Contracts are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing IRA
Contracts. IRA Contracts include special provisions restricting Contract
provisions that may otherwise be available as described in this Prospectus.
Generally, IRA Contracts are not transferable except upon surrender or
annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to distributions from IRA Contracts. (See
"Tax Treatment of Distributions - IRA Contracts.")
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. IRA Contracts will utilize annuity tables which do
not differentiate on the basis of sex because of the use of the IRA Contracts in
a Simplified Employee Pension. Such annuity tables will also be available for
use in connection with certain non-qualified deferred compensation plans.
Under applicable limitations, certain amounts may be contributed to an IRA
Contract which will be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Distributions - IRA 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 Contract.
Sales of Contracts for use as IRA Contracts 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.
TAX TREATMENT OF DISTRIBUTIONS - IRA CONTRACTS
In the case of a withdrawal under an IRA 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 IRA Contracts. To
the extent amounts are not includible in gross income because they have been
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 Annuitant reaches age
591/2; (b) distributions following the death or disability of the Annuitant (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
distributions that are part of a series of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
his or her designated Beneficiary; (d) distributions made to the Annuitant to
the extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Annuitant for amounts paid during the taxable year
for medical care; (e) distributions from an IRA Contract for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Annuitant and his or her spouse and dependents if the Annuitant has received
unemployment compensation for at least 12 weeks (this exception will no longer
apply after the Annuitant has been re-employed for at least 60 days.); (f)
distributions from an Individual Retirement Annuity made to the Annuitant 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 Annuitant for the taxable
year; and (g) distributions from an Individual Retirement Annuity made to the
Annuitant which are qualified first-time home buyer distributions (as defined in
Section 72(t)(8) of the Code). With respect to (c) above, if the series of
substantially equal periodic payments is modified before the later of the
Annuitant attaining age 591/2 or 5 years from the date of the first annuity
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 withdrawal may result in the modification of the series of annuity
payments made after such withdrawal and therefore could result in the imposition
of the 10% penalty tax and interest for the period as described above. Competent
tax advice should be obtained prior to making any withdrawals from an IRA
Contract. Any amounts distributed will only be paid to the Annuitant, Joint
Annuitant or Beneficiary. The Company will not transfer or pay such amounts to
another IRA or tax qualified plan.
Generally, distributions from an IRA Contract must commence no later than April
1 of the calendar year, following the later of: (a) the year in which the
employee attains age 701/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Generally, required distributions must be over a period not exceeding
the life or 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 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 their
Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Contract Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Contract Owner, in most
cases, may elect not to have taxes withheld or to have withholding done at a
different rate.
ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYOUT
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount with the net investment results
of the applicable Sub-Account(s) of the Separate Account. Annuity payments also
depend upon the Age of the Annuitant and any Joint Annuitant and the Assumed Net
Investment Factor utilized. On the Annuity Calculation Date, a fixed number of
Annuity Units will be purchased, determined as follows:
The first annuity payment is equal to the Contract Value allocated to the
Separate Account 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 Sub-Account, the fixed number of Annuity Units is determined by dividing
the amount of the initial annuity payment determined for each Sub-Account by the
Annuity Unit value on the Annuity Calculation Date. Thereafter, the number of
Annuity Units in each Sub-Account remains unchanged unless the Contract Owner
elects to transfer between Sub-Accounts. 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 determined for each Sub-Account. The annuity payment in
each Sub-Account is determined by multiplying the number of Annuity Units then
allocated to such Sub-Account by the Annuity Unit value for that Sub-Account.
For each Sub-Account, the value of an Annuity Unit was initially established at
$1.00. On each subsequent Valuation Date the value of an Annuity Unit is
determined in the following way:
FIRST: The Net Investment Factor is determined by dividing (a) by (b) and adding
(c) to the result, where:
a. is the net increase or decrease in the Net Asset Value per share of the
Portfolio (or other Eligible Investment) plus the per share amount of any
dividend or capital gain distribution paid by the Portfolio (or Eligible
Investment) during the Valuation Period, plus or minus a per share charge
or credit for any taxes incurred by or reserved for in the Sub-Account as
of the end of the current Valuation Period which the Company determines to
have resulted from maintenance of the Sub-Account; and
b. is the Net Asset Value per share of the Portfolio (or other Eligible
Investment) at the beginning of the Valuation Period, plus or minus a per
share charge or credit for any taxes incurred by or reserved for in the
Sub-Account as of the end of the immediately preceding Valuation Period
which the Company determines to have resulted from maintenance of the
Sub-Account; and
c. is the net result of 1.000 less the Valuation Period deduction for the
charges to the Sub-Account.
The Net Investment Factor may be more or less than one.
SECOND: The value of an Annuity Unit for a Valuation Date is equal to:
a. the value of the Annuity Unit on the immediately preceding Valuation Date;
b. multiplied by the Net Investment Factor for the Valuation Period ending on
the current Valuation Date;
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. For example, with a 5%
Assumed Investment Return, the Assumed Net Investment Factor for a one-year
Valuation Period would be 1.05. For a one-day Valuation Period, the Assumed Net
Investment Factor would be 1.00013368062.
The Assumed Investment Return is the investment return upon which annuity
payments are based. Income will increase from one annuity Income Date to the
next if the annualized Net Rate of Return during that time is greater than the
Assumed Investment Return and will decrease if the annualized Net Rate of Return
is less than the Assumed Investment Return.
A Contract Owner may choose either a 7%, 5% or a 3% Assumed Investment Return.
If the Contract Owner does not choose one, the 5% Assumed Investment Return
automatically applies. Choosing a higher Assumed Investment Return will result
in a higher initial amount of income, but income will increase more slowly
during periods of good investment performance of the Trust and decrease more
rapidly during periods of poor investment performance. THE 7% ASSUMED INVESTMENT
RETURN IS NOT AVAILABLE IN ALL STATES UNTIL APPROVED BY THE STATE INSURANCE
DEPARTMENTS. (CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY).
The variable annuity benefits provided for under the Contract are based upon:
(a) the 1983(a) Blended Unisex Mortality Table with 50% female content,
projected to the year 2000 with Projection Scale G; (b) the Assumed Investment
Return, and (c) any applicable taxes.
FIXED ANNUITY PAYOUT
Annuity payments from the Fixed Payment Annuity will be equal payments unless
otherwise specified by the Annuity Option selected.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited consolidated financial statements of the Company as of and for the
year ended December 31, 1998 included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts. The audited financial statements of the Separate Account as of and
for the year ended December 31, 1998 are also included herein.
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>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
The following financial statements of the Company are included in
Part B hereof.
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1998 and 1997.
3. Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996.
4. Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.
6. Notes to Consolidated Financial Statements - December 31, 1998,
1997 and 1996.
The following financial statements of the Variable Account are
included in Part B hereof.
1. Independent Auditors' Report.
2. Statements of Assets and Liabilities as of December 31, 1998.
3. Statements of Operations for the year ended December 31, 1998.
4. Statements of Changes in Net Assets for the years ended December
31, 1998 and 1997.
5. Notes to Financial Statements - December 31, 1998.
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account (1)
2. Not Applicable
3. Principal Underwriter Agreement (3)
4. Individual Immediate Variable Annuity Contract (3)
4. (i) Individual Immediate Variable Annuity Contract
Endorsements (3)
5. Application for Individual Immediate Variable Annuity (2)
6. (i) Copy of Articles of Incorporation of the Company (1)
(ii) Copy of the Bylaws of the Company (1)
7. Not Applicable
8. Form of Fund Participation Agreement (2)
9. Opinion and Consent of Counsel
10. Independent Auditors' Consent
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Company Organizational Chart (3)
27. Not Applicable
(1) Incorporated by reference to Registrant's Post-Effective Amendment No.
2 to Form N-4 which was electronically filed on November 1, 1995.
(2) Incorporated by reference to Registrant's Post-Effective Amendment No.
3 to Form N-4 which was electronically filed on April 24, 1996.
(3) Incorporated by reference to Registrant's Post-Effective Amendment No.
5 to Form N-4 which was electronically filed on April 29, 1997.
Item 25. Directors and Officers of the Depositor
The following are the Officers and Directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- --------------------------- --------------------------------------
<S> <C>
Lowell C. Anderson Chairman of the Board, President and
1750 Hennepin Avenue Chief Executive Officer
Minneapolis, MN 55403
Herbert F. Hansmeyer Director
777 San Marin Drive
Novato, CA 94998
Michael P. Sullivan Director
7505 Metro Blvd.
Minneapolis, MN 55439
Dr. Gerhard G. Rupprecht Director
Reinsburgstrasse 17
D - 70178
Stuttgart, Germany
Edward J. Bonach Executive Vice President, Chief Financial
1750 Hennepin Avenue Officer and Treasurer
Minneapolis, MN 55403
Robert S. James President-Individual Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Ronald L. Wobbeking President-Mass Marketing Division
1750 Hennepin Avenue
Minneapolis, MN 55403
Paul M. Howman Vice President, Underwriting
1750 Hennepin Avenue
Minneapolis, MN 55403
Reverend Dennis J. Dease Director
c/o University of St.Thomas
2115 Summit Avenue
Box AQU100
St. Paul, MN 55105-1096
James R. Campbell Director
c/o Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0116
Robert M. Kimmitt Director
c/o Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037-1420
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
The Company organizational chart is incorporated by reference to Post-Effective
Amendment No. 5 to Form N-4 which was electronically filed on April 29, 1997
(File No. 811-05618).
Item 27. Number of Contract Owners
As of March 19, 1999, there were 281 qualified Contract Owners and 210
non-qualified Contract Owners with Contracts in the Separate Account.
Item 28. Indemnification
The Bylaws of the Company provide that:
Each person (and the heirs, executors, and administrators of such person) made
or threatened to be made a party to any action, civil or criminal, by reason of
being or having been a Director, officer, or employee of the corporation (or by
reason of serving any other organization at the request of the corporation)
shall be indemnified to the extent permitted by the laws of the State of
Minnesota, and in the manner prescribed therein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted for directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
a. NALAC Financial Plans, LLC is the principal underwriter for the
Contracts. It also is the principal underwriter for:
Allianz Life Variable Account A
Preferred Life Variable Account C
b. The following are the officers (managers) and directors (Board of
Governors) of NALAC Financial Plans, LLC:
<TABLE>
<CAPTION>
Name & Principal Positions and Offices
Business Address with Underwriter
- ----------------------- -----------------------------
<S> <C>
James P. Kelso Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Thomas B. Clifford Chief Manager and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael T. Westermeyer Secretary and Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Edward J. Bonach Governor
1750 Hennepin Avenue
Minneapolis, MN 55403
Michael J. Yates Treasurer
1750 Hennepin Avenue
Minneapolis, MN 55403
Catherine L. Mielke Compliance Officer
1750 Hennepin Avenue
Minneapolis, MN 55403
</TABLE>
c. Not Applicable
Item 30. Location of Accounts and Records
Thomas Clifford, whose address is 1750 Hennepin Avenue, Minneapolis, Minnesota,
maintains physical possession of the accounts, books or documents of the
Variable Account required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules promulgated thereunder.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
d. Allianz Life Insurance Company of North America ("Company") hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf in the City of
Minneapolis and State of Minnesota, on this 26th day of April, 1999.
<TABLE>
<CAPTION>
<S> <C>
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
By: /s/ MICHAEL T. WESTERMEYER
------------------------------
</TABLE>
<TABLE>
<CAPTION>
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
<S> <C> <C>
Lowell C. Anderson* Chairman of the Board,
Lowell C. Anderson President and Chief 04/26/99
Executive Officer Date
Herbert F. Hansmeyer* Director 04/26/99
Herbert F. Hansmeyer Date
Michael P. Sullivan* Director 04/26/99
Michael P. Sullivan Date
Dr. Gerhard G. Rupprecht* Director 04/26/99
Dr. Gerhard G. Rupprecht Date
Edward J. Bonach* Chief Financial Officer 04/26/99
Edward J. Bonach Date
Rev. Dennis J. Dease* Director 04/26/99
Rev. Dennis J. Dease Date
James R. Campbell* Director 04/26/99
James R. Campbell Date
Robert M. Kimmitt* Director 04/26/99
Robert M. Kimmitt Date
*By Power of Attorney
By: /s/ MICHAEL T. WESTERMEYER
-----------------------------
Michael T. Westermeyer
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 10
TO
FORM N-4
ALLIANZ LIFE VARIABLE ACCOUNT B
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
INDEX TO EXHIBITS
Exhibit Page
EX-99.B9 Opinion and Consent of Counsel
EX-99.B10 Independent Auditors' Consent
EX-99.B13 Calculation of Performance Information
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 19, 1999
Board of Directors
Allianz Life Insurance Company of North America
1750 Hennepin Avenue
Minneapolis, MN 55403-2195
Re: Opinion and Consent of Counsel
Allianz Life Variable Account B
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, of a Registration Statement on Form N-4 for the Individual Immediate
Variable Annuity Contracts to be issued by Allianz Life Insurance Company of
North America and its separate account, Allianz Life Variable Account B.
We are of the following opinions:
1. Allianz Life Variable Account B is a unit investment trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner pursuant
to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a
Contract Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement.
Sincerely,
BLAZZARD, GRODD, & HASENAUER, P.C.
By: /s/ LYNN KORMAN STONE
- ----------------------------------
Lynn Korman Stone
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Independent Auditors' Consent
The Board of Directors of Allianz Life Insurance Company of North America and
Contract Owners of Allianz Life Variable Account B:
We consent to the use of our report, dated January 29, 1999, on the financial
statements of Allianz Life Variable Account B and our report dated February 5,
1999, on the consolidated financial statements of Allianz Life Insurance Company
of North America and subsidiaries included herein and to the reference to our
Firm under the heading "EXPERTS".
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 23, 1999
<TABLE>
<CAPTION>
Franklin Templeton Valuemark Income Plus
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1997
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
12-31-97 Purchase $1,000.00 $13.12966406 76.163 76.163 $1,000.00
12-31-98 Contract Fee (1.00) 15.57416691 (0.064) 76.099 1,185.18
12-31-98 Value before Surr 15.57416691 0.000 76.099 1,185.18
Chg
12-31-98 Surrender Charge (42.50) 15.57416691 (2.729) 73.370 1,142.68
Cumulative and Average Annual Total Returns
without/with charges 18.62% A 14.27% B
Growth and Income
12-31-97 Purchase $1,000.00 $24.55079561 40.732 40.732 $1,000.00
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 40.694 1,067.25
12-31-98 Value before Surr 26.22646854 0.000 40.694 1,067.25
Chg
12-31-98 Surrender Charge (42.50) 26.22646854 (1.621) 39.073 1,024.75
Cumulative and Average Annual Total Returns
without/with charges 6.83% A 2.48% B
High Income
12-31-97 Purchase $1,000.00 $21.31160694 46.923 46.923 $1,000.00
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 46.876 994.16
12-31-98 Value before Surr 21.20849040 0.000 46.876 994.16
Chg
12-31-98 Surrender Charge (42.50) 21.20849040 (2.004) 44.872 951.66
Cumulative and Average Annual Total Returns
without/with charges -0.48% A -4.83% B
Income Securities
12-31-97 Purchase $1,000.00 $25.06461193 39.897 39.897 $1,000.00
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 39.857 1,001.28
12-31-98 Value before Surr 25.12170867 0.000 39.857 1,001.28
Chg
12-31-98 Surrender Charge (42.50) 25.12170867 (1.692) 38.165 958.78
Cumulative and Average Annual Total Returns
without/with charges 0.23% A -4.12% B
Money Market
12-31-97 Purchase $1,000.00 $13.86472844 72.125 72.125 $1,000.00
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 72.056 1,036.56
12-31-98 Value before Surr 14.38555424 0.000 72.056 1,036.56
Chg
12-31-98 Surrender Charge (42.50) 14.38555424 (2.954) 69.102 994.06
Cumulative and Average Annual Total Returns
without/with charges 3.76% A -0.59% B
Mutual Discovery Securities
12-31-97 Purchase $1,000.00 $11.98316359 83.450 83.450 $1,000.00
12-31-98 Contract Fee (1.00) 11.22622113 (0.089) 83.361 935.83
12-31-98 Value before Surr 11.22622113 0.000 83.361 935.83
Chg
12-31-98 Surrender Charge (42.50) 11.22622113 (3.786) 79.576 893.33
Cumulative and Average Annual Total Returns
without/with charges -6.32% -10.67%
Mutual Shares Securities
12-31-97 Purchase $1,000.00 $11.99296726 83.382 83.382 $1,000.00
12-31-98 Contract Fee (1.00) 11.83677406 (0.084) 83.298 985.98
12-31-98 Value before Surr 11.83677406 0.000 83.298 985.98
Chg
12-31-98 Surrender Charge (42.50) 11.83677406 (3.591) 79.707 943.48
Cumulative and Average Annual Total Returns
without/with charges -1.30% -5.65%
Natural Resource Securities
12-31-97 Purchase $1,000.00 $11.55913365 86.512 86.512 $1,000.00
12-31-98 Contract Fee (1.00) 8.50546484 (0.118) 86.394 734.82
12-31-98 Value before Surr 8.50546484 0.000 86.394 734.82
Chg
12-31-98 Surrender Charge (42.50) 8.50546484 (4.997) 81.397 692.32
Cumulative and Average Annual Total Returns
without/with charges -26.42% A -30.77% B
Real Estate Securities
12-31-97 Purchase $1,000.00 $28.16943249 35.499 35.499 $1,000.00
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 35.456 819.28
12-31-98 Value before Surr 23.10677956 0.000 35.456 819.28
Chg
12-31-98 Surrender Charge (42.50) 23.10677956 (1.839) 33.617 776.78
Cumulative and Average Annual Total Returns
without/with charges -17.97% A -22.32% B
Rising Dividends
12-31-97 Purchase $1,000.00 $20.07430239 49.815 49.815 $1,000.00
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 49.768 1,053.36
12-31-98 Value before Surr 21.16548977 0.000 49.768 1,053.36
Chg
12-31-98 Surrender Charge (42.50) 21.16548977 (2.008) 47.760 1,010.86
Cumulative and Average Annual Total Returns
without/with charges 5.44% A 1.09% B
Small Cap
12-31-97 Purchase $1,000.00 $14.95194471 66.881 66.881 $1,000.00
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 66.812 975.43
12-31-98 Value before Surr 14.59958077 0.000 66.812 975.43
Chg
12-31-98 Surrender Charge (42.50) 14.59958077 (2.911) 63.901 932.93
Cumulative and Average Annual Total Returns
without/with charges -2.36% -6.71%
Templeton Developing Markets Equity
12-31-97 Purchase $1,000.00 $10.34011278 96.711 96.711 $1,000.00
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 96.586 771.97
12-31-98 Value before Surr 7.99263591 0.000 96.586 771.97
Chg
12-31-98 Surrender Charge (42.50) 7.99263591 (5.317) 91.268 729.47
Cumulative and Average Annual Total Returns
without/with charges -22.70% A -27.05% B
Templeton Global Asset Allocation
12-31-97 Purchase $1,000.00 $13.78572229 72.539 72.539 $1,000.00
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 72.465 984.70
12-31-98 Value before Surr 13.58859831 0.000 72.465 984.70
Chg
12-31-98 Surrender Charge (42.50) 13.58859831 (3.128) 69.338 942.20
Cumulative and Average Annual Total Returns
without/with charges -1.43% A -5.78% B
Templeton Global Growth
12-31-97 Purchase $1,000.00 $15.17626475 65.892 65.892 $1,000.00
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 65.831 1,073.61
12-31-98 Value before Surr 16.30853286 0.000 65.831 1,073.61
Chg
12-31-98 Surrender Charge (42.50) 16.30853286 (2.606) 63.225 1,031.11
Cumulative and Average Annual Total Returns
without/with charges 7.46% A 3.11% B
Templeton International Equity
12-31-97 Purchase $1,000.00 $17.71128511 56.461 56.461 $1,000.00
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 56.407 1,039.95
12-31-98 Value before Surr 18.43652906 0.000 56.407 1,039.95
Chg
12-31-98 Surrender Charge (42.50) 18.43652906 (2.305) 54.102 997.45
Cumulative and Average Annual Total Returns
without/with charges 4.09% A -0.26% B
Templeton International Smaller Companies
12-31-97 Purchase $1,000.00 $10.82516357 92.377 92.377 $1,000.00
12-31-98 Contract Fee (1.00) 9.36443942 (0.107) 92.271 864.06
12-31-98 Value before Surr 9.36443942 0.000 92.271 864.06
Chg
12-31-98 Surrender Charge (42.50) 9.36443942 (4.538) 87.732 821.56
Cumulative and Average Annual Total Returns
without/with charges -13.49% A -17.84% B
Templeton Pacific Growth
12-31-97 Purchase $1,000.00 $9.43102016 106.033 106.033 $1,000.00
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 105.909 855.58
12-31-98 Value before Surr 8.07846316 0.000 105.909 855.58
Chg
12-31-98 Surrender Charge (42.50) 8.07846316 (5.261) 100.648 813.08
Cumulative and Average Annual Total Returns
without/with charges -14.34% A -18.69% B
Global Utilities Securities
12-31-97 Purchase $1,000.00 $25.81831690 38.732 38.732 $1,000.00
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 38.697 1,095.42
12-31-98 Value before Surr 28.30779835 0.000 38.697 1,095.42
Chg
12-31-98 Surrender Charge (42.50) 28.30779835 (1.501) 37.196 1,052.92
Cumulative and Average Annual Total Returns
without/with charges 9.64% A 5.29% B
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = (Accumulated Value as of December 31, 1998 - Accum. Value at
Purch.)/Accum. Value at Purch.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Franklin Templeton Valuemark Income Plus
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1995
Valuation Date as of December 31, 1998
Dollar Units Accum. Accum.
This
Date Transaction Amount Unit Value Trans. Units Value
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-95 Purchase $1,000.00 $17.30965999 57.771 57.771 $1,000.00
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 57.720 1,124.94
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 57.679 1,416.07
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 57.641 1,511.72
12-31-98 Value before Surr Chg 26.22646854 0.000 57.641 1,511.72
12-31-98 Surrender Charge (22.00) 26.22646854 (0.839) 56.802 1,489.72
Cumulative Total Returns without/with chrgs. 51.51% A 48.97% C
Avg. Annual Total Returns without/with chrgs. 14.86% B 14.21% D
High Income
12-31-95 Purchase $1,000.00 $17.25181285 57.965 57.965 $1,000.00
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 57.913 1,122.06
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 57.866 1,233.23
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 57.819 1,226.26
12-31-98 Value before Surr Chg 21.20849040 0.000 57.819 1,226.26
12-31-98 Surrender Charge (22.00) 21.20849040 (1.037) 56.782 1,204.26
Cumulative Total Returns without/with chrgs. 22.93% A 20.43% C
Avg. Annual Total Returns without/with chrgs. 7.13% B 6.39% D
Income Securities
12-31-95 Purchase $1,000.00 $19.78534185 50.542 50.542 $1,000.00
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 50.496 1,096.19
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 50.457 1,264.67
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 50.417 1,266.55
12-31-98 Value before Surr Chg 25.12170867 0.000 50.417 1,266.55
12-31-98 Surrender Charge (22.00) 25.12170867 (0.876) 49.541 1,244.55
Cumulative Total Returns without/with chrgs. 26.97% A 24.46% C
Avg. Annual Total Returns without/with chrgs. 8.29% B 7.57% D
Money Market
12-31-95 Purchase $1,000.00 $12.88349436 77.619 77.619 $1,000.00
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 77.544 1,035.93
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 77.472 1,074.12
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 77.402 1,113.47
12-31-98 Value before Surr Chg 14.38555424 0.000 77.402 1,113.47
12-31-98 Surrender Charge (22.00) 14.38555424 (1.529) 75.873 1,091.47
Cumulative Total Returns without/with chrgs. 11.66% A 9.15% C
Avg. Annual Total Returns without/with chrgs. 3.74% B 2.96% D
Real Estate Securities
12-31-95 Purchase $1,000.00 $18.07282328 55.332 55.332 $1,000.00
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 55.289 1,308.57
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 55.254 1,556.47
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 55.211 1,275.74
12-31-98 Value before Surr Chg 23.10677956 0.000 55.211 1,275.74
12-31-98 Surrender Charge (22.00) 23.10677956 (0.952) 54.259 1,253.74
Cumulative Total Returns without/with chrgs. 27.85% A 25.37% C
Avg. Annual Total Returns without/with chrgs. 8.54% B 7.83% D
Rising Dividends
12-31-95 Purchase $1,000.00 $12.49836348 80.010 80.010 $1,000.00
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 79.945 1,223.40
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 79.895 1,603.84
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 79.848 1,690.02
12-31-98 Value before Surr Chg 21.16548977 0.000 79.848 1,690.02
12-31-98 Surrender Charge (22.00) 21.16548977 (1.039) 78.809 1,668.02
Cumulative Total Returns without/with chrgs. 69.35% A 66.80% C
Avg. Annual Total Returns without/with chrgs. 19.20% B 18.60% D
Small Cap
12-31-95 Purchase $1,000.00 $10.14638787 98.557 98.557 $1,000.00
12-31-96 Contract Fee (1.00) 12.91274591 (0.077) 98.480 1,271.64
12-31-97 Contract Fee (1.00) 14.95194471 (0.067) 98.413 1,471.46
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 98.344 1,435.79
12-31-98 Value before Surr Chg 14.59958077 0.000 98.344 1,435.79
12-31-98 Surrender Charge (22.00) 14.59958077 (1.507) 96.838 1,413.79
Cumulative Total Returns without/with charges 43.89% A 41.38% C
Average Annual Total Returns without/with 12.90% B 12.23% D
charges
Templeton Developing Markets Equity
12-31-95 Purchase $1,000.00 $9.58170209 104.366 104.366 $1,000.00
12-31-96 Contract Fee (1.00) 11.48724479 (0.087) 104.279 1,197.87
12-31-97 Contract Fee (1.00) 10.34011278 (0.097) 104.182 1,077.25
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 104.057 831.69
12-31-98 Value before Surr Chg 7.99263591 0.000 104.057 831.69
12-31-98 Surrender Charge (22.00) 7.99263591 (2.753) 101.304 809.69
Cumulative Total Returns without/with chrgs. -16.58% A -19.03% C
Avg. Annual Total Returns without/with chrgs. -5.87% B -6.80% D
Templeton Global Asset Allocation
12-31-95 Purchase $1,000.00 $10.59122588 94.418 94.418 $1,000.00
12-31-96 Contract Fee (1.00) 12.51416879 (0.080) 94.338 1,180.56
12-31-97 Contract Fee (1.00) 13.78572229 (0.073) 94.265 1,299.52
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 94.192 1,279.93
12-31-98 Value before Surr Chg 13.58859831 0.000 94.192 1,279.93
12-31-98 Surrender Charge (22.00) 13.58859831 (1.619) 92.573 1,257.93
Cumulative Total Returns without/with chrgs. 28.30% A 25.79% C
Avg. Annual Total Returns without/with chrgs. 8.66% B 7.95% D
Templeton Global Growth
12-31-95 Purchase $1,000.00 $11.33894840 88.192 88.192 $1,000.00
12-31-96 Contract Fee (1.00) 13.55953972 (0.074) 88.118 1,194.84
12-31-97 Contract Fee (1.00) 15.17626475 (0.066) 88.052 1,336.30
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 87.991 1,435.00
12-31-98 Value before Surr Chg 16.30853286 0.000 87.991 1,435.00
12-31-98 Surrender Charge (22.00) 16.30853286 (1.349) 86.642 1,413.00
Cumulative Total Returns without/with chrgs. 43.83% A 41.30% C
Avg. Annual Total Returns without/with chrgs. 12.88% B 12.21% D
Templeton International Equity
12-31-95 Purchase $1,000.00 $13.26267921 75.400 75.400 $1,000.00
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 75.337 1,211.53
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 75.281 1,333.32
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 75.227 1,386.92
12-31-98 Value before Surr Chg 18.43652906 0.000 75.227 1,386.92
12-31-98 Surrender Charge (22.00) 18.43652906 (1.193) 74.033 1,364.92
Cumulative Total Returns without/with chrgs. 39.01% A 36.49% C
Avg. Annual Total Returns without/with chrgs. 11.60% B 10.93% D
Templeton Pacific Growth
12-31-95 Purchase $1,000.00 $13.63037545 73.366 73.366 $1,000.00
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 73.299 1,094.46
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 73.193 690.28
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 73.069 590.28
12-31-98 Value before Surr Chg 8.07846316 0.000 73.069 590.28
12-31-98 Surrender Charge (22.00) 8.07846316 (2.723) 70.345 568.28
Cumulative Total Returns without/with chrgs. -40.73% A -43.17% C
Avg. Annual Total Returns without/with chrgs. -16.00% B -17.17% D
Global Utilities Securities
12-31-95 Purchase $1,000.00 $19.56451758 51.113 51.113 $1,000.00
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 51.065 1,054.71
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 51.026 1,317.40
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 50.990 1,443.43
12-31-98 Value before Surr Chg 28.30779835 0.000 50.990 1,443.43
12-31-98 Surrender Charge (22.00) 28.30779835 (0.777) 50.213 1,421.43
Cumulative Total Returns without/with chrgs. 44.69% A 42.14% C
Avg. Annual Total Returns without/with chrgs. 13.10% B 12.44% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase
B = [(A+1)^(1/3 Years)]-1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch. D = [(C+1)^(1/3 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Franklin Templeton Valuemark Income Plus
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of December 31, 1993
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Growth and Income
12-31-93 Purchase $1,000.00 $13.67694811 73.116 73.116 $1,000.00
12-31-94 Contract Fee (1.00) 13.21462941 (0.076) 73.040 965.20
12-31-95 Contract Fee (1.00) 17.30965999 (0.058) 72.982 1,263.30
12-31-96 Contract Fee (1.00) 19.48959860 (0.051) 72.931 1,421.40
12-31-97 Contract Fee (1.00) 24.55079561 (0.041) 72.890 1,789.51
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 72.852 1,910.65
12-31-98 Value before Surr Chg 26.22646854 0.000 72.852 1,910.65
12-31-98 Surrender Charge (3.75) 26.22646854 (0.143) 72.709 1,906.90
Cumulative Total Returns without/with chrgs. 91.76% A 90.69% C
Avg. Annual Total Returns without/with chrgs. 13.91% B 13.78% D
High Income
12-31-93 Purchase $1,000.00 $15.15511991 65.984 65.984 $1,000.00
12-31-94 Contract Fee (1.00) 14.60759128 (0.068) 65.916 962.87
12-31-95 Contract Fee (1.00) 17.25181285 (0.058) 65.858 1,136.17
12-31-96 Contract Fee (1.00) 19.37479425 (0.052) 65.806 1,274.98
12-31-97 Contract Fee (1.00) 21.31160694 (0.047) 65.759 1,401.44
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 65.712 1,393.66
12-31-98 Value before Surr Chg 21.20849040 0.000 65.712 1,393.66
12-31-98 Surrender Charge (3.75) 21.20849040 (0.177) 65.535 1,389.91
Cumulative Total Returns without/with chrgs. 39.94% A 38.99% C
Avg. Annual Total Returns without/with chrgs. 6.95% B 6.81% D
Income Securities
12-31-93 Purchase $1,000.00 $17.73437317 56.388 56.388 $1,000.00
12-31-94 Contract Fee (1.00) 16.39171653 (0.061) 56.327 923.29
12-31-95 Contract Fee (1.00) 19.78534185 (0.051) 56.276 1,113.44
12-31-96 Contract Fee (1.00) 21.70827863 (0.046) 56.230 1,220.66
12-31-97 Contract Fee (1.00) 25.06461193 (0.040) 56.190 1,408.38
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 56.150 1,410.59
12-31-98 Value before Surr Chg 25.12170867 0.000 56.150 1,410.59
12-31-98 Surrender Charge (3.75) 25.12170867 (0.149) 56.001 1,406.84
Cumulative Total Returns without/with chrgs. 41.66% A 40.68% C
Avg. Annual Total Returns without/with chrgs. 7.21% B 7.07% D
Money Market
12-31-93 Purchase $1,000.00 $12.06579747 82.879 82.879 $1,000.00
12-31-94 Contract Fee (1.00) 12.35398427 (0.081) 82.798 1,022.88
12-31-95 Contract Fee (1.00) 12.88349436 (0.078) 82.720 1,065.73
12-31-96 Contract Fee (1.00) 13.35923111 (0.075) 82.645 1,104.08
12-31-97 Contract Fee (1.00) 13.86472844 (0.072) 82.573 1,144.86
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 82.504 1,186.86
12-31-98 Value before Surr Chg 14.38555424 0.000 82.504 1,186.86
12-31-98 Surrender Charge (3.75) 14.38555424 (0.261) 82.243 1,183.11
Cumulative Total Returns without/with chrgs. 19.23% A 18.31% C
Avg. Annual Total Returns without/with chrgs. 3.58% B 3.42% D
Real Estate Securities
12-31-93 Purchase $1,000.00 $15.36898235 65.066 65.066 $1,000.00
12-31-94 Contract Fee (1.00) 15.59407180 (0.064) 65.002 1,013.65
12-31-95 Contract Fee (1.00) 18.07282328 (0.055) 64.947 1,173.77
12-31-96 Contract Fee (1.00) 23.66770609 (0.042) 64.904 1,536.14
12-31-97 Contract Fee (1.00) 28.16943249 (0.035) 64.869 1,827.32
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 64.826 1,497.91
12-31-98 Value before Surr Chg 23.10677956 0.000 64.826 1,497.91
12-31-98 Surrender Charge (3.75) 23.10677956 (0.162) 64.663 1,494.16
Cumulative Total Returns without/with chrgs. 50.35% A 49.42% C
Avg. Annual Total Returns without/with chrgs. 8.50% B 8.36% D
Rising Dividends
12-31-93 Purchase $1,000.00 $10.32720317 96.832 96.832 $1,000.00
12-31-94 Contract Fee (1.00) 9.76873744 (0.102) 96.729 $944.92
12-31-95 Contract Fee (1.00) 12.49836348 (0.080) 96.649 $1,207.96
12-31-96 Contract Fee (1.00) 15.30299222 (0.065) 96.584 1,478.02
12-31-97 Contract Fee (1.00) 20.07430239 (0.050) 96.534 1,937.85
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 96.487 2,042.19
12-31-98 Value before Surr Chg 21.16548977 0.000 96.487 2,042.19
12-31-98 Surrender Charge (3.75) 21.16548977 (0.177) 96.310 2,038.44
Cumulative Total Returns without/with chrgs. 104.95% A 103.84% C
Avg. Annual Total Rtns. without/with chrgs. 15.43% B 15.31% D
Templeton International Equity
12-31-93 Purchase $1,000.00 $12.22565227 81.795 81.795 $1,000.00
12-31-94 Contract Fee (1.00) 12.16131942 (0.082) 81.713 993.74
12-31-95 Contract Fee (1.00) 13.26267921 (0.075) 81.638 1,082.73
12-31-96 Contract Fee (1.00) 16.08142393 (0.062) 81.575 1,311.85
12-31-97 Contract Fee (1.00) 17.71128511 (0.056) 81.519 1,443.81
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 81.465 1,501.93
12-31-98 Value before Surr Chg 18.43652906 0.000 81.465 1,501.93
12-31-98 Surrender Charge (3.75) 18.43652906 (0.203) 81.261 1,498.18
Cumulative Total Returns without/with chrgs. 50.80% A 49.82% C
Avg. Annual Total Rtns. without/with chrgs. 8.56% B 8.42% D
Templeton Pacific Growth
12-31-93 Purchase $1,000.00 $14.23330574 70.258 70.258 $1,000.00
12-31-94 Contract Fee (1.00) 12.80173310 (0.078) 70.180 898.42
12-31-95 Contract Fee (1.00) 13.63037545 (0.073) 70.106 955.57
12-31-96 Contract Fee (1.00) 14.93159316 (0.067) 70.039 1,045.80
12-31-97 Contract Fee (1.00) 9.43102016 (0.106) 69.933 659.54
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 69.809 563.95
12-31-98 Value before Surr Chg 8.07846316 0.000 69.809 563.95
12-31-98 Surrender Charge (3.75) 8.07846316 (0.464) 69.345 560.20
Cumulative Total Returns without/with chrgs. -43.24% A -43.98% C
Avg. Annual Total Rtns. without/with chrgs. -10.71% B -10.94% D
Global Utilities Securities
12-31-93 Purchase $1,000.00 $17.31879581 57.741 57.741 $1,000.00
12-31-94 Contract Fee (1.00) 15.10395032 (0.066) 57.675 871.11
12-31-95 Contract Fee (1.00) 19.56451758 (0.051) 57.623 1,127.37
12-31-96 Contract Fee (1.00) 20.65439774 (0.048) 57.575 1,189.18
12-31-97 Contract Fee (1.00) 25.81831690 (0.039) 57.536 1,485.49
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 57.501 1,627.73
12-31-98 Value before Surr Chg 28.30779835 0.000 57.501 1,627.73
12-31-98 Surrender Charge (3.75) 28.30779835 (0.132) 57.368 1,623.98
Cumulative Total Returns without/with chrgs. 63.45% A 62.40% C
Avg. Annual Total Returns without/with chrgs. 10.33% B 10.18% D
<FN>
A = (Unit Value as of December 31, 1998 - Unit Value at Purchase)/Unit Value at
Purchase B = [(A+1)^(1/5 Years)]-1 C = (Accumulated Value as of December 31,
1998 - Accum. Value at Purch.)/Accum. Value at Purch. D = [(C+1)^(1/5 Years)]-1
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Franklin Templeton Valuemark Income Plus
Allianz Life Variable Account B
Cumulative and Average Annual Total Return Calculations
Original Purchase as of Sub-Account Inception
Valuation Date as of December 31, 1998
Dollar Units This Accum. Accum.
Date Transaction Amount Unit Value Trans. Units Value
---- ----------- ------ ---------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Capital Growth
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.18234032 (0.089) 99.911 1,117.23
5-1-98 Contract Fee (1.00) $14.64647972 (0.068) 99.842 1,462.34
12-31-98 Contract Fee (1.00) $15.57416691 (0.064) 99.778 1,553.96
12-31-98 Value before Surr $15.57416691 0.000 99.778 1,553.96
Chg
12-31-98 Surrender Charge (22.00) $15.57416691 (1.413) 98.365 1,531.96
Cumulative Total Returns without/with chgs. 55.74% A 53.20% C
Avg. Annual Total Returns without/with chgs. 18.06% B 17.33% D
Growth and Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.60621064 (0.104) 99.896 959.62
1-24-91 Contract Fee (1.00) 10.04911751 (0.100) 99.796 1,002.87
1-24-92 Contract Fee (1.00) 12.19460473 (0.082) 99.714 1,215.98
1-24-93 Contract Fee (1.00) 12.62194644 (0.079) 99.635 1,257.59
1-24-94 Contract Fee (1.00) 14.16249217 (0.071) 99.565 1,410.08
1-24-95 Contract Fee (1.00) 13.34952632 (0.075) 99.490 1,328.14
1-24-96 Contract Fee (1.00) 17.36302808 (0.058) 99.432 1,726.44
1-24-97 Contract Fee (1.00) 19.93765368 (0.050) 99.382 1,981.44
1-24-98 Contract Fee (1.00) 24.03879635 (0.042) 99.340 2,388.02
12-31-98 Value before Surr 26.22646854 0.000 99.340 2,605.35
Chg
12-31-98 Contract Fee (1.00) 26.22646854 (0.038) 99.302 2,604.35
12-31-98 Surrender Charge 0.00 26.22646854 0.000 99.302 2,604.35
Cumulative Total Returns without/with chgs. 162.26% A 160.43% C
Avg. Annual Total Returns without/with chgs. 10.19% B 10.11% D
High Income
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 9.99164502 (0.100) 99.900 998.16
1-24-91 Contract Fee (1.00) 8.99722270 (0.111) 99.789 897.82
1-24-92 Contract Fee (1.00) 11.88821941 (0.084) 99.705 1,185.31
1-24-93 Contract Fee (1.00) 13.44703876 (0.074) 99.630 1,339.73
1-24-94 Contract Fee (1.00) 15.36027784 (0.065) 99.565 1,529.35
1-24-95 Contract Fee (1.00) 14.72506391 (0.068) 99.497 1,465.10
1-24-96 Contract Fee (1.00) 17.51218685 (0.057) 99.440 1,741.41
1-24-97 Contract Fee (1.00) 19.46632780 (0.051) 99.389 1,934.73
1-24-98 Contract Fee (1.00) 21.49896803 (0.047) 99.342 2,135.76
12-31-98 Value before Surr 21.20849040 0.000 99.342 2,106.90
Chg
12-31-98 Contract Fee (1.00) 21.20849040 (0.047) 99.295 2,105.90
12-31-98 Surrender Charge 0.00 21.20849040 0.000 99.295 2,105.90
Cumulative Total Returns without/with chgs. 112.08% A 110.59% C
Avg. Annual Total Returns without/with chgs. 7.86% B 7.78% D
Income Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.71309911 (0.093) 99.907 1,070.31
1-24-91 Contract Fee (1.00) 9.95244729 (0.100) 99.806 993.32
1-24-92 Contract Fee (1.00) 14.03346495 (0.071) 99.735 1,399.63
1-24-93 Contract Fee (1.00) 15.36060973 (0.065) 99.670 1,530.99
1-24-94 Contract Fee (1.00) 17.72926867 (0.056) 99.613 1,766.07
1-24-95 Contract Fee (1.00) 16.36456157 (0.061) 99.552 1,629.13
1-24-96 Contract Fee (1.00) 20.20965612 (0.049) 99.503 2,010.92
1-24-97 Contract Fee (1.00) 21.90254020 (0.046) 99.457 2,178.36
1-24-98 Contract Fee (1.00) 24.74259869 (0.040) 99.417 2,459.83
12-31-98 Value before Surr 25.12170867 0.000 99.417 2,497.52
Chg
12-31-98 Contract Fee (1.00) 25.12170867 (0.040) 99.377 2,496.52
12-31-98 Surrender Charge 0.00 25.12170867 0.000 99.377 2,496.52
Cumulative Total Returns without/with chgs. 151.22% A 149.65% C
Avg. Annual Total Returns without/with chgs. 9.71% B 9.64% D
Money Market
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.67978818 (0.094) 99.906 1,066.98
1-24-91 Contract Fee (1.00) 11.32877884 (0.088) 99.818 1,130.82
1-24-92 Contract Fee (1.00) 11.75876120 (0.085) 99.733 1,172.74
1-24-93 Contract Fee (1.00) 11.94119334 (0.084) 99.649 1,189.93
1-24-94 Contract Fee (1.00) 12.07592840 (0.083) 99.566 1,202.36
1-24-95 Contract Fee (1.00) 12.38828249 (0.081) 99.486 1,232.46
1-24-96 Contract Fee (1.00) 12.92030455 (0.077) 99.408 1,284.39
1-24-97 Contract Fee (1.00) 13.39088993 (0.075) 99.334 1,330.17
1-24-98 Contract Fee (1.00) 13.89829761 (0.072) 99.262 1,379.57
12-31-98 Value before Surr 14.38555424 0.000 99.262 1,427.94
Chg
12-31-98 Contract Fee (1.00) 14.38555424 (0.070) 99.192 1,426.94
12-31-98 Surrender Charge 0.00 14.38555424 0.000 99.192 1,426.94
Cumulative Total Returns without/with chgs. 43.86% A 42.69% C
Avg. Annual Total Returns without/with chgs. 3.73% B 3.64% D
Mutual Discovery Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.84027297 (0.084) 99.916 1,183.03
11-8-98 Contract Fee (1.00) 10.96095902 (0.091) 99.824 1,094.17
12-31-98 Contract Fee (1.00) 11.22622113 (0.089) 99.735 1,119.65
12-31-98 Value before Surr 11.22622113 0.000 99.735 1,119.65
Chg
12-31-98 Surrender Charge (22.00) 11.22622113 (1.960) 97.776 1,097.65
Cumulative Total Returns without/with chgs. 12.26% A 9.76% C
Avg. Annual Total Returns without/with chgs. 5.54% B 4.44% D
Mutual Shares Securities
11-8-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-8-97 Contract Fee (1.00) 11.76129584 (0.085) 99.915 1,175.13
11-8-98 Contract Fee (1.00) 11.59398963 (0.086) 99.829 1,157.41
12-31-98 Contract Fee (1.00) 11.83677406 (0.084) 99.744 1,180.65
12-31-98 Value before Surr 11.83677406 0.000 99.744 1,180.65
Chg
12-31-98 Surrender Charge (22.00) 11.83677406 (1.859) 97.886 1,158.65
Cumulative Total Returns without/with chgs. 18.37% A 15.87% C
Avg. Annual Total Returns without/with chgs. 8.18% B 7.11% D
Real Estate Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 10.13988901 (0.099) 99.901 1,012.99
1-24-91 Contract Fee (1.00) 9.37706788 (0.107) 99.795 935.78
1-24-92 Contract Fee (1.00) 12.28427530 (0.081) 99.713 1,224.91
1-24-93 Contract Fee (1.00) 13.54478625 (0.074) 99.640 1,349.60
1-24-94 Contract Fee (1.00) 15.37525910 (0.065) 99.574 1,530.98
1-24-95 Contract Fee (1.00) 15.00928122 (0.067) 99.508 1,493.54
1-24-96 Contract Fee (1.00) 18.15857148 (0.055) 99.453 1,805.92
1-24-97 Contract Fee (1.00) 23.95551361 (0.042) 99.411 2,381.44
1-24-98 Contract Fee (1.00) 28.04564576 (0.036) 99.375 2,787.05
12-31-98 Value before Surr Chg 23.10677956 0.000 99.375 2,296.24
12-31-98 Contract Fee (1.00) 23.10677956 (0.043) 99.332 2,295.24
12-31-98 Surrender Charge 0.00 23.10677956 0.000 99.332 2,295.24
Cumulative Total Returns without/with chgs. 131.07% A 129.52% C
Avg. Annual Total Returns without/with chgs. 8.79% B 8.72% D
Rising Dividends
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 10.69831588 (0.093) 99.907 1,068.83
1-27-94 Contract Fee (1.00) 10.38483458 (0.096) 99.810 1,036.51
1-27-95 Contract Fee (1.00) 9.97357882 (0.100) 99.710 994.47
1-27-96 Contract Fee (1.00) 12.53425589 (0.080) 99.630 1,248.79
1-27-97 Contract Fee (1.00) 15.27722507 (0.065) 99.565 1,521.07
1-27-98 Contract Fee (1.00) 19.83953724 (0.050) 99.514 1,974.32
12-31-98 Value before Surr 21.16548977 0.000 99.514 2,106.27
Chg
12-31-98 Contract Fee (1.00) 21.16548977 (0.047) 99.467 2,105.27
12-31-98 Surrender Charge 0.00 21.16548977 0.000 99.467 2,105.27
Cumulative Total Returns without/with chgs. 111.65% A 110.53% C
Avg. Annual Total Returns without/with chgs. 11.42% B 11.34% D
Small Cap
11-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
11-1-96 Contract Fee (1.00) 12.15810442 (0.082) 99.918 1,214.81
11-1-97 Contract Fee (1.00) 15.56454139 (0.064) 99.854 1,554.17
11-1-98 Contract Fee (1.00) 12.53305565 (0.080) 99.774 1,250.47
12-31-98 Value before Surr 14.59958077 0.000 99.774 1,456.65
Chg
12-31-98 Contract Fee (1.00) 14.59958077 (0.068) 99.705 1,455.65
12-31-98 Surrender Charge (12.00) 14.59958077 (0.822) 98.883 1,443.65
Cumulative Total Returns without/with chgs. 46.00% A 44.37% C
Avg. Annual Total Returns without/with chgs. 12.69% B 12.29% D
Templeton Developing Markets Equity
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 8.62834892 (0.116) 99.884 861.83
3-15-96 Contract Fee (1.00) 10.29583833 (0.097) 99.787 1,027.39
3-15-97 Contract Fee (1.00) 12.45337068 (0.080) 99.707 1,241.68
3-15-98 Contract Fee (1.00) 10.55209904 (0.095) 99.612 1,051.11
12-31-98 Value before Surr 7.99263591 0.000 99.612 796.16
Chg
12-31-98 Contract Fee (1.00) 7.99263591 (0.125) 99.487 795.16
12-31-98 Surrender Charge (3.75) 7.99263591 (0.469) 99.018 791.41
Cumulative Total Returns without/with chgs. -20.07% A -20.86% C
Avg. Annual Total Returns without/with chgs. -4.56% B -4.76% D
Templeton Global Asset Allocation
5-1-95 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-96 Contract Fee (1.00) 11.25238520 (0.089) 99.911 1,124.24
5-1-97 Contract Fee (1.00) 12.77282148 (0.078) 99.833 1,275.15
5-1-98 Contract Fee (1.00) 14.99206191 (0.067) 99.766 1,495.70
12-31-98 Value before Surr 13.58859831 0.000 99.766 1,355.68
Chg
12-31-98 Contract Fee (1.00) 13.58859831 (0.074) 99.693 1,354.68
12-31-98 Surrender Charge (12.00) 13.58859831 (0.883) 98.809 1,342.68
Cumulative Total Returns without/with chgs. 35.89% A 34.27% C
Avg. Annual Total Returns without/with chgs. 8.71% B 8.36% D
Templeton Global Growth
3-15-94 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
3-15-95 Contract Fee (1.00) 10.10361218 (0.099) 99.901 1,009.36
3-15-96 Contract Fee (1.00) 11.81545835 (0.085) 99.816 1,179.38
3-15-97 Contract Fee (1.00) 14.09972316 (0.071) 99.745 1,406.38
3-15-98 Contract Fee (1.00) 16.74256384 (0.060) 99.686 1,668.99
12-31-98 Value before Surr 16.30853286 0.000 99.686 1,625.73
Chg
12-31-98 Contract Fee (1.00) 16.30853286 (0.061) 99.624 1,624.73
12-31-98 Surrender Charge (3.75) 16.30853286 (0.230) 99.394 1,620.98
Cumulative Total Returns without/with chgs. 63.09% A 62.10% C
Avg. Annual Total Returns without/with chgs. 10.73% B 10.59% D
Templeton International Equity
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.54360836 (0.105) 99.895 953.36
1-27-94 Contract Fee (1.00) 12.87738433 (0.078) 99.818 1,285.39
1-27-95 Contract Fee (1.00) 11.94433728 (0.084) 99.734 1,191.25
1-27-96 Contract Fee (1.00) 13.57666972 (0.074) 99.660 1,353.05
1-27-97 Contract Fee (1.00) 16.22074645 (0.062) 99.599 1,615.56
1-27-98 Contract Fee (1.00) 17.53929087 (0.057) 99.542 1,745.89
12-31-98 Value before Surr 18.43652906 0.000 99.542 1,835.20
Chg
12-31-98 Contract Fee (1.00) 18.43652906 (0.054) 99.487 1,834.20
12-31-98 Surrender Charge 0.00 18.43652906 0.000 99.487 1,834.20
Cumulative Total Returns without/with chgs. 84.37% A 83.42% C
Avg. Annual Total Returns without/with chgs. 9.23% B 9.15% D
Templeton International Smaller Companies
5-1-96 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
5-1-97 Contract Fee (1.00) $11.33025487 (0.088) 99.912 1,132.03
5-1-98 Contract Fee (1.00) $12.05591756 (0.083) 99.829 1,203.53
12-31-98 Value before Surr $9.36443942 0.000 99.829 934.84
Chg
12-31-98 Contract Fee (1.00) $9.36443942 (0.107) 99.722 933.84
12-31-98 Surrender Charge (22.00) $9.36443942 (2.349) 97.373 911.84
Cumulative Total Returns without/with chgs. -6.36% A -8.82% C
Avg. Annual Total Returns without/with chgs. -2.43% B -3.40% D
Templeton Pacific Growth
1-27-92 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-27-93 Contract Fee (1.00) 9.92851087 (0.101) 99.899 991.85
1-27-94 Contract Fee (1.00) 14.10178760 (0.071) 99.828 1,407.76
1-27-95 Contract Fee (1.00) 11.94769270 (0.084) 99.745 1,191.72
1-27-96 Contract Fee (1.00) 14.49670523 (0.069) 99.676 1,444.97
1-27-97 Contract Fee (1.00) 14.65338680 (0.068) 99.607 1,459.59
1-27-98 Contract Fee (1.00) 8.46694943 (0.118) 99.489 842.37
12-31-98 Value before Surr 8.07846316 0.000 99.489 803.72
Chg
12-31-98 Contract Fee (1.00) 8.07846316 (0.124) 99.366 802.72
12-31-98 Surrender Charge 0.00 8.07846316 0.000 99.366 802.72
Cumulative Total Returns without/with chgs. -19.22% A -19.73% C
Avg. Annual Total Returns without/with chgs. -3.03% B -3.12% D
Global Utilities Securities
1-24-89 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
1-24-90 Contract Fee (1.00) 11.48396786 (0.087) 99.913 1,147.40
1-24-91 Contract Fee (1.00) 11.97256112 (0.084) 99.829 1,195.21
1-24-92 Contract Fee (1.00) 14.23979461 (0.070) 99.759 1,420.55
1-24-93 Contract Fee (1.00) 15.97559846 (0.063) 99.697 1,592.71
1-24-94 Contract Fee (1.00) 16.50535338 (0.061) 99.636 1,644.53
1-24-95 Contract Fee (1.00) 15.57082971 (0.064) 99.572 1,550.42
1-24-96 Contract Fee (1.00) 19.81799066 (0.050) 99.521 1,972.31
1-24-97 Contract Fee (1.00) 20.96455989 (0.048) 99.474 2,085.42
1-24-98 Contract Fee (1.00) 25.18650535 (0.040) 99.434 2,504.39
12-31-98 Value before Surr 28.30779835 0.000 99.434 2,814.75
Chg
12-31-98 Contract Fee (1.00) 28.30779835 (0.035) 99.399 2,813.75
12-31-98 Surrender Charge 0.00 28.30779835 0.000 99.399 2,813.75
Cumulative Total Returns without/with chgs. 183.08% A 181.38% C
Avg. Annual Total Returns without/with chgs. 11.04% B 10.97% D
Value Securities
5-1-98 Purchase $1,000.00 $10.00000000 100.000 100.000 $1,000.00
12-31-98 Value before Surr 7.71743151 0.000 100.000 771.74
Chg
12-31-98 Contract Fee (1.00) 7.71743151 (0.130) 99.870 770.74
12-31-98 Surrender Charge (42.50) 7.71743151 (5.507) 94.363 728.24
Cumulative Total Returns without/with chgs. -22.83% A -27.18% C
Avg. Annual Total Returns without/with chgs. -32.13% B -37.77% D
<FN>
A =
B = [(A+1)^(1/Years since Inception)]-1
C = (Accumulated Value as of December 31, 1998 - Accum. Value at Purch.)/Accum.
Value at Purch. D = [(C+1)^(1/Years since Inception)]-1
</FN>
</TABLE>
