485BPOS 1 file001.txt ALTERITY 485B DATED APRIL 27, 2009 File Nos. 333-82329 and 811-05618 UNITED STATES 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. 21 (X) ------------ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( ) Amendment No. 262 (X) ------------ (CHECK APPROPRIATE BOX OR BOXES.) ALLIANZ LIFE VARIABLE ACCOUNT B (EXACT NAME OF REGISTRANT) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA (NAME OF DEPOSITOR) 5701 GOLDEN HILLS DRIVE, MINNEAPOLIS, MN 55416-1297 (ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (763) 765-2913 (DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE) STEWART D. GREGG, SENIOR SECURITIES COUNSEL ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA 5701 GOLDEN HILLS DRIVE MINNEAPOLIS, MN 55416-1297 (763) 765-2913 (NAME AND ADDRESS OF AGENT FOR SERVICE) IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK THE APPROPRIATE BOX): ____ immediately upon filing pursuant to paragraph (b) of Rule 485 __X_ on April 27, 2009 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. APPROXIMATE DATE OF THE PROPOSED PUBLIC OFFERING: April 27, 2009 TITLES OF SECURITIES BEING REGISTERED: Individual Flexible Purchase Payment Variable Deferred Annuity Contracts PART A - PROSPECTUS 1 THE ALLIANZ ALTERITY[{R}] VARIABLE ANNUITY CONTRACT ISSUED BY ALLIANZ LIFE[{R}] VARIABLE ACCOUNT B AND ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA FOR YOUR CONVENIENCE WE HAVE PROVIDED A GLOSSARY (SEE SECTION 13) THAT DEFINES KEY, CAPITALIZED TERMS THAT ARE USED IN THIS PROSPECTUS. This prospectus describes an individual flexible purchase payment variable deferred annuity contract (Contract) issued by Allianz Life Insurance Company of North America (Allianz Life, we, us, our). The Contract is a "flexible purchase payment" contract because you (the Owner) can make more than one Purchase Payment, subject to certain restrictions. The Contract is "variable" because the Contract Value and any variable Annuity Payments you receive will increase or decrease depending on the performance of the Investment Options you select (in this prospectus, the term "Investment Options" refers only to the variable Investment Choices listed on the following page, and not to any fixed Investment Choices). The Contract is "deferred" because you do not begin receiving regular Annuity Payments immediately. The Contract offers the PRIME Plus Benefit that includes a Guaranteed Minimum Income Benefit (GMIB) and a Guaranteed Partial Withdrawal Benefit (GPWB). We designed the PRIME Plus Benefit to give you options for turning your accumulated retirement assets into a stream of retirement income. The PRIME Plus Benefit carries a higher Contract expense. Additional information about the Separate Account has been filed with the Securities and Exchange Commission (SEC) and is available upon written or oral request without charge. A Statement of Additional Information (SAI) dated the same date as this prospectus includes additional information about the annuity offered by this prospectus. The SAI is incorporated by reference into this prospectus. The SAI is filed with the SEC and is available without charge by contacting us at the telephone number or address listed at the back of this prospectus. The table of contents of the SAI appears before the Privacy and Security Statement in this prospectus. The SEC also maintains a website (http://www.sec.gov). The prospectus, the SAI and other information about the Contract are available on the EDGAR database on the SEC's website. Please read this prospectus before investing and keep it for future reference. It contains important information about your annuity and Allianz Life that you ought to know before investing. This prospectus is not an offering 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. We have not authorized anyone to provide you with information that is different. To the extent that the issuance of this Contract may subject Allianz Life to a duty under section 15(d) of the Securities Exchange Act of 1934 to file reports required by section 13(a) of that Act, Allianz Life is relying on the exemption from such reporting provided by Rule 12h-7 under that Act. THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL INSTITUTION AND IS NOT FEDERALLY INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. VARIABLE ANNUITY CONTRACTS ARE COMPLEX INSURANCE AND INVESTMENT VEHICLES. BEFORE YOU INVEST, BE SURE TO ASK YOUR REGISTERED REPRESENTATIVE ABOUT THE CONTRACT'S FEATURES, BENEFITS, RISKS AND FEES, AND WHETHER THE CONTRACT IS APPROPRIATE FOR YOU BASED UPON YOUR FINANCIAL SITUATION AND OBJECTIVES. Dated: April 27, 2009 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 2 This prospectus contains information on currently offered Contracts. Information regarding the product features and expenses of older Contracts that we no longer offer can be found in the SAI. We currently offer the Investment Options listed below. You can invest in up to 15 Investment Options at any one time. Currently, the only fixed Investment Choice we offer under our general account is the DCA Fixed Option. One or more of the Investment Choices may not be available in your state. We may add, substitute or remove Investment Choices in the future. CONTRACTS WITH THE PRIME PLUS BENEFIT MAY BE SUBJECT TO RESTRICTIONS ON ALLOCATIONS AND TRANSFERS INTO CERTAIN INVESTMENT OPTIONS. INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT AIM AZL[{R}] AIM International Equity Fund BLACKROCK AZL[{R} ]BlackRock Capital Appreciation Fund AZL[{R}] BlackRock Growth Fund AZL[{R}] International Index Fund AZL[{R}] Money Market Fund BlackRock Global Allocation V.I. Fund COLUMBIA AZL[{R}] Columbia Mid Cap Value Fund AZL[{R}] Columbia Small Cap Value Fund AZL[{R}] Columbia Technology Fund DAVIS AZL[{R}] Davis NY Venture Fund Davis VA Financial Portfolio Davis VA Value Portfolio[(1)] DREYFUS AZL[{R}] Dreyfus Equity Growth Fund AZL[{R}] S&P 500 Index Fund AZL[{R}] Small Cap Stock Index Fund FIRST TRUST AZL[{R}] First Trust Target Double Play Fund FRANKLIN TEMPLETON AZL[{R} ]Franklin Small Cap Value Fund AZL[{R} ]Franklin Templeton Founding Strategy Plus Fund Franklin Global Real Estate Securities Fund Franklin Growth and Income Securities Fund Franklin High Income Securities Fund Franklin Income Securities Fund Franklin Large Cap Growth Securities Fund Franklin Rising Dividends Securities Fund Franklin Small-Mid Cap Growth Securities Fund Franklin Small Cap Value Securities Fund[(2)] Franklin Templeton VIP Founding Funds Allocation Fund Franklin U.S. Government Fund Franklin Zero Coupon Fund 2010 Mutual Global Discovery Securities Fund Mutual Shares Securities Fund Templeton Foreign Securities Fund Templeton Global Bond Securities Fund Templeton Growth Securities Fund FUND OF FUNDS AZL[{R}] Allianz Global Investors Select Fund AZL[{R}] Balanced Index Strategy Fund AZL[{R}] Fusion Balanced Fund AZL[{R}] Fusion Conservative Fund AZL[{R}] Fusion Growth Fund AZL[{R}] Fusion Moderate Fund AZL[{R}] Moderate Index Strategy Fund JENNISON AZL[{R}] Jennison 20/20 Focus Fund J.P. MORGAN AZL[{R}] JPMorgan Large Cap Equity Fund AZL[{R}] JPMorgan U.S. Equity Fund NICHOLAS-APPLEGATE AZL[{R}] NACM International Fund OPPENHEIMER CAPITAL AZL[{R}] OCC Growth Fund AZL[{R}] OCC Opportunity Fund OpCap Mid Cap Portfolio[(3)] OPPENHEIMER FUNDS AZL[{R}] Oppenheimer Global Fund AZL[{R}] Oppenheimer International Growth Fund Oppenheimer Global Securities Fund/VA[(1)] Oppenheimer High Income Fund/VA Oppenheimer Main Street Fund[{R}]/VA[(1)] PIMCO AZL[{R}] PIMCO Fundamental IndexPLUS Total Return Fund PIMCO VIT All Asset Portfolio PIMCO VIT CommodityRealReturn[TM] Strategy Portfolio PIMCO VIT Emerging Markets Bond Portfolio PIMCO VIT Global Bond Portfolio (Unhedged) PIMCO VIT Global Multi-Asset Portfolio PIMCO VIT High Yield Portfolio PIMCO VIT Real Return Portfolio PIMCO VIT StocksPLUS[{R}] Growth and Income Portfolio[(4) ]PIMCO VIT Total Return Portfolio PRUDENTIAL SP International Growth Portfolio SP Strategic Partners Focused Growth Portfolio SCHRODER AZL[{R}] Schroder Emerging Markets Equity Fund AZL[{R}] Schroder International Small Cap Fund SELIGMAN Seligman Smaller-Cap Value Portfolio[(1) ]TARGETPLUS PORTFOLIOS AZL TargetPLUS[SM] Balanced Fund AZL TargetPLUS[SM] Equity Fund AZL TargetPLUS[SM] Growth Fund AZL TargetPLUS[SM] Moderate Fund TURNER AZL[{R}] Turner Quantitative Small Cap Growth Fund VAN KAMPEN AZL[{R}] Van Kampen Comstock Fund AZL[{R}] Van Kampen Equity and Income Fund AZL[{R}] Van Kampen Global Franchise Fund AZL[{R}] Van Kampen Global Real Estate Fund AZL[{R}] Van Kampen Growth and Income Fund AZL[{R}] Van Kampen Mid Cap Growth Fund (1)The Investment Option is available for additional Purchase Payments and/or transfers only to Owners with Contract Value in the Investment Option on April 30, 2004. (2)The Franklin Small Cap Value Securities Fund is available for additional Purchase Payments and/or transfers only to Owners with Contract Value in this Investment Option on April 29, 2005. (3)A fund of the Premier VIT series. (4)The fund will be liquidated on or about July 17, 2009 and will then no longer be available as an Investment Option under the Contract. For additional information regarding the liquidation, please see the PIMCO VIT StocksPLUS Growth and Income Portfolio prospectus. Any Contract Value remaining in the Investment Option at the time the fund is liquidated will be transferred to the AZL Money Market Fund. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 3 TABLE OF CONTENTS FEE TABLES........................4 Contract Owner Transaction Expenses4 Contract Owner Periodic Expenses5 Annual Operating Expenses of the Investment Options6 Examples........................6 1.THE VARIABLE ANNUITY CONTRACT...8 Ownership.......................9 2.PURCHASE.......................10 Purchase Payments..............10 Automatic Investment Plan (AIP)10 Allocation of Purchase Payments11 Tax-Free Section 1035 Exchanges11 Faxed Applications.............12 Free Look/Right to Examine.....12 Accumulation Units/Computing the Contract Value12 3.THE ANNUITY PHASE..............13 Income Date....................13 Partial Annuitization..........13 Annuity Options................14 Traditional Annuity Payments...16 4.PROTECTED RETIREMENT INCOME MADE EASY: THE PRIME PLUS BENEFIT...........17 Adding the PRIME Plus Benefit To Your Contract18 Removing the PRIME Plus Benefit From Your Contract18 Investment Option Allocation and Transfer Restrictions Under the PRIME Plus Benefit 19 PB Value.......................21 Using the PRIME Plus Benefit...24 GPWB Payments..................26 Taxation of GPWB Payments......28 Termination of the GPWB........28 GMIB Payments..................28 Amount Used to Calculate GMIB Payments29 Taxation of GMIB Payments......29 Termination of the GMIB........30 Required Minimum Distributions (RMDs) Under Qualified Contracts with the PRIME Plus Benefit 30 5.INVESTMENT OPTIONS.............30 Substitution and Limitation on Further Investments39 Transfers......................39 Excessive Trading and Market Timing40 Dollar Cost Averaging (DCA) Program42 Flexible Rebalancing...........43 Financial Advisers - Asset Allocation Programs43 Voting Privileges..............43 6.OUR GENERAL ACCOUNT............44 7.EXPENSES.......................44 Separate Account Annual Expenses44 Contract Maintenance Charge....45 Withdrawal Charge..............45 Transfer Fee...................47 Premium Taxes..................48 Income Taxes...................48 Investment Option Expenses.....48 8.TAXES..........................48 Annuity Contracts in General...48 Qualified Contracts............48 Multiple Contracts.............50 Partial 1035 Exchanges.........50 Distributions - Non-Qualified Contracts50 Distributions - Qualified Contracts51 Assignments, Pledges and Gratuitous Transfers52 Death Benefits.................52 Withholding....................52 Federal Estate Taxes...........52 Generation-Skipping Transfer Tax52 Foreign Tax Credits............52 Annuity Purchases by Nonresident Aliens and Foreign Corporations53 Possible Tax Law Changes.......53 Diversification................53 Required Distributions.........53 9.ACCESS TO YOUR MONEY...........54 Partial Withdrawal Privilege...54 Waiver of Withdrawal Charge Benefits55 Systematic Withdrawal Program..55 The Minimum Distribution Program and Required Minimum Distribution (RMD) Payments 55 Suspension of Payments or Transfers56 10.ILLUSTRATIONS.................56 11.DEATH BENEFIT.................57 Traditional Guaranteed Minimum Death Benefit (Traditional GMDB)57 Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB)................58 Earnings Protection Guaranteed Minimum Death Benefit (Earnings Protection GMDB) 59 Termination of the Death Benefit60 Death of the Owner Under Inherited IRA Contracts60 Death of the Owner and/or Annuitant Under All Other Contracts............61 Death Benefit Payment Options..64 12.OTHER INFORMATION.............64 Allianz Life...................64 The Separate Account...........64 Distribution...................65 Additional Credits for Certain Groups66 Administration/Allianz Service Center66 Legal Proceedings..............67 Financial Statements...........67 13.GLOSSARY......................67 14.TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION (SAI)70 15.PRIVACY AND SECURITY STATEMENT71 APPENDIX A - ANNUAL OPERATING EXPENSES FOR EACH INVESTMENT OPTION...........73 APPENDIX B - CONDENSED FINANCIAL INFORMATION78 APPENDIX C - PB VALUE CALCULATION EXAMPLES89 APPENDIX D - GPWB UNDER THE PRIME PLUS BENEFIT91 APPENDIX E - DEATH BENEFIT CALCULATION EXAMPLES92 APPENDIX F - WITHDRAWAL CHARGE EXAMPLES94 FOR SERVICE OR MORE INFORMATION..96 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 4 The following is a list of common abbreviations used in this prospectus:
AIA = ANNUAL INCREASE AMOUNT GPWB = GUARANTEED PARTIAL WITHDRAWAL BENEFIT CV PLUS = CONTRACT VALUE PLUS MAV = MAXIMUM ANNIVERSARY VALUE GMDB = GUARANTEED MINIMUM DEATH BENEFIT PRIME = PROTECTED RETIREMENT INCOME MADE EASY GMIB = GUARANTEED MINIMUM INCOME BENEFIT
FEE TABLES The following tables describe the fees and expenses that you will pay when purchasing, owning and taking a withdrawal from the Contract. For more information, see section 7, Expenses. The first tables describe the fees and expenses that you will pay if you take a withdrawal from the Contract during the Accumulation Phase or if you make transfers. CONTRACT OWNER TRANSACTION EXPENSES WITHDRAWAL CHARGE DURING THE ACCUMULATION PHASE[(1),(2)] (as a percentage of each Purchase Payment withdrawn) NUMBER OF COMPLETE CONTRACT YEARS CHARGE SINCE WE RECEIVED YOUR PURCHASE PAYMENT RECEIPT 0 7% 1 6% 2 5% 3 4% 4 3% 5 2% 6 Contract Years or more 0% TRANSFER FEE[(3)]...................$25 PREMIUM TAXES[(4)]...........0% to 3.5% (as a percentage of each Purchase Payment) (1)The partial withdrawal privilege for each Contract Year is equal to 12% of your total Purchase Payments, less any previous withdrawals taken during that Contract Year under the partial withdrawal privilege or as RMD payments. We will not deduct a withdrawal charge from amounts withdrawn under the partial withdrawal privilege. There is no partial withdrawal privilege after you exercise the GPWB (if applicable) or during the Annuity Phase. Any unused partial withdrawal privilege in one Contract Year carries over to the next Contract Year. For more details and additional information on other penalty- free withdrawal options, please see the discussion of the partial withdrawal privilege and other information that appears in section 9, Access to Your Money; and section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - GPWB Payments. (2)The total amount under your Contract that is subject to a withdrawal charge is the Withdrawal Charge Basis. The Withdrawal Charge Basis is equal to the total Purchase Payments, less any Purchase Payments withdrawn (excluding any penalty-free withdrawals). (3)The first twelve transfers in a Contract Year are free. We do not count any transfers made under the dollar cost averaging program, flexible rebalancing program, or the allocation and transfer restrictions for the PRIME Plus Benefit against any free transfers we allow. Currently, we deduct this fee only during the Accumulation Phase, but we reserve the right to deduct this fee during the Annuity Phase. For more information, please see section 7, Expenses - Transfer Fee. (4)It is our current practice not to make deductions from the Contract to reimburse ourselves for premium taxes that we pay, although we reserve the right to make such a deduction in the future. For more information, please see section 7, Expenses - Premium Taxes. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 5 CONTRACT OWNER PERIODIC EXPENSES The next tables describe the fees and expenses that you will pay periodically during the time that you own your Contract, not including the Investment Options' fees and expenses. The Separate Account annual expenses include the mortality and expense risk (M&E) charges and the administrative charge. DURING THE ACCUMULATION PHASE: CONTRACT MAINTENANCE CHARGE[(5)]....$40 (per Contract per year) SEPARATE ACCOUNT ANNUAL EXPENSES[(6)] The annualized rate is realized on a daily basis as a percentage of the net asset value of an Investment Option.
MAXIMUM AND CURRENT CHARGES CURRENT CHARGES FOR A CONTRACT WITH FOR A BASE CONTRACT THE PRIME PLUS BENEFIT[(7),(8)] M&E CHARGES ADMIN. TOTAL M&E CHARGES ADMIN. TOTAL CHARGE CHARGE TRADITIONAL GMDB 1.35% 0.15% 1.50% 2.05% 0.15% 2.20% ENHANCED GMDB 1.65% 0.15% 1.80% 2.25% 0.15% 2.40% EARNINGS PROTECTION GMDB 1.65% 0.15% 1.80% 2.30% 0.15% 2.45%
MAXIMUM CHARGES[(9)] FOR A CONTRACT WITH THE PRIME PLUS BENEFIT M&E CHARGES ADMIN. TOTAL CHARGE TRADITIONAL GMDB 2.50% 0.15% 2.65% ENHANCED GMDB 2.70% 0.15% 2.85% EARNINGS PROTECTION GMDB 2.75% 0.15% 2.90% DURING THE ANNUITY PHASE: CONTRACT MAINTENANCE CHARGE[(10)]...$40 (per Contract per year) SEPARATE ACCOUNT ANNUAL EXPENSES - IF YOU REQUEST VARIABLE TRADITIONAL ANNUITY PAYMENTS The annualized rate is realized on a daily basis as a percentage of the net asset value of an Investment Option. M&E CHARGE[(11)] 1.35% ADMINISTRATIVE CHARGE 0.15% TOTAL 1.50% (5)We waive the contract maintenance charge if the Contract Value is at least $100,000 at the time we are to deduct the charge. If the total Contract Value of all your Contracts that are registered with the same social security number is at least $100,000, we waive the charge on all of your Contracts. For more information, please see section 7, Expenses - Contract Maintenance Charge. (6)The Enhanced GMDB, Earnings Protection GMDB and PRIME Plus Benefit may not be available in all states; check with your registered representative. (7)You can add the PRIME Plus Benefit to your Contract once before age 76. The current charges apply if you add the PRIME Plus Benefit at issue, after issue, or if you reset the 7% AIA. (8)If you exercise the GPWB, the increased expenses associated with the PRIME Plus Benefit will continue until both the GPWB and GMIB terminate and the increased expenses associated with the Enhanced GMDB or the Earnings Protection GMDB (if applicable) will continue as long as the Enhanced GMDB value or the Earnings Protection GMDB value is greater than zero. (9)This is the maximum charge we could impose if you add the PRIME Plus Benefit to your Contract at issue, after issue, or if you reset the 7% AIA. (10)We waive the contract maintenance charge during the Annuity Phase if your Contract Value on the Income Date is at least $100,000. For more information, please see section 7, Expenses - Contract Maintenance Charge. (11)Because the Contract allows Partial Annuitization, it is possible for different portions of the Contract to be in both the Accumulation and Annuity Phases at the same time. It is also possible to have different M&E charges on different portions of the Contract at the same time if you request variable Traditional Annuity Payments under a Partial Annuitization. For more information, please see section 3, The Annuity Phase - Partial Annuitization.. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 6 ANNUAL OPERATING EXPENSES OF THE INVESTMENT OPTIONS This table describes the total annual operating expenses associated with the Investment Options and shows the minimum and maximum expenses for the period ended December 31, 2008, charged by any of the Investment Options before the effect of any contractual expense reimbursement or fee waiver. We show the expenses as a percentage of an Investment Option's average daily net assets.
MINIMUM MAXIMUM Total annual Investment Option operating expenses* 0.63% 1.93% (including management fees, distribution or 12b-1 fees, and other expenses) before fee waivers and expense reimbursements
* Some of the Investment Options or their affiliates may also pay service fees to us or our affiliates. The amount of these fees may be different for each Investment Option. The maximum current fee is 0.25%. The amount of these fees, if deducted from Investment Option assets, is reflected in the above table and is disclosed in Appendix A. Appendix A also contains more details regarding the annual operating expenses for each of the Investment Options, including the amount and effect of any waivers and/or reimbursements. EXAMPLES The expenses for your Contract may be different from those shown in the examples below depending upon which Investment Option(s) you select and the benefits that apply. These examples are intended to help you compare the cost of investing in a Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, Contract Owner periodic expenses, and the annual operating expenses of the Investment Options before the effect of reimbursements and waivers. You should not consider the examples below as a representation of past or future expenses. Actual expenses may be greater or less than those shown. The entire $40 contract maintenance charge is deducted in the examples at the end of each year during the Accumulation Phase. Please note that this charge does not apply during the Accumulation Phase if your Contract Value at the end of year is at least $100,000, or during the Annuity Phase if your Contract Value on the Income Date is at least $100,000. Transfer fees may apply, but are not reflected in these examples. For additional information, see section 7, Expenses. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 7 If you take a full withdrawal at the end of each time period, and assuming a $10,000 investment and a 5% annual return on your money, you may pay expenses as follows. (a)Maximum charges* for a Contract that has the Earnings Protection GMDB and the PRIME Plus Benefit (which carries the highest Separate Account annual expense of 2.90%). (b)Current charges for a Contract that has the Earnings Protection GMDB and the PRIME Plus Benefit (which carries a Separate Account annual expense of 2.45%). (c)The Base Contract with the Traditional GMDB (which carries the lowest Separate Account annual expense of 1.50%).
TOTAL ANNUAL INVESTMENT OPTION OPERATING EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS BEFORE ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS OF: a) $1,223 $2,073 $2,925 $5,271 1.93% (the maximum Investment Option operating expense) b) $1,179 $1,946 $2,724 $4,918 c) $1,086 $1,673 $2,284 $4,112 a) $1,096 $1,703 $2,331 $4,201 0.63% (the minimum Investment Option operating expense) b) $1,051 $1,571 $2,116 $3,792 c) $956 $1,287 $1,644 $2,862
If you do not take a full withdrawal or if you take a Full Annuitization** of the Contract at the end of each time period, and assuming a $10,000 investment and a 5% annual return on your money, you may pay expenses as follows.
TOTAL ANNUAL INVESTMENT OPTION OPERATING EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS BEFORE ANY FEE WAIVERS OR EXPENSE REIMBURSEMENTS OF: a) $523 $1,573 $2,625 $5,271 1.93% (the maximum Investment Option operating expense) b) $479 $1,446 $2,424 $4,918 c) $386 $1,173 $1,984 $4,112 a) $396 $1,203 $2,031 $4,201 0.63% (the minimum Investment Option operating expense) b) $351 $1,071 $1,816 $3,792 c) $256 $787 $1,344 $2,862
* If you add the PRIME Plus Benefit to your Contract after the Issue Date, or if you reset the 7% AIA, your Separate Account annual expense may be less than this amount, but it cannot be greater than this amount. **Traditional Annuity Payments are generally not available until after the second Contract Anniversary in most states. GMIB Payments are not available until seven Contract Years after: a) the date the PRIME Plus Benefit was added to your Contract, or b) after the date of any 7% AIA reset. See Appendix B for condensed financial information regarding the Accumulation Unit values (AUVs) for the highest and lowest Separate Account annual expenses. See the appendix to the Statement of Additional Information for condensed financial information regarding the AUVs for other expense levels and for older Contracts that we no longer offer. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 8 1. THE VARIABLE ANNUITY CONTRACT An annuity is a contract between you (the Owner), and an insurance company (in this case Allianz Life), where you make payments to us and, in turn, we promise to make regular periodic income payments (Annuity Payments) to the Payee. The Contract is tax deferred. You generally are not taxed on any earnings or appreciation on the assets in your Contract until you take money out of your Contract. FOR QUALIFIED CONTRACTS, THE TAX DEFERRAL IS PROVIDED THROUGH COMPLIANCE WITH SPECIALIZED TAX-QUALIFICATION RULES, AND YOU DO NOT RECEIVE ANY ADDITIONAL TAX BENEFIT BY PURCHASING THE CONTRACT. HOWEVER, THE CONTRACT MAY OFFER OTHER FEATURES THAT MEET YOUR NEEDS. ACCORDINGLY, IF YOU ARE PURCHASING A QUALIFIED CONTRACT, YOU SHOULD CONSIDER PURCHASING THIS CONTRACT FOR ITS DEATH BENEFIT, ANNUITY BENEFITS AND OTHER NON-TAX DEFERRAL RELATED BENEFITS. PLEASE CONSULT A TAX ADVISER FOR INFORMATION SPECIFIC TO YOUR CIRCUMSTANCES TO DETERMINE WHETHER A QUALIFIED CONTRACT IS AN APPROPRIATE INVESTMENT FOR YOU. The Contract has an Accumulation Phase and an Annuity Phase. You can take withdrawals from the Contract during the Accumulation Phase and, subject to certain restrictions, you can make additional Purchase Payments. The Accumulation Phase begins on the Issue Date and ends upon the earliest of the following. o The Business Day before the Income Date if you take a Full Annuitization. o The Business Day we process your request for a full withdrawal. o Upon the death of any Owner (or the Annuitant if the Contract is owned by a non-individual), it will terminate on the Business Day we receive in good order at our Service Center, both due proof of death and an election of the death benefit payment option, unless the spouse of the deceased continues the Contract. The Annuity Phase is the period during which we will make Annuity Payments from the Contract. Under all Contracts, Traditional Annuity Payments are available during the Annuity Phase. Traditional Annuity Payments must begin on a designated date (the Income Date) that is at least two years after your Issue Date. For Contracts with the PRIME Plus Benefit, you can request fixed Annuity Payments under the GMIB (GMIB Payments) beginning seven Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven Contract Years after the date of any 7% AIA reset. If you apply the entire Contract Value to Annuity Payments, we call that a Full Annuitization, and if you apply only part of the Contract Value to Annuity Payments, we call that a Partial Annuitization.* The maximum number of annuitizations you can have at any one time is five. Because the Contract allows Partial Annuitization, it is possible that some portion of the Contract will be in the Accumulation Phase and other portions will be in the Annuity Phase at the same time. The Annuity Phase begins on the Income Date (or the first Income Date if you take any Partial Annuitizations) and ends when all portion(s) of the Contract that you apply to Annuity Payments have terminated, as indicated in section 3, The Annuity Phase. * GMIB Partial Annuitizations are based on the PB Value. They are not available after you exercise the GPWB, or if the PB Value is less than the Contract Value. Your Investment Choices include the Investment Options and any available general account Investment Choice. You cannot invest in more than 15 Investment Options at any one time. Contracts with the PRIME Plus Benefit may be subject to restrictions on allocations and transfers into certain Investment Options (see the "Investment Option Allocation and Transfer Restrictions under the PRIME Plus Benefit" discussion in section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit). Depending upon market conditions, you can gain or lose value in the Contract based on the investment performance of the Investment Options. The Investment Options are designed to offer the opportunity for a better return than any available general account Investment Choice; however, this is not guaranteed. The amount of Contract Value you are able to accumulate in your Contract during the Accumulation Phase and the amount of any variable Traditional Annuity Payments we make during the Annuity Phase depend in large part upon the investment performance of any Investment Options you select. We will not make any changes to your Contract without your permission except as may be required by law. THE CONTRACT WILL TERMINATE WHEN: o the Accumulation Phase has terminated, o the Annuity Phase has terminated, and/or o all applicable death benefit payments have been made. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 9 STATE SPECIFIC CONTRACT RESTRICTIONS If you purchase a Contract, it will be subject to the law of the state in which it is issued. Some of the terms of your Contract may differ from the terms of a Contract delivered in another state because of state-specific legal requirements. Areas in which there may be state-specific Contract provisions may include the following. o The withdrawal charge schedule. o Availability of Investment Options, Annuity Options, endorsements, and/or riders. o Free look rights. o Selection of certain Income Dates. o Restrictions on your ability to make additional Purchase Payments. o Selection of certain assumed investment rates for variable Annuity Payments. o Our ability to restrict transfer rights. If you would like information regarding state-specific Contract provisions, you should contact your registered representative or contact our Service Center at the toll free number listed at the back of this prospectus. OWNERSHIP OWNER You, as the Owner, have all the rights under the Contract. The Owner is designated at Contract issue. You can change Owners at any time subject to our approval. However, Qualified Contracts can only have one Owner and there may be Internal Revenue Service (IRS) or other restrictions on changing the ownership of a Qualified Contract. Upon our approval, any ownership change will become effective as of the date you sign the request. Changing ownership may be a taxable event. You should consult with your tax adviser before doing this. JOINT OWNER A Non-Qualified Contract can be owned by up to two Owners. Upon the death of either Joint Owner, the surviving Joint Owner will become the sole primary Beneficiary. We will then treat any other Beneficiary designation on record at the time of death as a contingent Beneficiary. You can change Joint Owners under the same conditions as described for an Owner. If a Contract has Joint Owners, we require the signature of both Owners on any forms that are submitted to our Service Center, unless we allow otherwise. NOTE FOR PARTIAL ANNUITIZATIONS: Partial Annuitizations are not available to Joint Owners. There can be only one Owner, the Owner must be the Annuitant, and we will not allow the Owner to add a joint Annuitant. ANNUITANT The Annuitant is the individual on whose life we base Annuity Payments. Subject to our approval, you designate an Annuitant and you can add a joint Annuitant for the Annuity Phase if you take a Full Annuitization. You may change the Annuitant at any time before the Income Date unless the Contract is owned by a non-individual (for example, a qualified plan or trust). You cannot change the Annuitant if the Contract is owned by a non-individual, but you can add a joint Annuitant (subject to our approval) for the Annuity Phase if you take a Full Annuitization. For Qualified Contracts, the Owner must be the Annuitant unless the Contract is owned by a qualified plan or is part of a custodial arrangement. DESIGNATING DIFFERENT PERSONS AS OWNER(S) AND ANNUITANT(S) CAN HAVE IMPORTANT IMPACTS ON WHETHER A DEATH BENEFIT IS PAID, AND ON WHO WOULD RECEIVE IT. USE CARE WHEN DESIGNATING OWNERS AND ANNUITANTS, AND CONSULT YOUR REGISTERED REPRESENTATIVE IF YOU HAVE QUESTIONS. PAYEE The Payee is the person or entity you designate (subject to our approval) to receive Annuity Payments during the Annuity Phase. The Owner will receive tax reporting on those payments. For Non-Qualified Contracts, an Owner or Annuitant can be the Payee, but it is not required. For Qualified Contracts owned by a qualified plan, the qualified plan must be the Payee. For all other Qualified Contracts, the Owner is not required to be the Payee, but the Owner cannot transfer or assign his or her rights under the Contract to someone else. If you do not designate a Payee by the Income Date, we will make Annuity Payments to the Owner unless the Contract is a Qualified Contract owned by a qualified plan. The Owner can change the Payee at any time, subject to our approval, provided that designation of a Payee is consistent with federal and state laws and regulations. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 10 BENEFICIARY The Beneficiary is the person(s) or entity you designate at Contract issue to receive any death benefit. You can change the Beneficiary or contingent Beneficiary at any time before your death unless you name an irrevocable Beneficiary. If you do not designate a Beneficiary, any death benefit will be paid to your estate. NOTE FOR JOINT OWNERS: For jointly owned Contracts, the sole primary Beneficiary will be the surviving Joint Owner. For Contracts that are jointly owned by spouses, if both spousal Joint Owners die before we pay the death benefit, we will pay the death benefit to the contingent Beneficiaries, or to the estate of the Joint Owner who died last if there are no named contingent Beneficiaries. However, for tax reasons, if the Joint Owners were not spouses and both Joint Owners die before we pay the death benefit, we will pay the death benefit to the estate of the Joint Owner who died last. ASSIGNMENT OF A CONTRACT An authorized request specifying the terms of an assignment of a Contract must be provided to our Service Center and approved by us. We will not be liable for any payment made or action taken before we record the assignment. An assignment may be a taxable event. We will not be responsible for the validity or tax consequences of any assignment. After the death benefit has become payable, an assignment can only be made with our consent. If the Contract is assigned, your rights may only be exercised with the consent of the assignee of record. Qualified Contracts generally cannot be assigned. 2. PURCHASE PURCHASE PAYMENTS A Purchase Payment is the money you put into the Contract. To purchase this Contract, all Owners and Annuitant(s) must be age 85 or younger on the Issue Date. The initial Purchase Payment is due on the Issue Date. The Purchase Payment requirements for this Contract are as follows. o If you select the PRIME Plus Benefit, the minimum initial payment we will accept is $25,000 ($10,000 in the state of New Jersey). For all other Contracts, the minimum initial payment we will accept is $10,000. o You can make additional Purchase Payments of $50 or more during the Accumulation Phase before you exercise the GPWB, if applicable. o YOU CANNOT MAKE ANY ADDITIONAL PURCHASE PAYMENTS TO THE CONTRACT AFTER THE INCOME DATE THAT YOU TAKE A FULL ANNUITIZATION (INCLUDING A REQUIRED FULL ANNUITIZATION ON THE MAXIMUM PERMITTED INCOME DATE) OR AFTER YOU EXERCISE THE GPWB. IN CERTAIN STATES, ADDITIONAL PURCHASE PAYMENTS CAN ONLY BE MADE DURING THE FIRST CONTRACT YEAR OR MAY BE OTHERWISE RESTRICTED. o The maximum total amount we will accept without our prior approval is $1 million (including amounts already invested in other Allianz Life variable annuities). o If we make this Contract available as an Inherited IRA, the death benefit proceeds of the previous tax-qualified investment must be directly transferred into this Contract (see section 9, Access to Your Money - The Minimum Distribution Program and Required Minimum Distribution (RMD) Payments). A beneficiary can apply the death benefit proceeds from multiple tax-qualified investments that were owned by the same owner to the purchase of an Inherited IRA Contract. We will not accept any other forms of Purchase Payment on an Inherited IRA Contract. The death benefit proceeds cannot be received by the beneficiary and then applied to an Inherited IRA Contract. For more information on Inherited IRA Contracts, see section 8, Taxes - Qualified Contracts - Inherited IRA. PURCHASE PAYMENTS TO QUALIFIED CONTRACTS MUST NOT BE GREATER THAN ALLOWED UNDER FEDERAL LAW AND MUST BE FROM EARNED INCOME OR A QUALIFIED TRANSFER. PURCHASE PAYMENTS TO QUALIFIED CONTRACTS OTHER THAN FROM A QUALIFIED TRANSFER MAY BE RESTRICTED AFTER THE OWNER REACHES AGE 70 1/2. We may, at our sole discretion, waive the minimum Purchase Payment requirements. We reserve the right to decline any Purchase Payment. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 11 AUTOMATIC INVESTMENT PLAN (AIP) The AIP is a program that allows you to make additional Purchase Payments to your Contract during the Accumulation Phase on a monthly or quarterly basis by electronic transfer of money from your savings, checking or brokerage account. You may participate in this program by completing the appropriate form. Our Service Center must receive your form by the first of the month in order for AIP to begin that same month. Investments will take place on the 20th of the month or the next Business Day if the 20th is not a Business Day. The minimum investment that you can make by AIP is $50. You may stop or change the AIP at any time. We must be notified by the first of the month in order to stop or change the AIP for that month. If the AIP is used for a Qualified Contract, you should consult your tax adviser for advice regarding maximum contributions. The AIP is not available if the Qualified Contract is funding a plan that is tax qualified under Section 401 of the Internal Revenue Code. YOU CANNOT EXERCISE THE GPWB AND PARTICIPATE IN THE AIP AT THE SAME TIME. THE AIP WILL NO LONGER BE AVAILABLE TO YOU AFTER THE INCOME DATE ON WHICH YOU TAKE A FULL ANNUITIZATION. ALLOCATION OF PURCHASE PAYMENTS We do not currently accept allocation instructions from you via email, website, or other electronic communications. This service may be available to you in the future. When you purchase a Contract, we will allocate your initial Purchase Payment to the Investment Choices you selected according to your instructions. We ask that you allocate your money in whole percentages. Transfers of Contract Value between Investment Choices will not change the allocation instructions for any future additional Purchase Payments. You can instruct us how to allocate additional Purchase Payments you make. If you do not instruct us, we will allocate them according to your most recent allocation instructions. Contracts with the PRIME Plus Benefit may be subject to restrictions on allocations and transfers into certain Investment Options (see the "Investment Option Allocation and Transfer Restrictions Under the PRIME Plus Benefit" discussion in section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit). You may provide us with new allocation instructions at any time without fee, penalty or other charge upon written notice or telephone instructions to our Service Center. The new allocation instructions will be effective for Purchase Payments received on or after the Business Day we receive your notice or instructions in good order at our Service Center. If you change your allocation instructions and you are participating in the automatic investment plan or the flexible rebalancing program, your allocation instructions must include directions for the plan/program. We reserve the right to limit the number of Investment Options that you can invest in at any one time. Currently, you can invest in up to 15 of the Investment Options at any one time. We may change this in the future; however, we will always allow you to invest in at least five Investment Options. Once we receive your initial Purchase Payment and the necessary information, we will issue the Contract and allocate your initial Purchase Payment within two 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 five Business Days, we will either send back your money or get your permission to keep it until we get all of the necessary information. If you make additional Purchase Payments, we will credit these amounts to the Contract within one Business Day. Our Business Day closes when regular trading on the New York Stock Exchange closes. If you submit a Purchase Payment and/or application to your registered representative, we will not begin processing the Purchase Payment until it is received at our Service Center. We consider a Purchase Payment to be "received" when it is received at our Service Center regardless of how or when you made the payment. If mandated under applicable law, we may be required to reject a Purchase Payment. We also may be required to provide information about you or your Contract to government regulators. In addition, we may be required to block an Owner's Contract and thereby refuse any request for transfers, and refuse to pay any withdrawals, surrenders, or death benefits until instructions are received from the appropriate regulator. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 12 TAX-FREE SECTION 1035 EXCHANGES Subject to certain restrictions, you can make a "tax-free" exchange under Section 1035 of the Internal Revenue Code for all or a portion of one annuity contract for another, or all of a life insurance policy for an annuity contract. Before making an exchange, you should compare both contracts carefully. Remember that if you exchange a life insurance policy or annuity contract for the Contract described in this prospectus: o you might have to pay a withdrawal charge on your previous contract, o there will be a new withdrawal charge period for this Contract, o other charges under this Contract may be higher (or lower), o the benefits may be different, and o you will no longer have access to any benefits from your previous contract. If the exchange does not qualify for Section 1035 treatment, you also may have to pay federal income tax, including a possible federal penalty tax, on the exchange. You should not exchange an existing life insurance policy or another annuity contract for this Contract unless you determine that the exchange is in your best interest and not just better for the person trying to sell you the Contract (that person will generally earn a commission on each contract sale). IF YOU CONTEMPLATE SUCH AN EXCHANGE, YOU SHOULD CONSULT A TAX ADVISER TO DISCUSS THE POTENTIAL TAX EFFECTS OF SUCH A TRANSACTION. FAXED APPLICATIONS We will accept Contract applications delivered in writing and, in most states, we will accept applications via fax. It is important that you verify that we have received any faxed application you send. We are not liable for faxed transaction requests that were sent by you but not received by us. We will treat a manually signed faxed application as an application delivered in writing. Please note that fax communications may not always be available. Any fax system, whether it is ours, yours, your service provider's, or your registered representative's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should submit your application in writing to our Service Center. We reserve the right to discontinue or modify the faxed application privilege at any time and for any reason. We do not currently accept applications delivered via email or our website. This may be available in the future. FREE LOOK/RIGHT TO EXAMINE If you change your mind about owning the Contract, you can cancel it within ten days after receiving it (or the period required in your state). When you cancel the Contract within this time period, we will not assess a withdrawal charge. In most states, you will receive your Contract Value as of the day we receive your request. This may be more or less than your initial Purchase Payment. In certain states, or if you purchased this Contract as an IRA, we are required to refund your Purchase Payment less withdrawals if you decide to cancel your Contract within the free look period. In these instances, if you cancel your Contract you will receive the greater of Purchase Payments less withdrawals, or Contract Value. In cases where we are required to refund the Purchase Payment, we reserve the right to allocate your initial Purchase Payment to the AZL Money Market Fund until the expiration of the free look period. At the end of that period, we will re-allocate your money as you selected. If we are required to refund the Purchase Payments and you cancel your Contract or we reject your application, you will receive the greater of Purchase Payments less withdrawals or Contract Value, regardless of how your Purchase Payments were allocated. For Owners in California age 60 or older, we are required to allocate your money to the AZL Money Market Fund during the free look period unless you specify otherwise on the appropriate form. The free look provision under the Contract is also called the right to examine. ACCUMULATION UNITS/COMPUTING THE CONTRACT VALUE Your Contract Value in the subaccounts will go up or down based upon the investment performance of the Investment Option(s) you choose. Your Contract Value will also be affected by the charges of the Contract and any interest you earn on any general account Investment Choices. In order to keep track of your Contract Value in the Separate Account, we use a measurement called an Accumulation Unit. If you request variable Traditional Annuity Payments during the Annuity Phase of the Contract, we call this measurement an Annuity Unit. When we receive a Purchase Payment, we credit your Contract with Accumulation Units for any portion of your Purchase Payment allocated to an Investment Option at the daily price next determined after receipt of the Purchase Payment at our Service Center. The daily purchase price is normally determined at the end of each Business Day and any Purchase Payment received at or after the end of the The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 13 current Business Day will receive the next Business Day's price. The Purchase Payments you allocate to the Investment Options are actually placed into subaccounts. Each subaccount invests exclusively in one Investment Option. We determine the number of Accumulation Units we credit to your Contract by dividing the amount of the Purchase Payment allocated to a subaccount by the value of the corresponding Accumulation Unit. Every Business Day, we determine the value of an Accumulation Unit for each subaccount by multiplying the Accumulation Unit value for the previous Business Day by the net investment factor for the current Business Day. We determine the net investment factor by: o dividing the net asset value of a subaccount at the end of the current Business Day by the net asset value of the subaccount at the end of the immediately preceding Business Day, o adding any applicable dividends or capital gains, and o multiplying this result by one minus the amount of the Separate Account annual expenses for the current Business Day, and any additional calendar days since the immediately preceding Business Day. We calculate the value of each Accumulation Unit after regular trading on the New York Stock Exchange closes each Business Day. The value of an Accumulation Unit may go up or down from Business Day to Business Day. We calculate your Contract Value in the Separate Account by multiplying the Accumulation Unit value in each subaccount by the number of Accumulation Units for each subaccount and then adding those results together. (For example, the Contract Value on any Contract Anniversary will reflect the number and value of the Accumulation Units at the end of the previous Business Day.) EXAMPLE o On Wednesday, we receive at our Service Center an additional Purchase Payment of $3,000 from you before the end of the Business Day. o When the New York Stock Exchange closes on that Wednesday, we determine that the value of an Accumulation Unit based on the Investment Option you chose is $13.25. We then divide $3,000 by $13.25 and credit your Contract on Wednesday night with 226.41509 subaccount Accumulation Units for the Investment Option you chose. If the $3,000 payment had been received at or after the end of the current Business Day, it would have received the next Business Day's price. 3. THE ANNUITY PHASE You can apply your Contract Value to regular periodic income payments (Annuity Payments). A Full Annuitization occurs when you apply the entire Contract Value to Annuity Payments. A Partial Annuitization occurs when you apply only part of your Contract Value to Annuity Payments.* The Payee will receive the Annuity Payments. You will receive tax reporting on those payments, however, whether or not you are the Payee. We may require proof of the Annuitant(s)'age before making any life contingent Annuity Payment. If the age or gender of the Annuitant(s) have been misstated, the amount payable will be the amount that would have been provided at the true age or gender. * GMIB Partial Annuitizations are based on the PB Value. They are not available after you exercise the GPWB, or if the PB Value is less than the Contract Value. For more information, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - PB Value. NOTE: YOU WILL BE REQUIRED TO TAKE A FULL ANNUITIZATION OF YOUR CONTRACT ON OR BEFORE THE MAXIMUM PERMITTED INCOME DATE IF, AT THAT TIME, YOU HAVE NOT REDUCED YOUR CONTRACT VALUE TO ZERO. At our discretion, we may extend the maximum permitted Income Date subject to the requirements of applicable law. The maximum permitted Income Date may vary depending on the broker/dealer you purchase your Contract through and your state of residence. UPON FULL ANNUITIZATION YOU WILL NO LONGER HAVE A CONTRACT VALUE, ANY PERIODIC WITHDRAWAL OR INCOME PAYMENTS OTHER THAN ANNUITY PAYMENTS (WHICH INCLUDES GPWB PAYMENTS) WILL STOP, AND THE DEATH BENEFIT WILL TERMINATE. If you have not selected an Annuity Option we will make payments under the default option described in the "Annuity Payments" discussion of this section. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 14 INCOME DATE The Income Date is the date Annuity Payments (GMIB Payments and/or Traditional Annuity Payments) will begin. Your Income Date is specified in your Contract as the maximum permitted date allowed for your Contract, which is the first day of the calendar month following the later of: a) the Annuitant's 90th birthday, or b) ten years from the Issue Date. This limitation may not apply when the Contract is issued to a charitable remainder trust. You can make an authorized request for a different Income Date after the Issue Date, however, any such request is subject to our approval. Your Income Date must be the first day of a calendar month and must be at least two years after the Issue Date. To receive the annuity income protection of the GMIB, your Income Date must be within 30 days following a Contract Anniversary beginning seven Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven Contract Years after the date of any 7% AIA reset (and certain other conditions must also be met). The Income Date will never be later than what is permitted under applicable law. An earlier Income Date may be required to satisfy minimum required distribution rules under certain Qualified Contracts. PARTIAL ANNUITIZATION PARTIAL ANNUITIZATIONS ARE NOT AVAILABLE TO EVERYONE. THERE CAN BE ONLY ONE OWNER, THE OWNER MUST BE THE ANNUITANT, AND WE WILL NOT ALLOW THE OWNER TO ADD A JOINT ANNUITANT. You can take Partial Annuitizations as Traditional Annuity Payments after the second Contract Anniversary, and/or as GMIB Payments (if applicable) beginning seven Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven Contract Years after the date of any 7% AIA reset. However, if your Contract includes the PRIME Plus Benefit, you cannot take a Partial Annuitization after you exercise the GPWB, and you cannot take a GMIB Partial Annuitization if the PB Value is less than the Contract Value. Partial Annuitizations are also not available after you take a Full Annuitization. If you take a Full Annuitization, the Accumulation Phase of the Contract will end. You can take one Partial Annuitization every 12 months. THE MAXIMUM NUMBER OF ANNUITIZATIONS WE ALLOW AT ANY ONE TIME IS FIVE. We do not allow you to allocate additional Contract Value (or PB Value) to an existing stream of Annuity Payments. You also cannot transfer any amounts allocated to a stream of Annuity Payments to any other portion of the Contract. If you have four Partial Annuitizations and you would like to take a fifth, you must take a Full Annuitization and apply the entire remaining Contract Value to Annuity Payments, and the Accumulation Phase of the Contract will end. The amounts you apply to a Partial Annuitization and Annuity Payments we make under a Partial Annuitization are not subject to the withdrawal charge. A Partial Annuitization will decrease the Contract Value, the Withdrawal Charge Basis, the GMDB value, and for Contracts with the PRIME Plus Benefit, it will also decrease the PB Value. This will decrease the amounts available for withdrawals (including GPWB Payments), additional Annuity Payments (including GMIB Payments), and payment of the death benefit. The type of Annuity Payments (traditional or GMIB) you request under a Partial Annuitization will reduce the PB Value and GMDB values differently. For more information, see the discussion of the "PB Value" in section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit; section 7, Expenses - Withdrawal Charge; and see the discussion of the GMDB that applies to your Contract in section 11, Death Benefit. FOR TAX PURPOSES, ANNUITY PAYMENTS WE MAKE UNDER A PARTIAL ANNUITIZATION WILL BE TREATED AS PARTIAL WITHDRAWALS AND NOT AS ANNUITY PAYMENTS. However, once the entire Contract Value has been reduced to zero, we intend to treat all Annuity Payments we make after that as annuity payments (and not withdrawals) for tax purposes. If you take a Partial Annuitization(s) and subsequently take a full withdrawal of the entire remaining Contract Value, all Annuity Payments we make on or after the Business Day you take the withdrawal, should be treated as annuity payments (and not withdrawals) for tax purposes. If the Annuity Payments we make are treated as withdrawals (and not annuity payments) for tax purposes, under Non-Qualified Contracts, any gains in the entire Contract will be considered to be distributed before Purchase Payments and will be subject to ordinary income tax. For Qualified Contracts, in most cases, the entire Annuity Payment we make under a Partial Annuitization will be subject to ordinary income taxes. If any Owner is younger than age 59 1/2, the taxable portion of the Annuity Payments we make under a Partial Annuitization may also be subject to a 10% federal penalty tax. Partial Annuitizations may also affect the tax treatment of any future Annuity Payments. YOU SHOULD CONSULT A TAX ADVISER BEFORE REQUESTING A PARTIAL ANNUITIZATION. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 15 ANNUITY OPTIONS You can choose one of the income plans (Annuity Options) described below or any other payment option to which we agree. Before the Income Date, you can select and/or change the Annuity Option with at least 30 days written notice to us. After Annuity Payments begin, you cannot change the Annuity Option. Annuity Payments will usually be lower if you select an Annuity Option that requires us to make more frequent Annuity Payments or to make payments over a longer period of time. For example, the guaranteed initial monthly fixed payout rates under Annuity Option 4 with a guarantee period of 20 years or more are the lowest fixed rates we offer, and the guaranteed initial monthly fixed payout rates under Annuity Option 1 are the highest fixed rates we offer. Annuity Payments will also be lower if you request Annuity Payments at an early age (for example, when the Annuitant is age 50) as opposed to waiting until the Annuitant is older (for example, when the Annuitant is age 70). OPTION 1. LIFE ANNUITY. We will make Annuity Payments during the life of the Annuitant, and the last payment will be the one that is due before the Annuitant's death. If the Annuitant dies shortly after the Income Date, the Payee may receive less than your investment in the Contract. OPTION 2. LIFE ANNUITY WITH PAYMENTS OVER 5, 10, 15 OR 20 YEARS GUARANTEED. We will make Annuity Payments during the life of the Annuitant. If you take one single Full Annuitization and the Annuitant dies before the end of the selected guaranteed period, we will continue to make Annuity Payments to the Payee for the rest of the guaranteed period. Alternatively, the Owner may elect to receive a lump sum payment. Under a Partial Annuitization, if the Annuitant dies before the end of the selected guaranteed period, we will make a lump sum payment to the Beneficiary. The lump sum payment is equal to the present value of the remaining guaranteed Annuity Payments as of the date we receive proof of the Annuitant's death and a payment election form at our Service Center. For variable Traditional Annuity Payments, in most states, we base the remaining guaranteed Traditional Annuity Payments on the current value of the Annuity Units and we use the assumed investment rate to calculate the present value. For fixed payouts, in most states, we calculate the present value of the remaining guaranteed Annuity Payments using the Statutory Calendar Year Interest Rate based on the NAIC Standard Valuation Law for Single Premium Immediate Annuities corresponding to the Income Date. However, some states require us to use different interest rates for variable and fixed payouts for the present value calculation. We require proof of the Annuitant's death and return of the Contract before we will make any lump sum payment. There are no additional costs associated with a lump sum payment. OPTION 3. JOINT AND LAST SURVIVOR ANNUITY. We will make Annuity Payments during the lifetimes of the Annuitant and the joint Annuitant. Upon the death of one Annuitant, Annuity Payments to the Payee will continue during the lifetime of the surviving joint Annuitant, at a level of 100%, 75% or 50% of the previous amount, as selected by the Owner. Annuity Payments will stop with the last payment that is due before the last surviving joint Annuitant's death. If both Annuitants die shortly after the Income Date, the Payee may receive less than your investment in the Contract. This Annuity Option is not available to you under a Partial Annuitization. OPTION 4. JOINT AND LAST SURVIVOR ANNUITY WITH PAYMENTS OVER 5, 10, 15 OR 20 YEARS GUARANTEED. We will make Annuity Payments during the lifetimes of the Annuitant and the joint Annuitant. Upon the death of one Annuitant, Annuity Payments will continue to the Payee during the lifetime of the surviving joint Annuitant at 100% of the amount that was paid when both Annuitants were alive. However, if both joint Annuitants die before the end of the selected guaranteed period, we will continue to make Annuity Payments to the Payee for the rest of the guaranteed period. Alternatively, the Owner may elect to receive a lump sum payment equal to the present value of the remaining guaranteed Annuity Payments as of the date we receive proof of the last surviving joint Annuitant's death and a payment election form at our Service Center. For variable Traditional Annuity Payments, in most states, we base the remaining guaranteed Traditional Annuity Payments on the current value of the Annuity Units and we use the assumed investment rate to calculate the present value. For fixed payouts, in most states, we calculate the present value of the remaining guaranteed Annuity Payments using the Statutory Calendar Year Interest Rate based on the NAIC Standard Valuation Law for Single Premium Immediate Annuities corresponding to the Income Date. However, some states require us to use different interest rates for variable and fixed payouts for the present value calculation. We require proof of death of both joint Annuitants and return of the Contract before we will make any lump sum payment. There are no additional costs associated with a lump sum payment. This Annuity Option is not available to you under a Partial Annuitization. OPTION 5. REFUND LIFE ANNUITY. We will make Annuity Payments during the lifetime of the Annuitant, and the last payment will be the one that is due before the Annuitant's death. After the Annuitant's death, the Payee may receive a lump sum refund. For a fixed payout, the amount of the refund will equal the amount applied to this Annuity Option minus the total of all Annuity Payments made under this option. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 16 For variable Traditional Annuity Payments, the amount of the refund will depend on the current Investment Option allocation and will be the sum of refund amounts attributable to each Investment Option. We calculate the refund amount for a given Investment Option using the following formula. (A) x {[(B) x (C) x (D)/(E)] - [(D) x (F)]} where: (A)= Annuity Unit value of the subaccount for that given Investment Option when due proof of the Annuitant's death is received at our Service Center. (B)= The amount applied to variable Traditional Annuity Payments on the Income Date. (C)= Allocation percentage in a given subaccount (in decimal form) when due proof of the Annuitant's death is received at our Service Center. (D)= The number of Annuity Units used in determining each variable Traditional Annuity Payment attributable to that given subaccount when due proof of the Annuitant's death is received at our Service Center. (E)= Dollar value of first variable Traditional Annuity Payment. (F)= Number of variable Traditional Annuity Payments made since the Income Date. We will base this calculation upon the allocation of Annuity Units actually in force at the time due proof of the Annuitant's death is received at our Service Center. We will not pay a refund if the total refund determined using the above calculation is less than or equal to zero. EXAMPLE o The Contract has one Owner who is a 65-year-old male. He elects variable Annuity Payments under Annuity Option 5 based on a Contract Value of $100,000 (item "B"). o The Owner who is also the Annuitant allocates all the Contract Value to one Investment Option, so the allocation percentage in this subaccount is 100% (item "C"). o The purchase rate for the selected assumed investment rate is $6.15 per month per thousand dollars of Contract Value annuitized. Therefore, the first variable Annuity Payment is: $6.15 x ($100,000 / $1,000) = $615 (item "E"). o Assume the Annuity Unit value on the Income Date is $12, then the number of Annuity Units used in determining each Annuity Payment is: $615 / $12 = 51.25 (item "D"). o The Owner who is also the Annuitant dies after receiving 62 Annuity Payments (item "F") and the Annuity Unit value for the subaccount on the date the Service Center receives due proof of death is $15 (item "A"). WE CALCULATE THE REFUND AS FOLLOWS: (A) x {[(B) x (C) x (D)/(E)] - [(D) x (F)]} = 15 x {[100,000 x 1.00 x (51.25 / 615)] - [51.25 x 62]} = 15 x {[100,000 x 0.083333] - 3,177.50} = 15 x {8,333.33 - 3,177.50} = 15 x 5,155.83 = $77,337.50 NOTE FOR CONTRACTS ISSUED IN OREGON: LIQUIDATIONS ARE AVAILABLE UNDER ANNUITY OPTION 2 (LIFE ANNUITY WITH PAYMENTS OVER 5, 10, 15 OR 20 YEARS GUARANTEED) AND ANNUITY OPTION 4 (JOINT AND LAST SURVIVOR WITH PAYMENTS OVER 5, 10, 15 OR 20 YEARS GUARANTEED) IF YOU SELECT VARIABLE TRADITIONAL ANNUITY PAYMENTS. While an Annuitant is alive and the number of variable Traditional Annuity Payments made is less than the guaranteed number of payments elected, you may request a partial withdrawal (partial liquidation) of up to 75% of the total liquidation value, less any previously liquidated amounts. The total liquidation value is equal to the present value of the remaining guaranteed variable Traditional Annuity Payments, to the end of the guaranteed period, using the selected assumed investment rate as the interest rate for the present value calculation. The minimum amount that you can liquidate is $500, or the remaining portion of the total liquidation value available (whichever is less). We will process partial liquidations within seven days after your written request is received in good order at our Service Center. After a partial liquidation, we will reduce the subsequent variable Traditional Annuity Payments during the remaining guaranteed period by the percentage of liquidation value withdrawn. After we have made the guaranteed number of variable Traditional Annuity Payments, we will restore the number of Annuity Units used in calculating the variable Traditional Annuity Payments to their original values as if no liquidation had taken place. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 17 OPTION 6. SPECIFIED PERIOD CERTAIN ANNUITY. THIS OPTION IS GENERALLY ONLY AVAILABLE AS A TEN-YEAR OR MORE PERIOD CERTAIN FOR GMIB PAYMENTS. HOWEVER, IN FLORIDA, IT IS ALSO AVAILABLE FOR FIXED TRADITIONAL ANNUITY PAYMENTS BASED ON YOUR CONTRACT VALUE. Under this option, we will make Annuity Payments for a specified period of time. You select the specified period, which must be a whole number of years from five to 30. If the last Annuitant dies before the end of the specified period certain, then we will continue to make Annuity Payments to the Payee for the rest of the period certain. This Annuity Option is not available to you under a Partial Annuitization. NOTE FOR OWNERS THAT ARE YOUNGER THAN AGE 59 1/2: Your Annuity Payments under Annuity Option 6 may be subject to a 10% federal penalty tax if the specified period certain you select is less than your life expectancy. TRADITIONAL ANNUITY PAYMENTS Annuity Payments offer a guaranteed income stream with certain tax advantages and are designed for Owners who are not concerned with continued access to Contract Value. You can request Traditional Annuity Payments under Annuity Options 1-5 as: o a variable payout, o a fixed payout, or o a combination of both. Annuity Option 6 is generally only available as a ten-year or more period certain for GMIB Payments. However, in Florida, Annuity Option 6 is also available for fixed Traditional Annuity Payments based on your Contract Value. If you do not choose an Annuity Option before the Income Date, we will make variable Traditional Annuity Payments to the Payee under Annuity Option 2 with five years of guaranteed monthly payments. Under a fixed payout, all of the Annuity Payments will be the same dollar amount (equal installments) except as provided under Annuity Option 3. If you choose variable Traditional Annuity Payments, you can continue to invest in up to 15 of the available Investment Options. We may change this in the future, but we will always allow you to invest in at least five Investment Options. If you do not tell us otherwise, we will base variable Traditional Annuity Payments on the investment allocations that were in place on the Income Date. Currently, it is our business practice that the initial Traditional Annuity Payment exceed $50. We will contact you to discuss alternate payment arrangements if the initial Traditional Annuity Payment would be $50 or less. Guaranteed fixed Traditional Annuity Payments are based on an interest rate and mortality table specified in your Contract. The payout rates for fixed Traditional Annuity Payments provided by your Contract are guaranteed and in no event will we use lower fixed payout rates to calculate your fixed Traditional Annuity Payments. However, we may use higher fixed payout rates to calculate fixed Traditional Annuity Payments than the guaranteed rates provided by your Contract. If you choose to have any portion of the Traditional Annuity Payments based on the investment performance of the Investment Option(s), the dollar amount of the payments will depend upon the following factors. o The Contract Value on the Income Date. o The age of the Annuitant and any joint Annuitant on the Income Date. o The gender of the Annuitant and any joint Annuitant, where permitted. o The Annuity Option you select. o The assumed investment rate (AIR) you select. o The mortality table specified in the Contract. o The future performance of the Investment Option(s) you select. You can choose a 3%, 5% or 7% AIR. The 7% AIR is not available in all states. Using a higher AIR results in a higher initial variable Traditional Annuity Payment, but later payments will increase more slowly when investment performance rises and decrease more rapidly when investment performance declines. If the actual performance of your Investment Options exceeds the AIR you selected, the variable Traditional Annuity Payments will increase. Similarly, if the actual performance is less than the AIR you selected, the variable Traditional Annuity Payments will decrease. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 18 EACH PORTION OF THE CONTRACT THAT YOU APPLY TO TRADITIONAL ANNUITY PAYMENTS WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o Under Annuity Options 1 and 3, the death of the last surviving Annuitant. o Under Annuity Options 2 and 4, the death of the last surviving Annuitant and expiration of the guaranteed period. If we make a lump sum payment of the remaining guaranteed Traditional Annuity Payments at the death of the last surviving Annuitant, this portion of the Contract will terminate upon payment of the lump sum. o Under Annuity Option 5, the death of the Annuitant and payment of any lump sum refund. o Under Annuity Option 6, the expiration of the specified period certain. o Contract termination. 4. PROTECTED RETIREMENT INCOME MADE EASY: THE PRIME PLUS BENEFIT THE PRIME PLUS BENEFIT IS NOT AVAILABLE IN THE STATE OF OREGON. The PRIME Plus Benefit provides a guaranteed minimum fixed income stream and is designed for Owners who want flexibility in the way they access income and can wait at least seven years before taking income. The PRIME Plus Benefit includes a GMIB and GPWB and carries an additional M&E charge. We calculate the additional M&E charge as discussed in section 7, Expenses - Separate Account Annual Expenses. These benefits are provided as a package and are not available individually. The additional M&E charge for the PRIME Plus Benefit will reduce the performance of your selected Investment Options, and in the long term may provide less Contract Value to you than would otherwise be available from the same Contract without the PRIME Plus Benefit. THE PRIME PLUS BENEFIT DOES NOT CREATE CONTRACT VALUE OR GUARANTEE THE PERFORMANCE OF ANY INVESTMENT OPTION. We designed the PRIME Plus Benefit to give you options for turning your accumulated retirement assets into a stream of retirement income. The GMIB provides a guaranteed minimum fixed income in the form of Annuity Payments (GMIB Payments). Depending on the Annuity Option you select, the GMIB can provide guaranteed lifetime income, but if the Annuitant(s) die shortly after the Income Date, the Payee may receive less than your investment in the Contract. The GPWB provides a guaranteed minimum amount of income in the form of annual partial withdrawals (GPWB Payments). However, GPWB Payments are not guaranteed for life and you could outlive your payment stream. You must wait seven complete Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven complete Contract Years after the date of any 7% AIA reset, before you can exercise a GMIB or GPWB and they can only be exercised within 30 days after a Contract Anniversary. BECAUSE THE PRIME PLUS BENEFIT CARRIES A HIGHER CONTRACT EXPENSE IT MAY NOT BE APPROPRIATE IF YOU: o DO NOT INTEND TO EXERCISE EITHER THE GMIB OR GPWB, o DO NOT INTEND TO HOLD THE CONTRACT FOR THE ENTIRE SEVEN YEAR WAITING PERIOD, OR o INTEND TO TAKE A FULL ANNUITIZATION BEFORE THE END OF THE SEVEN YEAR WAITING PERIOD. IF YOUR CONTRACT INCLUDES THE PRIME PLUS BENEFIT AND YOU DO NOT EXERCISE EITHER THE GMIB OR GPWB, YOU WILL HAVE INCURRED HIGHER CONTRACT EXPENSES WITHOUT RECEIVING ANY ADVANTAGE FROM THE PRIME PLUS BENEFIT. BE SURE TO DISCUSS WITH YOUR REGISTERED REPRESENTATIVE WHETHER OR NOT THE PRIME PLUS BENEFIT IS APPROPRIATE FOR YOUR SITUATION. CONTRACTS WITH THE PRIME PLUS BENEFIT MAY ALSO BE SUBJECT TO RESTRICTIONS ON ALLOCATIONS AND TRANSFERS INTO CERTAIN INVESTMENT OPTIONS. THESE RESTRICTIONS ARE EFFECTED TO SUPPORT THE GUARANTEES PROVIDED BY THE PRIME PLUS BENEFIT, AND NOT TO MEET ANY OWNER'S INVESTMENT OBJECTIVES. TO THE EXTENT THAT THESE RESTRICTIONS LIMIT YOUR INVESTMENT FLEXIBILITY, YOU MAY NOT BE ABLE TO FULLY PARTICIPATE IN ANY UPSIDE POTENTIAL RETURNS AVAILABLE FROM THE INVESTMENT OPTIONS, AND YOUR CONTRACT VALUE MAY POTENTIALLY BE LESS THAN THE CONTRACT VALUE YOU WOULD HAVE HAD WITHOUT THE PRIME PLUS BENEFIT. ADDING THE PRIME PLUS BENEFIT TO YOUR CONTRACT The PRIME Plus Benefit is available for selection ONCE before the older Owner's 76th birthday (or the Annuitant's 76th birthday if the Contract is owned by a non-individual). YOU CANNOT ADD THE PRIME PLUS BENEFIT TO A CONTRACT AFTER THE OLDER OWNER REACHES AGE 76. The PRIME Plus Benefit may not be appropriate for Owners who are nearing age 75 because benefit values are limited after age 81. You can select the PRIME Plus Benefit at Contract issue, or after the Issue Date you can select it within 30 days before a Contract Anniversary by completing the The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 19 appropriate form. We will process your request to add the PRIME Plus Benefit after the Issue Date on the Contract Anniversary* that occurs after we receive your request in good order at our Service Center and the rider effective date will be that Contract Anniversary. If you add the PRIME Plus Benefit to your Contract after the Issue Date, on the rider effective date we will increase the M&E charge by the additional M&E charge for the PRIME Plus Benefit that is in effect for a newly issued Contract as of the rider effective date. We guarantee that it will not be more than the maximum M&E charge for Contracts with the PRIME Plus Benefit that is set forth in the Fee Tables. Because we change the M&E charge, we will change the number of Accumulation Units so that the Contract Value on the rider effective date will remain the same. Because the performance of the Investment Options causes the Accumulation Unit values to fluctuate, the adjustment to the number of Accumulation Units may be positive or negative. * Or on the next Business Day if the Contract Anniversary is not a Business Day. NOTE FOR CONTRACTS ISSUED IN PENNSYLVANIA: The PRIME Plus Benefit rider has a ten-day right-to-examine period. If you change your mind about the PRIME Plus Benefit, you can remove it from your Contract within ten days after receiving the rider. If you remove the PRIME Plus Benefit rider from your Contract, we will treat the rider as if we had never issued it and it will no longer be available for future selection. REMOVING THE PRIME PLUS BENEFIT FROM YOUR CONTRACT You can elect to remove the PRIME Plus Benefit from the Contract after selecting it any time before you exercise the GMIB or the GPWB. YOU CANNOT REMOVE THE PRIME PLUS BENEFIT AFTER YOU EXERCISE THE GMIB OR THE GPWB AND IF YOU REMOVE THE PRIME PLUS BENEFIT FROM THE CONTRACT IT WILL NO LONGER BE AVAILABLE FOR FUTURE SELECTION. You can request the removal of the PRIME Plus Benefit within 30 days before a Contract Anniversary by completing the appropriate form. We will process your request on the Contract Anniversary* that occurs immediately after we receive your request in good order at our Service Center. If you remove the PRIME Plus Benefit from your Contract, we will decrease the M&E charge to equal the charge shown in the Fee Table for a Contract with your selected death benefit as of the rider removal date. Because we decrease the M&E charge, we will change the number of Accumulation Units so that the Contract Value on the rider removal date will remain the same. Because the performance of the Investment Options causes the Accumulation Unit values to fluctuate, the adjustment to the number of Accumulation Units may be positive or negative. * Or on the next Business Day if the Contract Anniversary is not a Business Day. Although you cannot remove the PRIME Plus Benefit from your Contract after you exercise the GPWB or GMIB, you can terminate the GPWB by electing to stop GPWB Payments and instead do one of the following. o Take an Excess Withdrawal of the entire Contract Value, less any withdrawal charge (available at any time). o Request Traditional Annuity Payments under a Full Annuitization based on the entire Contract Value (available at any time). o Request GMIB Payments under a Full Annuitization based on the entire remaining PB Value (only available within 30 days following a Contract Anniversary and before we make the next GPWB Payment). If you take an Excess Withdrawal of the entire Contract Value, the Contract will terminate and you may receive less money than you would have received under the GPWB. If you request fixed Traditional Annuity Payments or GMIB Payments, the GPWB will terminate and we will no longer assess the Separate Account annual expense on that portion of the Contract. If you request variable Traditional Annuity Payments, the GPWB will terminate and we will reduce the Separate Account annual expense to 1.50% on that portion of the Contract. Although you can elect to stop GPWB Payments, you cannot elect to stop GMIB Payments. If you do elect to stop GPWB Payments: o the GPWB will terminate, o the Accumulation Phase of the Contract will end, o the GMDB will terminate, and o if you request Annuity Payments, that portion of the Contract will terminate as indicated in section 3, The Annuity Phase. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 20 INVESTMENT OPTION ALLOCATION AND TRANSFER RESTRICTIONS UNDER THE PRIME PLUS BENEFIT THESE RESTRICTIONS WILL APPLY TO CONTRACTS WITH THE PRIME PLUS BENEFIT AS DESCRIBED BELOW. BY ELECTING THE PRIME PLUS BENEFIT, YOU ARE CONSENTING TO HAVE US REALLOCATE YOUR CONTRACT VALUE IN ACCORDANCE WITH THE PROCEDURES DESCRIBED IN THIS SECTION AND IN YOUR CONTRACT. Contracts with the PRIME Plus Benefit may be subject to restrictions on allocations of Purchase Payments and transfers of Contract Value into certain Investment Options. THESE RESTRICTIONS ARE EFFECTED TO SUPPORT THE GUARANTEES PROVIDED BY THE PRIME PLUS BENEFIT, AND NOT TO MEET ANY OWNER'S INVESTMENT OBJECTIVES. TO THE EXTENT THAT THESE RESTRICTIONS LIMIT YOUR INVESTMENT FLEXIBILITY, YOU MAY NOT BE ABLE TO FULLY PARTICIPATE IN ANY UPSIDE POTENTIAL RETURNS AVAILABLE FROM THE INVESTMENT OPTIONS, AND YOUR CONTRACT VALUE MAY POTENTIALLY BE LESS THAN THE CONTRACT VALUE YOU WOULD HAVE HAD WITHOUT THE PRIME PLUS BENEFIT. Under Contracts with the PRIME Plus Benefit, we will restrict your selection of certain Investment Options and the percentage of Contract Value that you can have in certain Investment Options if any of the following limits on volatility or risk are triggered in regard to aggregate Owner assets in the Investment Options held by Contracts with the PRIME Plus Benefit: o the average one year volatility* is greater than 15%. o the average three year volatility* is greater than 15%. o the average one year risk** is greater than 75%. o the average three year risk** is greater than 75%. * As measured by standard deviation. This means that if the standard deviation in regard to aggregate Owner assets in the Investment Options held by Contracts with the PRIME Plus Benefit is greater than 0.15, this limit will be exceeded. **As measured by the beta compared to the Standard & Poor's[{R}] 500 Composite Price Index (S&P 500[{R}]). This means that if the beta in regard to aggregate Owner assets in the Investment Options held by Contracts with the PRIME Plus Benefit as compared to the S&P 500[{R}] is greater than 0.75, this limit will be exceeded. We will monitor these limits on volatility and risk on the first of each calendar month, or the next Business Day if the first is not a Business Day. If any of these limits are triggered, we will notify you and restrict future allocations and transfers as follows: o GROUP A INVESTMENT OPTIONS WILL NO LONGER BE AVAILABLE TO YOU, AND o YOU CANNOT HAVE MORE THAN 70% OF YOUR TOTAL CONTRACT VALUE IN THE GROUP B INVESTMENT OPTIONS. GROUP A INVESTMENT OPTIONS AZL Columbia Technology Fund AZL Schroder Emerging Markets Equity Fund AZL Davis NY Venture Fund AZL Schroder International Small Cap Fund AZL OCC Opportunity Fund PIMCO VIT CommodityRealReturn Strategy Portfolio
GROUP B INVESTMENT OPTIONS AZL AIM International Equity Fund AZL PIMCO Fundamental IndexPLUS Total Return Fund AZL Small Cap Stock Index Fund AZL BlackRock Capital Appreciation Fund AZL TargetPLUS Equity Fund AZL BlackRock Growth Fund AZL Turner Quantitative Small Cap Growth Fund AZL Columbia Mid Cap Value Fund AZL Van Kampen Comstock Fund AZL Columbia Small Cap Value Fund AZL Van Kampen Global Real Estate Fund AZL Dreyfus Equity Growth Fund AZL Van Kampen Mid Cap Growth Fund AZL First Trust Target Double Play Fund Davis VA Financial Portfolio AZL Fusion Growth Fund Franklin Growth and Income Securities Fund AZL Fusion Moderate Fund Franklin Small-Mid Cap Growth Securities Fund AZL International Index Fund Franklin Small Cap Value Securities Fund AZL JPMorgan Large Cap Equity Fund OpCap Mid Cap Portfolio AZL NACM International Fund Oppenheimer Global Securities Fund/VA AZL OCC Growth Fund Templeton Foreign Securities Fund AZL Oppenheimer Global Fund Templeton Growth Securities Fund AZL Oppenheimer International Growth Fund
The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 21 Group C Investment Options will be available for any amount of Contract Value whether or not the limits are triggered.
GROUP C INVESTMENT OPTIONS AZL Allianz Global Investors Select Fund BlackRock Global Allocation V.I. Fund AZL Balanced Index Strategy Fund Davis VA Value Portfolio AZL Davis NY Venture Fund Franklin Global Real Estate Securities Fund AZL Franklin Small Cap Value Fund Franklin High Income Securities Fund AZL Franklin Templeton Founding Strategy Plus Fund Franklin Income Securities Fund AZL Fusion Balanced Fund Franklin Large Cap Growth Securities Fund AZL Fusion Conservative Fund Franklin Rising Dividends Securities Fund AZL Jennison 20/20 Focus Fund Franklin Templeton VIP Founding Funds Allocation Fund AZL JPMorgan U.S. Equity Fund Franklin U.S. Government Fund AZL Legg Mason Growth Fund Franklin Zero Coupon Fund 2010 AZL Moderate Index Strategy Fund Mutual Global Discovery Securities Fund AZL Money Market Fund Mutual Shares Securities Fund AZL S&P 500 Index Fund Oppenheimer High Income Fund/VA AZL Schroder Emerging Markets Equity Fund Oppenheimer Main Street Fund[{R}]/VA AZL TargetPLUS Balanced Fund PIMCO VIT All Asset Portfolio AZL TargetPLUS Growth Fund PIMCO VIT Emerging Markets Bond Portfolio AZL TargetPLUS Moderate Fund PIMCO VIT Global Bond Portfolio (Unhedged) AZL Van Kampen Equity and Income Fund PIMCO VIT Global Multi-Asset Portfolio AZL Van Kampen Global Franchise Fund PIMCO VIT High Yield Portfolio AZL Van Kampen Growth and Income Fund PIMCO VIT Real Return Portfolio PIMCO VIT StocksPLUS[{R}] Growth and Income Portfolio PIMCO VIT Total Return Portfolio Seligman Smaller-Cap Value Portfolio SP International Growth Portfolio SP Strategic Partners Focused Growth Portfolio Templeton Global Bond Securities Fund
If any of the volatility or risk limits are triggered, we will send you written notice at least 30 days before implementing any restrictions. At that time, we will ask you to reallocate any Contract Value you have in the Group A Investment Options, and any amount in excess of 70% of your Contract Value you have in the Group B Investment Options. We will implement restrictions 60 days after any of the volatility or risk limits are triggered. If we receive instructions from you before the implementation date, we will reallocate your Contract Value according to those instructions. If we do not receive any instructions from you by the implementation date, or if your Contract is still in violation of the allocation or transfer restrictions, we will reallocate your Contract Value on the implementation date in the following order. FIRST, IF YOU HAVE CONTRACT VALUE IN THE GROUP A INVESTMENT OPTIONS: o If your most recent allocation instructions include both Group B and Group C Investment Options, we will transfer all Contract Value out of the Group A Investment Options and apply it to the Group B and Group C Investment Options according to your most recent allocation instructions (excluding any allocations you made to the Group A Investment Options). o If your most recent allocation instructions include only Group B Investment Options, we will transfer all Contract Value out of the Group A Investment Options and apply it to the Group B Investment Options according to your most recent allocation instructions (excluding any allocations you made to the Group A Investment Options). o If your most recent allocation instructions include only Group C Investment Options, we will transfer all Contract Value out of the Group A Investment Options and apply it to the Group C Investment Options according to your most recent allocation instructions (excluding any allocations you made to the Group A Investment Options). o If your most recent allocation instructions do not include any Group B or Group C Investment Options, we will transfer all Contract Value out of the Group A Investment Options and apply it to the AZL Money Market Fund. THEN, IF YOU HAVE MORE THAN 70% OF TOTAL CONTRACT VALUE IN THE GROUP B INVESTMENT OPTIONS (INCLUDING ANY CONTRACT VALUE TRANSFERRED OUT OF THE GROUP A INVESTMENT OPTIONS AS PREVIOUSLY DESCRIBED): o If your most recent allocation instructions include any Group C Investment Options, we will transfer the excess Contract Value* out of the Group B Investment Options proportionately and apply it to the Group C Investment Options according to your most recent allocation instructions (excluding any allocations you made to the Group A and Group B Investment Options). o If your most recent allocation instructions do not include any Group C Investment Options, we will transfer the excess Contract Value out of the Group B Investment Options and apply it to the AZL Money Market Fund. * The amount of Contract Value in the Group B Investment Options that is in excess of 70% of the total Contract Value. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 22 After we implement the allocation or transfer restrictions, Group A Investment Options will no longer be available for allocations or transfers, and we will only allow you to make allocations or transfers to Group B Investment Options as long as the Contract Value in the Group B options would be 70% or less of your total Contract Value after the allocation or transfer. In addition, we will monitor your Contract Value in the Group B Investment Options to ensure that it does not exceed 70% of the total Contract Value on the first of each calendar month, or the next Business Day if the first is not a Business Day. If you have more than 70% of the total Contract Value in the Group B Investment Options we will reallocate your Contract Value as indicated above without providing any advance written notice. Once we implement these restrictions, they will remain in effect until the GMIB and the GPWB terminate. You may continue to make allocations or transfers to the Group C Investment Options after we implement these restrictions without limitation as to the amount of Contract Value. We will not recategorize the Investment Options currently available under the Contract, but we may add or remove Investment Options from your Contract in the future. If we do, we will provide written notice regarding changes to the Investment Option groupings. PB VALUE GMIB and/or GPWB Payments under the PRIME Plus Benefit are based on the PB Value. YOU CAN ONLY ACCESS THE PB VALUE BY EXERCISING THE GMIB OR GPWB. The PB Value before the date of any Owner's death or exercise of the GPWB is equal to either: o the 7% AIA; o the MAV; or o the Contract Value. If you exercise the GMIB, the PB Value is equal to the MAV if it is greater than the 7% AIA. However, if the 7% AIA is greater than the MAV, you can decide whether to set the PB Value equal to the 7% AIA or the MAV. If you exercise the GPWB and select the 5% payment option, the PB Value is equal to the greater of: a) the MAV, b) the 7% AIA, or c) the Contract Value as of the most recent Contract Anniversary, less any withdrawals and adjusted for any Partial Annuitization taken since that anniversary. If you exercise the GPWB and select the 10% payment option the PB Value is equal to the greater of: a) the MAV, or b) the Contract Value as of the most recent Contract Anniversary, less any withdrawals and adjusted for any Partial Annuitization taken since that anniversary. THE 7% AIA MAY BE MORE LIMITED THAN THE MAV BECAUSE: o under the 7% AIA, the 7% increase is only applied to Purchase Payments received in the first five Contract Years and the 7% AIA is subject to a maximum of two times Purchase Payments received in the first five Contract Years; o under the GMIB, there are fewer available Annuity Options; and o under the GPWB, you can only receive GPWB Payments of up to 5% of the PB Value each year. IF YOU TAKE A GMIB PARTIAL ANNUITIZATION, THE 7% AIA AND MAV WILL DECREASE, BUT WILL CONTINUE TO BE CALCULATED. IF YOU TAKE A GMIB FULL ANNUITIZATION OR EXERCISE THE GPWB, WE WILL ESTABLISH A PB VALUE AND THE 7% AIA AND MAV WILL CEASE TO EXIST. AFTER YOU EXERCISE THE GPWB, ONLY THE PB VALUE WILL REMAIN AND CONTINUE TO BE CALCULATED. 7% AIA RESETS Before the older Owner's 80th birthday (or the Annuitant's 80th birthday if the Contract is owned by a non-individual) and before you exercise either the GPWB or GMIB, you can reset the 7% AIA to equal the Contract Value if that amount is greater than the 7% AIA on any Contract Anniversary. You cannot request a reset: a) after the older Owner reaches age 80 (or after the Annuitant reaches age 80 if the Contract is owned by a non-individual), b) after you exercise the GPWB or GMIB (including taking a GMIB Partial Annuitization), c) after you take a Full Annuitization, or d) if the Contract Value is less than the 7% AIA. IF YOU RESET THE 7% AIA, YOU WILL HAVE TO WAIT SEVEN CONTRACT YEARS FROM THE RESET ANNIVERSARY BEFORE YOU CAN BEGIN GMIB OR GPWB PAYMENTS. You can request a reset within 30 days following a Contract Anniversary. If your request is in good order we will process it as of the current Contract Anniversary* and we will increase the 7% AIA to equal the Contract Value on that anniversary. If you reset the 7% AIA, on the reset anniversary we will change the additional M&E charge for the PRIME Plus Benefit to the additional M&E charge that is in effect for a newly issued Contract as of the reset anniversary. We guarantee that the M&E charge will not be more than the maximum M&E charge for Contracts with the PRIME Plus Benefit that is set forth in the Fee Tables. If we change the M&E charge we will change the number of Accumulation Units so that the Contract Value on the reset anniversary will remain the same. Because the performance of the Investment Options causes the Accumulation Unit values to fluctuate, the adjustment to the number of Accumulation Units may be positive or negative. * Or on the next Business Day if the Contract Anniversary is not a Business Day. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 23 CALCULATING THE 7% AIA If the rider effective date is the Issue Date, the 7% AIA on the Issue Date is equal to the Purchase Payment received on the Issue Date. If the rider effective date occurs after the Issue Date, or if you reset the 7% AIA, the 7% AIA on the rider effective date or reset anniversary is equal to the Contract Value on that date. ON EACH BUSINESS DAY OTHER THAN A CONTRACT ANNIVERSARY, the 7% AIA is equal to: o its value on the immediately preceding Business Day, o plus any additional Purchase Payments received that day, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o if you took a GMIB Partial Annuitization that day based on the: - 7% AIA, we will reduce the 7% AIA by the dollar amount applied to GMIB Payments. - MAV, we will reduce the 7% AIA proportionately by the percentage of the MAV applied to GMIB Payments. FOR EACH OF THE FIRST FIVE CONTRACT ANNIVERSARIES THAT OCCUR AFTER THE LATER OF THE RIDER EFFECTIVE DATE OR THE RESET ANNIVERSARY AND BEFORE THE OLDER OWNER'S 81ST BIRTHDAY (or the Annuitant's 81st birthday if the Contract is owned by a non-individual), the 7% AIA is equal to its value on the immediately preceding Business Day increased by 7%. We then process any transactions we received on that Contract Anniversary (such as additional Purchase Payments, withdrawals and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. FOR EACH CONTRACT ANNIVERSARY THAT OCCURS AFTER THE FIFTH, AND AFTER THE LATER OF THE RIDER EFFECTIVE DATE OR THE RESET ANNIVERSARY, AND BEFORE THE OLDER OWNER'S 81ST BIRTHDAY (or the Annuitant's 81st birthday if the Contract is owned by a non-individual), the 7% AIA is equal to the sum of a) plus b) where: a)is all Purchase Payments received on or after the later of the fifth Contract Anniversary or the reset anniversary. b)is the difference of i) minus ii) with the result increased by 7% where: i) is the 7% AIA on the immediately preceding Business Day, and ii)is all Purchase Payments received on or after the later of the fifth Contract Anniversary or the reset anniversary. We then process any transactions we received on that Contract Anniversary (such as additional Purchase Payments, withdrawals and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. BEGINNING WITH THE CONTRACT ANNIVERSARY THAT OCCURS ON OR AFTER THE OLDER OWNER'S 81ST BIRTHDAY (or the Annuitant's 81st birthday if the Contract is owned by a non-individual), we calculate the 7% AIA in the same way that we do on each Business Day other than a Contract Anniversary. IF THE RIDER EFFECTIVE DATE OR RESET ANNIVERSARY OCCURS BEFORE THE FIFTH CONTRACT ANNIVERSARY, WE LIMIT THE 7% AIA TO THE FOLLOWING MAXIMUM. If the rider effective date is the Issue Date, the 7% AIA cap on the Issue Date is equal to two times the initial Purchase Payment received on the Issue Date. If the rider effective date occurs after the Issue Date, or if you reset the 7% AIA, the 7% AIA cap on the rider effective date or reset anniversary is equal to two times the Contract Value on that date. ON EACH BUSINESS DAY BEFORE THE FIFTH CONTRACT ANNIVERSARY, the 7% AIA cap is equal to: o its value on the immediately preceding Business Day, o plus two times any additional Purchase Payments received that day, o reduced proportionately by the percentage of any Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o reduced proportionately by the percentage of the PB Value applied to a GMIB Partial Annuitization that day. BEGINNING ON THE FIFTH CONTRACT ANNIVERSARY, the 7% AIA cap will no longer increase unless you reset the 7% AIA, but it will decrease if you take a partial withdrawal or Partial Annuitization in the same way that it does on each Business Day before the fifth Contract Anniversary. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 24 IF THE RIDER EFFECTIVE DATE OR RESET ANNIVERSARY OCCURS ON OR AFTER THE FIFTH CONTRACT ANNIVERSARY, WE LIMIT THE 7% AIA TO THE FOLLOWING MAXIMUM. On the rider effective date or the reset anniversary, the 7% AIA cap is equal to two times the Contract Value on that date. The 7% AIA cap will no longer increase after the rider effective date or the reset anniversary unless you reset the 7% AIA, but it will decrease if you take a partial withdrawal or Partial Annuitization as follows: o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn (including any withdrawal charge) for each traditional annuitization or withdrawal taken, and o reduced proportionately by the percentage of the PB Value applied to each GMIB Partial Annuitization. CALCULATING THE MAV If the rider effective date is the Issue Date, the MAV on the Issue Date is initially equal to the Purchase Payment received on the Issue Date. If the rider effective date is after the Issue Date, the MAV on the rider effective date is initially equal to the Contract Value on the rider effective date. ON EACH BUSINESS DAY OTHER THAN A CONTRACT ANNIVERSARY, the MAV is equal to: o its value on the immediately preceding Business Day, o plus any additional Purchase Payments received that day, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o if you take a GMIB Partial Annuitization that day based on the: - MAV, we will reduce the MAV by the dollar amount applied to GMIB Payments, and - the 7% AIA, we will reduce the MAV proportionately by the percentage of the 7% AIA applied to GMIB Payments. ON EACH CONTRACT ANNIVERSARY BEFORE THE OLDER OWNER'S 81ST BIRTHDAY (or the Annuitant's 81st birthday if the Contract is owned by a non-individual), the MAV is equal to the greater of its value on the immediately preceding Business Day, or the Contract Value that occurs on that Contract Anniversary before we process any transactions. We then process any transactions we received on that Contract Anniversary (such as additional Purchase Payments, withdrawals, and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. BEGINNING WITH THE CONTRACT ANNIVERSARY THAT OCCURS ON OR AFTER THE OLDER OWNER'S 81ST BIRTHDAY (or the Annuitant's 81st birthday if the Contract is owned by a non-individual), we calculate the MAV in the same way that we do on each Business Day other than a Contract Anniversary. ANY TRADITIONAL PARTIAL ANNUITIZATIONS OR WITHDRAWALS YOU TAKE MAY REDUCE THE 7% AIA OR THE MAV BY MORE THAN THE AMOUNT ANNUITIZED OR WITHDRAWN. If the Contract Value at the time of annuitization or withdrawal is less than the 7% AIA (or MAV as appropriate), we will deduct more than the amount annuitized or withdrawn from the 7% AIA (or MAV). IF YOU EXERCISE THE GPWB AND ELECT THE 5% PAYMENT OPTION, THE PB VALUE WILL ONLY INCREASE AFTER YOU BEGIN RECEIVING GPWB PAYMENTS AS A RESULT OF ANY STEP UPS. IF YOU EXERCISE THE GPWB AND ELECT THE 10% PAYMENT OPTION, THE PB VALUE WILL STOP INCREASING ON THE DATE YOU BEGIN RECEIVING GPWB PAYMENTS. IN ADDITION, IF YOU EXERCISE THE GPWB, THE PB VALUE WILL DECREASE: o on a dollar for dollar basis for withdrawals (GPWB Payments and Excess Withdrawals) that do not exceed the GPWB Maximum; and o proportionately by the percentage of any Contract Value taken as a withdrawal (including both GPWB Payments and Excess Withdrawals), including any withdrawal charge, for each withdrawal you take that exceeds the GPWB Maximum. Please see Appendix C for examples of the calculations of the PB Value. STEP UPS UNDER THE GPWB WITH THE 5% PAYMENT OPTION STEP UPS ARE NOT AVAILABLE UNDER THE 10% PAYMENT OPTION AND ARE NOT AVAILABLE AFTER THE OLDER OWNER REACHES AGE 91. On every third Contract Anniversary after you exercise the GPWB, if you elect the 5% payment option, we will automatically step up the PB Value to equal the Contract Value, if that amount is greater than the PB Value. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 25 Step ups will continue to happen automatically until the earliest of: a) the older Owner's 91st birthday (or the Annuitant's 91st birthday if the Contract is owned by a non-individual), or b) the PB Value is zero. If we step up the PB Value, we will also step up the GPWB Maximum to equal 5% of the increased PB Value if that amount is greater than the current GPWB Maximum. However, we will not automatically step up the GPWB Payment. If we increase the GPWB Maximum, you can request to increase the amount of next year's GPWB Payments by submitting a written request to our Service Center. (For more information, please see the discussion of "GPWB Payments" later in this section.) Step ups will increase the total amount available to you under the GPWB. When the amount available to you is increased by a step up, the length of time over which you can receive GPWB Payments will also increase, unless you elect to increase your GPWB Payments. Step ups may or may not increase the GPWB Maximum, as demonstrated in Appendix D - GPWB Under the PRIME Plus Benefit. Appendix D contains examples showing the effect of the step up available under the 5% payment option and the effect of an Excess Withdrawal on GPWB Payments. USING THE PRIME PLUS BENEFIT The GPWB guarantees a minimum amount of income in the form of partial withdrawals (GPWB Payments) during the Accumulation Phase. In addition, if you elect the 5% GPWB Payment option, we will increase (step up) the total amount of money you can withdraw (the PB Value) on every third Contract Anniversary after you exercise the GPWB and before the older Owner's 91st birthday to "lock in" any gains that are present in the remaining Contract Value as long as there is PB Value remaining in the Contract. The GMIB guarantees a minimum amount of fixed income in the form of Annuity Payments (GMIB Payments) during the Annuity Phase. Depending on the Annuity Option you select, the GMIB can provide guaranteed lifetime income, but if the Annuitant(s) die shortly after the Income Date, the Payee may receive less than your investment in the Contract. The GPWB and GMIB do not create Contract Value or guarantee the performance of any Investment Option. BE SURE TO DISCUSS WITH YOUR REGISTERED REPRESENTATIVE IF THE GPWB AND GMIB ARE APPROPRIATE FOR YOUR SITUATION. You must hold your Contract for seven complete Contract Years after the date the PRIME Plus Benefit is added to your Contract, or after the date of any 7% AIA reset, before you can exercise the GPWB or GMIB and you can only exercise the GPWB or GMIB within 30 days following a Contract Anniversary. You cannot exercise the GPWB or GMIB before the expiration of the seven-year waiting period. IF YOU EXERCISE THE GPWB: o You can no longer remove the PRIME Plus Benefit from the Contract. o You can no longer make additional Purchase Payments to the Contract and the automatic investment plan (AIP) will no longer be available to you. If you are participating in the AIP, your participation will stop. o Partial Annuitizations are no longer available. o The additional M&E charge for the PRIME Plus Benefit will continue until both the GPWB and GMIB terminate. o If you have the Enhanced GMDB or Earnings Protection GMDB, the additional M&E charge for the GMDB will continue as long as the Enhanced GMDB value or the Earnings Protection GMDB value is greater than zero. o The partial withdrawal privilege will no longer be available to you; however, you can still take GPWB Payments and Excess Withdrawals up to the annual GPWB Maximum without a withdrawal charge. o The systematic withdrawal and minimum distribution programs will no longer be available to you and if you are participating in these programs, your participation will stop. o The Contract Value will continue to fluctuate as a result of market performance, and it will decrease on a dollar for dollar basis with each GPWB Payment and any Excess Withdrawals. o The GMDB value will no longer increase, and each GPWB Payment and any Excess Withdrawals will reduce the GMDB value proportionately by the percentage of Contract Value withdrawn. o The PB Value will no longer increase if you elect the 10% payment option and 7% AIA resets will no longer be available. o If you elect the 5% payment option, the PB Value may increase (step up) on every third Contract Anniversary after you exercise the GPWB and before the older Owner's 91st birthday as long as there is PB Value. If we step up the PB Value we may also step up the GPWB Maximum. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 26 o Each withdrawal (GPWB Payment and/or Excess Withdrawal) will reduce the PB Value as follows: - withdrawals taken during the Contract Year that do not exceed the GPWB Maximum will reduce the PB Value on a dollar for dollar basis, and - withdrawals taken during the Contract Year that do exceed the GPWB Maximum will reduce the PB Value proportionately by the percentage of Contract Value withdrawn (including any withdrawal charge). o Withdrawals (GPWB Payments and/or Excess Withdrawals) that do not exceed the annual GPWB Maximum will not reduce the Withdrawal Charge Basis, but withdrawals that exceed the annual GPWB Maximum (including GPWB Payments) may be subject to a withdrawal charge and will reduce the Withdrawal Charge Basis, as set out in section 7, Expenses - Withdrawal Charge. Excess Withdrawals will not affect the GPWB Payment amount or frequency, but they may decrease the time over which you will receive GPWB Payments. IF YOU EXERCISE A GMIB UNDER A FULL ANNUITIZATION: o You can no longer remove the PRIME Plus Benefit from the Contract and 7% AIA resets will no longer be available. o The Accumulation Phase will end and the Annuity Phase will begin. o The portion of the Contract that you apply to the GMIB will no longer be subject to the Separate Account annual expense, but any portion of the Contract that has been applied to variable Traditional Annuity Payments will continue to be subject to a 1.50% Separate Account annual expense. o If you have not exercised the GPWB, it will no longer be available to you, and you will no longer be able to make additional Purchase Payments to the Contract. o If you exercised the GPWB, GPWB Payments will stop and the GPWB will terminate. o The GMDB will terminate. IF YOU EXERCISE A GMIB UNDER A PARTIAL ANNUITIZATION*: o You can no longer remove the PRIME Plus Benefit from the Contract and 7% AIA resets will no longer be available. o The Annuity Phase will begin and the Accumulation Phase will continue. o The portion of the Contract that you apply to the GMIB will no longer be subject to the Separate Account annual expense, but any portion of the Contract that is in the Accumulation Phase or that has been applied to variable Traditional Annuity Payments will continue to be subject to the appropriate Separate Account annual expense. o The GPWB will continue to be available to you. o If any portion of the Contract is still in the Accumulation Phase, you may be able to make additional Purchase Payments to the Contract, but you cannot make additional Purchase Payments to any portion of the Contract that is in the Annuity Phase. o The Partial Annuitization will reduce each Purchase Payment, the Contract Value and GMDB value proportionately by the percentage of PB Value you apply to the GMIB. o GMIB Payments will not affect the Contract Value available under the portion of the Contract that is in the Accumulation Phase. * Not available after you exercise the GPWB, or if the PB Value is less than the Contract Value. In addition, if you exercise the GPWB after taking a GMIB Partial Annuitization, all payments (GMIB Payments and GPWB Payments) will be treated as withdrawals and not annuity payments for tax purposes. However, once the entire Contract Value has been applied to Annuity Payments, we intend to treat all Annuity Payments we make after that as annuity payments (and not withdrawals) for tax purposes. Under the PRIME Plus Benefit the Owner controls: o when to exercise a benefit, o which benefit(s) to exercise, o the amount of the GPWB Payment (subject to the GPWB Maximum) and Excess Withdrawals from the portion of the Contract that is in the Accumulation Phase,* o the frequency of GPWB Payments,* and o whether to stop or restart GPWB Payments on an annual basis. * Owners do not have this flexibility under the GMIB. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 27 GPWB PAYMENTS In order to begin receiving GPWB Payments, you must submit a GPWB Payment election form to our Service Center after the expiration of the seven-year waiting period and within 30 days following a Contract Anniversary. GPWB Payments will not begin until your request has been received at our Service Center and determined to be in good order. If you exercise the GPWB, we will ask you to select either the 5% payment option or the 10% payment option. ONCE YOU SELECT A PAYMENT OPTION, YOU CANNOT CHANGE IT. The payment option you select determines the GPWB Maximum, the PB Value and whether or not you will receive an automatic increase or "step up" feature. The GPWB Maximum is the largest annual GPWB Payment that is available to you each Contract Year. Under the 5% payment option the GPWB Maximum is 5% of the PB Value each year, and under the 10% payment option it is 10% of the PB Value each year. Under the 5% payment option, the PB Value is the greater of the MAV, 7% AIA, or the Contract Value. Under the 10% payment option, the PB Value is the greater of the MAV or Contract Value. The 5% payment option contains an automatic step up* feature. Step ups are not available under the 10% payment option. * See the discussion of "Step Ups Under the GPWB with the 5% Payment Option" earlier in this section. If you exercise the GPWB, we will also ask you to select the amount of the annual GPWB Payment you would like to receive subject to the GPWB Maximum. You cannot request GPWB Payments that would exceed the GPWB Maximum in a given Contract Year. Because GPWB Payments are non-cumulative, if you elect to receive less than the GPWB Maximum in a given year, it will not carry over to the next Contract Year. IF YOU REQUEST AN EXCESS WITHDRAWAL WHILE YOU ARE RECEIVING GPWB PAYMENTS AND THE AMOUNT YOU REQUEST PLUS YOUR GPWB PAYMENTS EXCEEDS THE ANNUAL GPWB MAXIMUM, THE AMOUNT THAT EXCEEDS THE GPWB MAXIMUM WILL BE SUBJECT TO ANY APPLICABLE WITHDRAWAL CHARGE* AND WILL REDUCE: o the Withdrawal Charge Basis,** o the Contract Value, o the PB Value (which determines the amount available for future GPWB Payments and/or future GMIB Payments), and o the GMDB value. * Amounts paid as part of a required minimum distribution are never subject to a withdrawal charge. **GPWB Payments and Excess Withdrawals that do not exceed the annual GPWB Maximum will not reduce the Withdrawal Charge Basis. Excess Withdrawals will not affect the GPWB Payment amount or frequency, but they may decrease the time over which you will receive GPWB Payments. If you take no Excess Withdrawals while the GPWB is in effect, we would pay the PB Value to you: o within ten years if you elect the 10% payment option and take the maximum allowable payment each year, or o within 20 years if you elect the 5% payment option and take the maximum allowable payment each year (assuming no step ups). You can elect to receive GPWB Payments on an annual, semi-annual, quarterly, or monthly basis. If the scheduled GPWB Payment date does not fall on a Business Day, we will make payment to you on the next Business Day. Each GPWB Payment will be equal to the annual GPWB Payment divided by the number of payments you elected to receive during the Contract Year, until the PB Value is less than the GPWB Payment amount. Once the PB Value is less than the GPWB Payment amount, you will receive one last GPWB Payment that will be equal to the remaining PB Value. The initial GPWB Payment must be at least $100. If we are unable to structure the initial GPWB Payment so that it is at least $100, the GPWB will not be available to you and we will contact you to discuss alternate arrangements. Once each Contract Year, you can elect to: o change the frequency of next year's GPWB Payments, o change the amount of next year's GPWB Payment subject to the GPWB Maximum, or o stop GPWB Payments for the next GPWB Year. You must provide notice of any of these requested changes to GPWB Payments to our Service Center at least 30 days before a Contract Anniversary. We will effect any change on the Contract Anniversary and the change will remain in effect for the entire following Contract Year. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 28 The following changes* are available at any time and will be effective when we receive your request in good order at our Service Center. o Stop GPWB Payments completely and have us make GMIB Payments under a Full Annuitization based on the entire remaining PB Value. o Stop GPWB Payments completely and take an Excess Withdrawal of the entire Contract Value (less any withdrawal charge). o Stop GPWB Payments completely and have us make Traditional Annuity Payments under a Full Annuitization based on the entire Contract Value. * These changes will cause the GPWB to terminate. For more details, see the discussion of "Removing the PRIME Plus Benefit From Your Contract" earlier in this section. In addition, if you request an Excess Withdrawal while you are receiving GPWB Payments you can instruct us to stop GPWB Payments that are due for the remainder of the Contract Year at the time you request the Excess Withdrawal. We will deduct each GPWB Payment proportionately from the Investment Choices. We will continue to allocate the Contract Value among the Investment Choices according to your instructions while the GPWB is in effect. You can also continue to make transfers between the Investment Options (subject to certain restrictions**) while the GPWB is in effect. **For more information, see the discussion of "Investment Option Allocation and Transfer Restrictions Under the PRIME Plus Benefit" earlier in this section and section 5, Investment Options - Transfers. You can continue to receive GPWB Payments until the PB Value is exhausted or the GPWB terminates, even if you have no remaining Contract Value. If there is Contract Value remaining after you exhaust the PB Value, you can elect to either: o receive a lump sum payment of the entire remaining Contract Value (less any withdrawal charges), the Accumulation Phase of the Contract will end, and the Contract will terminate[+]; or o request Traditional Annuity Payments under a Full Annuitization based on the entire remaining Contract Value. We will send you notice at least 30 days before the last GPWB Payment date to ask for your instructions. If we do not receive any instructions from you by the date we make the last GPWB Payment, we will pay you the entire remaining Contract Value (less any withdrawal charges) in a lump sum, the Accumulation Phase of the Contract will end, and the Contract will terminate[+]. + If you took a Partial Annuitization, those portions of the Contract will continue and we will continue to make Annuity Payments as provided for in the selected Annuity Option. NOTE: YOU WILL BE REQUIRED TO TAKE A FULL ANNUITIZATION OF YOUR CONTRACT ON OR BEFORE THE MAXIMUM PERMITTED INCOME DATE. (For more information see section 3, The Annuity Phase.) Upon such a Full Annuitization the Guaranteed Partial Withdrawal Benefit will no longer be available to you and any GPWB Payments you were receiving will stop. TAXATION OF GPWB PAYMENTS GPWB Payments are withdrawals and will be treated as such for tax purposes. This means that for Non-Qualified Contracts, Contract gains from the entire Contract are considered to be distributed first and are subject to ordinary income tax. Purchase Payments are distributed after gains have been paid out and are generally considered to be a return of your investment and are not subject to income tax. For Qualified Contracts, the entire GPWB Payment will most likely be subject to ordinary income tax. In addition, if any Owner is younger than age 59 1/2, GPWB Payments may be subject to a 10% federal penalty tax. GPWB Payments are not subject to a withdrawal charge as long as you withdraw no more than your GPWB Maximum in any Contract Year. However, if you take an Excess Withdrawal and exceed your annual GPWB Maximum, the amount that exceeds the GPWB Maximum (including GPWB Payments) will be subject to a withdrawal charge* based on the date of Purchase Payment receipt and it will reduce the Withdrawal Charge Basis, as indicated in section 7, Expenses - Withdrawal Charge. * Amounts paid as part of a required minimum distribution are never subject to a withdrawal charge. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 29 TERMINATION OF THE GPWB THE GPWB WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o Termination of the PRIME Plus Benefit rider. o The Business Day you take an Excess Withdrawal of the entire Contract Value. o The Business Day that the PB Value and Contract Value are both zero. o The Business Day before the Income Date that you take a Full Annuitization, INCLUDING A REQUIRED FULL ANNUITIZATION ON THE MAXIMUM PERMITTED INCOME DATE. For more information, see section 3, The Annuity Phase. o Contract termination. o The death of any Owner (unless the deceased Owner's spouse continues the Contract as the new Owner). GMIB PAYMENTS The annuity income protection provided by the GMIB will apply only under the following circumstances. o Your Income Date must be within 30 days following a Contract Anniversary beginning seven Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven Contract Years after the date of any 7% AIA reset. o GMIB Payments can only be made as fixed payments, regardless of the Annuity Option* you select. o Annuity Option 6* is only available if the PB Value is the MAV and the duration of the period certain must be at least ten years. o If the PB Value is the 7% AIA, your available Annuity Options* are restricted to Annuity Option 2 or 4 and the duration of the period certain must be at least ten years. o We will base all GMIB Payments on an interest rate of 1% per year. * For more information see section 3, The Annuity Phase - Annuity Options. In order to begin receiving GMIB Payments, you must submit an income option election form to our Service Center after the expiration of the seven-year waiting period and within 30 days following a Contract Anniversary. GMIB Payments will begin after your request has been received at our Service Center and is determined to be in good order. We will make GMIB Payments to you beginning on the 30th day after your Contract Anniversary. If the scheduled GMIB Payment date does not fall on a Business Day, we will make payment to you on the next Business Day. Under the GMIB you can take either a Full Annuitization, or before you exercise the GPWB, you can take Partial Annuitization(s) if the PB Value is greater than the Contract Value. Any GMIB Partial Annuitization will reduce the Contract Value and GMDB value proportionately by the percentage of PB Value you apply to the GMIB. If you take a Partial Annuitization you cannot: o transfer any amounts you allocated to GMIB Payments back to any portion of the Contract that is in the Accumulation Phase; o transfer amounts from one Annuity Payment stream to another; or o allocate additional PB Value (or Contract Value) to an existing stream of Annuity Payments. You can elect to receive GMIB Payments on an annual, semi-annual, quarterly, or monthly basis. Each GMIB Payment will be equal to the annual GMIB Payment divided by the number of payments you elected to receive during the Contract Year. If the scheduled GMIB Payment date does not fall on a Business Day, we will make payment to you on the next Business Day. AMOUNT USED TO CALCULATE GMIB PAYMENTS The GMIB guarantees that the GMIB Payments will be equal to the guaranteed fixed payout rates applied to the PB Value. There may be situations where the PB Value is greater than the Contract Value, but the GMIB Payments are less than fixed Traditional Annuity Payments based on the Contract Value. This may occur because the guaranteed fixed payout rates available with the GMIB may be less than the current fixed payout rates that are otherwise available under Traditional Annuity Payments. We will base your Annuity Payments on whichever amount (PB Value or Contract Value) produces the greater payment. However, if we use the Contract Value and the current fixed payout rates to calculate Traditional Annuity Payments, you will have incurred higher Contract expenses without receiving any explicit benefit from the GMIB. While the 7% AIA may be larger than the MAV, it may produce a lower GMIB Payment because under the 7% AIA you have fewer available Annuity Options. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 30 If the GMIB Payment available under the 7% AIA would always be less than the GMIB Payment available under the MAV, we will base GMIB Payments on the amount that produces the largest payment. However, it is possible that the GMIB Payments under the 7% AIA may be more or less than the GMIB Payments available under the MAV depending on the Annuity Option you select. In these instances we will allow you to select the amount we use to calculate GMIB Payments and the Annuity Option that you feel is most appropriate. TAXATION OF GMIB PAYMENTS If you take a GMIB Partial Annuitization, GMIB Payments will be treated as withdrawals and not annuity payments for tax purposes. This means that for tax purposes, any Contract earnings in the entire Contract will be considered to be distributed before Purchase Payments and may be subject to ordinary income tax and a 10% federal penalty tax. For Non-Qualified Contracts, gains are generally subject to ordinary income tax and Purchase Payments are not. For Qualified Contracts, the entire GMIB Payment under a Partial Annuitization will most likely be subject to ordinary income taxes. For more information on Partial Annuitizations, please see section 3, The Annuity Phase - Partial Annuitization. If you take a Full Annuitization under the GMIB, GMIB Payments should be treated as annuity payments for tax purposes. If you take a GMIB Partial Annuitization, GMIB Payments should be treated as annuity payments (and not withdrawals) for tax purposes ONLY after the Income Date on which you have applied the entire remaining Contract Value to Annuity Payments under the GMIB and/or Traditional Annuity Payments, that is, the Income Date after the Contract has been fully annuitized. For Non-Qualified Contracts that have been fully annuitized, a portion of each payment may be treated as gains that are subject to tax as ordinary income, and the remaining portion of the payment will be considered to be a return of your investment and will not be subject to income tax. Once we have paid out all of your Purchase Payments, however, the full amount of each GMIB Payment will be subject to tax as ordinary income. For Qualified Contracts, the entire GMIB Payment will most likely be subject to tax as ordinary income. Once you apply the entire Contract Value to Annuity Payments, GMIB Payments will generally not be subject to the 10% federal penalty tax. TERMINATION OF THE GMIB IF YOU HAVE NOT EXERCISED THE GMIB, IT WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o Termination of the PRIME Plus Benefit rider. o The Business Day that the PB Value and Contract Value are both zero. o The Business Day before the Income Date you take a Full Annuitization and request Traditional Annuity Payments. o Contract termination. o The death of any Owner (unless the deceased Owner's spouse continues the Contract as the new Owner). IF YOU EXERCISE THE GMIB, EACH PORTION OF THE CONTRACT THAT YOU APPLY TO GMIB PAYMENTS WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o Under Annuity Options 1 and 3, the death of the last surviving Annuitant. o Under Annuity Options 2 and 4, the death of the last surviving Annuitant and expiration of the guaranteed period.* o Under Annuity Option 5, the death of the Annuitant and payment of any lump sum refund. o Under Annuity Option 6, the expiration of the specified period certain. o Termination of the PRIME Plus Benefit rider. o Contract termination. * If we make a lump sum payment of the remaining guaranteed GMIB Payments at the death of the last surviving Annuitant, this portion of the Contract will terminate upon payment of the lump sum. REQUIRED MINIMUM DISTRIBUTIONS (RMDS) UNDER QUALIFIED CONTRACTS WITH THE PRIME PLUS BENEFIT The GMIB and GPWB under the PRIME Plus Benefit may have limited usefulness if you purchase a Qualified Contract that is subject to a RMD. If your Contract includes the PRIME Plus Benefit and you do not exercise the GMIB on or before the date RMD payments must begin under a qualified plan, the Owner or Beneficiary may not be able to exercise the GMIB due to the restrictions imposed by the minimum distribution requirements. YOU SHOULD CONSIDER WHETHER THE GMIB IS APPROPRIATE FOR YOUR SITUATION IF YOU PLAN TO EXERCISE THE GMIB AFTER YOUR RMD BEGINNING DATE. You also cannot participate in the minimum distribution program available under this Contract if you elect to receive GPWB Payments. If you exercise the GPWB, we will ask you to select either the 5% payment option or the 10% payment option. ONCE YOU SELECT A PAYMENT OPTION, YOU CANNOT CHANGE IT. Therefore, under a Qualified Contract that is subject to RMDs, you may not be able to adjust your The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 31 GPWB Payment to meet your required minimum distribution needs. If you own a Qualified Contract that is subject to RMDs and your RMD payment is greater than the GPWB Maximum, you will not be able to meet your RMD needs without taking Excess Withdrawals. In addition, RMD payments will reduce your PB Value. WE ENCOURAGE PROSPECTIVE OWNERS WHO ARE CONSIDERING PURCHASING QUALIFIED CONTRACTS THAT ARE SUBJECT TO RMD PAYMENTS TO CONSULT A TAX ADVISER REGARDING THE PRIME PLUS BENEFIT. 5. INVESTMENT OPTIONS The Contract offers the Investment Options listed in the following table. Each Investment Option has its own investment objective. In the future, we may add, eliminate or substitute Investment Options. Depending on market conditions, you can gain or lose value by investing in the Investment Options. YOU SHOULD READ THE INVESTMENT OPTIONS' PROSPECTUSES CAREFULLY. The Investment Options invest in different types of securities and follow varying investment strategies. There are potential risks associated with each of these types of securities and investment strategies. For example, an Investment Option's performance may be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities, initial public offerings (IPOs) or companies with relatively small market capitalizations. IPOs and other investment techniques may have a magnified performance impact on an Investment Option with a small asset base. An Investment Option may not experience similar performance as its assets grow. The operation of the Investment Options and the various risks associated with the Investment Options are described in the Investment Options' prospectuses. TO OBTAIN A CURRENT PROSPECTUS FOR ANY OF THE INVESTMENT OPTIONS, CONTACT YOUR REGISTERED REPRESENTATIVE OR CALL US AT THE TOLL FREE TELEPHONE NUMBER LISTED AT THE BACK OF THIS PROSPECTUS. We will send copies of the Investment Options' prospectuses to you when we issue the Contract. Certain Investment Options issue two or more classes of shares and certain share classes may have Rule 12b-1 fees. The classes of shares currently offered by this Contract are listed in the table of annual operating expenses for each Investment Option that appears in Appendix A. For more information about share classes, see the Investment Options' prospectuses. Currently, the Investment Options are not publicly traded mutual funds. They are available only as investment options in variable annuity contracts or variable life insurance policies issued by life insurance companies or in some cases, through participation in certain qualified pension or retirement plans. The names, investment objectives and policies of certain Investment Options may be similar to the names, investment objectives and policies of other portfolios that the same investment advisers manage. Although the names, objectives and policies may be similar, the investment results of the Investment Options may be higher or lower than the results of such portfolios. The investment advisers cannot guarantee, and make no representation, that the investment results of similar funds will be comparable even though the Investment Options have the same names, investment advisers, objectives and policies. Each of the Investment Options offered by the Allianz Variable Insurance Products Fund of Funds Trust (Allianz VIP Fund of Funds Trust), including the AZL FusionPortfolios, is a "fund of funds" and diversifies its assets by investing in the shares of several other affiliated mutual funds. The underlying funds may pay 12b-1 fees to the distributor of the Contracts, our affiliate, Allianz Life Financial Services, LLC, for distribution and/or administrative services. The underlying funds do not pay service fees or 12b-1 fees to the Allianz VIP Fund of Funds Trust and the Allianz VIP Fund of Funds Trust does not pay service fees or 12b-1 fees. The underlying funds of the Allianz VIP Fund of Funds Trust or their advisers may pay service fees to us and our affiliates for providing customer service and other administrative services to Contract Owners. The amount of such service fees may vary depending on the underlying fund. We offer other variable annuity contracts that may invest in the same Investment Options. These contracts may have different charges and may offer different benefits more appropriate to your needs. For more information about these contracts, please contact our Service Center. The following advisers and subadvisers are affiliated with us: Allianz Investment Management LLC, Nicholas-Applegate Capital Management, Oppenheimer Capital LLC and Pacific Investment Management Company LLC. The following is a list of the Investment Options available under the Contract, the investment advisers and subadvisers for each Investment Option, the investment objectives for each Investment Option, and the primary investments of each Investment Option. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 32 INVESTMENT OPTIONS
INVESTMENT NAME OF INVESTMENT OPTION ASSET CATEGORY OBJECTIVE(S) PRIMARY INVESTMENTS MANAGEMENT COMPANY (Normal market conditions) AND ADVISER/SUBADVISER AIM Managed by Allianz AZL AIM International Equity International Long-term growth of At least 80% of its assets in a diversified Investment Fund Equity capital portfolio of international equity securities Management whose issuers are considered by the fund's LLC/Invesco Aim subadviser to have strong earnings momentum. Capital Management, Inc. BLACKROCK Managed by Allianz AZL BlackRock Capital Large Growth Long-term growth of Invests at least 80% of total assets in Investment Appreciation Fund capital common and preferred stock and securities Management convertible into common and preferred stock LLC/BlackRock of mid-size and large-size companies. Capital Management, Inc. AZL BlackRock Growth Fund Large Growth Maximum long-term Invests at least 80% of total assets in capital appreciation common and preferred stock and securities with minimum long-term convertible into common and preferred stock risk to principal of mid- and large-size companies. AZL International Index Fund International Match the performance Invests at least 80% of its assets in a Equity of the MSCI statistically selected sampling of equity EAFE[{R}] securities of companies included in the Index as closely as Morgan Stanley Capital Inernational Europe, possible Australia and Far East Index (MSCI EAFE) and in derivative instruments linked to the MSCI EAFE index. Managed by Allianz AZL Money Market Fund Cash Current income Invests in a broad range of short-term, high Investment Equivalent consistent with quality U.S. dollar-denominated money market Management stability of principal instruments, including government, U.S. and LLC/BlackRock foreign bank, commercial and other Institutional obligations. During extended periods of low Management interest rates, and due in part to contract Corporation fees and expenses, the yield of the AZL Money Market Fund may also become extremely low and possibly negative. Managed by BlackRock Global Allocation Specialty High total investment Invests in both equity and debt securities BlackRock V.I. Fund return of issuers located around the world to Advisors, achieve a combination of capital growth and LLC/BlackRock income. Investment Management, LLC and BlackRock Asset Management U.K. Limited COLUMBIA Managed by Allianz AZL Columbia Mid Cap Value Mid Cap Long-term growth of Invests at least 80% of net assets in equity Investment Fund capital securities of companies that have market Management capitalizations in the range of the LLC/Columbia companies in the Russell Management Midcap[{R}] Value Index at the Advisors, LLC time of purchase that the fund's subadviser believes are undervalued and have the potential for long-term growth. AZL Columbia Small Cap Value Small Cap Long-term capital Invests at least 80% of net assets in equity Fund appreciation securities of companies with market capitalizations in the range of the companies in the Russell 2000 Value Index[{R}] at the time of purchase that the subadviser believes are undervalued. AZL Columbia Technology Fund Specialty Capital Appreciation At least 80% of its total net assets in common stocks of U.S and foreign technology companies that may benefit from technological improvements, advancements or developments. DAVIS Managed by Allianz AZL Davis NY Venture Fund Large Value Long-term growth of Invests the majority of assets in equity Investment capital securities issued by large companies with Management market capitalizations of at least LLC/Davis Selected $10 billion. Advisers, L.P. Managed by Davis Davis VA Financial Portfolio Specialty Long-term growth of At least 80% of net assets in securities Advisors capital issued by companies principally engaged in the financial services sector. Davis VA Value Portfolio Large Value Long-term growth of Invests primarily in equity securities capital issued by large companies with market capitalizations of at least $10 billion. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 33 DREYFUS Managed by Allianz AZL Dreyfus Equity Growth Large Growth Long-term growth of Primarily invests in common stocks of large, Investment Fund capital and income well-established and mature companies. Management Normally invests at least 80% of its net LLC/Founders Asset assets in stocks that are included in a Management LLC widely recognized index of stock market performance. May invest in non-dividend paying companies if they offer better prospects for capital appreciation. May invest up to 30% of its total assets in foreign securities. Managed by Allianz AZL S&P 500 Index Fund Large Blend Match total return of Normally invests in all 500 stocks in the Investment the S&P S&P 500[{R}] in proportion to Management LLC/The 500[{R}] their weighting in the index. Dreyfus Corporation AZL Small Cap Stock Index Small Cap Match performance of Invests in a representative sample of stocks Fund the S&P SmallCap 600 included in the S&P SmallCap 600 Index{R} Index[{R}], and in futures whose performance is related to the index, rather than attempt to replicate the index. FIRST TRUST Managed by Allianz AZL First Trust Target Double Large Blend Total Return Invests primarily in common stocks of Investment Play Fund companies that are identified by a model Management based on an allocation of 50% in two LLC/First Trust separate strategies that seek to provide Advisors L.P. above-average total return. FRANKLIN TEMPLETON Managed by Allianz AZL Franklin Small Cap Value Small Cap Long-term total return Under normal market conditions, invests at Investment Fund least 80% of its net assets in investments Management of small capitalization companies similar to LLC/Franklin those that comprise the Russell Advisory Services, 2500{trademark} Index at the time of LLC investment. Managed by Allianz AZL Franklin Templeton A "Fund of Long-term capital Invests in a combination of subportfolios or Investment Founding Strategy Plus Fund Funds" Model appreciation, with strategies, each of which is managed by an Management Portfolio income as a secondary asset manager that is part of Franklin LLC/Franklin goal Templeton. Mutual Advisers, LLC, Templeton Global Advisors Limited, and Franklin Advisers, Inc. Managed by Franklin Global Real Estate Specialty High Total Return At least 80% of net assets in investments of Franklin Templeton Securities Fund companies located anywhere in the world that Institutional, LLC operate in the real estate sector and normally invests predominantly in equity securities. Managed by Franklin Growth and Income Large Value Capital appreciation, Invests predominantly in a broadly Franklin Advisers, Securities Fund with current income as diversified portfolio of equity securities, Inc. a secondary goal including securities convertible into common stock. Franklin High Income High-Yield High current income Invests primarily to predominantly in debt Securities Fund Bonds with capital securities offering high yield and expected appreciation as a total return. secondary goal Franklin Income Securities Specialty Maximize income while Normally invests in debt and equity Fund maintaining prospects securities, including corporate, foreign and for capital U.S. Treasury bonds and stocks with dividend appreciation yields the manager believes are attractive. Franklin Large Cap Growth Large Growth Capital appreciation At least 80% of net assets in investments of Securities Fund large capitalization companies, and normally invests predominantly in equity securities. Managed by Franklin Rising Dividends Mid Cap Long-term capital At least 80% of net assets in investments of Franklin Advisory Securities Fund appreciation with companies that have paid rising dividends, Services, LLC preservation of capital and normally invests predominantly in equity as an important securities. consideration Managed by Franklin Small-Mid Cap Growth Mid Cap Long-term capital At least 80% of net assets in investments of Franklin Securities Fund growth small capitalization and mid capitalization Advisers, Inc. companies and normally invests predominantely in equity securities. Managed by Franklin Small Cap Value Small Cap Long term total return At least 80% of net assets in investments of Franklin Advisory Securities Fund small capitalization companies and normally Services, LLC invests predominantly in equity securities. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 34 Administered by Franklin Templeton VIP Model Capital appreciation Invests equal portions in Class 1 shares of Franklin Templeton Founding Funds Allocation Portfolio with income as a the Franklin Income Securities Fund, Mutual Services, LLC Fund (Fund of secondary goal. Shares Securities Fund, and Templeton Growth Funds) Securities Fund. Managed by Franklin U.S. Government Fund Short-Term Income At least 80% of its net assets in U.S. Franklin Advisers, Bonds government securities and normally invests Inc. primarily in fixed and variable rate mortgage-backed securities. Franklin Zero Coupon Fund Intermediate- As high an investment Normally invests at least 80% of its net 2010 Term Bonds return as is consistent assets in zero coupon debt securities. The with capital fund will mature in December of 2010 and preservation will then no longer be available as an Investment Option under the Contract. For additional information regarding the maturity of the fund, please see the Franklin Zero Coupon Fund prospectus. Managed by Mutual Global Discovery International Capital appreciation Invests primarily in U.S. and foreign equity Franklin Mutual Securities Fund Equity securities that the manager believes are Advisers, undervalued. The fund also invests, to a LLC/Franklin lesser extent, in risk arbitrage securities Templeton and distressed companies. Investment Management Limited Managed by Mutual Shares Securities Fund Large Value Capital appreciation, Invests primarily in U.S. and foreign equity Franklin Mutual with income as a securities that the manager believes are Advisers, LLC secondary goal undervalued. The fund also invests, to a lesser extent, in risk arbitrage securities and distressed companies. Managed by Templeton Foreign Securities International Long-term capital Normally invests at least 80% of net assets Templeton Fund Equity growth in investments of issuers located outside Investment the U.S., including those in emerging Counsel, LLC markets, and normally invests predominantly in equity securities. Managed by Templeton Global Bond Intermediate- High current income, Normally invests at least 80% of its net Franklin Advisers, Securities Fund Term Bonds consisent with assets in bonds, which include debt Inc. preservation of securities of any maturity, such as bonds, capital, with capital notes, bills and debentures. The fund may appreciation as a invest a portion of its total assets in secondary consideration bonds rated below investment grade and a significant portion of its assets in foreign securities. Managed by Templeton Growth Securities International Long-term capital Normally invests primarily in equity Templeton Global Fund Equity growth securities of companies located anywhere in Advisors the world, including those in the U.S. and Limited/Templeton in emerging markets. Asset Management Ltd. FUND OF FUNDS Managed by Allianz AZL Allianz Global Investors A "Fund of Long-term capital Normally invests in a combination of AGI Investment Select Fund Funds" Model appreciation with Mutual Funds, with 45% to 65% of the fund's Management LLC Portfolio preservation of capital assets allocated to equity investments and 35% to 55% allocated to fixed income investments. AZL Balanced Index Strategy A "Fund of Long-term capital Invests primarily in a combination of five Fund Funds" Model appreciation with underlying bond and equity index funds. Portfolio preservation of capital AZL Fusion Balanced Fund A "Fund of Long-term capital Allocation among the underlying investments, Funds" Model appreciation with to achieve a range generally from 40% to 60% Portfolio preservation of capital of assets in equity funds with the remaining as an important balance invested in fixed income funds. consideration AZL Fusion Conservative Fund A "Fund of Long-term capital Allocation among the underlying investments, Funds" Model appreciation with to achieve a range generally from 25% to 45% Portfolio preservation of capital of assets in equity funds with the remaining as an important balance invested in fixed income funds. consideration AZL Fusion Growth Fund A "Fund of Long-term capital Allocation among the underlying investments, Funds" Model appreciation to achieve a range generally from 70% to 90% Portfolio of assets in equity funds with the remaining balance invested in fixed income funds. AZL Fusion Moderate Fund A "Fund of Long-term capital Allocation among the underlying investments, Funds" Model appreciation to achieve a range generally from 55% to 75% Portfolio of assets in equity funds with the remaining balance invested in fixed income funds. AZL Moderate Index Strategy A "Fund of Long-term capital Invests primarily in a combination of five Fund Funds" Model appreciation underlying bond and equity index funds. Portfolio JENNISON Managed by Allianz AZL Jennison 20/20 Focus Fund Large Blend Long-term growth of At least 80% of its total assets in Investment capital approximately 40 (which may range up to 45) Management equity and equity-related securities of LLC/Jennison companies that the subadviser believes have Associates LLC strong capital appreciation potential. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 35 J.P. MORGAN Managed by Allianz AZL JPMorgan Large Cap Equity Large Blend Long-term growth of Invests at least 80% of its net assets, plus Investment Fund capital any borrowings for investment purposes, Management primarily in equity securities of large- and LLC/J.P. Morgan medium-capitalization U.S. companies. Investment Management, Inc. AZL JPMorgan U.S. Equity Fund Large Blend High total return Invests at least 80% of its net assets, plus any borrowings for investment purposes, primarily in equity securities of large- and medium-capitalization U.S. companies. NICHOLAS-APPLEGATE Managed by Allianz AZL NACM International Fund International Maximum long-term At least 80% of its net assets in securities Investment Equity capital appreciation of companies in developed countries located Management outside the U.S., represented in the Morgan LLC/Nicholas- Stanley Capital International Europe Applegate Capital Australasia Far East (MSCI EAFE) Index. Management, LLC OPPENHEIMER CAPITAL Managed by Allianz AZL OCC Growth Fund Large Growth Long-term growth of Invests at least 65% of its assets in common Investment capital with income as stocks of "growth" companies with market Management LLC/ an incidental capitalizations of at least $5 billion. Oppenheimer consideration Capital LLC AZL OCC Opportunity Fund Small Cap Capital appreciation At least 65% of its assets in common stocks of "growth" companies with market capitalizations of less than $2 billion at the time of investment. Managed by Allianz OpCap Mid Cap Portfolio Mid Cap Long-term capital Invests at least 80% of its net assets in Global Investors appreciation equity securities of companies with market Fund Management capitalizations between $500 million and $15 LLC billion at the time of purchase that the adviser believes are undervalued in the marketplace. OPPENHEIMERFUNDS Managed by Allianz AZL Oppenheimer Global Fund International Capital appreciation Invests mainly in common stocks of mid and Investment Equity large-cap companies in the U.S. and foreign Management LLC/ countries, including countries with OppenheimerFunds, developed and emerging markets. Inc. AZL Oppenheimer International International Long-term capital Common stocks of growth companies that are Growth Fund Equity appreciation domiciled outside the U.S. or have their primary operations outside the U.S., including companies in emerging markets. Managed by Oppenheimer Global Securities International Long-term capital Invests mainly in common stocks of U.S. and OppenheimerFunds, Fund/VA Equity appreciation foreign issuers, currently with an emphasis Inc. in developed markets. Oppenheimer High Income High-Yield High level of current Invests mainly in a variety of high-yield Fund/VA Bonds income fixed-income securities of domestic and foreign issuers with at least 65% of total assets in high-yield, lower-grade fixed income securities commonly known as "junk" bonds. Oppenheimer Main Street Large Blend High total return Invests mainly in common stocks of U.S. Fund[{R}]/VA (which includes growth companies of different capitalization in the value of its ranges, presently focusing on large- shares as well as capitalization issuers. current income) PIMCO Managed by Allianz AZL PIMCO Fundamental Large Blend Exceed the total return Invests substantially all assets in Investment IndexPLUS Total Return Fund of the FTSE derivative instruments based on the Enhanced Management RAFI{trademark} 1000 RAFI{trademark} 1000, backed by a portfolio LLC/Pacific Index of short and intermediate term fixed income Investment instruments. Management Company LLC Managed by Pacific PIMCO VIT All Asset Portfolio Specialty Maximum real return Invests in institutional class shares of the Investment (Fund of consistent with underlying PIMCO Funds and does not invest Management Company Funds) preservation of real directly in stocks or bonds of other LLC capital and prudent issuers. investment management The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 36 PIMCO VIT CommodityReal Specialty Maximum real return Invests in commodity linked derivative Return[TM] Strategy Portfolio consistent with prudent instruments backed by a portfolio of investment management inflation-indexed securities and other fixed income securities. PIMCO VIT Emerging Markets Intermediate- Maximum total return, At least 80% of its assets in fixed income Bond Portfolio Term Bonds consistent with instruments of issuers that economically are preservation of capital tied to countries with emerging securities and prudent investment markets. management PIMCO VIT Global Bond Intermediate- Maximum total return, At least 80% of its assets in fixed income Portfolio (Unhedged) Term Bonds consistent with instruments of issuers in at least three preservation of capital countries (one of which may be the U.S.), and prudent investment which may be represented by futures management contracts. May invest, without limitation, in securities of issuers in emerging market countries. PIMCO VIT Global Multi-Asset A "Fund of Total return which Invests in a combination of affiliated and Portfolio Funds" Model exceeds a 60% MSCI unaffiliated funds, fixed income Portfolio World Index/40% instruments, equity securities, forwards and Barclays Capital U.S. derivatives. Typically invests 20% to 80% of Aggregate Index blend total assets in equity-related investments. PIMCO VIT High Yield High-Yield Maximum total return, At least 80% of assets in a diversified Portfolio Bonds consistent with portfolio of high-yield securities ("junk preservation of capital bonds") rated below investment grade, but at and prudent investment least Caa by Moody's or equivalently rated management by S&P or Fitch. May invest up to 20% of total asets in securities denominated in foreign currencies. PIMCO VIT Real Return Intermediate- Maximum real return, At least 80% of its net assets in inflation- Portfolio Term Bonds consistent with indexed bonds of varying maturities issued preservation of real by the U.S. and non-U.S. governments, their capital and prudent agencies or instrumentalities and investment management corporations. PIMCO VIT Large Growth Total return which Invests substantially in S&P StocksPLUS[{R}] exceeds that of the S&P 500[{R}] derivatives, backed by Growth and Income Portfolio 500[{R}] a portfolio of fixed income instruments. May invest in common stocks, options, futures, options on futures, and swaps. The fund will be liquidated on or about July 17, 2009 and will then no longer be available as an Investment Option under the Contract. For additional information regarding the liquidation, please see the PIMCO VIT StocksPLUS Growth and Income Portfolio prospectus. Any Contract Value remaining in the Investment Option at the time the fund is liquidated will be transferred to the AZL Money Market Fund. PIMCO VIT Total Return Intermediate- Maximum total return, At least 65% of total assets in a Portfolio Term Bonds consistent with diversified portfolio of fixed income preservation of capital instruments of varying maturities, which may and prudent investment be represented by forwards or derivatives management such as options, futures contracts, or swap agreements. PRUDENTIAL Managed by SP International Growth International Long-term growth of Invests primarily in equity-related Prudential Portfolio Equity capital securities of foreign issuers with at least Investments 65% of its total assets in common stocks of LLC/William Blair foreign companies operating or based in at & Company LLC and least five different countries. Marsico Capital Management LLC Managed by SP Strategic Partners Focused Large Growth Long-term growth of At least 65% of total assets in equity and Prudential Growth Portfolio capital equity-related securities of U.S. companies Investments that the adviser believes to have strong LLC/Jennison capital appreciation potential. Associates LLC and AllianceBernstein L.P. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 37 SCHRODER Managed by Allianz AZL Schroder Emerging Markets Specialty Capital appreciation Invests at least 80% of its net assets in Investment Equity Fund equity securities of companies that the Management subadviser believes to be "emerging market" LLC/Schroder issuers. May invest remainder of assets in Investment securities of issuers located anywhere in Management North the world. America Inc. AZL Schroder International International Long-term capital At least 80% of net assets in equity Small Cap Fund Equity appreciation securities of small capitalization companies located outside the U.S. (generally with market capitalizations of $3.5 billion or less at the time of investment) that it believes offer the potential for capital appreciation. SELIGMAN Managed by J. & W. Seligman Smaller-Cap Value Small Cap Long-term capital At least 80% of net assets in common stocks Seligman & Co. Portfolio appreciation of "value" companies with smaller market Incorporated capitalizations (up to $3 billion) at the time of purchase by the portfolio. TARGETPLUS PORTFOLIOS Managed by Allianz AZL TargetPLUS Balanced Fund Model Long-term capital Invests primarily in a diversified portfolio Investment Portfolio appreciation with of equity and fixed income securities with Management preservation of capital 40% to 60% allocated to the equity portfolio LLC/First Trust as an important and the balance allocated to the fixed Advisors L.P. and consideration income portfolio. May invest a significant Pacific Investment portion of its total assets in securities of Management Company non-U.S. companies. LLC Managed by Allianz AZL TargetPLUS Equity Fund Model Total return Invests at least 80% of net assets in common Investment Portfolio stocks of companies that are identified by a Management model based on an allocation of 20% of fund LLC/First Trust assets in each of five separate strategies. Advisors L.P. Managed by Allianz AZL TargetPLUS Growth Fund Model Long-term capital Invests primarily in a diversified portfolio Investment Portfolio appreciation of equity and fixed income securities with Management 70% to 90% allocated to the equity portfolio LLC/First Trust and the balance allocated to the fixed Advisors L.P. and income portfolio. May invest a significant Pacific Investment portion of its total assets in securities of Management Company non-U.S. companies. LLC AZL TargetPLUS Moderate Fund Model Long-term capital Invests primarily in a diversified portfolio Portfolio appreciation of equity and fixed income securities with 55% to 75% allocated to the equity portfolio and the balance allocated to the fixed income portfolio. May invest a significant portion of its total assets in securities of non-U.S. companies. TURNER Managed by Allianz AZL Turner Quantitative Small Small Cap Long-term growth of At least 80% of its net assets in common Investment Cap Growth Fund capital stocks and other equity securities of U.S. Management companies with small market capitalizations LLC/Turner that the subadviser believes, based on a Investment quantitative model, have strong earnings Partners, Inc. growth potential. Small capitalization companies are defined as companies with market capitalizations, at the time of purchase, in the range of companies included in the Russell[ ]2000[{R}] Growth Index. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 38 VAN KAMPEN Managed by Allianz AZL Van Kampen Comstock Fund Large Value Capital growth and Invests at least 80% of net assets in common Investment income stocks with the potential for capital growth Management LLC/Van and income. May invest up to 25% of total Kampen Asset assets in foreign securities. Management AZL Van Kampen Equity and Specialty Highest possible income Invests at least 65% of its total assets in Income Fund consistent with safety income-producing equity securities and also of principal with long- invests in investment grade quality debt term growth of capital securities. May invest up to 25% ot total as an important assets in foreign securities, including secondary objective emerging market securities. AZL Van Kampen Global International Long term capital Invests primarily in a portfolio of equity Franchise Fund Equity appreciation securities of issuers located throughout the world that it believes have, among other things, resilient business franchises and growth potential. Normally invests at least 65% of total assets in securities of issuers from at least three different countries, which may include the U.S. AZL Van Kampen Global Real Specialty Income and capital Invests at least 80% of assets in equity Estate Fund appreciation securities of companies in the real estate industry located throughout the world, including real estate investment trusts and real estate operating companies established outside the U.S. AZL Van Kampen Growth and Large Value Income and long-term Invests at least 65% of total assets in Income Fund growth of capital income-producing equity securities, including common stocks and convertible securities; also in non-convertible preferred stocks and debt securities rated "investment grade." May invest up to 25% of total assets in foreign securities, including emerging market securities. AZL Van Kampen Mid Cap Growth Mid Cap Capital growth At least 80% of net assets in common stocks Fund and other equity securities of mid capitalization growth companies.
Shares of the Investment Options may be offered in connection with certain variable annuity contracts and variable life insurance policies of various insurance companies that may or may not be affiliated with us. Certain Investment Options may also be sold directly to pension and retirement plans that qualify under Section 401 of the Internal Revenue Code. As a result, a material conflict of interest may arise between insurance companies, owners of different types of contracts and retirement plans or their participants. Each Investment Option's Board of Directors will monitor for the existence of any material conflicts, and determine what action, if any, should be taken. We may enter into certain arrangements under which we, or our affiliate Allianz Life Financial Services, LLC, the principal underwriter for the Contracts, are compensated by the Investment Options' advisers, distributors and/or affiliates for the administrative services and benefits that we provide to the Investment Options. The amount of the compensation usually is based on the aggregate assets of the Investment Options or other investment portfolios that are attributable to contracts that we issue or administer. Some advisers may pay us more or less than others. The maximum fee that we currently receive is at the annual rate of 0.25% of the average aggregate amount invested by us in the Investment Options. In addition, our affiliate Allianz Life Financial Services, LLC, may receive Rule 12b-1 fees deducted from certain Investment Option assets attributable to the Contract for providing distribution and support services to some Investment Options. Because 12b-1 fees are paid out of an Investment Option's assets on an ongoing basis, over time they will increase the cost of an investment in the Investment Option. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 39 SUBSTITUTION AND LIMITATION ON FURTHER INVESTMENTS We may substitute another Investment Option for one of the Investment Options you selected for any reason in our sole discretion. Substitutions may be made with respect to existing investments, the investment of future Purchase Payments, or both. New or substitute Investment Options may have different fees and expenses, and their availability may be limited to certain classes of purchasers. We may limit further investment in, or transfers to, an Investment Option if marketing, tax or investment considerations warrant, or for any reason in our sole discretion. We also may close Investment Options to allocations of Purchase Payments and/or Contract Value, at any time and at our sole discretion. The fund companies that sell shares of the Investment Options to us, pursuant to participation agreements, may terminate those agreements and discontinue offering their shares to us. To the extent required by the Investment Company Act of 1940 or other applicable law, we will not substitute any shares without notice to you and prior approval of the SEC. TRANSFERS CONTRACTS WITH THE PRIME PLUS BENEFIT WILL BE SUBJECT TO RESTRICTIONS ON TRANSFERS INTO CERTAIN INVESTMENT OPTIONS IF THESE CONTRACTS EXCEED CERTAIN LIMITS ON VOLATILITY OR RISK. For more information, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - Investment Option Allocation and Transfer Restrictions Under the PRIME Plus Benefit. You can make transfers among the Investment Choices, subject to certain restrictions. Transfers may be subject to a transfer fee. For more information, see section 7, Expenses - Transfer Fee. We currently allow you to make as many transfers each Contract Year as you wish. We may change this practice in the future. This product is not designed for professional market timing organizations, other entities or persons using programmed, large, or frequent transfers, and excessive or inappropriate transfer activity may be restricted. The following applies to any transfer. o The minimum amount that you can transfer is $1,000 ($500 in New Jersey) or the entire amount in the Investment Choice, if less. We waive this requirement if the transfer is made under the dollar cost averaging or flexible rebalancing programs or the allocation and transfer restrictions for the PRIME Plus Benefit. o We may choose not to allow you to make transfers during the free look/right to examine period. o Your request for a transfer must clearly state: - which Investment Choices are involved in the transfer; and - how much you wish to transfer. o After the Income Date, you cannot make a transfer from a fixed Annuity Payment stream to a variable Annuity Payment stream. o After the Income Date, you can make a transfer from a variable Annuity Payment stream to establish a new fixed Annuity Payment stream. o Your right to make transfers is subject to modification if we determine, in our sole discretion, that exercise of the right by one or more Owners is, or may be, to the disadvantage of other Owners. For more information, see the "Excessive Trading and Market Timing" discussion in this section. o Transfer instructions apply equally to the accumulation and annuitization portions of the Contract. You cannot make transfers selectively within different portions of the Contract. o Transfers of Contract Value between Investment Options will not change the allocation instructions for any future Purchase Payments. When you make a transfer request, we will process the request based on the Accumulation Unit values and/or Annuity Unit values next determined after receipt of the request in good order at our Service Center. The Accumulation Unit values and Annuity Unit values are normally determined at the end of each Business Day and any transfer request received at or after the end of the current Business Day will receive the next Business Day's Accumulation Unit values and/or Annuity Unit values. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 40 The Investment Options may, in the future, add policies or change existing policies designed to restrict market timing activities. For example, Investment Options may impose restrictions on transfers between Investment Options in an affiliated group of Investment Options if the investment adviser to one or more of the Investment Options determines that the Owner or his or her designee requesting the transfer has engaged, or is engaging in, market timing or other abusive trading activities. In addition, an Investment Option may impose a short-term trading fee on purchases and sales within a specified period. You should review the Investment Options' prospectuses regarding any applicable transfer restrictions and the imposition of any fee to discourage short-term trading. The imposition of these restrictions would occur as a result of Investment Option restrictions and actions taken by the managers of the Investment Options. TELEPHONE AND OTHER ELECTRONIC TRANSFERS You can request transfers by telephone, fax, or by website at www.allianzlife.com. We may allow you to authorize someone else to request transfers by telephone, fax, or website on your behalf. We will accept instructions from either you or a Joint Owner unless we are instructed otherwise. We will use reasonable procedures to confirm that instructions given to us by telephone or by website are genuine. If we do not use such procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. We record all telephone instructions and log all website instructions. We reserve the right to deny any transfer request submitted by telephone, website, or by fax, and to discontinue or modify the telephone, fax and/or website transfer privileges at any time and for any reason. We do not currently accept transfer instructions from you via email or via electronic communications other than by telephone, fax, or by website. This service may be available to you in the future. When you make a transfer request by telephone, fax, or by website, we will process the request based on the Accumulation Unit values next determined after receipt of the request at our Service Center. If you or your authorized representative have not given instructions to a Service Center representative before the end of the Business Day, even if due to our delay in answering your call or a delay caused by our telephone, fax and/or computer system, we will consider the request to be received at or after the end of the current Business Day and the request will receive the next Business Day's Accumulation Unit values. Please note that telephone, fax and/or the website may not always be available. Any telephone, fax and/or computer system, whether it is ours, yours, your service provider's, or your registered representative's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer by writing to our Service Center. By authorizing transfers by telephone or website, you authorize us to accept and act upon such instructions for transfers involving your Contract. There are risks associated with telephone and website transactions that do not occur if a written request is submitted. Anyone authorizing or making such requests bears those risks. You should protect your website password, because the website is available to anyone who provides your password; we will not be able to verify that the person providing electronic transfer instructions via the website is you or is authorized by you. EXCESSIVE TRADING AND MARKET TIMING Your ability to make transfers under the Contract is subject to modification if we determine, in our sole discretion, that the exercise of the transfer privilege may disadvantage or potentially harm the rights or interests of other Owners. Frequent transfers, programmed transfers, transfers into and then out of an Investment Choice in a short period of time, and transfers of large amounts at one time (collectively referred to as "potentially disruptive trading") may have harmful effects for other Owners, Annuitants and Beneficiaries. These risks and harmful effects include the following. o Dilution of the interests of long-term investors in an Investment Choice, if market timers or others transfer into the Investment Choice at prices that are below their true value or transfer out of the Investment Choice at prices that are higher than their true value. o An adverse effect on portfolio management, such as causing the Investment Choice to maintain a higher level of cash than would otherwise be the case, or causing the Investment Choice to liquidate investments prematurely. o Increased brokerage and administrative expenses. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 41 In order to attempt to protect our Owners and the Investment Choices from potentially disruptive trading, we have adopted certain excessive trading and market timing policies and procedures. Under our excessive trading and market timing policy, we could modify your transfer privileges for some or all of the Investment Choices. Unless prohibited by the terms of the Contract or applicable state law, the modifications we may apply include (but are not limited to) the following. o Limiting the frequency of transfers (for example, prohibit more than one transfer a week, or more than two a month, etc.). o Restricting the method of making a transfer (for example, requiring that all transfers be sent by first class U.S. mail and rescinding the telephone, fax or website transfer privileges). o Requiring a minimum time period between each transfer into or out of a particular Investment Choice. Our current policy, which is subject to change without notice, prohibits "round trips" with Investment Choices, other than the AZL Money Market Fund and the AZL FusionPortfolios, within 14 calendar days. Round trips are transfers into and back out of a particular Investment Choice, or transfers out of and back into a particular Investment Choice. o Not accepting transfer requests made on your behalf by an asset allocation and/or market timing service. o Limiting the dollar amount of any Purchase Payment or transfer request allocated to any Investment Choice at any one time. o Imposing redemption fees on short-term trading (or implementing and administering redemption fees imposed by one or more of the Investment Options). o Prohibiting transfers into specific Investment Choices. o Imposing other limitations or restrictions. We also reserve the right to reject any specific Purchase Payment allocation or transfer request from any person if in the investment adviser's, subadviser's or our judgment, an Investment Choice may be unable to invest effectively in accordance with its investment objectives and policies. Currently, we attempt to DETER disruptive trading as follows. If a transfer(s) is/are identified as potentially disruptive trading, we may (but are not required to) send a warning letter. If the conduct continues and we determine that it constitutes disruptive trading, we will also impose transfer restrictions. Transfer restrictions may include refusing to take orders by fax, telephone or website and requiring the submission of all transfer requests via first-class U.S. mail. We do not enter into agreements permitting market timing and would not permit activities determined to be disruptive trading to continue. We also reserve the right to impose transfer restrictions on a Contract if we determine, in our sole discretion, that the transfers are disadvantageous to other Owners. We will notify the Owner in writing if we impose transfer restrictions on the Owner. We do not include automatic transfers made under any programs we provide, or automatic transfers made under any of the Contract features, when applying our market timing policy. We have adopted these policies and procedures as a preventative measure to protect all Owners from the potential effects of disruptive trading, while also abiding by the Owners' legitimate interest in diversifying their investment and making periodic asset re-allocations based upon their personal situations or overall market conditions. We attempt to protect the Owners' interests in making legitimate transfers by providing reasonable and convenient methods of making transfers that do not harm other Owners. We may make exceptions when imposing transfer restrictions if we determine a transfer is appropriate, although it may technically violate our policies and procedures that are discussed above. In determining whether a transfer is appropriate, we may, but are not required to, take into consideration the relative size of a transaction, whether the transaction was purely a defensive transfer into the AZL Money Market Fund, and whether the transaction involved an error or similar event. We may also reinstate telephone, fax or website transfer privileges after we have revoked them, but we will not reinstate these privileges if we have reason to believe that they might be used for disruptive trading purposes in the future. We cannot guarantee the following. o Our monitoring will be 100% successful in detecting all potentially disruptive trading activity. o Revoking telephone, fax or website transfer privileges will successfully deter all potentially disruptive trading. In addition, certain of the Investment Options are available to insurance companies other than us and we do not know whether those other insurance companies have adopted policies and procedures to detect and deter potentially disruptive trading, or what their policies and procedures might be. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 42 As a result of the fact that we may not be completely successful at detecting and preventing market timing activities, and other insurance companies that offer the Investment Options may not have adopted adequate market timing procedures, there is some risk that market timing activity may occur and negatively affect other Owners. We may, without prior notice to any party, take whatever action we deem appropriate to comply with or take advantage of any state or federal regulatory requirement. In addition, orders for the purchase of an Investment Choice's shares are subject to acceptance by that Investment Choice. We reserve the right to reject, without prior notice, any transfer request into an Investment Choice or allocation of a Purchase Payment to an Investment Choice if the order to purchase the Investment Choice's shares is not accepted for any reason. We have entered into agreements required under SEC Rule 22c-2 (Rule 22c-2 agreements) whereby, upon request by an underlying fund or its designee, we are required to provide the underlying fund with information about you and your trading activities into or out of one or more Investment Options. This information will be provided to the underlying fund or its designee. Under the terms of the Rule 22c-2 agreements, we are required to: (1) provide details concerning every purchase, redemption, transfer, or exchange of Investment Options during a specified period; and (2) restrict your trading activity if the party receiving the information so requests. Under certain Rule 22c-2 agreements, if we fail to comply with a request to restrict trading activity, the underlying fund or its designee may refuse to accept transfers from us until we comply. We retain some discretion in determining what actions constitute potentially disruptive trading and in determining when and how to impose trading restrictions. Therefore, persons engaging in potentially disruptive trading may be subjected to some uncertainty as to when and in what form trading restrictions may be applied, and persons not engaging in potentially disruptive trading may not know precisely what actions will be taken against a person engaging in potentially disruptive trading. For example, if we determine a person is engaging in potentially disruptive trading, we may revoke that person's telephone, fax or website transfer privileges and require all future requests to be sent by first class U.S. mail. In the alternative, if the disruptive trading affects only a single Investment Choice, we may prohibit transfers into or allocations of Purchase Payments to that Investment Choice. We will notify the person or entity making the potentially disruptive trade when we revoke any transfer privileges. The retention of some level of discretion by us may result in disparate treatment among persons engaging in potentially disruptive trading, and it is possible that some persons could experience adverse consequences if other persons are able to engage in practices that may constitute disruptive trading, and that result in negative effects. DOLLAR COST AVERAGING (DCA) PROGRAM The DCA program allows you to systematically transfer a set amount of money each month or quarter from any one of the available Investment Choices to other Investment Options. The Investment Option you transfer from may not be the Investment Option you transfer to in this program. You cannot dollar cost average to a general account Investment Choice. The only general account Investment Choice that you can dollar cost average from is the DCA Fixed Option. By allocating amounts on a regularly scheduled basis, as opposed to allocating the total amount at one particular time, you may be less susceptible to the impact of market fluctuations. You may only participate in this program during the Accumulation Phase. There may be two DCA options available to you. The first option is the DCA Fixed Option. It is only available for a period of either 6 or 12 months for both initial and additional Purchase Payments. Under the DCA Fixed Option, you will receive a fixed interest rate guaranteed for the period by us. The DCA Fixed Option may not be available in your state. The second option is the Standard DCA Option. It requires a $1,500 minimum allocation and participation for at least six months. Only the Investment Options are available with this option. All DCA transfers will be made on the tenth day of the month or the next Business Day if the tenth is not a Business Day. You can elect either program by properly completing the DCA form provided by us. Your participation in the program will end when any of the following occurs. o The number of desired transfers has been made. o You do not have enough money in the Investment Choices to make the transfer (if less money is available, that amount will be dollar cost averaged and the program will end). o You request to terminate the program (your request must be received at our Service Center by the first of the month to terminate that month). o Contract termination. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 43 If you participate in the DCA program, there are no fees for the transfers made under this program, we do not currently count these transfers against the free transfers that we allow, and you will not be charged additional fees for participating in or terminating from this program. We reserve the right to discontinue or modify the DCA program at any time and for any reason. FLEXIBLE REBALANCING You can choose to have us rebalance your account. Once your money has been invested, the performance of the Investment Options may cause your chosen allocation to shift. Flexible rebalancing is designed to help you maintain your specified allocation mix among the different Investment Options. The general account Investment Choices are not part of the flexible rebalancing program. You can direct us to automatically readjust your balance in the Investment Options on a quarterly, semi-annual or annual basis to return to your selected Investment Option allocations. Flexible rebalancing transfers will be made on the 20th day of the month or the previous Business Day if the 20th is not a Business Day. If you participate in the flexible rebalancing program, there are no fees for the transfers made under this program, we do not currently count these transfers against any free transfers that we allow, and you will not be charged additional fees for participating in or terminating from this program. We reserve the right to discontinue or modify the flexible rebalancing program at any time and for any reason. To participate in this program, your request must be received in good order at our Service Center by the eighth of the month so that we may rebalance your account on the 20th of the month. To terminate your participation in this program, your request must also be received at our Service Center by the eighth of the month to terminate that month. FINANCIAL ADVISERS - ASSET ALLOCATION PROGRAMS If you have or establish a relationship with a personal financial adviser and the advisory agreement provides that you will pay all or a portion of your adviser's fees out of the Contract, we will, pursuant to written instructions from you in a form acceptable to us, make a partial withdrawal of the Contract Value to pay for the services of the financial adviser. We will treat any fee that is withdrawn as a withdrawal under the terms of this Contract. If the Contract is Non-Qualified, the withdrawal will be treated like any other distribution; it may be included in your gross income for federal tax purposes and, if any Owner is under age 59 1/2, it may be subject to a 10% federal penalty tax. If the Contract is Qualified, the withdrawal for the payment of fees may not be treated as a taxable distribution if certain conditions are met. You should consult a tax adviser regarding the tax treatment of the payment of financial adviser fees from your Contract. We do not set the amount of the fees charged or receive any portion of the fees from your adviser. Any fee that is charged by your adviser is in addition to the fees and expenses that apply under your Contract. We are not party to the agreement you have with your adviser. You should ask your adviser for any details about the compensation he or she receives in connection with your Contract. Please note that the adviser you engage to provide advice and/or to make transfers for you is not acting on our behalf, but is acting on your behalf. We do not review or approve the actions of any adviser, and do not assume any responsibility for these actions. However, we do reserve the right to request and review prior transaction history of any adviser prior to granting your request to allow the adviser to act on your behalf. If, in our sole discretion, we believe the adviser's trading history indicates a pattern of excessive trading, we reserve the right to deny that adviser trading authority. If an adviser is granted trading authority, that adviser is subject to the same limitations applicable to Owners as stated above. VOTING PRIVILEGES We are the legal owner of the Investment Option shares. However, when an Investment Option solicits proxies in conjunction with a shareholder vote that affects your investment, we will obtain from you and other affected Owners instructions as to how to vote those shares. When we receive those instructions, we will vote all of the shares we own including any shares that we own on our own behalf, in proportion to those instructions. Because of this proportional voting and because many Owners do not respond to our request for them to provide us with voting instructions, a small number of Owners may determine the outcome of the vote. Should we determine that we are no longer required to obtain your voting instructions, we will vote the shares in our own right. Only Owners have voting privileges under the Contract. Annuitants, Beneficiaries, Payees and other persons have no voting privileges unless they are also Owners. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 44 We determine your voting interest in an Investment Option as follows. o You are permitted to cast votes based on the dollar value of the Investment Option's shares that we hold for your Contract in the corresponding subaccount. We calculate this value based on the number of Accumulation/Annuity Units allocated to your Contract on the record date and the value of each unit on that date. We count fractional votes. o We will determine the number of shares that you can vote. o You will receive any proxy materials and a form to give us voting instructions as well as periodic reports relating to the Investment Options in which you have an interest. 6. OUR GENERAL ACCOUNT Our general account consists of all of our assets other than those in our separate accounts. We have complete ownership of all assets in our general account and we use these assets to support our insurance and annuity obligations other than those funded by our separate accounts. These assets are subject to our general liabilities from business operations. It is possible for assets invested in our general account to lose value. Subject to applicable law, we have sole discretion over the investment of the assets of our general account. We have not registered our general account as an investment company under the Investment Company Act of 1940, nor have we registered interests in our general account under the Securities Act of 1933. As a result, the SEC has not reviewed the disclosures in this prospectus relating to our general account. Currently, we only offer a DCA Fixed Option as an Investment Choice under our general account during the Accumulation Phase. Any amounts you allocate to this Investment Choice under our general account become part of our general account. Additionally, any amounts that you allocate to provide fixed Annuity Payments during the Annuity Phase become part of our general account. We may change the terms of the general account Investment Choices in the future. Please contact us for the most current terms. 7. EXPENSES There are charges and other expenses associated with the Contract that will reduce your investment return. These charges and expenses are described in detail in this section. SEPARATE ACCOUNT ANNUAL EXPENSES Each Business Day during the Accumulation and Annuity Phases, we make a deduction from your Separate Account assets for the mortality and expense risk (M&E) charges and the administrative charge (together they are called the Separate Account annual expenses). We do this as part of our calculation of the value of the Accumulation and Annuity Units. The charges are an annualized rate that is realized on a daily basis as a percentage of the net asset value of an Investment Option. The amount of the M&E charge during the Accumulation Phase depends on the benefit options that apply. The annual administrative charge is equal to 0.15% during both phases of your Contract. During the Accumulation Phase, the current Separate Account annual expenses* are as follows: BASE CONTRACT M&E CHARGES ADMIN. TOTAL CHARGE TRADITIONAL GMDB 1.35% 0.15% 1.50% ENHANCED GMDB 1.65% 0.15% 1.80% EARNINGS PROTECTION GMDB 1.65% 0.15% 1.80% CHARGES FOR A CONTRACT WITH THE PRIME PLUS BENEFIT M&E CHARGES ADMIN. TOTAL CHARGE TRADITIONAL GMDB 2.05% 0.15% 2.20% ENHANCED GMDB 2.25% 0.15% 2.40% EARNINGS PROTECTION GMDB 2.30% 0.15% 2.45% * Some or all of the guaranteed benefits may not be available in all states. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 45 If you exercise the GPWB, the increased expenses associated with the PRIME Plus Benefit will continue until both the GPWB and GMIB benefits terminate and the increased expenses associated with the Enhanced GMDB or the Earnings Protection GMDB (if applicable) will continue as long as the Enhanced GMDB value or the Earnings Protection GMDB value is greater than zero. During the Annuity Phase, if you request variable Traditional Annuity Payments, the Separate Account annual expenses are equal, on an annual basis, to 1.50%. Because the Contract allows Partial Annuitization, it is possible for one portion of the Contract to be in the Accumulation Phase and other portions will be in the Annuity Phase at the same time. It is also possible to have different M&E charges on different portions of the Contract at the same time if you take a variable traditional Partial Annuitization. MORTALITY AND EXPENSE RISK (M&E) CHARGES These charges compensate us for all the insurance benefits provided by your Contract, for example: o our contractual obligation to make Annuity Payments, o the death, income, and withdrawal benefits under the Contract, o certain expenses related to the Contract, and o for assuming the risk (expense risk) that the current charges will be insufficient in the future to cover the cost of administering the Contract. If the M&E charges are sufficient to cover such costs and risks, any excess will be profit to us. We anticipate making such a profit, and using it to cover distribution expenses as well as the cost of providing certain features under the Contract. ADMINISTRATIVE CHARGE This charge is equal to 0.15% of the average daily assets invested in a subaccount on an annual basis. We deduct this charge during both the Accumulation and Annuity Phases. This charge, together with the contract maintenance charge (which is explained next), is for all the expenses associated with the administration and maintenance of the Contracts. CONTRACT MAINTENANCE CHARGE We deduct $40 from the Contract annually as a contract maintenance charge during the Accumulation and Annuity Phases. The charge is for the expenses associated with the administration and maintenance of the Contract. We deduct this charge on the last day of each Contract Year and we deduct it proportionately from the Investment Choices as set out in your Contract. During the Annuity Phase, we will collect a portion of the charge out of each Annuity Payment. During the Accumulation Phase, we will not deduct this charge if the Contract Value is at least $100,000 at the time we are to deduct the charge. If you own more than one Contract offered under this prospectus, we will determine the total value of all your Contracts. If the total value of all Contracts registered under the same social security number is at least $100,000, we will not assess the contract maintenance charge. We also will waive this charge during the Annuity Phase if the Contract Value on the Income Date is at least $100,000. If you take a full withdrawal from your Contract (other than on a Contract Anniversary), we will deduct the full contract maintenance charge. If the Contract is owned by a non-individual (for example, a qualified plan or trust), we will look to the Annuitant to determine if we will assess the charge. In some states, we are not permitted to assess the contract maintenance charge against the general account Investment Choices, during the Annuity Phase, or both. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 46 WITHDRAWAL CHARGE You can take withdrawals from the portion of the Contract that is in the Accumulation Phase. A withdrawal charge applies if all or part of the amount withdrawn is from Purchase Payments we received within six complete Contract Years before the withdrawal. The withdrawal charge compensates us for expenses associated with selling the Contract. We do not assess the withdrawal charge on: amounts deducted to pay the contract maintenance charge, Annuity Payments (including GMIB Payments), death benefits, withdrawals taken under the waiver of withdrawal charge benefit, or amounts paid as part of a minimum distribution payment under our minimum distribution program. We also do not assess the withdrawal charge on GPWB Payments and/or Excess Withdrawals unless they exceed the GPWB Maximum. (For more information, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - GPWB Payments; and the "Waiver of Withdrawal Charge Benefits" and "The Minimum Distribution Program and Required Minimum Distribution (RMD) Payments" discussions in section 9, Access to Your Money.) In the Contract or marketing materials, the withdrawal charge may also be referred to as the surrender charge or contingent deferred sales charge (CDSC) and withdrawals may be referred to as surrenders. The total amount under your Contract that is subject to a withdrawal charge is the Withdrawal Charge Basis. The Withdrawal Charge Basis is equal to the total Purchase Payments, less any Purchase Payments withdrawn (excluding any penalty- free withdrawals). Amounts applied to Partial Annuitizations will reduce each Purchase Payment proportionately by the percentage of Contract Value or GMIB value you annuitize. WE DO NOT REDUCE THE WITHDRAWAL CHARGE BASIS FOR ANY PENALTY-FREE WITHDRAWALS OR THE DEDUCTION OF THE CONTRACT MAINTENANCE CHARGE. THIS MEANS THAT IF YOU TAKE A FULL WITHDRAWAL WHILE THE WITHDRAWAL CHARGE APPLIES AND YOU HAVE TAKEN PENALTY-FREE WITHDRAWALS, YOU MAY BE ASSESSED A WITHDRAWAL CHARGE ON MORE THAN THE AMOUNT YOU ARE WITHDRAWING. Penalty-free withdrawals include the following amounts: withdrawals under the GPWB of the PRIME Plus Benefit that do not exceed the GPWB Maximum, withdrawals under the partial withdrawal privilege, withdrawals under the waiver of withdrawal charge benefit, and any amounts paid as part of a required minimum distribution. We also do not adjust the Withdrawal Charge Basis for any withdrawal charges, or any gains or losses on your Investment Options. THIS MEANS THAT ON A FULL WITHDRAWAL, IF THE CONTRACT VALUE HAS DECLINED DUE TO POOR PERFORMANCE OF YOUR SELECTED INVESTMENT OPTIONS, THE WITHDRAWAL CHARGE MAY BE GREATER THAN THE AMOUNT AVAILABLE FOR WITHDRAWAL. BECAUSE WE ASSESS THE WITHDRAWAL CHARGE AGAINST THE WITHDRAWAL CHARGE BASIS, IN SOME INSTANCES, THE CONTRACT VALUE MAY BE POSITIVE, BUT YOU WILL NOT RECEIVE A DISTRIBUTION DUE TO THE AMOUNT OF THE WITHDRAWAL CHARGE. For more information, please see the examples in Appendix F. For purposes of calculating any withdrawal charge, we withdraw Purchase Payments on a "first-in-first-out" (FIFO) basis and we make withdrawals from your Contract in the following order. 1.First, we withdraw any Purchase Payments that are beyond the withdrawal charge period shown in your Contract (for example, Purchase Payments that we have had for six or more complete Contract Years). We do not assess a withdrawal charge on these Purchase Payments. 2.Then, we withdraw any Purchase Payments that are under the partial withdrawal privilege and we do not assess a withdrawal charge. However, the partial withdrawal privilege is not available if you are taking a full withdrawal. For more information, see section 9, Access to Your Money - Partial Withdrawal Privilege. 3.Next, on a FIFO basis, we withdraw Purchase Payments that are within the withdrawal charge period shown in your Contract. We do assess a withdrawal charge on these Purchase Payments, but we withdraw them on a FIFO basis, which may help reduce the total withdrawal charge you will pay because the withdrawal charge declines over time. We determine your total withdrawal charge by multiplying each of these payments by the applicable withdrawal charge percentage and then totaling the charges. 4.Finally, we withdraw any Contract earnings. We do not assess a withdrawal charge on Contract earnings. We keep track of each Purchase Payment we receive. The amount of the withdrawal charge depends upon the length of time since we received your Purchase Payment. The charge as a percentage of each Purchase Payment withdrawn is as follows. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 47 NUMBER OF COMPLETE CONTRACT YEARS SINCE WE RECEIVED YOUR PURCHASE PAYMENT CHARGE 0 7% 1 6% 2 5% 3 4% 4 3% 5 2% 6 Contract Years or more 0% After we have had a Purchase Payment for six complete Contract Years, there is no charge when you withdraw that Purchase Payment. We calculate the withdrawal charge at the time of each withdrawal. For a full withdrawal that is subject to a withdrawal charge, we will deduct the withdrawal charge as a percentage of the Withdrawal Charge Basis from the amount withdrawn. For partial withdrawals, we deduct the charge from the remaining Contract Value and we deduct it proportionately from the Investment Choices. EXAMPLE: You purchase a Contract with an initial Purchase Payment of $10,000 and make another Purchase Payment in the first month of the second Contract Year of $90,000. In the third month of the third Contact Year, your Contract Value is $110,000 and you request a withdrawal of $52,000. We would withdraw money from the Contract Value and compute the withdrawal charge as follows. 1)PURCHASE PAYMENTS THAT ARE BEYOND THE WITHDRAWAL CHARGE PERIOD. All payments are still within the withdrawal charge period so this does not apply. 2)AMOUNTS AVAILABLE UNDER THE PARTIAL WITHDRAWAL PRIVILEGE. You can withdraw 12% of total purchase payments per year, and any unused partial withdrawal privilege in one contract year carries over to the next contract year. This is the third contract year and you have not taken any other withdrawals, so you can withdraw up to 36% of your total payments (or $36,000) without incurring a withdrawal charge. 3)PURCHASE PAYMENTS ON A FIFO BASIS. The total amount we deduct from the first Purchase Payment is $10,000, which is subject to a 5% withdrawal charge, and we pay you this entire amount. A withdrawal charge of $500 is also tracked. We determine the withdrawal charge on this amount as follows: $10,000 X 0.050 = $500 Next we determine how much we need to deduct from the second Purchase Payment. So far we have deducted $46,000 ($36,000 under the partial withdrawal privilege and $10,000 from the first Purchase Payment), so we would need to deduct $6,000 from the second Purchase Payment to get you the $52,000 you requested. The second Purchase Payment is subject to a 6% withdrawal charge. We determine the withdrawal charge on this amount this amount as follows: $6,000 X 0.060 = $360 4)CONTRACT EARNINGS. The withdrawal charges of $860 are deducted from contract earnings. In total we withdrew $52,860 from your Contract, of which you received $52,000 and paid total withdrawal charges of $860. NOTE: WITHDRAWALS MAY HAVE TAX CONSEQUENCES AND, IF TAKEN BEFORE AGE 59 1/2, MAY BE SUBJECT TO A 10% FEDERAL PENALTY TAX. FOR TAX PURPOSES, UNDER NON-QUALIFIED CONTRACTS, WITHDRAWALS ARE CONSIDERED TO HAVE COME FROM THE LAST MONEY YOU PUT INTO THE CONTRACT. THUS, FOR TAX PURPOSES, EARNINGS ARE CONSIDERED TO COME OUT FIRST. REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE We may reduce or eliminate the amount of the withdrawal charge when the Contract is sold under circumstances that reduce its sales expenses. For example, if there is a large group of individuals that will be purchasing the Contract or if a prospective purchaser already has a relationship with us. We may choose not to deduct a withdrawal charge under a Contract issued to an officer, director, or employee of Allianz Life or any of its affiliates. Also, we may reduce or waive the withdrawal charge when a Contract is sold by a registered representative appointed with Allianz Life to any members of his or her immediate family, and the commission is waived. We require our prior approval for any reduction or elimination of the withdrawal charge. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 48 TRANSFER FEE You can currently make 12 free transfers every Contract Year. If you make more than 12 transfers in a Contract Year, we will deduct a transfer fee of $25 for each additional transfer. Currently, we deduct this fee only during the Accumulation Phase, but we reserve the right to deduct it during the Annuity Phase. We will deduct the transfer fee from the Investment Choice from which the transfer is made. If you transfer the entire amount in the Investment Choice, then we will deduct the transfer fee from the amount transferred. If you are transferring from multiple Investment Choices, we will treat the transfer as a single transfer and we will deduct any transfer fee proportionately from the Investment Choices if you transfer less than the entire amount that is in the Investment Choice. If the transfer is made under the dollar cost averaging or flexible rebalancing programs, or the allocation and transfer restrictions for the PRIME Plus Benefit, there is no fee for the transfer and we currently do not count these transfers against any free transfers we allow. PREMIUM TAXES Some states and other governmental entities (for example, municipalities) assess a tax (premium tax) on us based on the amount of Purchase Payments we receive from you. In some states, the tax is based on the amount applied to Annuity Payments. We are responsible for the payment of these taxes. Your Contract indicates that we will deduct these charges from your Contract Value. However, it is our current practice not to make deductions from the Contract to reimburse ourselves for the premium taxes that we pay, although we reserve the right to make such a deduction in the future. Premium taxes normally range from 0% to 3.5% of the Purchase Payment, depending on the state or governmental entity. INCOME TAXES We reserve the right to deduct from the Contract any income taxes that we may incur because of the Contract. Currently, we are not making any such deductions. INVESTMENT OPTION EXPENSES There are deductions from the assets of the various Investment Options for operating expenses (including management fees) that are described in the Fee Tables and in the table of annual operating expenses for each Investment Option in Appendix A in this prospectus and in the prospectuses for the Investment Options. These charges apply during the Accumulation and Annuity Phases if you make allocations to the Investment Options. These expenses will reduce the performance of the Investment Options and, therefore, will negatively affect your Contract Value and the amounts available for withdrawals and Annuity Payments. They may also negatively impact the death benefit proceeds. The investment advisers for the Investment Options provided the fee and expense information and we did not independently verify it. 8. TAXES NOTE: We have prepared the following information on taxes as a general discussion of the subject. The Contract offers flexibility regarding how distributions can be taken. Not all of these distributions (or their attendant tax consequences) are discussed in this section. This information is not intended as tax advice. You should, therefore, consult your own tax adviser about your own circumstances. We have included additional information regarding taxes in the Statement of Additional Information. For more information on the taxation of Annuity Payments made under a Partial Annuitization, see section 3, The Annuity Phase - Partial Annuitization. For more information on the taxation of GPWB Payments, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - Taxation of GPWB Payments. For more information on the taxation of GMIB Payments, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - Taxation of GMIB Payments. ANNUITY CONTRACTS IN GENERAL Annuity contracts are a means of setting aside money for future needs - usually retirement. Congress recognized how important saving for retirement was and provided special rules in the Internal Revenue Code (Code) for annuities. These rules generally provide that you will not be taxed on any earnings on the money held in your annuity until you take the money out. This is called tax deferral. There are different rules regarding how you will be taxed, depending upon how you take the money out and whether the annuity is Qualified or Non- Qualified (see the following discussion in this section). If you do not purchase the Contract under a tax qualified retirement plan, the Contract is referred to as a Non-Qualified Contract. When a Non-Qualified Contract is owned by a non-individual (for example, a corporation or certain other entities other than a trust holding the Contract as an agent for an individual), the Contract will generally not be treated as an annuity for tax purposes. This means that the Contract may not receive the benefits of tax deferral and Contract earnings may be taxed as ordinary income every year. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 49 QUALIFIED CONTRACTS If you purchase the Contract under a pension or retirement plan that is qualified under the Code, the Contract is referred to as a Qualified Contract. Qualified Contracts are subject to special rules. Adverse tax consequences may result if contributions, distributions, and transactions in connection with the Qualified Contract do not comply with the law. A Qualified Contract will not provide any necessary or additional tax deferral if it is used to fund a qualified plan that is tax deferred. However, the Contract has features and benefits other than tax deferral that may make it an appropriate investment for a qualified plan. You should consult your tax adviser regarding these features and benefits before purchasing a Qualified Contract. We may issue the following types of Qualified Contracts. o Traditional Individual Retirement Annuity. Section 408 of the Code permits eligible individuals to maintain Individual Retirement Annuities (IRAs). IRA contributions are limited each year to the lesser of a dollar amount specified in the Code or 100% of the amount of compensation included in the Owner's income. The limit on the amount contributed to an IRA does not apply to distributions from certain other types of qualified plans that are "rolled over" on a tax-deferred basis into an IRA. Purchasers of a Contract for use with IRAs will have the right to revoke their purchase within seven days of the earlier of the establishment of the IRA or their purchase. o Simplified Employee Pension (SEP) IRA. Employers may establish Simplified Employee Pension (SEP) IRAs under Code Section 408(k) to provide IRA contributions on behalf of their employees. In addition to all of the general rules governing IRAs, such plans are subject to additional requirements and different contribution limits. o Roth IRA. Section 408A of the Code permits certain eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA are limited each year to the lesser of a dollar amount specified in the Code or 100% of the amount of compensation included in the Owner's income and must be made in cash or as a rollover or transfer from another Roth IRA or other IRA. Distributions from a Roth IRA generally are not taxed until after the total amount distributed from the Roth IRA exceeds the amount contributed to the Roth IRA. After that, income tax and a 10% federal penalty tax may apply to distributions made: (1) before age 59 1/2 (subject to certain exceptions), or (2) during the five tax years starting with the year in which the first contribution is made to any Roth IRA. o TSAs or 403(b) Contracts. Section 403(b) of the Code allows employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the purchase payments made, within certain limits, on a contract that will provide an annuity for the employee's retirement. As a result of changes to the regulations regarding 403(b)/TSA contracts which requires information sharing agreements between the financial organization or insurance company and employers sponsoring 403(b)/TSA plans, these plans are no longer offered with this Contract. However, that may change in the future. o Inherited IRA. The Code permits beneficiaries of investments that were issued under certain tax-qualified pension or retirement plans to directly transfer the death benefit from that investment into a variable annuity contract (Inherited IRA Contract). If we make this Contract available as an Inherited IRA Contract, the beneficiary of the previous tax-qualified investment will become the Owner of the new Inherited IRA Contract. The ownership of the Contract must also reflect the name of the previous deceased owner. The purpose of the Inherited IRA Contract is to allow the Owner to change the investment vehicle to an annuity and receive required minimum distribution withdrawal payments instead of receiving a lump sum death benefit payment. If we make this Contract available as an Inherited IRA Contract, the death benefit proceeds must be directly transferred into this Contract; they cannot be received by the beneficiary and then applied to the Contract. A beneficiary can apply the death benefit proceeds from multiple tax-qualified investments that were owned by the same owner to the purchase of an Inherited IRA Contract. We will not accept any other forms of Purchase Payment on an Inherited IRA Contract. We permit you to add enhanced optional benefits to an Inherited IRA Contract. We currently believe this is allowable because enhanced optional benefits can be added to traditional IRA plans. However, the Internal Revenue Service (IRS) has not yet issued any rulings on this issue with respect to Inherited IRA Contracts. Therefore, Owners should discuss this issue with their tax and legal advisers before adding enhanced optional benefits to an Inherited IRA Contract. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 50 QUALIFIED PLANS. A qualified plan is a retirement or pension plan that meets the requirements for tax qualification under the Code. If the Contract is an investment for assets of a qualified plan under Section 401 of the Code, the plan is both the Owner and the Beneficiary. The authorized signatory or plan trustee for the plan must make representations to us that the plan is qualified under the Code on the Issue Date and is intended to continue to be qualified for the entire Accumulation Phase of the Contract, or as long as the qualified plan owns the Contract. The qualified plan may designate a third party administrator to act on its behalf. All tax reporting will be the responsibility of the plan. In the event the qualified plan instructs us to roll the plan assets into an IRA for the Annuitant under this Contract, we will change the qualification type of the Contract to an IRA and make the Annuitant the Owner. The qualified plan will be responsible for any reporting required for the rollover transactions. MULTIPLE CONTRACTS Section 72(e)(12) of the Code provides that multiple Non-Qualified deferred annuity contracts that are issued within a calendar year period to the same owner by one company or its affiliates are treated as one annuity contract for purposes of determining the tax consequences of any distribution. Such treatment may result in adverse tax consequences, including more rapid taxation of the distributed amounts from such combination of contracts. For purposes of this rule, contracts received in a Section 1035 exchange will be considered issued in the year of the exchange. You should consult a tax adviser before purchasing more than one Non-Qualified Contract in any calendar year period. PARTIAL 1035 EXCHANGES Section 1035 of the Code provides that an annuity contract may be exchanged in a tax-free transaction for another annuity contract. Historically, it was presumed that only the exchange of an entire contract (as opposed to a partial exchange) would be accorded tax-free status. Guidance from the IRS, however, confirmed that the direct transfer of a portion of an annuity contract into another annuity contract can qualify as a non-taxable exchange. IRS guidance provides that this direct transfer can go into an existing annuity contract as well as a new annuity contract. If you perform a partial 1035 exchange, please be aware that no distributions or withdrawals can occur from the old or new annuity contract within12 months of the partial exchange, unless you qualify for an exception to this rule. IRS guidance also provides that certain partial exchanges may not qualify as tax-free exchanges. Therefore, Owners should consult their own tax advisers before entering into a partial exchange of an annuity contract. DISTRIBUTIONS - NON-QUALIFIED CONTRACTS You, as the Owner, generally will not be taxed on increases in the value of the Contract until an actual or deemed distribution occurs - either as a withdrawal (including, if available, Partial Annuitizations, GPWB Payments and Excess Withdrawals) or as Traditional Annuity Payments or GMIB Payments under a Full Annuitization. Section 72 of the Code governs treatment of distributions. When a withdrawal from a Non-Qualified Contract occurs, the amount received will generally be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the Contract Value immediately before the distribution over your investment in the Contract (generally, the Purchase Payments or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. GPWB Payments and amounts received as a result of a Partial Annuitization are treated as partial withdrawals. If you exercise the GPWB and the PB Value is greater than the Contract Value, it is possible that the IRS could assert that the amount you receive will be taxable as ordinary income up to an amount equal to the excess of the PB Value immediately before the withdrawal over your investment in the Contract at that time. In the case of a full withdrawal under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds your investment in the Contract. If you take a Full Annuitization, different rules apply. Periodic installments (for example, GMIB Payments) scheduled to be received at regular intervals (for example, monthly) after you take a Full Annuitization should be treated as annuity payments (and not withdrawals) for tax purposes. (In this regard, we intend to make tax reporting on periodic installments scheduled to be received at regular intervals under a Partial Annuitization as annuity payments ONLY after a Contract's entire Contract Value has been applied to Annuity Payments, provided that such installments extend over a period of more than one full year from the time of the Full Annuitization. Due to the lack of guidance on whether this is the appropriate tax treatment for such payments, however, Owners should consult with a tax adviser on this issue.) After a Full Annuitization, a portion of each Annuity Payment may be treated as a partial return of your Purchase Payment and will not be taxed. The remaining portion of the 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 we expect to make the payments. Once we have paid out all of your Purchase Payment(s), the entire Annuity Payment is taxable as ordinary income. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 51 Section 72 of the Code further provides that any amount received under an annuity contract, which is included in income, may be subject to a federal penalty tax. The amount of the federal penalty tax is equal to 10% of the amount that is included in income. Some distributions will be exempt from the federal penalty tax. There is an exception to this 10% federal penalty tax for amounts: 1)paid on or after you reach age 59 1/2; 2)paid after you die; 3)paid if you become totally disabled (as that term is defined in Section 72(m)(7) of 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)that come from Purchase Payments made before August 14, 1982. With respect to (4) above, if the series of substantially equal periodic payments is modified, as permitted by the Code, before the later of your attaining age 59 1/2 or the close of the five year period that began on the Income Date, then the tax for the year of the modification is increased by the 10% federal penalty tax, plus interest, for the tax years in which the exception was used. A partial withdrawal taken after a series of substantially equal periodic payments has begun may result in the modification of the series of substantially equal payments and therefore could result in the imposition of the 10% federal penalty tax and interest for the period as described above. DISTRIBUTIONS - QUALIFIED CONTRACTS Section 72 of the Code governs treatment of distributions from Qualified Contracts. Special rules may apply to withdrawals from certain types of Qualified Contracts, including Roth IRAs. You should consult with your qualified plan sponsor and tax adviser to determine how these rules affect the distribution of your benefits. Section 72(t) of the Code provides that any amount received under a Qualified Contract, which is included in income, may be subject to a federal penalty tax. The amount of the federal penalty tax is equal to 10% of the amount that is included in income. Some distributions will be exempt from the federal penalty tax. There is an exception to this 10% federal penalty tax for: 1)distributions made on or after the date you (or the Annuitant as applicable) reach age 59 1/2; 2)distributions following your death or disability (or the Annuitant as applicable) (for this purpose disability is as defined in Section 72(m)(7) of the Code); 3)after separation from service, paid in a series of substantially equal payments made annually (or more frequently) under a lifetime annuity; 4)distributions made to you to the extent such distributions do not exceed the amount allowed as a deduction under Code Section 213 for amounts paid during the tax year for medical care; 5)distributions made on account of an IRS levy upon the Qualified Contract; 6)distributions from an IRA for the purchase of medical insurance (as described in Section 213(d)(1)(D) of the Code) for you (or the Annuitant as applicable) and his or her 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); 7)distributions from an IRA 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 tax year; 8)distributions from an IRA which are qualified first-time homebuyer distributions (as defined in Section 72(t)(8) of the Code); 9)distributions made to an alternate Payee pursuant to a qualified domestic relations order (does not apply to an IRA); and 10)a reservist called to active duty during the period between September 11, 2001 and December 31, 2007, for a period in excess of 179 days (or for an indefinite period), distributions from IRAs or amounts attributable to elective deferrals under a 401(k) plan made during such active period. The exception stated in (3) above applies to an IRA without the requirement that there be a separation from service. With respect to (3) above, if the series of substantially equal periodic payments is modified as permitted by the Code, before the later of the Annuitant attaining age 59 1/2 or the close of the five year period that began on the Income Date, then the tax for the year of the modification is increased by the 10% federal penalty tax, plus interest for the tax years in which the exception was used. A partial withdrawal taken after a series of substantially equal periodic payments has begun may result in the modification of the series of substantially equal payments and therefore could result in the imposition of the 10% federal penalty tax and interest for the period as described above, unless another exception to the federal penalty tax applies. You should obtain competent tax advice before you take any partial withdrawals from your Contract. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 52 Distributions from a Qualified Contract must commence no later than the required beginning date. For IRAs, the required beginning date is April 1 of the calendar year following the year in which you attain age 70 1/2. Under a qualified plan, the required beginning date is generally April 1 of the calendar year following the later of the calendar year in which you reach age 70 1/2 or retire. Generally, required minimum distributions must be made 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% federal penalty tax is imposed as to the amount not distributed. It is unclear whether a partial withdrawal taken after an Income Date will have an adverse impact on the determination of required minimum distributions. If you are attempting to satisfy these rules through partial withdrawals, the present value of future benefits provided under the Contract may need to be included in calculating the amount required to be distributed. If you are receiving Annuity Payments or are age 70 1/2 or older, you should consult with a tax adviser before taking a partial withdrawal. NOTE: The Worker, Retiree, and Employer Recovery Act of 2008 does not require minimum distributions for 2009 from a qualified retirement plan or IRA for a participant or beneficiary. This relief applies to funds held in deferred annuity contracts, but the relief does not apply to contracts that have been annuitized. ASSIGNMENTS, PLEDGES AND GRATUITOUS TRANSFERS Other than in the case of Qualified Contracts (which generally cannot be assigned or pledged), any assignment or pledge of (or agreement to assign or pledge) the Contract Value is treated for federal income tax purposes as a full withdrawal. The investment in the Contract is increased by the amount includible as income with respect to such amount or portion, though it is not affected by any other aspect of the assignment or pledge (including its release). If an Owner transfers a Contract without adequate consideration to a person other than the Owner's spouse (or to a former spouse incidental to divorce), the Owner will be taxed on the difference between his or her Contract Value and the investment in the Contract at the time of transfer and for each subsequent year until the assignment is released. In such case, the transferee's investment in the Contract will be increased to reflect the increase in the transferor's income. The transfer or assignment of ownership of the Contract, the designation of an Annuitant, the selection of certain Income Dates, or the exchange of the Contract may result in certain other tax consequences that are not discussed here. An Owner contemplating any such transfer, assignment, or exchange should consult a tax adviser as to the tax consequences. DEATH BENEFITS Any death benefits paid under the Contract are taxable to the recipient as ordinary income. The rules governing the taxation of payments from an annuity contract generally apply to the payment of death benefits and depend on whether the death benefits are paid as a lump sum or as Annuity Payments. Estate taxes may also apply. WITHHOLDING Annuity distributions are generally subject to withholding for the recipient's federal income tax liability. Recipients can, however, generally elect not to have tax withheld from distributions unless they are subject to mandatory state withholding. "Eligible rollover distributions" from qualified plans are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is any distribution to an employee (or employee's spouse or former spouse as Beneficiary or alternate Payee) from such a plan, except certain distributions such as distributions required by the Code, distributions in a specified annuity form, or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if the employee chooses a "direct rollover" from the Contract plan to a qualified plan, IRA, TSA or 403(b) plan, or to a governmental Section 457 plan that agrees to separately account for rollover contributions. FEDERAL ESTATE TAXES While no attempt is being made to discuss the federal estate tax implications of the Contract, an Owner should keep in mind that the value of an annuity contract owned by a decedent and payable to a Beneficiary by virtue of surviving the decedent is included in the decedent's gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated Beneficiary or the actuarial value of the payments to be received by the Beneficiary. Consult an estate planning adviser for more information. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 53 GENERATION-SKIPPING TRANSFER TAX Under certain circumstances, the Code may impose a "generation-skipping transfer tax" when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Owner. Regulations issued under the Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS. FOREIGN TAX CREDITS We may benefit from any foreign tax credits attributable to taxes paid by certain funds to foreign jurisdictions to the extent permitted under the federal tax law. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS The preceding discussion provides general information regarding federal income tax consequences to Owners that are U.S. citizens or residents. Owners that are not U.S. citizens or residents will generally be subject to federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, Owners may be subject to state and/or municipal taxes and taxes that may be imposed by the Owners' country of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S. state, and foreign taxation with respect to an annuity contract purchase. In Revenue Ruling 2004-75, 2004-31 I.R.B. 109, the IRS announced that income received by residents of Puerto Rico under life insurance policies or annuity contracts issued by a Puerto Rico branch of a United States life insurance company is U.S. source income that is generally subject to United States federal income tax. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative or regulatory changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation, regulation or otherwise. Consult a tax adviser with respect to legislative or regulatory developments and their effect on the Contract. We have the right to modify the Contract in response to legislative or regulatory changes that could otherwise diminish the favorable tax treatment that annuity owners currently receive. We make no guarantee regarding the tax status of any contract and do not intend the above discussion as tax advice. DIVERSIFICATION The Code provides that the underlying investments for a Non-Qualified variable annuity must satisfy certain diversification requirements in order to be treated as an annuity contract. We believe that the Investment Options are being managed so as to comply with the requirements. In some circumstances, owners of variable annuities who retain excessive control over the investment of the underlying separate account assets may be treated as the owners of those assets and may be subject to tax on income produced by those assets. Although published guidance in this area does not address certain aspects of the policies, we believe that the Owner should not be treated as the owner of the Separate Account assets. We reserve the right to modify the Contract to bring it into conformity with applicable standards should such modification be necessary to prevent Owners from being treated as the owners of the underlying Separate Account assets. REQUIRED DISTRIBUTIONS Section 72(s) of the Code requires that, to be treated as an annuity contract for federal income tax purposes, a Non-Qualified Contract must contain certain provisions specifying how amounts will be distributed in the event of the death of an Owner of the Contract. Specifically, Section 72(s) requires that: (a) if any Owner dies on or after you take a Full Annuitization, but before the time the entire interest in the Contract has been distributed, the entire interest in the Contract must be distributed at least as rapidly as under the method of distribution being used as of the date of the Owner's death; and (b) if any Owner dies before you take a Full Annuitization, the entire interest in the Contract must be distributed within five years after the date of the Owner's death. These requirements will be considered satisfied as to any portion of an Owner's interest that is payable to or for the benefit of a designated Beneficiary and that is distributed over the life of such designated Beneficiary, or over a period not extending beyond the life expectancy of that Beneficiary, provided that such distributions begin within one year of the Owner's death. The designated Beneficiary refers to an individual designated by the Owner as a Beneficiary and to whom ownership of the Contract passes by reason of death. However, if the designated Beneficiary is the surviving spouse of the deceased Owner, the Contract may be continued with the surviving spouse as the new Owner. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 54 Non-Qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. When such requirements are clarified by regulation or otherwise, we intend to review such provisions and modify them, as necessary, to assure that they comply with the applicable requirements. Other rules may apply to Qualified Contracts. 9. ACCESS TO YOUR MONEY The money in the Contract is available under the following circumstances: o by taking a withdrawal (including GPWB Payments); o by receiving Annuity Payments; or o when we pay a death benefit. You can only take withdrawals during the Accumulation Phase. When you make a withdrawal request, we will process the request based on the Accumulation Unit values next determined after receipt of the request at our Service Center. The Accumulation Unit values are normally determined at the end of each Business Day. Any withdrawal request received at or after the end of the current Business Day will receive the next Business Day's Accumulation Unit values. When you take a full withdrawal, we will process the withdrawal on the Business Day we receive the request in good order at our Service Center: o based upon the number of Accumulation Units held by the Contract on that Business Day and valued at the next available daily price, o less any applicable withdrawal charge, and o less any contract maintenance charge. See the Fee Tables and section 7, Expenses for a discussion of the charges. Any partial withdrawal must be for at least $500.* The Contract Value after a partial withdrawal must be at least $2,000.* WE RESERVE THE RIGHT TO TREAT A REQUEST FOR A PARTIAL WITHDRAWAL THAT WOULD REDUCE THE CONTRACT VALUE BELOW THIS MINIMUM AS A REQUEST FOR A FULL WITHDRAWAL OF THE CONTRACT. Unless you instruct us otherwise, we will deduct any partial withdrawal (including any withdrawal charge) proportionately from the Investment Choices. * These limitations do not apply to GPWB Payments. We will pay the amount of any withdrawal from the Investment Options within seven days of when we receive your request in good order, unless the suspension of payments or transfers provision is in effect (see the "Suspension of Payments or Transfers" discussion later in this section). Upon withdrawal, we assess the withdrawal charge against the Withdrawal Charge Basis. Penalty-free withdrawals and amounts withdrawn to pay the contract maintenance charge do not reduce the Withdrawal Charge Basis, but any other withdrawals of Purchase Payments will reduce the Withdrawal Charge Basis. Penalty-free withdrawals include the following amounts: withdrawals under the GPWB of the PRIME Plus Benefit that do not exceed the GPWB Maximum, withdrawals under the partial withdrawal privilege, withdrawals under the waiver of withdrawal charge benefit, and any amounts paid as part of a required minimum distribution. We also do not adjust the Withdrawal Charge Basis for any current withdrawal charges or any gains or losses on your Investment Options. THIS MEANS THAT IF YOU TAKE A FULL WITHDRAWAL WHILE THE WITHDRAWAL CHARGE APPLIES AND YOU HAVE TAKEN PENALTY-FREE WITHDRAWALS OR YOU HAVE HAD LOSSES IN YOUR INVESTMENT OPTIONS, YOU MAY BE ASSESSED A WITHDRAWAL CHARGE ON MORE THAN THE AMOUNT YOU ARE WITHDRAWING. IN SOME INSTANCES, YOU WILL NOT RECEIVE A DISTRIBUTION DUE TO THE AMOUNT OF THE WITHDRAWAL CHARGE. For more information, please see section 7, Expenses - Withdrawal Charge and the examples in Appendix F. ORDINARY INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU TAKE. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 55 PARTIAL WITHDRAWAL PRIVILEGE The partial withdrawal privilege for each Contract Year is equal to 12% of your total Purchase Payments, less any previous withdrawals taken during that Contract Year under the partial withdrawal privilege or as RMD payments. We will not deduct a withdrawal charge from amounts withdrawn under the partial withdrawal privilege. Any unused partial withdrawal privilege in one Contract Year carries over to the next Contract Year. THERE IS NO PARTIAL WITHDRAWAL PRIVILEGE AFTER YOU EXERCISE THE GPWB (IF APPLICABLE) OR DURING THE ANNUITY PHASE. HOWEVER, IF YOU EXERCISE THE GPWB (IF APPLICABLE) YOU CAN STILL TAKE GPWB PAYMENTS AND EXCESS WITHDRAWALS UP TO THE ANNUAL GPWB MAXIMUM WITHOUT A WITHDRAWAL CHARGE. EXCESS WITHDRAWALS (INCLUDING A FULL WITHDRAWAL OF THE CONTRACT VALUE) ARE AVAILABLE WHILE YOU ARE RECEIVING GPWB PAYMENTS, HOWEVER, AMOUNTS WITHDRAWN IN EXCESS OF THE ANNUAL GPWB MAXIMUM (INCLUDING GPWB PAYMENTS) ARE SUBJECT TO A WITHDRAWAL CHARGE AS SET OUT IN SECTION 7, EXPENSES - WITHDRAWAL CHARGE. You may not take a withdrawal under the partial withdrawal privilege in the same Contract Year that you take a withdrawal under a waiver of withdrawal charge benefits. For more information, see "Waiver of Withdrawal Charge Benefits" next in this section. If you withdraw Purchase Payments that are beyond the withdrawal charge period, those withdrawals are not subject to a withdrawal charge and they will not reduce your partial withdrawal privilege. If you withdraw a Purchase Payment that is subject to a withdrawal charge and the withdrawal is more than the partial withdrawal privilege, the excess amount will be subject to the withdrawal charge and it will reduce the Withdrawal Charge Basis unless the excess amount is part of a penalty-free withdrawal. If you take a full withdrawal, we will assess the withdrawal charge with no reduction for the partial withdrawal privilege. Amounts withdrawn under the partial withdrawal privilege do not reduce the Withdrawal Charge Basis. The minimum distribution program allows you to take withdrawals without the deduction of the withdrawal charge under certain circumstances. For more information, see "The Minimum Distribution Program and Required Minimum Distribution (RMD) Payments" discussion later in this section. WAIVER OF WITHDRAWAL CHARGE BENEFITS Under certain circumstances, after the first Contract Year, we will permit you to take money out of the Contract without deducting a withdrawal charge if any Owner becomes: o confined to a nursing home for a period of at least 90 consecutive days; o terminally ill, which is defined as life expectancy of 12 months or less (we will require a full withdrawal of the Contract in this instance); or o totally disabled for a period of at least 90 consecutive days. The waiver will not apply if any of the above conditions existed on the Issue Date. If the Contract is owned by a non-individual, we will base this benefit on the Annuitant. Also, after the first Contract Year, if you become unemployed for a period of at least 90 consecutive days, you can take up to 50% of your Contract Value out of the Contract without incurring a withdrawal charge. This benefit is available only once during the life of the Contract. You may not use both this benefit and the partial withdrawal privilege in the same Contract Year. When the Contract is owned by a qualified plan, this waiver does not apply. We require proof of these conditions in a form satisfactory to us before we will waive the withdrawal charge. Amounts withdrawn under this benefit do not reduce the Withdrawal Charge Basis. THESE WAIVERS VARY FROM STATE TO STATE AND MAY NOT BE AVAILABLE IN ALL STATES. CHECK WITH YOUR REGISTERED REPRESENTATIVE FOR DETAILS ON THE WAIVERS AVAILABLE IN YOUR STATE. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 56 SYSTEMATIC WITHDRAWAL PROGRAM If your Contract Value is at least $25,000, the systematic withdrawal program provides automatic monthly or quarterly payments to you. The minimum amount you can withdraw under this program is $500. There is no restriction on the maximum you may withdraw under this program if your Purchase Payments are no longer subject to the withdrawal charge. While the withdrawal charge is in effect, the systematic withdrawal program is subject to the partial withdrawal privilege. The total systematic withdrawals that you can take each Contract Year without incurring a withdrawal charge is limited to your partial withdrawal privilege amount for that Contract Year. With the exception of penalty-free withdrawals, any withdrawals in a Contract Year (including systematic withdrawals) will be subject to any applicable withdrawal charge. For more information, see section 7, Expenses - Withdrawal Charge and the "Partial Withdrawal Privilege" discussion that appears earlier in this section. All systematic withdrawals will be made on the ninth day of the month or the previous Business Day if the ninth is not a Business Day. You will not be charged additional fees for participating in or terminating from this program. ORDINARY INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO SYSTEMATIC WITHDRAWALS. YOU CANNOT PARTICIPATE IN THE SYSTEMATIC WITHDRAWAL PROGRAM AND THE MINIMUM DISTRIBUTION PROGRAM AT THE SAME TIME. YOU ALSO CANNOT EXERCISE THE GPWB AND PARTICIPATE IN THE SYSTEMATIC WITHDRAWAL PROGRAM AT THE SAME TIME. THE MINIMUM DISTRIBUTION PROGRAM AND REQUIRED MINIMUM DISTRIBUTION (RMD) PAYMENTS If you own a Qualified Contract, you may participate in the minimum distribution program during the Accumulation Phase of the Contract. Under this program, we will make payments to you from your Contract that are designed to meet the applicable minimum distribution requirements imposed by the Code for this Qualified Contract. We can make payments to you on a monthly, quarterly, or annual basis. However, we will only make annual payments if your Contract Value is less than $25,000. RMD payments from this Contract will not be subject to a withdrawal charge and will not reduce the Withdrawal Charge Basis. However, they will count against your partial withdrawal privilege. You cannot aggregate RMD payments between this Contract and other qualified contracts that you own. Any RMD payments from this Contract that exceed the RMD amount calculated for this Contract will be subject to any applicable withdrawal charge. If you take any additional withdrawals that are not penalty-free withdrawals while you are receiving RMD payments, withdrawals will be subject to any applicable withdrawal charge. This Contract offers a choice of GMDBs. Contracts with the PRIME Plus Benefit include a GMIB and GPWB. These benefits may have limited usefulness if you purchase a Qualified Contract that is subject to a RMD. If your Contract includes the PRIME Plus Benefit and you do not exercise the GMIB on or before the date RMD payments must begin under a qualified plan, the Owner or Beneficiary may not be able to exercise the GMIB due to the restrictions imposed by the minimum distribution requirements. You should consider whether the GMIB is appropriate for your situation if you plan to exercise the GMIB after your RMD beginning date. You also cannot participate in the minimum distribution program available under this Contract if you elect to receive GPWB Payments. Once you choose your GPWB Payment option, you cannot change it. Therefore, you may not be able to adjust your GPWB Payment to meet your RMD needs. In addition, RMD payments will reduce your GMDB, and PB Values. YOU CANNOT PARTICIPATE IN THE SYSTEMATIC WITHDRAWAL AND THE MINIMUM DISTRIBUTION PROGRAMS AT THE SAME TIME. YOU ALSO CANNOT EXERCISE THE GPWB AND PARTICIPATE IN THE MINIMUM DISTRIBUTION PROGRAM AT THE SAME TIME. WE ENCOURAGE PROSPECTIVE OWNERS WHO ARE CONSIDERING PURCHASING QUALIFIED CONTRACTS THAT ARE SUBJECT TO RMD PAYMENTS TO CONSULT A TAX ADVISER REGARDING THESE BENEFITS. INHERITED IRA CONTRACTS. If you (the Owner) were the spouse of the deceased owner of the previous tax-qualified investment, and your spouse had not yet reached the date at which he/she was required to begin receiving required minimum distribution (RMD) payments, then you can wait to begin receiving RMD payments until the year that your spouse would have reached age 70 1/2. Alternatively, if the deceased owner of the previous tax-qualified investment had already reached the date at which he/she was required to begin receiving RMD payments, you can begin RMD payments based on your single life expectancy in the year following the deceased owner's death, or (if longer) the deceased previous owner's life expectancy in the year of his/her death reduced by one. You must begin to receive these RMD payments by December 31 of the year following the year of the deceased previous owner's death. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 57 SUSPENSION OF PAYMENTS OR TRANSFERS We may be required to suspend or postpone payments for withdrawals (including GPWB Payments if available) or transfers for any period when: o the New York Stock Exchange is closed (other than customary weekend and holiday closings); o trading on the New York Stock Exchange is restricted; o an emergency (as determined by the SEC) exists as a result of which disposal of the Investment Option shares is not reasonably practicable or we cannot reasonably value the Investment Option shares; or o during any other period when the SEC, by order, so permits for the protection of Owners. We reserve the right to defer payment for a withdrawal or transfer from any general account Investment Choice for the period permitted by law, but not for more than six months. 10.ILLUSTRATIONS In order to help you understand how your Contract Values vary over time and under different sets of assumptions, we may provide you with certain personalized illustrations upon request and free of charge. These illustrations may provide hypothetical depictions of either the Accumulation Phase or the Annuity Phase. You can request an illustration free of charge by contacting your registered representative. 11.DEATH BENEFIT At Contract issue, you may be able to select one of three death benefit options. If you do not make a selection, the Traditional GMDB will apply to your Contract. THE DEATH BENEFIT IS ONLY AVAILABLE DURING THE ACCUMULATION PHASE OF THE CONTRACT. The Enhanced GMDB is available at Contract issue for an additional M&E charge if all Owners are age 79 or younger on the Issue Date (or the Annuitant is age 79 or younger if the Contract is owned by a non-individual). The Enhanced GMDB does not provide any additional benefit before the first Contract Anniversary and the benefit values are limited after age 81. As a result, any Owner who is nearing age 79 should determine if selecting the Enhanced GMDB (which has an additional cost) is appropriate for their situation. The Earnings Protection GMDB is available if all Owners are age 75 or younger on the Issue Date (or the Annuitant is age 75 or younger if the Contract is owned by a non-individual) for an additional M&E charge. The Earnings Protection GMDB values are reduced if any Owner is age 70 or older on the Issue Date. As a result, any Owner who is age 70 or older should determine if purchasing a benefit for which there is an additional cost is appropriate for their situation. THE DEATH BENEFIT PROVIDED BY THE ENHANCED GMDB AND THE EARNINGS PROTECTION GMDB WILL NEVER BE LESS THAN THE DEATH BENEFIT PROVIDED BY THE TRADITIONAL GMDB, BUT THEY MAY BE EQUAL. YOU CAN ONLY SELECT ONE DEATH BENEFIT AT CONTRACT ISSUE. ONCE YOU SELECT A DEATH BENEFIT, YOU CANNOT CHANGE OR CANCEL IT. THE ENHANCED GMDB AND/OR THE EARNINGS PROTECTION GMDB MAY NOT BE AVAILABLE IN YOUR STATE. CHECK WITH YOUR REGISTERED REPRESENTATIVE REGARDING AVAILABILITY AND BE SURE TO DISCUSS WHETHER YOUR SELECTED DEATH BENEFIT IS APPROPRIATE FOR YOUR SITUATION. The use of the term "you" in this section refers to the Annuitant if the Contract is owned by a non-individual; otherwise it refers to the Owner. We will process the death benefit based on the Accumulation Unit values next determined after receipt in good order at our Service Center of both due proof of death and an election of the death benefit payment option. WE CONSIDER DUE PROOF OF DEATH TO BE ANY OF THE FOLLOWING: a copy of the certified death certificate, a decree of court of competent jurisdiction as to the finding of death, or any other proof that we consider to be satisfactory. The Accumulation Unit values are normally determined at the end of each Business Day and due proof of death and an election of the death benefit payment option received at or after the end of the current Business Day will receive the next Business Day's Accumulation Unit values. Any part of the death benefit amount that had been invested in the Investment Options remains in the Investment Options until distribution begins. From the time the death benefit is determined until we make a complete distribution, any amount in the Investment Options will continue to be subject to investment risk that will be borne by the recipient. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 58 TRADITIONAL GUARANTEED MINIMUM DEATH BENEFIT (TRADITIONAL GMDB) If the Traditional GMDB applies, the amount of the death benefit will be the greater of 1 or 2. 1.The Contract Value, determined as of the end of the Business Day during which we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. 2.The Traditional GMDB value, which is the total of all Purchase Payments received before you exercise the GPWB (if applicable), reduced as follows. o Proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn (including any withdrawal charge) for each traditional annuitization or withdrawal taken before you exercise the GPWB (if applicable). o Proportionately by the percentage of PB Value applied to each GMIB Partial Annuitization taken before you exercise the GPWB (if applicable). ANY WITHDRAWALS TAKEN BEFORE YOU EXERCISE THE GPWB, EXCESS WITHDRAWALS, AND/OR AMOUNTS APPLIED TO TRADITIONAL PARTIAL ANNUITIZATIONS MAY REDUCE THE TRADITIONAL GMDB VALUE BY MORE THAN THE AMOUNT WITHDRAWN AND/OR ANNUITIZED. If the Contract Value at the time of withdrawal and/or annuitization is less than the Traditional GMDB value, we will deduct more than the amount withdrawn and/or annuitized from the Traditional GMDB value. ANY AMOUNTS APPLIED TO GMIB PARTIAL ANNUITIZATIONS MAY REDUCE THE TRADITIONAL GMDB VALUE BY MORE THAN THE AMOUNT ANNUITIZED. If the PB Value at the time of annuitization is less than the Traditional GMDB value, we will deduct more than the amount annuitized from the Traditional GMDB value. ENHANCED GUARANTEED MINIMUM DEATH BENEFIT (ENHANCED GMDB) If the Enhanced GMDB applies, the amount of the death benefit will be the greater of 1 or 2. 1.The Contract Value, determined as of the end of the Business Day during which we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. 2.The Enhanced GMDB value, determined as of the end of the Business Day during which we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. The Enhanced GMDB value is equal to the greater of: a) the 3% Annual Increase Amount (AIA), or b) the Maximum Anniversary Value (MAV). We only calculate the 3% AIA and the MAV until the date of any Owner's death. A.ANNUAL INCREASE AMOUNT (3% AIA) The 3% AIA on the Issue Date is equal to the initial Purchase Payment received on the Issue Date. On each Business Day other than a Contract Anniversary and before the exercise of the GPWB (if applicable), the 3% AIA is equal to: o its value on the immediately preceding Business Day, o plus any additional Purchase Payments received that day, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o reduced proportionately by the percentage of PB Value applied to a GMIB Partial Annuitization that day (if applicable). On each Contract Anniversary before the older Owner's 81st birthday (or the Annuitant's 81st birthday if the Contract is owned by a non-individual) and before the exercise of the GPWB (if applicable), the 3% AIA is equal to its value on the immediately preceding Business Day, increased by 3%. We then process any transactions we received on that Contract Anniversary (such as additional Purchase Payments, withdrawals, and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. Beginning with the Contract Anniversary that occurs on or after the older Owner's 81st birthday (or the Annuitant's 81st birthday if the Contract is owned by a non-individual) and before the exercise of the GPWB (if applicable), we calculate the 3% AIA in the same way that we do on each Business Day other than a Contract Anniversary. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 59 WE LIMIT THE 3% AIA TO A MAXIMUM OF 1.5 TIMES YOUR TOTAL PURCHASE PAYMENTS, REDUCED AS FOLLOWS: o proportionately, by the percentage of PB Value applied to each GMIB Partial Annuitization (if applicable). o proportionately, by the percentage of Contract Value withdrawn (including any withdrawal charge) and/or annuitized for each of the following: withdrawals taken before you exercise the GPWB, amounts applied to traditional Partial Annuitizations (not subject to a withdrawal charge), GPWB Payments (not subject to a withdrawal charge), and/or Excess Withdrawals. B.MAXIMUM ANNIVERSARY VALUE (MAV) The MAV on the Issue Date is equal to your initial Purchase Payment received on the Issue Date. On each Business Day other than a Contract Anniversary and before the exercise of the GPWB (if applicable), the MAV is equal to: o its value on the immediately preceding Business Day, o plus any additional Purchase Payments received that day, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o reduced proportionately by the percentage of PB Value applied to a GMIB Partial Annuitization that day (if applicable). On each Contract Anniversary before the older Owner's 81st birthday (or the Annuitant's 81st birthday if the Contract is owned by a non-individual) and before the exercise of the GPWB (if applicable), the MAV is equal to the greater of its value on the immediately preceding Business Day, or the Contract Value that occurs on that Contract Anniversary before we process any transactions. We then process any transactions received on that Contract Anniversary (such as additional Purchase Payments, withdrawals and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. Beginning with the Contract Anniversary that occurs on or after the older Owner's 81st birthday (or the Annuitant's 81st birthday if the Contract is owned by a non-individual) and before the exercise of the GPWB (if applicable), we calculate the MAV in the same way that we do on each Business Day other than a Contract Anniversary. ANY WITHDRAWALS TAKEN BEFORE YOU EXERCISE THE GPWB AND/OR AMOUNTS APPLIED TO TRADITIONAL PARTIAL ANNUITIZATIONS MAY REDUCE THE 3% AIA AND MAV BY MORE THAN THE AMOUNT WITHDRAWN AND/OR ANNUITIZED. If the Contract Value at the time of withdrawal and/or annuitization is less than the 3% AIA (or MAV as applicable), we will deduct more than the amount withdrawn and/or annuitized from the 3% AIA (or MAV as applicable). ANY AMOUNTS APPLIED TO GMIB PARTIAL ANNUITIZATIONS MAY REDUCE THE 3% AIA AND MAV BY MORE THAN THE AMOUNT ANNUITIZED. If the PB Value at the time of annuitization is less than the 3% AIA (or MAV as applicable), we will deduct more than the amount annuitized from the 3% AIA (or MAV as applicable). EARNINGS PROTECTION GUARANTEED MINIMUM DEATH BENEFIT (EARNINGS PROTECTION GMDB) If the Earnings Protection GMDB applies, the amount of the death benefit will be the greater of 1 or 2. 1.The Contract Value, determined as of the end of the Business Day during which we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. 2.The Earnings Protection GMDB value, determined as of the end of the Business Day during which we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. The Earnings Protection GMDB value is equal to the greater of C. Total Payments, or D. Contract Value Plus (CV Plus). We only calculate these values until the Business Day during which we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. The Earnings Protection GMDB carries a higher charge than the Traditional GMDB, and may carry a higher charge than the Enhanced GMDB. We will assess this charge even if the death benefit under the Earnings Protection GMDB is no greater than the death benefit under the Traditional GMDB or the Enhanced GMDB because you have not experienced any earnings under your Contract. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 60 C.TOTAL PAYMENTS Before you exercise the GPWB (if applicable) total payments are equal to the total Purchase Payments received, less adjusted partial withdrawals.
PW X DB CV
GMIBPA X DB PA
PW = The amount of any Contract Value applied to a traditional Partial Annuitization or withdrawn (including any withdrawal charge). GMIBPA = The amount of any PB Value applied to a GMIB Partial Annuitization. DB = The greater of: (a) Contract Value, or (b) total Purchase Payments, minus prior adjusted partial withdrawals on the date of (but before) the current partial withdrawal. CV = The Contract Value on the date of (but before) the partial withdrawal. PA = The PB Value on the date of (but before) the partial withdrawal. ANY WITHDRAWALS TAKEN BEFORE YOU EXERCISE THE GPWB AND/OR AMOUNTS APPLIED TO TRADITIONAL PARTIAL ANNUITIZATIONS MAY REDUCE THE TOTAL PAYMENTS BY MORE THAN THE AMOUNT WITHDRAWN AND/OR ANNUITIZED. If the Contract Value at the time of withdrawal and/or annuitization is less than the total payments, we will deduct more than the amount withdrawn and/or annuitized from the total payments. ANY AMOUNTS APPLIED TO GMIB PARTIAL ANNUITIZATIONS MAY REDUCE THE TOTAL PAYMENTS BY MORE THAN THE AMOUNT ANNUITIZED. If the PB Value at the time of annuitization is less than the total payments, we will deduct more than the amount annuitized from the total payments. D.CONTRACT VALUE PLUS (CV PLUS) Before exercise of the GPWB (if applicable), CV Plus is equal to the Contract Value, PLUS o If you were age 69 or younger on the Issue Date, 50% of the lesser of (a) or (b), or o If you were age 70 or older on the Issue Date, 30% of the lesser of (a) or (b), where: (a)Is the Contract Value as determined in number 1 above, minus total Purchase Payments received. (b)Is three times the total Purchase Payments received in the first two Contract Years. NOTE FOR CONTRACTS WITH THE PRIME PLUS BENEFIT: If you exercise the GPWB, then on and after the exercise date: o the Traditional GMDB value, Enhanced GMDB value, or Earnings Protection GMDB value that applies to your Contract will stop increasing, and each GPWB Payment we make and any Excess Withdrawals you take will reduce the GMDB Value proportionately by the percentage of Contract Value withdrawn (including any withdrawal charge); o the death benefit that is equal to your Contract Value will continue to fluctuate with market performance but it will decrease with each GPWB Payment we make and any Excess Withdrawals you take; and o the increased M&E charge associated with the Enhanced GMDB or Earnings Protection GMDB (if applicable) will continue as long as the Enhanced GMDB value or the Earnings Protection GMDB value is greater than zero. Please see Appendix E for examples of calculations of the death benefit. TERMINATION OF THE DEATH BENEFIT THE GMDB THAT APPLIES TO YOUR CONTRACT WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o The Business Day before the Income Date that you take a Full Annuitization, INCLUDING A REQUIRED FULL ANNUITIZATION ON THE MAXIMUM PERMITTED INCOME DATE. For more information, see section 3, The Annuity Phase. o The Business Day that the GMDB value and Contract Value are both zero. o Contract termination. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 61 DEATH OF THE OWNER UNDER INHERITED IRA CONTRACTS Upon the death of the Owner under an Inherited IRA Contract, the Beneficiary can either: o continue to receive the required minimum distribution payments based on the remaining life expectancy of the deceased Owner and the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and the appropriately completed election form; or o receive a lump sum payment based on the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and the appropriately completed election form. DEATH OF THE OWNER AND/OR ANNUITANT UNDER ALL OTHER CONTRACTS The following tables are intended to help you better understand what happens upon the death of any Owner and/or Annuitant under the different portions of the Contract. FOR QUALIFIED CONTRACTS, THERE CAN BE ONLY ONE OWNER AND THE OWNER MUST BE THE ANNUITANT, UNLESS THE CONTRACT IS A QUALIFIED CONTRACT OWNED BY A QUALIFIED PLAN OR IS PART OF A CUSTODIAL ARRANGEMENT. PARTIAL ANNUITIZATIONS ARE NOT AVAILABLE TO JOINT OWNERS. IF YOU TAKE A PARTIAL ANNUITIZATION, THERE CAN BE ONLY ONE OWNER; THE OWNER MUST BE THE ANNUITANT, AND WE WILL NOT ALLOW THE OWNER TO ADD A JOINT ANNUITANT. DESIGNATING DIFFERENT PERSONS AS OWNER(S) AND ANNUITANT(S) CAN HAVE AN IMPORTANT IMPACT ON WHETHER A DEATH BENEFIT IS PAID, AND ON WHO WOULD RECEIVE IT. USE CARE WHEN DESIGNATING OWNERS AND ANNUITANTS, AND CONSULT YOUR REGISTERED REPRESENTATIVE IF YOU HAVE QUESTIONS. UPON THE DEATH OF A SOLE OWNER ACTION UNDER THE PORTION OF THE CONTRACT THAT IS IN THE ACCUMULATION PHASE o We will pay a death benefit to the Beneficiary.* For a description of the payout options, see the "Death Benefit Payment Options" discussion later in this section. o If the GPWB was in effect, it will terminate unless the deceased Owner's spouse continues the Contract. ACTION UNDER ANY PORTION OF THE CONTRACT APPLIED TO ANNUITY PAYMENTS o The Beneficiary becomes the Owner. o If the deceased was not an Annuitant, Annuity Payments to the Payee will continue. No death benefit is payable. o If the deceased was the only surviving Annuitant, Annuity Payments to the Payee will continue until that portion of the Contract terminates and will be paid at least as rapidly as they were being paid at the Annuitant's death. For more information on when any portion of the Contract applied to Traditional Annuity Payments terminates, see section 3, The Annuity Phase - Traditional Annuity Payments. For more information on when any portion of the Contract applied to GMIB Payments terminates, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - Termination of the GMIB. No death benefit is payable under Annuity Options 1 through 4, or Annuity Option 6. However, there may be a lump sum refund due to the Payee under Annuity Option 5. For more information, see section 3, The Annuity Phase - Annuity Options. o If the deceased was an Annuitant and there is a surviving joint Annuitant, Annuity Payments to the Payee will continue during the lifetime of the surviving joint Annuitant. No death benefit is payable. * If the Beneficiary is the spouse of the deceased Owner, the spouse who is also the Beneficiary may be able to continue the Contract instead of receiving a death benefit payout. If the Contract continues, we will increase the Contract Value to equal the death benefit if that amount is greater than the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and an election to continue the Contract on the death claim form. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 62 UPON THE DEATH OF A JOINT OWNER (NOTE: WE DO NOT ALLOW JOINT OWNERS TO TAKE PARTIAL ANNUITIZATIONS) ACTION UNDER THE PORTION OF THE CONTRACT THAT IS IN THE ACCUMULATION PHASE o The surviving Joint Owner is the sole primary Beneficiary. If the Joint Owners were spouses there may also be contingent Beneficiaries. o We will pay a death benefit to the surviving Joint Owner.* For a description of the payout options available, see the "Death Benefit Payment Options" discussion later in this section. o If the GPWB was in effect, it will terminate unless the Joint Owners were spouses and the surviving spouse who is also the Joint Owner continues the Contract. ACTION UNDER ANY PORTION OF THE CONTRACT APPLIED TO ANNUITY PAYMENTS o The surviving Joint Owner becomes the sole Owner. o If the deceased was not an Annuitant, Annuity Payments to the Payee will continue. No death benefit is payable. o If the deceased was the only surviving Annuitant, Annuity Payments to the Payee will continue until that portion of the Contract terminates and will be paid at least as rapidly as they were being paid at the Annuitant's death. For more information on when any portion of the Contract applied to Traditional Annuity Payments terminates, see section 3, The Annuity Phase - Traditional Annuity Payments. For more information on when any portion of the Contract applied to GMIB Payments terminates, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - Termination of the GMIB. No death benefit is payable under Annuity Options 1 through 4, or Annuity Option 6. However, there may be a lump sum refund due to the Payee under Annuity Option 5. For more information, see section 3, The Annuity Phase - Annuity Options. o If the deceased was an Annuitant and there is a surviving joint Annuitant, Annuity Payments to the Payee will continue during the lifetime of the surviving joint Annuitant. No death benefit is payable. * If the surviving Joint Owner is the spouse of the deceased Owner, the spouse who is also the surviving Joint Owner may be able to continue the Contract instead of receiving a death benefit payout. If the Contract continues, we will increase the Contract Value to equal the death benefit if that amount is greater than the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and an election to continue the Contract on the death claim form. If both spousal Joint Owners die before we pay the death benefit, we will pay any contingent Beneficiaries or the estate of the Joint Owner who died last if there are no contingent Beneficiaries. If the Joint Owners were not spouses and they both die before we pay the death benefit, for tax reasons, we will pay the estate of the Joint Owner who died last. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 63 UPON THE DEATH OF THE ANNUITANT AND THERE IS NO SURVIVING JOINT ANNUITANT ACTION UNDER THE PORTION OF THE CONTRACT THAT IS IN THE ACCUMULATION PHASE o If the Contract is owned by a non-individual (for example a qualified plan or a trust), we will treat the death of the Annuitant as the death of an Owner; we will pay the Beneficiary* a death benefit, and a new Annuitant cannot be named. If the GPWB was in effect, it will terminate unless the deceased Owner's spouse continues the Contract. o If the deceased Annuitant was not an Owner, and the Contract is owned only by an individual(s), no death benefit is payable. The Owner can name a new Annuitant subject to our approval. If the GPWB was in effect, it will continue. o If the deceased Annuitant was a sole Owner, we will pay the Beneficiary* a death benefit. If the GPWB was in effect, it will terminate unless the deceased Owner's spouse continues the Contract. o If the deceased Annuitant was a Joint Owner and there is a surviving Joint Owner, the surviving Joint Owner is the sole primary Beneficiary. If the Joint Owners were spouses, there may also be contingent Beneficiaries. We will pay a death benefit to the surviving Joint Owner.** If the GPWB was in effect, it will terminate unless the Joint Owners were spouses and the surviving spouse who is also the Joint Owner continues the Contract. o For a description of the payout options, see the "Death Benefit Payment Options" discussion later in this section. ACTION UNDER ANY PORTION OF THE CONTRACT APPLIED TO ANNUITY PAYMENTS o Annuity Payments to the Payee will continue until that portion of the Contract terminates and will be paid at least as rapidly as they were being paid at the Annuitant's death. For more information on when any portion of the Contract applied to Traditional Annuity Payments terminates, see section 3, The Annuity Phase - Traditional Annuity Payments. For more information on when any portion of the Contract applied to GMIB Payments terminates, see section 4, Protected Retirement Income Made Easy: The PRIME Plus Benefit - Termination of the GMIB. No death benefit is payable under Annuity Options 1 through 4, or Annuity Option 6. However, there may be a lump sum refund due to the Payee under Annuity Option 5. For more information, see section 3, The Annuity Phase - Annuity Options. o If the deceased was a sole Owner, the Beneficiary will become the Owner if the Contract continues. o If the deceased was a Joint Owner, the surviving Joint Owner becomes the sole Owner if the Contract continues. * If the Beneficiary is the spouse of the deceased Owner, the spouse who is also the Beneficiary may be able to continue the Contract instead of receiving a death benefit payout. If the Contract continues, we will increase the Contract Value to equal the death benefit if that amount is greater than the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and an election to continue the Contract on the death claim form. **If the surviving Joint Owner is the spouse of the deceased Owner, the spouse who is also the surviving Joint Owner may be able to continue the Contract instead of receiving a death benefit payout. If the Contract continues, we will increase the Contract Value to equal the death benefit if that amount is greater than the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and an election to continue the Contract on the death claim form. If both spousal Joint Owners die before we pay the death benefit, we will pay any contingent Beneficiaries or the estate of the Joint Owner who died last if there are no contingent Beneficiaries. If the Joint Owners were not spouses and they both die before we pay the death benefit, for tax reasons, we will pay the estate of the Joint Owner who died last. UPON THE DEATH OF THE ANNUITANT AND THERE IS A SURVIVING JOINT ANNUITANT (NOTE: WE DO NOT ALLOW JOINT ANNUITANTS UNDER A PARTIAL ANNUITIZATION AND WE DO NOT ALLOW JOINT ANNUITANTS DURING THE ACCUMULATION PHASE, SO THIS CAN ONLY OCCUR UNDER A FULL ANNUITIZATION) o Only Annuity Options 3 and 4 allow joint Annuitants. Under Annuity Options 3 and 4, Annuity Payments to the Payee will continue during the lifetime of the surviving joint Annuitant and, for Annuity Option 4, during any remaining specified period of time. For more information, see section 3, The Annuity Phase - Annuity Options. o No death benefit is payable. o If the deceased was a sole Owner, the Beneficiary will become the Owner. o If the deceased was a Joint Owner, the surviving Joint Owner becomes the sole Owner. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 64 DEATH BENEFIT PAYMENT OPTIONS If you have not previously designated a death benefit payment option, a Beneficiary must request the death benefit be paid under one of the death benefit payment options below. If the Beneficiary is the spouse of the deceased Owner, he/she can choose to continue the Contract in his/her own name. With respect to the Earnings Protection GMDB, the Contract Value is then treated as the total Purchase Payments in the calculation of the death benefit for the Contract continued by the spouse. An election by the spouse to continue the Contract must be made on the death claim form before we pay the death benefit. If the Contract continues, we will increase the Contract Value to equal the death benefit if that amount is greater than the Contract Value as of the Business Day we receive in good order at our Service Center both due proof of death and an election of the death benefit payment option. If the surviving spouse continues the Contract, he or she may exercise all of the Owner's rights under this Contract, including naming a new Beneficiary or Beneficiaries. If the surviving spouse continues the Contract, any optional benefits will also continue with the possible exception of the GMIB Payments under the PRIME Plus Benefit, which can only continue if the surviving spouse is also an Annuitant. For more information, please see section 4, The PRIME Plus Benefit - Termination of the GMIB. If a lump sum payment is requested, we will pay the amount within seven days of our receipt of proof of death and a valid election of a death benefit payment option, including any required governmental forms, unless the suspension of payments or transfers provision is in effect. Payment of the death benefit may be delayed, pending receipt of any applicable tax consents and/or state forms. OPTION A: Lump sum payment of the death benefit. We will not deduct the contract maintenance charge at the time of a full withdrawal if the distribution is due to death. OPTION B: Payment of the entire death benefit within five years of the date of any Owner's death. We will assess the contract maintenance charge on each Beneficiary's portion on each Contract Anniversary. However, we will waive the contract maintenance charge if the Contract Value at the time we are to deduct the charge is at least $100,000. OPTION C: If the Beneficiary is an individual, payment of the death benefit as a Traditional Annuity Payment under an Annuity Option over the lifetime of the Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary. Distribution under this option must begin within one year of the date of any Owner's death. We will continue to assess the full contract maintenance charge on each Beneficiary's portion proportionately over the Traditional Annuity Payments. However, we will waive the contract maintenance charge if the Contract Value on the Income Date is at least $100,000. GMIB PAYMENTS ARE NOT AVAILABLE UNDER THIS OPTION. Any portion of the death benefit not applied to Traditional Annuity Payments within one year of the date of the Owner's death must be distributed within five years of the date of death. If the Contract is owned by a non-individual, then we treat the death of any Annuitant as the death of an Owner for purposes of the Internal Revenue Code's distribution at death rules, which are set forth in Section 72(s) of the Code. In all events, notwithstanding any provision to the contrary in the Contract or this prospectus, the Contract will be interpreted and administered in accordance with Section 72(s) of the Code. 12.OTHER INFORMATION ALLIANZ LIFE Allianz Life is a stock life insurance company organized under the laws of the state of Minnesota in 1896. Our address is 5701 Golden Hills Drive, Minneapolis, MN 55416. We offer fixed and variable annuities, individual and group life insurance, and long-term care insurance. We are licensed to do direct business in 49 states and the District of Columbia. We are a subsidiary of Allianz SE, a provider of integrated financial services. THE SEPARATE ACCOUNT We established Allianz Life Variable Account B (the Separate Account) as a separate account under Minnesota insurance law on May 31, 1985. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. The SEC does not supervise our management of the Separate Account. The Separate Account holds the assets that underlie the Contracts, except assets allocated to our general account. We keep the Separate Account assets separate from the assets of our general account and other separate accounts. The Separate Account is divided into subaccounts, each of which invests exclusively in a single Investment Option. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 65 We own the assets of the Separate Account. We credit gains to or charge losses against the Separate Account, whether or not realized, without regard to the performance of other investment accounts. The Separate Account's assets may not be used to pay any of our liabilities, other than those arising from the Contracts. If the Separate Account's assets exceed the required reserves and other liabilities, we may transfer the excess to our general account. Amounts transferred to our general account will represent seed money invested by us or earned fees and charges. The obligations of the Separate Account are not generalized obligations of Allianz Life. The obligations under the Contracts are obligations of Allianz Life. DISTRIBUTION Allianz Life Financial Services, LLC (Allianz Life Financial), a wholly-owned subsidiary of Allianz Life Insurance Company of North America, serves as principal underwriter for the Contracts. Allianz Life Financial, a limited liability company organized in Minnesota, is located at 5701 Golden Hills Drive, Minneapolis, MN 55416. Allianz Life Financial is registered as a broker/dealer with the SEC under the Securities Exchange Act of 1934 (the 1934 Act), as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority (FINRA). Allianz Life Financial is not a member of Securities Investors Protection Corporation. More information about Allianz Life Financial is available at http://www.finra.org or by calling 1-800-289-9999. You also can obtain an investor brochure from FINRA describing its Public Disclosure Program. We have entered into a distribution agreement with our affiliate Allianz Life Financial for the distribution and sale of the Contracts. Allianz Life Financial also may perform various administrative services on our behalf. Allianz Life Financial does not itself sell the Contracts on a retail basis. Rather, Allianz Life Financial enters into selling agreements with other broker/dealers registered under the 1934 Act (selling firms) for the sale of the Contracts. These selling firms include third party broker/dealers and Questar Capital Corporation, an affiliated broker/dealer. We pay sales commissions to the selling firms and their registered representatives. Investment Options that assess Rule 12b-1 fees make payments of the fees to Allianz Life Financial as consideration for providing certain services and incurring certain expenses permitted under the Investment Option's plan. These payments typically equal 0.25% of an Investment Option's average daily net assets for the most recent calendar year. The investment adviser and/or subadviser (and/or their affiliates) of an Investment Option may from time to time make payments for administrative services to Allianz Life Financial or its affiliates. The maximum commission payable to the selling firms for Contract sales is expected to not exceed 7% of Purchase Payments. Sometimes, we enter into an agreement with a selling firm to pay commissions as a combination of a certain amount of the commission at the time of sale and a trail commission which, when totaled, could exceed 7% of Purchase Payments. We may fund Allianz Life Financial's operating and other expenses, including: overhead; legal and accounting fees; registered representative training; compensation for the Allianz Life Financial management team; and other expenses associated with the Contracts. Registered representatives and their managers are also eligible for various benefits, such as production incentive bonuses, insurance benefits, and non-cash compensation items that we may provide jointly with Allianz Life Financial. Non-cash items include conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, awards, merchandise and other similar items. Selling firms and their registered representatives and managers may receive other payments from us for administrative issues and for services that do not directly involve the sale of the Contracts, including payments made for the recruitment and training of personnel, production of promotional literature and similar services. In addition, certain firms and their representatives may receive compensation for distribution and administrative services when acting in a wholesaling capacity and working with retail firms. We and/or Allianz Life Financial may pay certain selling firms additional marketing support allowances for: o marketing services and increased access to registered representatives; o sales promotions relating to the Contracts; o costs associated with sales conferences and educational seminars for their registered representatives; o the cost of client meetings and presentations; and o other sales expenses incurred by them. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 66 We retain substantial discretion in determining whether to grant a marketing support payment to a particular broker/dealer firm and the amount of any such payment. However, we do consider a number of specific factors in determining marketing support payments, which may include a review of the following: o the level of existing sales and assets held in contracts issued by us that are sold through the broker/dealer firm and the potential for new or additional sales; o the organizational "fit" between the broker/dealer firm and the type of wholesaling and marketing force we operate; o whether the broker/dealer firm's operational, IT, and support services structure and requirements are compatible with our method of operation; o whether the broker/dealer firm's product mix is oriented toward our core markets; o whether the broker/dealer firm has a structure facilitating a marketing support arrangement, such as frequent registered representative meetings and training sessions; o the potential return on investment of investing in a particular firm's system; o our potential ability to obtain a significant level of the market share in the broker/dealer firm's distribution channel; o the broker/dealer firm's registered representative and customer profiles; and o the prominence and reputation of the broker/dealer firm in its marketing channel. We may also make payments for marketing and wholesaling support to broker/dealer affiliates of Investment Options that are available through the variable annuities we offer. Additional information regarding marketing support payments can be found in the Distributor section of the Statement of Additional Information. We and/or Allianz Life Financial may make bonus payments to certain selling firms based on aggregate sales of our variable insurance contracts (including this Contract) or persistency standards, or as part of a special promotion. These additional payments are not offered to all selling firms, and the terms of any particular agreement governing the payments may vary among selling firms. In some instances, the amount paid may be significant. A portion of the payments made to selling firms may be passed on to their registered representatives in accordance with their internal compensation programs. Those programs may also include other types of cash and non-cash compensation and other benefits. Ask your registered representative for further information about what your registered representative and the selling firm for which he or she works may receive in connection with your purchase of a Contract. We intend to recover commissions and other sales expenses through fees and charges imposed under the Contract. Commissions paid on the Contract, including other incentives or payments, are not charged directly to the Owners or the Separate Account. We offer the Contracts to the public on a continuous basis. We anticipate continuing to offer the Contracts but reserve the right to discontinue the offering. ADDITIONAL CREDITS FOR CERTAIN GROUPS We may credit additional amounts to a Contract instead of modifying charges because of special circumstances that result in lower sales or administrative expenses or better than expected mortality or persistency experience. ADMINISTRATION/ALLIANZ SERVICE CENTER The Allianz Service Center performs certain administrative services regarding the Contracts and is located at 5701 Golden Hills Drive, Minneapolis, Minnesota. The Service Center mailing address and telephone number are listed at the back of this prospectus. The administrative services performed by our Service Center include: o issuance and maintenance of the Contracts, o maintenance of Owner records, o processing and mailing of account statements and other mailings to Owners, and o routine customer service including: - responding to Owner correspondence and inquiries, - processing of Contract changes, - processing withdrawal requests (both partial and total) and - processing annuitization requests. To reduce expenses, only one copy of most financial reports and prospectuses, including reports and prospectuses for the Investment Options, will be mailed to your household, even if you or other persons in your household have more than The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 67 one contract issued by us or our affiliate. Call us at the toll-free number listed at the back of this prospectus if you need additional copies of financial reports, prospectuses, or annual and semiannual reports, or if you would like to receive one copy for each contract in future mailings. LEGAL PROCEEDINGS We and our subsidiaries, like other life insurance companies, from time to time are involved in legal proceedings of various kinds, including regulatory proceedings and individual and class action lawsuits. In some legal proceedings involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any such proceedings cannot be predicted with certainty, we believe that, at the present time, there are no pending or threatened legal proceedings to which we, the Separate Account, or Allianz Life Financial is a party that are reasonably likely to materially affect the Separate Account, our ability to meet our obligations under the Contracts, or Allianz Life Financial's ability to perform its obligations. FINANCIAL STATEMENTS The consolidated financial statements of Allianz Life and the financial statements of the Separate Account have been included in the Statement of Additional Information. 13.GLOSSARY This prospectus is written in plain English to make it as understandable as possible. However, there are some technical words or terms that are defined below and are capitalized in the prospectus. The following is a list of common abbreviations used in this prospectus:
AIA = ANNUAL INCREASE AMOUNT GPWB = GUARANTEED PARTIAL WITHDRAWAL BENEFIT CV PLUS = CONTRACT VALUE PLUS MAV = MAXIMUM ANNIVERSARY VALUE GMDB = GUARANTEED MINIMUM DEATH BENEFIT PRIME = PROTECTED RETIREMENT INCOME MADE EASY GMIB = GUARANTEED MINIMUM INCOME BENEFIT
ACCUMULATION PHASE - the period of time before you apply the entire Contract Value to Annuity Payments. Subject to certain restrictions, you can make additional Purchase Payments during this time. The Accumulation Phase may occur at the same time as the Annuity Phase if you take Partial Annuitizations. ACCUMULATION UNIT - the units into which we convert amounts invested in the subaccounts that invest in the Investment Options during the Accumulation Phase. AIA (ANNUAL INCREASE AMOUNT) - a calculation used in determining the PB Value under the PRIME Plus Benefit, and in determining the GMDB value under the Enhanced GMDB. ANNUITANT - the individual upon whose life we base the Annuity Payments. Subject to our approval, the Owner designates the Annuitant and can add a joint Annuitant for the Annuity Phase if they take a Full Annuitization. ANNUITY OPTIONS - the income options available to you under the Contract. ANNUITY PAYMENTS - payments made by us to the Payee pursuant to the Annuity Option chosen. Annuity Payments may be variable, fixed, or a combination of both variable and fixed. ANNUITY PHASE - the phase the Contract is in once Annuity Payments begin. This may occur at the same time as the Accumulation Phase if you take a Partial Annuitization. ANNUITY UNIT - the units into which we convert amounts invested in the subaccounts that invest in the Investment Options during the Annuity Phase. BASE CONTRACT - the contract corresponding to this prospectus that does not include the PRIME Plus Benefit. BENEFICIARY - the person(s) or entity the Owner designates to receive any death benefit. BUSINESS DAY - each day on which the New York Stock Exchange is open for trading, except when an Investment Option does not value its shares. Allianz Life is open for business on each day that the New York Stock Exchange is open. Our Business Day closes when regular trading on the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern Time. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 68 CONTRACT - the deferred annuity contract described by this prospectus that allows you to accumulate money tax deferred by making one or more Purchase Payments. It provides for lifetime or other forms of Annuity Payments beginning on the Income Date. CONTRACT ANNIVERSARY - a 12-month anniversary of the Issue Date of your Contract. If the Contract Anniversary does not occur on a Business Day, we will consider it to occur on the next Business Day. CONTRACT VALUE - on any Business Day it is equal to the sum of the values in your selected Investment Choices. It does not include amounts applied to Annuity Payments. CONTRACT YEAR - any period of 12 months commencing on the Issue Date and on each Contract Anniversary thereafter. EXCESS WITHDRAWAL - for Contracts with the PRIME Plus Benefit that exercise the GPWB, this is an additional withdrawal you take while you are receiving GPWB Payments. FULL ANNUITIZATION - the application of the entire Contract Value to Annuity Payments. YOU WILL BE REQUIRED TO TAKE A FULL ANNUITIZATION OF YOUR CONTRACT ON OR BEFORE THE MAXIMUM PERMITTED INCOME DATE IF, AT THAT TIME, YOUR CONTRACT VALUE HAS NOT BEEN REDUCED TO ZERO. Upon Full Annuitization you will no longer have a Contract Value, any periodic withdrawal or income payments other than Annuity Payments (which includes GPWB Payments) will stop, and the death benefit will terminate. GMDB (GUARANTEED MINIMUM DEATH BENEFIT) - you can select one of three GMDBs at Contract issue, subject to certain age restrictions and state availability. These GMDBs may provide different guaranteed death benefit values. The Traditional GMDB is the default death benefit, or you can select either the Enhanced GMDB or Earnings Protection GMDB for an additional M&E charge. GMIB (GUARANTEED MINIMUM INCOME BENEFIT) - a feature under the PRIME Plus Benefit that provides a guaranteed minimum fixed income in the form of Annuity Payments based on the PB Value. You must wait at least seven Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven Contract Years after the date of any 7% AIA reset before you can exercise the GMIB and it can only be exercised within 30 days following a Contract Anniversary. GMIB PAYMENTS - Annuity Payments we make to the Payee based on the PB Value. GPWB (GUARANTEED PARTIAL WITHDRAWAL BENEFIT) - a feature under the PRIME Plus Benefit that provides a guaranteed minimum amount of income in the form of partial withdrawals based on the PB Value. You must wait seven Contract Years after the date the PRIME Plus Benefit is added to your Contract, or seven Contract Years after the date of any 7% AIA reset before you can exercise the GPWB and it can only be exercised within 30 days following a Contract Anniversary. GPWB MAXIMUM - if you have a Contract with the PRIME Plus Benefit and you exercise the GPWB, this is the annual limit of guaranteed partial withdrawals (or GPWB Payments) available to you under the GPWB. The GPWB Maximum is equal to 5% of the PB Value if you select the 5% payment option, or 10% of the PB Value if you select the 10% payment option. GPWB PAYMENTS - withdrawal payments we make to the Owner based on the PB Value. INCOME DATE - the date we begin making Annuity Payments to the Payee from the Contract. This date must be the first day of a calendar month. Because the Contract allows for Partial Annuitizations there may be multiple Income Dates. INVESTMENT CHOICES - the Investment Options and any general account Investment Choices available under the Contract for Purchase Payments or transfers. We may add, substitute or remove Investment Choices in the future. INVESTMENT OPTIONS - the variable Investment Choices available under the Separate Account. You may invest in up to 15 of the Investment Options at any one time. ISSUE DATE - the date shown on the Contract that starts the first Contract Year. Contract Anniversaries and Contract Years are measured from the Issue Date. JOINT OWNERS - two Owners who own a Non-Qualified Contract. We do not allow Joint Owners to take Partial Annuitizations. MAV (MAXIMUM ANNIVERSARY VALUE) - a calculation used in determining the PB Value under the PRIME Plus Benefit, and in determining the GMDB value under the Enhanced GMDB. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 69 NON-QUALIFIED CONTRACT - a Contract that is not purchased under a pension or retirement plan qualified under sections of the Internal Revenue Code. OWNER - "you," "your" and "yours." The person or entity (or persons or entities if there are Joint Owners) named in the Contract who may exercise all rights granted by the Contract. The Owner is designated at Contract issue. PARTIAL ANNUITIZATION - the application of only part of the Contract Value to Traditional Annuity Payments (or part of the PB Value to GMIB Payments if your Contract includes the PRIME Plus Benefit). If you take a Partial Annuitization, the Accumulation Phase and Annuity Phase of the Contract may occur at the same time. You can take one Partial Annuitization every 12 months. The maximum number of annuitizations we allow at any one time is five. Partial Annuitizations are not available to Joint Owners. If you take a Partial Annuitization, there can be only one Owner, the Owner must be the Annuitant, and we will not allow the Owner to designate a joint Annuitant. PAYEE - the person or entity you designate (subject to our approval) to receive Annuity Payments during the Annuity Phase. If you do not designate a Payee by the Income Date, we will make Annuity Payments to the Owner. PB VALUE - the amount used to calculate GPWB Payments and GMIB Payments under the PRIME Plus Benefit. PRIME (PROTECTED RETIREMENT INCOME MADE EASY) PLUS BENEFIT - an optional benefit package that includes a GMIB and GPWB and carries a higher M&E charge. You may add the PRIME Plus Benefit once before age 76 and later remove it from the Contract if you so choose. We designed the PRIME Plus Benefit to give you options for turning your accumulated retirement assets into a stream of retirement income. PURCHASE PAYMENT - the money you put in the Contract. QUALIFIED CONTRACT - a Contract purchased under a pension or retirement plan qualified under sections of the Internal Revenue Code (for example, 401(k) and H.R. 10 plans), Individual Retirement Annuities (IRAs), or Tax-Sheltered Annuities (referred to as TSA or 403(b) contracts). Currently, we may issue Qualified Contracts that may include, but are not limited to Roth IRAs, Traditional IRAs, Simplified Employee Pension (SEP) IRAs and Inherited IRAs. SEPARATE ACCOUNT - Allianz Life Variable Account B is the Separate Account that issues your Contract. It is a separate investment account of Allianz Life. The Separate Account holds the assets invested in the Investment Options that underlie the Contracts. The Separate Account is divided into subaccounts, each of which invests exclusively in a single Investment Option. SERVICE CENTER - the Allianz Service Center. Our Service Center address and telephone number are listed at the back of this prospectus. TRADITIONAL ANNUITY PAYMENTS - Annuity Payments we make to the Payee based on the Contract Value. WITHDRAWAL CHARGE BASIS - the total amount under your Contract that is subject to a withdrawal charge. 14.TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION (SAI) ALLIANZ LIFE......................2 EXPERTS...........................2 LEGAL OPINIONS....................2 DISTRIBUTOR.......................2 REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE3 FEDERAL TAX STATUS................3 General.........................3 Diversification.................4 Owner Control...................4 Contracts Owned by Non-Individuals5 Income Tax Withholding..........5 Required Distributions..........5 Qualified Contracts.............5 ANNUITY PROVISIONS................6 Annuity Units/Calculating Annuity Payments7 MORTALITY AND EXPENSE RISK GUARANTEE7 INFORMATION ON MAY 2003 CONTRACTS.7 INFORMATION ON CONTRACTS THAT WERE OFFERED BEFORE APRIL 29, 2005............15 INFORMATION ON ORIGINAL CONTRACTS16 FINANCIAL STATEMENTS.............17 APPENDIX - CONDENSED FINANCIAL INFORMATION18 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 70 15.PRIVACY AND SECURITY STATEMENT MARCH 2009 Your privacy is a high priority for Allianz. Our pledge to protect your privacy is reflected in our Privacy and Security Statement. This statement outlines our principles for collecting, using and protecting information that we gather about you. This statement applies to all of the companies within the Allianz family of companies that issue insurance policies. The law allows us to share your information among our insurance companies. The law does not allow you to prevent these disclosures. A list of our companies can be found at the end of this notice. ALLIANZ DOES NOT SELL YOUR INFORMATION TO ANYONE We do not share your information with anyone for their own marketing purposes. For this reason, we are not required to obtain an "opt-in election," an "opt-out election" or an authorization from you. We also do not share your information with any of our affiliated companies outside of the Allianz family of companies. INFORMATION ABOUT YOU THAT ALLIANZ COLLECTS Allianz collects information about you so that we can process the insurance transactions you request. We limit the amount of your information collected to what we feel is needed to maintain your account. We may collect your information from the following sources: o From you, either directly or through your agent. This may include information on your insurance application or other forms you may complete, such as your name, address and telephone number. o From others, through the process of handling a claim. This may include information from medical or accident reports. o From your doctor or during a home visit by a health assessment professional. This may include medical information about you gathered with your written authorization. o From your relationship with us, such as the number of years you have been a customer or the types of insurance products you purchased. o From a consumer reporting agency such as a medical, credit, or motor vehicle report. The information in these reports may be kept by the agency and shared with others. If you visit one of our websites, we may use "cookies" (small text files sent from our site to your hard drive). These cookies help us to recognize repeat visitors and allow easy access to and use of the site. We do not use cookies to gather your information. The cookies only enable you to use our website more easily. INFORMATION ABOUT YOU THAT ALLIANZ SHARES Allianz does not share information about current or former customers with anyone, except as "allowed by law." "Allowed by law" means that we may share your information, such as your name, address, and policy information, as follows: o With consumer reporting agencies to obtain a medical report, credit report, or motor vehicle report. These reports are used to determine eligibility for coverage or to process your requested transactions. o With your insurance agent so that they can perform services for you. o With medical professionals in order to process your claim. o With a state Department of Insurance in order to examine our records or business practices. o With a state or federal law enforcement agency, as required by law or to report suspected fraud activities. o With research groups to conduct studies on claims results. No individual is identified in any study or report. We advise the vendors with whom we legally share your information of our privacy policy. We make every effort to use vendors whose privacy policy reflects our own. ALLIANZ POLICIES AND PRACTICES REGARDING SECURITY OF YOUR INFORMATION Allianz uses computer hardware and software tools to maintain physical and electronic safeguards. These safeguards comply with applicable federal and state regulations. We restrict access to information about you to those employees who need the information to service your policy. Allianz works to ensure that our websites are secure. We use state of the art technology to protect the information that may be shared over these sites. YOUR ABILITY TO ACCESS AND CORRECT YOUR INFORMATION You have the right to access and get a copy of your information. This does not include the right to access and copy your information related to a claim or civil or criminal proceeding. If you wish to review your information, please write us at the address below. Provide your full name, address and policy number(s). For your protection, please have your request notarized. This will ensure the identity of the person requesting your information. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 71 Within 30 working days of our receipt of your written request, you may see and get a copy of your information in person. If you prefer, we will send you a copy of your information. If medical information is contained in your file, we may request that you name a medical professional to whom we will send your information. If you believe any of your information is incorrect, notify us in writing at the address below. Within 30 working days, we will let you know if our review has resulted in a correction of your information. If we do not agree there is an error, you may file a statement disputing our finding. We will attach the statement to your file. We will send any corrections we make, or your statement, to anyone we shared your information with over the past two years, and to anyone who may receive your information from us in the future. We do not control the information about you obtained from a consumer reporting agency or a Department of Motor Vehicles. We will provide you with the names and addresses of these agencies so that you can contact them directly. MONTANA RESIDENTS: You may write to us and also ask for a record of any disclosure of your medical information made within the last three years. NOTIFICATION OF CHANGE Your trust is one of our most important assets. If we revise our privacy practices in the future, we will notify you prior to introducing any changes. This Privacy and Security Statement is also displayed on our website (www.allianzlife.com). FOR MORE INFORMATION OR IF YOU HAVE QUESTIONS If you have any questions or concerns about our privacy policies or procedures, please call the Corporate Compliance Department at 800.328.5600, write us at the following address, or visit www.allianzlife.com. Allianz Life Insurance Company of North America PO Box 1344 Minneapolis, MN 55440-1344 Allianz family of companies: o Allianz Life Insurance Company of North America o Allianz Life Financial Services, LLC o Allianz Life and Annuity Company M40018 (R-3/2009) The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 72 APPENDIX A - ANNUAL OPERATING EXPENSES FOR EACH INVESTMENT OPTION This table describes, in detail, the annual expenses for each of the Investment Options. We show the expenses as a percentage of an Investment Option's average daily net assets for the most recent calendar year. Except for the AZL Funds, the PIMCO VIT portfolios, and the Premier VIT OpCap Mid Cap Portfolio, neither the Investment Options nor their advisers are affiliated with Allianz Life. Expenses may vary in current and future years. The investment advisers for the Investment Options provided the fee and expense information and we did not independently verify it. See the Investment Options' prospectuses for further information regarding the expenses you may expect to pay.
INVESTMENT OPTION MANAGEMENT RULE SERVICE OTHER ACQUIRED TOTAL ANNUAL AMOUNT OF TOTAL ANNUAL FEES 12B-1 FEES EXPENSES FUND FEES OPERATING EXPENSES CONTRACTUAL OPERATING EXPENSES FEES* AND BEFORE CONTRACTUAL FEE WAIVERS AFTER CONTRACTUAL EXPENSES FEE WAIVERS OR AND FEE WAIVERS OR EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS REIMBURSEMENTS AIM AZL AIM International Equity .90 .25 - .20 - 1.35 - 1.35 Fund[(1)] BLACKROCK AZL BlackRock Capital .80 .25 - .14 - 1.19 - 1.19 Appreciation Fund[(1)] AZL BlackRock Growth .85 .25 - .12 - 1.22 - 1.22 Fund[(1)] AZL International Index .35 .25 - .10 - .70 - .70 Fund[(1),(6)] AZL Money Market Fund[(1)] .35 .25 - .09 - .69 - .69 BlackRock Global Allocation .65 .25 - .13 - 1.03 - 1.03 V.I. Fund - Class 3 COLUMBIA AZL Columbia Mid Cap Value .75 .25 - .12 - 1.12 - 1.12 Fund[(1)] AZL Columbia Small Cap Value .90 - - .32 - 1.22 .12 1.10 Fund - Class 1[(1),(8),(9)] AZL Columbia Small Cap Value .90 .25 - .32 - 1.47 .12 1.35 Fund - Class 2[(1),(8)] AZL Columbia Technology .81 .25 - .15 - 1.21 - 1.21 Fund[(1)] DAVIS AZL Davis NY Venture Fund - .75 - - .10 - .85 - .85 Class 1[(1),(8),(9)] AZL Davis NY Venture Fund - .75 .25 - .10 - 1.10 - 1.10 Class 2[(1),(8)] Davis VA Financial .75 - - .13 - .88 - .88 Portfolio[(7)] Davis VA Value Portfolio[(7)] .75 - - .07 - .82 - .82 DREYFUS AZL Dreyfus Equity Growth .77 .25 - .07 - 1.09 - 1.09 Fund[(1)] AZL S&P 500 Index Fund - .17 - - .21 - .38 .14 .24 Class 1[(1),(8),(9)] AZL S&P 500 Index Fund - .17 .25 - .21 - .63 .14 .49 Class 2[(1),(8)] AZL Small Cap Stock Index .26 .25 - .24 - .75 .17 .58 Fund - Class 2[(1)] FIRST TRUST AZL First Trust Target Double .60 .25 - .13 - .98 .19 .79 Play Fund[(1)] FRANKLIN TEMPLETON AZL Franklin Small Cap Value .75 .25 - .10 - 1.10 - 1.10 Fund[(1)] AZL Franklin Templeton .70 .25 - .25 - 1.20 - 1.20 Founding Strategy Plus Fund - Class 2[(1),(6)] Franklin Global Real Estate .80 .25 - .30 - 1.35 .32 1.03 Securities Fund - Class 2[(4)] Franklin Growth and Income .50 .25 - .05 - .80 - .80 Securities Fund - Class 2[(3) ] Franklin High Income .57 .25 - .09 - .91 - .91 Securites Fund - Class 2[(3)] Franklin Income Securities .45 .25 - .02 - .72 - .72 Fund - Class 2[(3)] The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 73 Franklin Large Cap Growth .73 .25 - .04 - 1.02 - 1.02 Securities Fund - Class 2[(3)] Franklin Rising Dividends .60 .25 - .02 .01 .88 .01 .87 Securities Fund - Class 2[(3),(5)] Franklin Small-Mid Cap Growth .50 .25 - .28 .02 1.05 .02 1.03 Securities Fund - Class 2[(5)] Franklin Small Cap Value .52 .25 - .16 .01 .94 .01 .93 Securities Fund - Class 2[(5)] Franklin Templeton VIP .00 .25 - .13 .65 1.03 .03 1.00 Founding Funds Allocation Fund - Class 2[(10)] Franklin U.S. Government Fund .49 .25 - .04 - .78 - .78 - Class 2[(3)] Franklin Zero Coupon Fund .60 - - .08 - .68 - .68 2010 - Class 1[(3)] Mutual Global Discovery .80 .25 - .18 - 1.23 - 1.23 Securities Fund - Class 2 Mutual Shares Securities Fund .60 .25 - .13 - .98 - .98 - Class 2 Templeton Foreign Securities .64 .25 - .15 .02 1.06 .02 1.04 Fund - Class 2[(5)] Templeton Global Bond .47 .25 - .11 - .83 - .83 Securities Fund - Class 2[(3)] Templeton Growth Securities .74 .25 - .04 - 1.03 - 1.03 Fund - Class 2[(3)] JENNISON AZL Jennison 20/20 Focus .75 .25 - .10 - 1.10 - 1.10 Fund[(1)] J.P. MORGAN AZL JPMorgan Large Cap Equity .75 .25 - .10 - 1.10 - 1.10 Fund[(1)] AZL JPMorgan U.S. Equity Fund .80 - - .23 - 1.03 .08 .95 - Class 1[(1),(8),(9)] AZL JPMorgan U.S. Equity Fund .80 .25 - .23 - 1.28 .08 1.20 - Class 2[(1),(8)] NICHOLAS-APPLEGATE AZL NACM International .85 .25 - .35 - 1.45 - 1.45 Fund[(1)] OPPENHEIMER CAPITAL AZL OCC Growth Fund[(1),(6)] .75 .25 - .20 - 1.20 - 1.20 AZL OCC Opportunity Fund[(1)] .85 .25 - .14 - 1.24 - 1.24 OpCap Mid Cap Portfolio[(11)] .80 - - .18 - .98 - .98 OPPENHEIMER FUNDS AZL Oppenheimer Global Fund - .90 - - .22 - 1.12 - 1.12 Class 1[(1),(8),(9)] AZL Oppenheimer Global Fund - .90 .25 - .22 - 1.37 - 1.37 Class 2[(1),(8)] AZL Oppenheimer International .75 .25 - .17 - 1.17 - 1.17 Growth Fund[(1)] Oppenheimer Global Securities .63 - - .02 - .65 - .65 Fund/VA - Non Service Class [(7)] Oppenheimer High Income .74 - - .06 - .80 - .80 Fund/VA - Non Service Class[ (7)] Oppenheimer Main Street .64 - - .02 - .66 - .66 Fund[{R}]/VA - Non Service Class[ (7)] PIMCO AZL PIMCO Fundamental .75 .25 - .22 - 1.22 .02 1.20 IndexPLUS Total Return Fund[(1)] PIMCO VIT All Asset Portfolio .425 - .15 - .76 1.335 .02 1.315 - Admin. Class[(7),(12),(13)] The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 74 PIMCO VIT CommodityRealReturn .74 - .15 .17 .09 1.15 .09 1.06 Strategy Portfolio - Admin. Class[(2),(7),(13)] PIMCO VIT Emerging Markets .85 - .15 .13 - 1.13 - 1.13 Bond Portfolio - Admin. Class[(7)] PIMCO VIT Global Bond .75 - .15 .07 - .97 - .97 Portfolio (Unhedged) - Admin. Class[(7)] PIMCO VIT Global Multi-Asset .95 - .15 .09 .66 1.85 .75 1.10 Portfolio - Admin. Class[(6)] PIMCO VIT High Yield .60 - .15 - - .75 - .75 Portfolio - Admin. Class[(7)] PIMCO VIT Real Return .50 - .15 .06 - .71 - .71 Portfolio - Admin. Class[(7)] PIMCO VIT .35 - .15 .34 - .84 - .84 StocksPLUS[{R}] Growth and Income Portfolio - Admin. Class[(7)] PIMCO VIT Total Return .50 - .15 .23 - .88 - .88 Portfolio - Admin. Class[(7)] PRUDENTIAL SP International Growth .85 .25 - .29 - 1.39 - 1.39 Portfolio - Class 2[(7)] SP Strategic Partners Focused .90 .25 - .48 - 1.63 - 1.63 Growth Portfolio - Class 2[(7)] SCHRODER AZL Schroder Emerging Markets 1.23 .25 - .45 - 1.93 .28 1.65 Equity Fund[(1)] AZL Schroder International 1.00 .25 - .28 - 1.53 - 1.53 Small Cap Fund[(1)] SELIGMAN Seligman Smaller-Cap Value 1.00 - - .22 - 1.22 - 1.22 Portfolio - Class 1[(7)] TARGETPLUS PORTFOLIOS AZL TargetPLUS Balanced .52 .25 - .53 - 1.30 .41 .89 Fund[(1)] AZL TargetPLUS Equity .60 .25 - .24 - 1.09 .30 .79 Fund[(1)] AZL TargetPLUS Growth .52 .25 - .36 - 1.13 .24 .89 Fund[(1)] AZL TargetPLUS Moderate .52 .25 - .44 - 1.21 .32 .89 Fund[(1)] TURNER AZL Turner Quantitative Small .85 .25 - .14 - 1.24 - 1.24 Cap Growth Fund[(1)] VAN KAMPEN AZL Van Kampen Comstock .73 .25 - .09 - 1.07 - 1.07 Fund[(1)] AZL Van Kampen Equity and .75 .25 - .13 - 1.13 - 1.13 Income Fund[(1)] AZL Van Kampen Global .95 .25 - .14 - 1.34 - 1.34 Franchise Fund[(1)] AZL Van Kampen Global Real .90 .25 - .27 - 1.42 .07 1.35 Estate Fund[(1)] AZL Van Kampen Growth and .76 .25 - .11 - 1.12 - 1.12 Income Fund[(1)] AZL Van Kampen Mid Cap Growth .80 .25 - .09 - 1.14 - 1.14 Fund[(1)]
* The 12b-1 fees cover certain distribution and shareholder support services provided by the companies selling Contracts. Our principal underwriter, Allianz Life Financial Services, LLC, will receive 12b-1 fees, except for those classes of shares that do not pay a 12b-1 fee, as identified by footnote (8). The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 75 (1)Allianz Investment Management LLC (AZL), the Investment Option's investment adviser, and the Investment Option have entered into a written contract limiting operating expenses to the "after waiver" amount listed above through April 30, 2010. The operating expenses covered by the expense limitation agreement include fees deducted from Investment Option assets such as audit fees and payments to independent trustees, but do not include the operating expenses of other investment companies in which the Investment Option may invest (acquired fund fees and expenses). The Investment Option is authorized to reimburse AZL for management fees previously waived and/or for the cost of other expenses paid by AZL provided that such reimbursement will not cause the Investment Option to exceed the expense limits in effect at the time of such reimbursement. The Investment Option's ability to reimburse AZL in this manner only applies to fees paid or reimbursement made by AZL within the three fiscal years prior to the date of such reimbursement. (2)PIMCO has contractually agreed to waive the management fee and the administration fee it receives from the Portfolio in an amount equal to the management fee paid to PIMCO by the subsidiary. This waiver may not be terminated by PIMCO and will remain in effect for as long as PIMCO's contract with the subsidiary is in place. (3)The Fund administration fee is paid indirectly through the management fee. (4)The manager and administrator have contractually agreed in advance to waive or limit their respective fees so that the increase in investment management and fund administration fees paid by the Fund are phased in over a five year period, with there being no increase in the rate of such fees for the first year ending April 30, 2008. For each of the four years thereafter through April 30, 2012, the manager and administrator will receive one-fifth of the increase in the rate of fees. Beginning May 1, 2012, the full new investment management and administration fees will then be in effect. It is estimated that the increase for the year ending April 30, 2010 will be 0.14%. In future years the fee rates will vary in accordance with the fee rate schedules and fund assets. (5)The manager has agreed in advance to reduce its fee from assets invested by the Fund in a Franklin Templeton money market fund (the acquired fund) to the extent that the Fund's fees and expenses are due to those of the acquired fund. This reduction is required by the Trust's board of trustees and an exemptive order of the Securities and Exchange Commission (SEC); this arrangement will continue as long as the exemptive order is relied upon. (6)The Investment Option commenced operations under this Contract as of April 27, 2009. Therefore, the expenses shown are estimated for the current calendar year. (7)We may enter into certain arrangements under which we, or our affiliate Allianz Life Financial Services, LLC, the principal underwriter for the Contracts, are compensated by the Investment Options' advisers, distributors and/or affiliates for the administrative services and benefits which we provide to the Investment Options. The amount of the compensation usually is based on the aggregate assets of the Investment Options of other investment portfolios from contracts that we issue or administer. Some advisers may pay us more or less than others, however, the maximum fee that we currently receive is at the annual rate of 0.25% of the average aggregate amount invested by us in the Investment Options. (8)The Investment Option has both Class 1 shares and Class 2 shares. Class 2 shares pay a 12b-1 fee of up to 0.25% of its average daily assets. Class 1 shares do not pay a 12b-1 fee. (9)Not currently available. (10)The Fund's administrator has contractually agreed to waive or limit its fee and to assume as its own expense certain expenses of the Fund, so that common annual operating expenses of the fund do not exceed 0.10% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2010. The Fund does not pay management fees but will indirectly bear its proportionate share of any management fees and other expenses paid by the underlying funds (or "acquired funds") in which it invests. Acquired funds' estimated fees and expenses are based on the acquired funds' expenses for the fiscal year ended December 31, 2008. (11)OpCap Advisors has contractually agreed to reduce the total annual portfolio operating expenses to the extent they would exceed 1.00% (net of any expenses offset by earnings credits from the custodian bank) of the Portfolio's average daily net assets. This reduction of annual portfolio operating expenses is guaranteed by OpCap Advisors through December 31, 2015. Net portfolio operating expenses do not reflect a reduction of custody expenses offset by custody credits earned on cash balances at the custodian bank. (12)Acquired fund fees and expenses (underlying fund expenses) for the Portfolio are based upon an allocation of the Portfolio's assets among the underlying funds and upon the total annual operating expenses of the institutional class shares of these underlying funds. Acquired fund fees and expenses will vary with changes in the expenses of the underlying funds, as well as allocation of the Portfolio's assets, and may be higher or lower than those shown above. (13)PIMCO has contractually agreed to waive or reduce the advisory fee and/or administration fee. PIMCO may recoup these waivers in future periods, not exceeding three years, provided total expenses, including such recoupment, does not exceed the annual expense limit. See the Investment Option prospectus for further information. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 76 This table describes, in detail, the annual expenses for each of the AZL Fund of Funds. We show the expenses as a percentage of an Investment Option's average daily net assets. The underlying funds may pay 12b-1 fees to the distributor of the Contracts for distribution and/or administrative services. The underlying funds do not pay service fees or 12b-1 fees to the AZL Fund of Funds and the AZL Fund of Funds do not pay service fees or 12b-1 fees. The underlying funds of the AZL Fund of Funds may pay service fees to the insurance companies issuing variable contracts, or their affiliates, for providing customer service and other administrative services to contract purchasers. The amount of such service fees may vary depending on the underlying fund.
INVESTMENT OPTION MANAGEMENT FEES RULE OTHER EXPENSES TOTAL ACQUIRED FUND TOTAL ANNUAL AMOUNT OF TOTAL ANNUAL 12B-1 FEES AND OPERATING EXPENSES CONTRACTUAL OPERATING EXPENSES FEES* EXPENSES[(2)] BEFORE CONTRACTUAL FEE WAIVERS AFTER CONTRACTUAL FEE WAIVERS OR AND FEE WAIVERS OR EXPENSE REIMBURSEMENTS EXPENSE REIMBURSEMENTS REIMBURSEMENTS FUND OF FUNDS AZL Allianz .05 - .15 .20 1.06 1.26 - 1.26 Global Investors Select Fund[(1),(3)] AZL Balanced .05 - .15 .20 .63 .83 - .83 Index Strategy Fund[(1),(3)] AZL Fusion .20 - .04 .24 1.25 1.49 - 1.49 Balanced Fund[(1),(4)] AZL Fusion .20 - .20 .40 .91 1.31 .05 1.26 Conservative Fund[(1),(3),(4)] AZL Fusion Growth .20 - .03 .23 1.36 1.59 - 1.59 Fund[(1),(4)] AZL Fusion .20 - .04 .24 1.29 1.53 - 1.53 Moderate Fund[(1),(4)] AZL Moderate .05 - .15 .20 .61 .81 - .81 Index Strategy Fund[(1),(3)]
* The 12b-1 fees cover certain distribution and shareholder support services provided by the companies selling Contracts. Our principal underwriter, Allianz Life Financial Services, LLC, will receive 12b-1 fees. (1)Allianz Investment Management LLC (AZL), the Investment Option's investment adviser, and the Investment Option have entered into a written contract limiting operating expenses (excluding certain fund expenses including, but not limited to, any taxes, interest, brokerage fees or extraordinary expenses) from exceeding 0.35% for the AZL Fusion Conservative Fund, 0.30% for the other three Fusion Funds, and 0.20% for the AZL Allianz Global Investors Select Fund, AZL Balanced Index Strategy Fund, and the AZL Moderate Index Strategy Fund, through at least April 30, 2010. The operating expenses covered by the expense limitation include fees deducted from fund assets such as audit fees and payments to outside trustees, but do not include the operating expenses of other investment companies in which the funds may invest (acquired fund fees and expenses). Acquired fund fees and expenses are incurred indirectly by the Investment Option(s) through the Investment Option's investment in permitted underlying funds. Accordingly, acquired fees and expenses affect the Investment Option's total returns. The Investment Option is authorized to reimburse AZL for fees previously waived and/or for the cost of other expenses paid by AZL provided that such reimbursement will not cause the Investment Option to exceed the expense limits in effect at the time of such reimbursement. AZL may request and receive reimbursement of fees waived or limited and other reimbursements made by AZL. The Investment Option's ability to reimburse AZL in this manner only applies to fees paid or reimbursement made by AZL within the three fiscal years prior to the date of such reimbursement. (2)Persons with Contract Value allocated to the AZL Fund of Funds will also indirectly pay the expenses of the underlying funds. The underlying fund fees and expenses are an estimate. These expenses will vary, depending upon the allocation of assets to individual underlying funds. In addition, it can be expected that underlying funds may be added or deleted as investments, with a resulting change in expenses. The investment advisers to the underlying funds or their affiliates may pay "service fees" to Allianz Life or its affiliates for providing customer service and other administrative services to Contract purchasers. The amount of such fees may vary by underlying fund. The underlying funds may also pay Rule 12b-1 distribution fees to the distributor of the Contracts. The underlying funds do not pay service fees or 12b-1 fees to the AZL Fund of Funds and the AZL Fund of Funds do not pay service fees or 12b-1 fees. (3)The Investment Option commenced operations under this Contract as of April 27, 2009. Therefore the expenses shown are estimated for the current calendar year. (4)Effective December 1, 2008, (effective April 27, 2009, for AZL Fusion Conservative Fund) the Manager and the Fund entered into a written agreement whereby the Manager has voluntarily reduced the management fee to 0.15% through April 30, 2010. If this voluntary fee reduction were reflected in the table, the net annual operating expenses would be lower. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 77 APPENDIX B - 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. Accumulation Unit value (AUV) information corresponding to the highest and lowest combination of charges for the Contract currently offered by this prospectus is listed in the tables below. You can find AUV information corresponding to the additional combinations of charges in the appendix to the Statement of Additional Information. This information should be read in conjunction with the financial statements and related notes of the Separate Account included in the Statement of Additional Information. The Statement of Additional Information is available without charge by contacting us at the telephone number or address listed at the back of this prospectus.
* KEY TO BENEFIT OPTION SEPARATE ACCOUNT ANNUAL EXPENSES[(1)] Allianz Alterity - Base Contract with the Traditional GMDB 1.50% Allianz Alterity - Contract with the Earnings Protection GMDB and the PRIME Plus Benefit 2.45%
(1)The Separate Account annual expenses for a May 2003 Contract with the Traditional GMDB and No PRIME Benefit (1.50%) and a May 2003 Contract with the Earnings Protection GMDB and Enhanced PRIME Benefit (2.45%) are the same as the expenses for the currently offered Contract, therefore the AUV information is the same. Please see the Statement of Additional Information for more information on the May 2003 Contract. The following Investment Options commenced operations under this Contract after December 31, 2008. Therefore, no AUV information is shown for them: AZL Allianz Global Investors Select Fund; AZL Balanced Index Strategy Fund; AZL[ ]Franklin Templeton Founding Strategy Plus Fund; AZL Fusion Conservative Fund; AZL International Index Fund; AZL Moderate Index Strategy Fund; AZL OCC Growth Fund; and PIMCO VIT Global Multi-Asset Portfolio. (Number of Accumulation Units in thousands)
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
AZL AIM International Equity Fund 1.50% 12/31/2003 N/A 10.118 10 12/31/2004 10.118 12.172 22 12/31/2005 12.172 13.954 47 12/31/2006 13.954 17.464 77 12/31/2007 17.464 19.718 112 12/31/2008 19.718 11.361 71 2.45% 12/31/2003 N/A 9.959 16 12/31/2004 9.959 11.867 70 12/31/2005 11.867 13.475 173 12/31/2006 13.475 16.706 282 12/31/2007 16.706 18.683 311 12/31/2008 18.683 10.663 261 AZL BlackRock Capital Appreciation Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.959 25 12/31/2006 11.959 11.967 60 12/31/2007 11.967 13.075 64 12/31/2008 13.075 8.195 52
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.883 50 12/31/2006 11.883 11.779 110 12/31/2007 11.779 12.747 108 12/31/2008 12.747 7.914 108 AZL BlackRock Growth Fund 1.50% 12/31/2003 N/A 10.143 5 12/31/2004 10.143 10.798 22 12/31/2005 10.798 11.814 28 12/31/2006 11.814 11.720 66 12/31/2007 11.720 13.278 93 12/31/2008 13.278 5.140 288 2.45% 12/31/2003 N/A 9.983 38 12/31/2004 9.983 10.527 71 12/31/2005 10.527 11.409 89 12/31/2006 11.409 11.211 97 12/31/2007 11.211 12.581 236 12/31/2008 12.581 4.824 644 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 78
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
AZL Columbia Mid Cap Value Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.070 6 12/31/2007 10.070 10.302 22 12/31/2008 10.302 4.856 22 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.006 21 12/31/2007 10.006 10.139 34 12/31/2008 10.139 4.734 55 AZL Columbia Small Cap Value Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.050 11 12/31/2005 12.050 12.273 19 12/31/2006 12.273 13.712 27 12/31/2007 13.712 12.394 37 12/31/2008 12.394 8.291 40 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.973 47 12/31/2005 11.973 12.080 73 12/31/2006 12.080 13.369 87 12/31/2007 13.369 11.969 97 12/31/2008 11.969 7.931 97 AZL Columbia Technology Fund 1.50% 12/31/2003 N/A 8.713 8 12/31/2004 8.713 8.211 13 12/31/2005 8.211 8.146 38 12/31/2006 8.146 8.231 19 12/31/2007 8.231 9.952 34 12/31/2008 9.952 4.840 31 2.45% 12/31/2003 N/A 8.536 33 12/31/2004 8.536 7.968 86 12/31/2005 7.968 7.830 102 12/31/2006 7.830 7.837 121 12/31/2007 7.837 9.386 160 12/31/2008 9.386 4.521 133 AZL Davis NY Venture Fund 1.50% 12/31/2003 N/A 9.944 17 12/31/2004 9.944 10.829 78 12/31/2005 10.829 11.701 160 12/31/2006 11.701 13.131 216 12/31/2007 13.131 13.471 303 12/31/2008 13.471 7.896 428
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A 9.741 27 12/31/2004 9.741 10.508 160 12/31/2005 10.508 11.248 355 12/31/2006 11.248 12.503 474 12/31/2007 12.503 12.705 506 12/31/2008 12.705 7.376 1021 AZL Dreyfus Equity Growth Fund 1.50% 12/31/2003 N/A 8.794 10 12/31/2004 8.794 9.331 31 12/31/2005 9.331 9.612 31 12/31/2006 9.612 10.693 62 12/31/2007 10.693 11.455 170 12/31/2008 11.455 6.587 164 2.45% 12/31/2003 N/A 8.615 36 12/31/2004 8.615 9.055 69 12/31/2005 9.055 9.239 93 12/31/2006 9.239 10.182 169 12/31/2007 10.182 10.804 468 12/31/2008 10.804 6.153 353 AZL First Trust Target Double Play Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.598 76 12/31/2008 10.598 4.838 73 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.497 153 12/31/2008 10.497 4.746 126 AZL Franklin Small Cap Value Fund 1.50% 12/31/2003 N/A 12.709 16 12/31/2004 12.709 15.411 57 12/31/2005 15.411 16.250 103 12/31/2006 16.250 18.476 172 12/31/2007 18.476 17.404 162 12/31/2008 17.404 11.361 146 2.45% 12/31/2003 N/A 12.628 31 12/31/2004 12.628 15.168 122 12/31/2005 15.168 15.842 272 12/31/2006 15.842 17.843 369 12/31/2007 17.843 16.648 373 12/31/2008 16.648 10.765 358 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 79
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
AZL Fusion Balanced Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.623 216 12/31/2006 10.623 11.458 415 12/31/2007 11.458 12.089 633 12/31/2008 12.089 8.640 626 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.555 204 12/31/2006 10.555 11.277 570 12/31/2007 11.277 11.786 593 12/31/2008 11.786 8.344 696 AZL Fusion Growth Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.098 59 12/31/2006 11.098 12.267 265 12/31/2007 12.267 12.779 393 12/31/2008 12.779 7.687 393 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.027 720 12/31/2006 11.027 12.074 1590 12/31/2007 12.074 12.458 1923 12/31/2008 12.458 7.423 1887 AZL Fusion Moderate Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.801 271 12/31/2006 10.801 11.780 498 12/31/2007 11.780 12.363 517 12/31/2008 12.363 8.189 512 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.732 502 12/31/2006 10.732 11.595 1147 12/31/2007 11.595 12.053 1298 12/31/2008 12.053 7.908 1285 AZL Jennison 20/20 Focus Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.238 30 12/31/2006 12.238 13.597 110 12/31/2007 13.597 14.831 119 12/31/2008 14.831 8.750 151
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.160 124 12/31/2006 12.160 13.383 241 12/31/2007 13.383 14.459 264 12/31/2008 14.459 8.450 416 AZL JPMorgan Large Cap Equity Fund 1.50% 12/31/2003 N/A 10.047 25 12/31/2004 10.047 11.397 44 12/31/2005 11.397 11.931 126 12/31/2006 11.931 12.543 168 12/31/2007 12.543 11.590 149 12/31/2008 11.590 5.150 146 2.45% 12/31/2003 N/A 9.843 24 12/31/2004 9.843 11.059 69 12/31/2005 11.059 11.469 269 12/31/2006 11.469 11.943 317 12/31/2007 11.943 10.931 315 12/31/2008 10.931 4.811 319 AZL JPMorgan U.S. Equity Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.751 51 12/31/2005 10.751 11.169 86 12/31/2006 11.169 12.609 120 12/31/2007 12.609 12.892 134 12/31/2008 12.892 7.787 128 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.683 168 12/31/2005 10.683 10.994 266 12/31/2006 10.994 12.294 372 12/31/2007 12.294 12.450 408 12/31/2008 12.450 7.449 359 AZL Money Market Fund 1.50% 12/31/2003 N/A 10.369 46 12/31/2004 10.369 10.283 397 12/31/2005 10.283 10.391 413 12/31/2006 10.391 10.691 543 12/31/2007 10.691 11.037 728 12/31/2008 11.037 11.138 1090 2.45% 12/31/2003 N/A 9.990 81 12/31/2004 9.990 9.814 242 12/31/2005 9.814 9.823 424 12/31/2006 9.823 10.012 463 12/31/2007 10.012 10.237 658 12/31/2008 10.237 10.233 1401 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 80
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
AZL NACM International Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.465 2 12/31/2008 9.465 5.136 4 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.405 8 12/31/2008 9.405 5.055 2 AZL OCC Opportunity Fund 1.50% 12/31/2003 N/A 12.784 24 12/31/2004 12.784 13.571 53 12/31/2005 13.571 14.048 45 12/31/2006 14.048 15.456 77 12/31/2007 15.456 16.577 83 12/31/2008 16.577 8.630 60 2.45% 12/31/2003 N/A 12.582 57 12/31/2004 12.582 13.230 134 12/31/2005 13.230 13.567 184 12/31/2006 13.567 14.785 245 12/31/2007 14.785 15.707 248 12/31/2008 15.707 8.099 219 AZL Oppenheimer Global Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.464 32 12/31/2005 11.464 12.719 76 12/31/2006 12.719 14.572 159 12/31/2007 14.572 15.180 161 12/31/2008 15.180 8.815 161 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.391 134 12/31/2005 11.391 12.519 256 12/31/2006 12.519 14.207 338 12/31/2007 14.207 14.659 367 12/31/2008 14.659 8.432 357 AZL Oppenheimer International Growth Fund 1.50% 12/31/2003 N/A 11.429 5 12/31/2004 11.429 12.889 24 12/31/2005 12.889 14.498 33 12/31/2006 14.498 18.423 83 12/31/2007 18.423 20.377 94 12/31/2008 20.377 11.212 72
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A 11.197 20 12/31/2004 11.197 12.508 46 12/31/2005 12.508 13.936 98 12/31/2006 13.936 17.542 181 12/31/2007 17.542 19.218 263 12/31/2008 19.218 10.474 235 AZL PIMCO Fundamental IndexPLUS Total Return Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.074 2 12/31/2007 11.074 11.635 3 12/31/2008 11.635 6.778 9 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.003 5 12/31/2007 11.003 11.451 19 12/31/2008 11.451 6.608 35 AZL S&P 500 Index Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.875 14 12/31/2008 9.875 6.068 213 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.813 82 12/31/2008 9.813 5.973 478 AZL Schroder Emerging Markets Equity Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.465 21 12/31/2007 10.465 13.433 65 12/31/2008 13.433 6.367 188 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.398 113 12/31/2007 10.398 13.221 298 12/31/2008 13.221 6.207 605 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 81
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
AZL Schroder International Small Cap Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.237 2 12/31/2008 9.237 4.952 3 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.178 5 12/31/2008 9.178 4.874 5 AZL Small Cap Stock Index Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.323 5 12/31/2008 9.323 6.342 178 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.264 10 12/31/2008 9.264 6.242 326 AZL TargetPLUS Balanced Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.110 2 12/31/2008 10.110 7.529 10 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.045 1 12/31/2008 10.045 7.410 15 AZL TargetPLUS Equity Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.513 62 12/31/2008 10.513 5.331 52
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.413 62 12/31/2008 10.413 5.230 58 AZL TargetPLUS Growth Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.933 1 12/31/2008 9.933 5.932 1 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.869 7 12/31/2008 9.869 5.838 8 AZL TargetPLUS Moderate Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.073 5 12/31/2008 10.073 6.711 38 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.009 6 12/31/2008 10.009 6.605 2 AZL Turner Quantitative Small Cap Growth Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.117 10 12/31/2006 11.117 12.191 14 12/31/2007 12.191 12.738 21 12/31/2008 12.738 7.108 21 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.047 42 12/31/2006 11.047 11.999 56 12/31/2007 11.999 12.418 55 12/31/2008 12.418 6.864 65 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 82
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
AZL Van Kampen Comstock Fund 1.50% 12/31/2003 N/A 9.483 55 12/31/2004 9.483 10.940 179 12/31/2005 10.940 11.201 220 12/31/2006 11.201 12.774 240 12/31/2007 12.774 12.303 418 12/31/2008 12.303 7.734 362 2.45% 12/31/2003 N/A 9.245 110 12/31/2004 9.245 10.565 390 12/31/2005 10.565 10.714 600 12/31/2006 10.714 12.104 691 12/31/2007 12.104 11.547 967 12/31/2008 11.547 7.190 908 AZL Van Kampen Equity and Income Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.803 54 12/31/2005 10.803 11.361 78 12/31/2006 11.361 12.593 129 12/31/2007 12.593 12.785 153 12/31/2008 12.785 9.582 132 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.734 110 12/31/2005 10.734 11.182 216 12/31/2006 11.182 12.278 331 12/31/2007 12.278 12.347 418 12/31/2008 12.347 9.165 395 AZL Van Kampen Global Franchise Fund 1.50% 12/31/2003 N/A 12.266 7 12/31/2004 12.266 13.558 53 12/31/2005 13.558 14.912 89 12/31/2006 14.912 17.813 130 12/31/2007 17.813 19.269 136 12/31/2008 19.269 13.560 119 2.45% 12/31/2003 N/A 12.188 9 12/31/2004 12.188 13.344 130 12/31/2005 13.344 14.538 267 12/31/2006 14.538 17.203 395 12/31/2007 17.203 18.432 420 12/31/2008 18.432 12.848 384 AZL Van Kampen Global Real Estate Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.044 29 12/31/2007 12.044 10.834 77 12/31/2008 10.834 5.781 60
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.967 122 12/31/2007 11.967 10.662 130 12/31/2008 10.662 5.635 122 AZL Van Kampen Growth and Income Fund 1.50% 12/31/2003 N/A 10.192 62 12/31/2004 10.192 11.427 139 12/31/2005 11.427 12.297 211 12/31/2006 12.297 14.041 253 12/31/2007 14.041 14.196 272 12/31/2008 14.196 9.390 221 2.45% 12/31/2003 N/A 9.937 73 12/31/2004 9.937 11.035 186 12/31/2005 11.035 11.764 332 12/31/2006 11.764 13.305 366 12/31/2007 13.305 13.324 349 12/31/2008 13.324 8.729 273 AZL Van Kampen Mid Cap Growth Fund 1.50% 12/31/2003 N/A 8.983 11 12/31/2004 8.983 10.728 42 12/31/2005 10.728 12.422 116 12/31/2006 12.422 13.364 153 12/31/2007 13.364 16.085 224 12/31/2008 16.085 8.157 184 2.45% 12/31/2003 N/A 8.758 25 12/31/2004 8.758 10.360 132 12/31/2005 10.360 11.883 255 12/31/2006 11.883 12.663 337 12/31/2007 12.663 15.097 675 12/31/2008 15.097 7.583 607 BlackRock Global Allocation V.I. Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.914 18 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.864 62 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 83
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
Davis VA Financial Portfolio 1.50% 12/31/2003 N/A 12.529 7 12/31/2004 12.529 13.616 22 12/31/2005 13.616 14.538 28 12/31/2006 14.538 16.972 44 12/31/2007 16.972 15.707 39 12/31/2008 15.707 8.299 50 2.45% 12/31/2003 N/A 12.071 27 12/31/2004 12.071 12.994 86 12/31/2005 12.994 13.743 129 12/31/2006 13.743 15.893 140 12/31/2007 15.893 14.569 135 12/31/2008 14.569 7.624 122 Davis VA Value Portfolio 1.50% 12/31/2003 N/A 10.154 51 12/31/2004 10.154 11.235 87 12/31/2005 11.235 12.114 87 12/31/2006 12.114 13.724 72 12/31/2007 13.724 14.146 69 12/31/2008 14.146 8.316 62 2.45% 12/31/2003 N/A 9.783 94 12/31/2004 9.783 10.722 142 12/31/2005 10.722 11.451 131 12/31/2006 11.451 12.851 123 12/31/2007 12.851 13.120 101 12/31/2008 13.120 7.640 92 Franklin Global Real Estate Securities Fund 1.50% 12/31/2003 N/A 39.101 12 12/31/2004 39.101 50.766 50 12/31/2005 50.766 56.751 70 12/31/2006 56.751 67.417 77 12/31/2007 67.417 52.554 55 12/31/2008 52.554 29.823 47 2.45% 12/31/2003 N/A 33.980 22 12/31/2004 33.980 43.699 83 12/31/2005 43.699 48.390 130 12/31/2006 48.390 56.942 124 12/31/2007 56.942 43.966 104 12/31/2008 43.966 24.714 92 Franklin Growth and Income Securities Fund 1.50% 12/31/2003 N/A 29.630 17 12/31/2004 29.630 32.286 44 12/31/2005 32.286 32.924 62 12/31/2006 32.924 37.870 64 12/31/2007 37.870 35.920 61 12/31/2008 35.920 22.949 52
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A 25.749 20 12/31/2004 25.749 27.791 81 12/31/2005 27.791 28.073 126 12/31/2006 28.073 31.986 134 12/31/2007 31.986 30.051 125 12/31/2008 30.051 19.017 110 Franklin High Income Securities Fund 1.50% 12/31/2003 N/A 20.747 48 12/31/2004 20.747 22.455 74 12/31/2005 22.455 22.855 84 12/31/2006 22.855 24.624 68 12/31/2007 24.624 24.914 88 12/31/2008 24.914 18.805 77 2.45% 12/31/2003 N/A 18.030 27 12/31/2004 18.030 19.329 75 12/31/2005 19.329 19.488 109 12/31/2006 19.488 20.798 130 12/31/2007 20.798 20.843 134 12/31/2008 20.843 15.583 119 Franklin Income Securities Fund 1.50% 12/31/2003 N/A 35.607 24 12/31/2004 35.607 39.935 75 12/31/2005 39.935 39.973 150 12/31/2006 39.973 46.562 218 12/31/2007 46.562 47.588 266 12/31/2008 47.588 32.976 244 2.45% 12/31/2003 N/A 30.943 13 12/31/2004 30.943 34.375 87 12/31/2005 34.375 34.084 183 12/31/2006 34.084 39.328 271 12/31/2007 39.328 39.812 285 12/31/2008 39.812 27.326 250 Franklin Large Cap Growth Securities Fund 1.50% 12/31/2003 N/A 17.221 26 12/31/2004 17.221 18.310 69 12/31/2005 18.310 18.229 111 12/31/2006 18.229 19.915 121 12/31/2007 19.915 20.840 116 12/31/2008 20.840 13.440 100 2.45% 12/31/2003 N/A 16.011 36 12/31/2004 16.011 16.862 191 12/31/2005 16.862 16.629 277 12/31/2006 16.629 17.996 289 12/31/2007 17.996 18.652 268 12/31/2008 18.652 11.915 222 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 84
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
Franklin Rising Dividends Securities Fund 1.50% 12/31/2003 N/A 29.638 36 12/31/2004 29.638 32.406 98 12/31/2005 32.406 33.019 132 12/31/2006 33.019 38.098 126 12/31/2007 38.098 36.519 115 12/31/2008 36.519 26.226 98 2.45% 12/31/2003 N/A 26.458 35 12/31/2004 26.458 28.656 163 12/31/2005 28.656 28.922 237 12/31/2006 28.922 33.057 243 12/31/2007 33.057 31.385 218 12/31/2008 31.385 22.325 187 Franklin Small Cap Value Securities Fund 1.50% 12/31/2003 N/A 12.372 20 12/31/2004 12.372 15.081 51 12/31/2005 15.081 16.160 62 12/31/2006 16.160 18.623 55 12/31/2007 18.623 17.908 45 12/31/2008 17.908 11.816 35 2.45% 12/31/2003 N/A 11.723 46 12/31/2004 11.723 14.155 178 12/31/2005 14.155 15.024 230 12/31/2006 15.024 17.151 194 12/31/2007 17.151 16.335 174 12/31/2008 16.335 10.677 145 Franklin Small-Mid Cap Growth Securities Fund 1.50% 12/31/2003 N/A 18.811 21 12/31/2004 18.811 20.656 44 12/31/2005 20.656 21.323 83 12/31/2006 21.323 22.833 75 12/31/2007 22.833 25.019 67 12/31/2008 25.019 14.173 55 2.45% 12/31/2003 N/A 17.405 27 12/31/2004 17.405 18.931 86 12/31/2005 18.931 19.359 111 12/31/2006 19.359 20.534 111 12/31/2007 20.534 22.286 97 12/31/2008 22.286 12.505 79 Franklin Templeton VIP Founding Funds Allocation Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.241 6 12/31/2008 9.241 5.838 20
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.198 6 12/31/2008 9.198 5.756 26 Franklin U.S. Government Fund 1.50% 12/31/2003 N/A 23.183 65 12/31/2004 23.183 23.631 104 12/31/2005 23.631 23.839 143 12/31/2006 23.839 24.429 157 12/31/2007 24.429 25.653 175 12/31/2008 25.653 27.188 170 2.45% 12/31/2003 N/A 20.147 34 12/31/2004 20.147 20.341 120 12/31/2005 20.341 20.327 170 12/31/2006 20.327 20.633 175 12/31/2007 20.633 21.461 191 12/31/2008 21.461 22.529 265 Franklin Zero Coupon Fund 2010 1.50% 12/31/2003 N/A 35.120 8 12/31/2004 35.120 36.228 11 12/31/2005 36.228 36.238 15 12/31/2006 36.238 36.669 15 12/31/2007 36.669 39.234 16 12/31/2008 39.234 41.546 21 2.45% 12/31/2003 N/A 30.521 7 12/31/2004 30.521 31.185 22 12/31/2005 31.185 30.899 38 12/31/2006 30.899 30.971 38 12/31/2007 30.971 32.823 44 12/31/2008 32.823 34.428 55 Mutual Global Discovery Securities Fund 1.50% 12/31/2003 N/A 16.620 42 12/31/2004 16.620 19.350 99 12/31/2005 19.350 22.106 174 12/31/2006 22.106 26.799 249 12/31/2007 26.799 29.525 307 12/31/2008 29.525 20.809 258 2.45% 12/31/2003 N/A 15.528 39 12/31/2004 15.528 17.907 165 12/31/2005 17.907 20.265 310 12/31/2006 20.265 24.336 389 12/31/2007 24.336 26.557 424 12/31/2008 26.557 18.539 359 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 85
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
Mutual Shares Securities Fund 1.50% 12/31/2003 N/A 16.639 69 12/31/2004 16.639 18.461 169 12/31/2005 18.461 20.106 269 12/31/2006 20.106 23.448 387 12/31/2007 23.448 23.901 480 12/31/2008 23.901 14.808 401 2.45% 12/31/2003 N/A 15.546 35 12/31/2004 15.546 17.085 201 12/31/2005 17.085 18.432 374 12/31/2006 18.432 21.293 569 12/31/2007 21.293 21.498 621 12/31/2008 21.498 13.192 585 OpCap Mid Cap Portfolio 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.003 9 12/31/2007 10.003 10.565 29 12/31/2008 10.565 6.070 33 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.939 21 12/31/2007 9.939 10.398 79 12/31/2008 10.398 5.918 73 Oppenheimer Global Securities Fund/VA 1.50% 12/31/2003 N/A 9.710 68 12/31/2004 9.710 11.398 120 12/31/2005 11.398 12.835 105 12/31/2006 12.835 14.881 92 12/31/2007 14.881 15.585 79 12/31/2008 15.585 9.182 66 2.45% 12/31/2003 N/A 9.355 121 12/31/2004 9.355 10.877 201 12/31/2005 10.877 12.133 179 12/31/2006 12.133 13.935 163 12/31/2007 13.935 14.455 142 12/31/2008 14.455 8.436 119 Oppenheimer High Income Fund/VA 1.50% 12/31/2003 N/A 11.229 27 12/31/2004 11.229 12.054 81 12/31/2005 12.054 12.149 58 12/31/2006 12.149 13.097 34 12/31/2007 13.097 12.888 49 12/31/2008 12.888 2.708 83
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A 10.819 22 12/31/2004 10.819 11.503 60 12/31/2005 11.503 11.485 51 12/31/2006 11.485 12.264 42 12/31/2007 12.264 11.953 40 12/31/2008 11.953 2.488 42 Oppenheimer Main Street Fund/VA 1.50% 12/31/2003 N/A 8.317 65 12/31/2004 8.317 8.967 110 12/31/2005 8.967 9.362 104 12/31/2006 9.362 10.609 98 12/31/2007 10.609 10.912 91 12/31/2008 10.912 6.614 79 2.45% 12/31/2003 N/A 8.013 155 12/31/2004 8.013 8.558 243 12/31/2005 8.558 8.850 227 12/31/2006 8.850 9.934 206 12/31/2007 9.934 10.121 182 12/31/2008 10.121 6.077 156 PIMCO VIT All Asset Portfolio 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.870 114 12/31/2005 11.870 12.422 366 12/31/2006 12.422 12.808 305 12/31/2007 12.808 13.667 177 12/31/2008 13.667 11.330 149 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.794 83 12/31/2005 11.794 12.227 217 12/31/2006 12.227 12.487 187 12/31/2007 12.487 13.198 182 12/31/2008 13.198 10.838 192 PIMCO VIT CommodityRealReturn Strategy Portfolio 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.029 30 12/31/2006 11.029 10.529 109 12/31/2007 10.529 12.781 107 12/31/2008 12.781 7.077 103 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.959 59 12/31/2006 10.959 10.363 135 12/31/2007 10.363 12.461 152 12/31/2008 12.461 6.834 206 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 86
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
PIMCO VIT Emerging Markets Bond Portfolio 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.920 3 12/31/2006 10.920 11.756 23 12/31/2007 11.756 12.254 37 12/31/2008 12.254 10.309 38 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.851 23 12/31/2006 10.851 11.571 37 12/31/2007 11.571 11.947 45 12/31/2008 11.947 9.955 44 PIMCO VIT Global Bond Portfolio (Unhedged) 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.343 29 12/31/2006 9.343 9.632 47 12/31/2007 9.632 10.412 63 12/31/2008 10.412 10.170 88 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.283 23 12/31/2006 9.283 9.480 45 12/31/2007 9.480 10.151 66 12/31/2008 10.151 9.821 122 PIMCO VIT High Yield Portfolio 1.50% 12/31/2003 N/A 11.267 80 12/31/2004 11.267 12.160 191 12/31/2005 12.160 12.474 237 12/31/2006 12.474 13.407 192 12/31/2007 13.407 13.670 230 12/31/2008 13.670 10.296 188 2.45% 12/31/2003 N/A 10.855 38 12/31/2004 10.855 11.605 173 12/31/2005 11.605 11.792 208 12/31/2006 11.792 12.555 217 12/31/2007 12.555 12.679 214 12/31/2008 12.679 9.459 231 PIMCO VIT Real Return Portfolio 1.50% 12/31/2003 N/A 10.509 56 12/31/2004 10.509 11.275 190 12/31/2005 11.275 11.341 300 12/31/2006 11.341 11.253 323 12/31/2007 11.253 12.267 276 12/31/2008 12.267 11.231 274
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
2.45% 12/31/2003 N/A 10.442 47 12/31/2004 10.442 11.098 237 12/31/2005 11.098 11.057 349 12/31/2006 11.057 10.867 330 12/31/2007 10.867 11.734 305 12/31/2008 11.734 10.641 347 PIMCO VIT StocksPLUS Growth and Income Portfolio 1.50% 12/31/2003 N/A 8.328 1 12/31/2004 8.328 9.091 1 12/31/2005 9.091 9.268 1 12/31/2006 9.268 10.491 1 12/31/2007 10.491 11.043 1 12/31/2008 11.043 6.241 1 2.45% 12/31/2003 N/A 8.024 0 12/31/2004 8.024 8.676 1 12/31/2005 8.676 8.762 2 12/31/2006 8.762 9.824 4 12/31/2007 9.824 10.242 4 12/31/2008 10.242 5.733 1 PIMCO VIT Total Return Portfolio 1.50% 12/31/2003 N/A 12.665 138 12/31/2004 12.665 13.086 290 12/31/2005 13.086 13.208 385 12/31/2006 13.208 13.513 386 12/31/2007 13.513 14.477 419 12/31/2008 14.477 14.946 399 2.45% 12/31/2003 N/A 12.202 126 12/31/2004 12.202 12.489 316 12/31/2005 12.489 12.486 415 12/31/2006 12.486 12.654 513 12/31/2007 12.654 13.428 518 12/31/2008 13.428 13.731 532 Seligman Smaller-Cap Value Portfolio 1.50% 12/31/2003 N/A 20.467 25 12/31/2004 20.467 24.185 39 12/31/2005 24.185 22.878 32 12/31/2006 22.878 27.326 25 12/31/2007 27.326 28.033 21 12/31/2008 28.033 16.697 18 2.45% 12/31/2003 N/A 19.720 32 12/31/2004 19.720 23.080 59 12/31/2005 23.080 21.627 55 12/31/2006 21.627 25.589 48 12/31/2007 25.589 26.001 44 12/31/2008 26.001 15.340 38 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 87
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
SP International Growth Portfolio 1.50% 12/31/2003 N/A 5.580 11 12/31/2004 5.580 6.383 17 12/31/2005 6.383 7.281 17 12/31/2006 7.281 8.620 17 12/31/2007 8.620 10.115 15 12/31/2008 10.115 4.934 13 2.45% 12/31/2003 N/A 5.421 30 12/31/2004 5.421 6.142 71 12/31/2005 6.142 6.940 69 12/31/2006 6.940 8.139 68 12/31/2007 8.139 9.460 83 12/31/2008 9.460 4.570 51 SP Strategic Partners Focused Growth Portfolio 1.50% 12/31/2003 N/A 5.983 10 12/31/2004 5.983 6.477 19 12/31/2005 6.477 7.327 17 12/31/2006 7.327 7.138 15 12/31/2007 7.138 8.064 16 12/31/2008 8.064 4.882 15 2.45% 12/31/2003 N/A 5.812 5 12/31/2004 5.812 6.233 53 12/31/2005 6.233 6.984 88 12/31/2006 6.984 6.740 75 12/31/2007 6.740 7.541 68 12/31/2008 7.541 4.522 67
BENEFIT PERIOD OR YEAR AUV AT BEGINNING OF AUV AT END OF NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF OPTION * ENDED PERIOD PERIOD PERIOD INVESTMENT OPTION
Templeton Foreign Securities Fund 1.50% 12/31/2003 N/A 18.376 2 12/31/2004 18.376 21.456 19 12/31/2005 21.456 23.287 34 12/31/2006 23.287 27.861 55 12/31/2007 27.861 31.686 67 12/31/2008 31.686 18.610 50 2.45% 12/31/2003 N/A 16.411 4 12/31/2004 16.411 18.980 53 12/31/2005 18.980 20.405 92 12/31/2006 20.405 24.182 123 12/31/2007 24.182 27.241 125 12/31/2008 27.241 15.848 126 Templeton Global Bond Securities Fund 1.50% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 31.790 13 12/31/2008 31.790 33.259 36 2.45% 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 26.726 19 12/31/2008 26.726 27.696 31 Templeton Growth Securities Fund 1.50% 12/31/2003 N/A 19.624 12 12/31/2004 19.624 22.430 76 12/31/2005 22.430 24.055 152 12/31/2006 24.055 28.866 194 12/31/2007 28.866 29.101 225 12/31/2008 29.101 16.534 202 2.45% 12/31/2003 N/A 17.914 5 12/31/2004 17.914 20.280 127 12/31/2005 20.280 21.545 298 12/31/2006 21.545 25.610 406 12/31/2007 25.610 25.573 444 12/31/2008 25.573 14.392 410 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 88 APPENDIX C - PB VALUE CALCULATION EXAMPLES o You purchase a Contract with the PRIME Plus Benefit. You are the only Owner. o You make an initial Purchase Payment of $100,000. o You make an additional Purchase Payment of $10,000 in the sixth Contract Year and allocate the entire amount to the Investment Options. You make no other Purchase Payments. o The MAV on the ninth Contract Anniversary is $180,000. o You take a partial withdrawal of $20,000 in the tenth Contract Year when the Contract Value (on the day of but before the partial withdrawal) is $160,000. The withdrawal charge period on the initial Purchase Payment has expired so there is no withdrawal charge on this partial withdrawal. You take no other partial withdrawals. o The Contract Value on the tenth Contract Anniversary is $140,000. o As of the tenth Contract Anniversary you have not yet reached your 81st birthday and the Contracts have not exceeded the limits on volatility or risk that trigger allocation and transfer restrictions under the PRIME Plus Benefit. On the tenth Contract Anniversary, the PB Value is equal to 1 or 2: 1)The 7% AIA Initial Purchase Payment.......................................$100,000.00 Increased by 7% on the first Contract Anniversary.........x 1.07 $107,000.00 Increased by 7% on the second Contract Anniversary........x 1.07 $114,490.00 Beginning on the sixth Contract Anniversary we will only apply the 7% increase to the 7% AIA amount as of the fifth Contract Anniversary. On the sixth Contract Anniversary the 7% AIA is: The fifth Contract Anniversary 7% AIA..........................$140,255.17 Increased by 7% on the sixth Contract Anniversary.........x 1.07 $150,073.03 Plus the additional Purchase Payment received in the sixth Contract Year.......................................................+ 10,000.00 $160,073.03 On the seventh Contract Anniversary the 7% AIA is: The fifth Contract Anniversary 7% AIA..........................$140,255.17 Increased by 7% on the sixth Contract Anniversary.........x 1.07 $150,073.03 Increased by 7% on the seventh Contract Anniversary.......x 1.07 $160,578.14 Plus the additional Purchase Payment received in the sixth Contract Year.......................................................+ 10,000.00 $170,578.14 On the ninth Contract Anniversary the 7% AIA is:...............$193,845.92 On the tenth Contract Anniversary the 7% AIA is: The fifth Contract Anniversary 7% AIA increased by 7% for each anniversary since, up to and including the tenth:.................................$196,715.14 Plus the additional Purchase Payment received in the sixth Contract Year.......................................................+ 10,000.00 Reduced proportionately by the percentage of Contract Value withdrawn during the tenth Contract Year: ($20,000 / $160,000) = 0.125 x $193,845.92 =..............................................- 24,230.74 $182,484.40 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 89 Verifying that the 7% AIA is within the maximum limit: 2 times Purchase Payments made in the first five Contract Years: 2 x $100,000 =...................................................$200,000 Reduced proportionately by the percentage of Contract Value withdrawn: ($20,000 / $160,000) = 0.125 x $200,000 =.....................- 25,000 $175,000 Therefore the 7% AIA on the tenth Contract Anniversary will be limited to the maximum.................................................$175,000 2)The MAV The MAV on the ninth Contract Anniversary.........................$180,000 Reduced proportionately by the percentage of Contract Value withdrawn: ($20,000 / $160,000) = 0.125 x $180,000 =........................- 22,500 $157,500 The 7% AIA is greater than the MAV on the tenth Contract Anniversary. However, if you chose to exercise the GMIB on the tenth Contract Anniversary you may be able choose to set the PB Value equal to either the 7% or the MAV. This is because the GMIB Payments available under the 7% AIA may be less than the GMIB Payments available under the MAV depending on the Annuity Option you select, your age, and sex (where applicable) at the time of annuitization. In addition, it is possible that fixed Traditional Annuity Payments based on the $140,000 Contract Value would be more than GMIB Payments based on the MAV or the 7% AIA depending on the current interest rates available at the time of annuitization. If instead you exercise the GPWB you can select either the 5% payment option or the 10% payment option. Under the 5% payment option the PB Value will be the 7% AIA, the PB Value could increase (step up) on every third Contract Anniversary* the maximum allowable payment will be less than what is available under the 10% payment option, but we will make payments for at least 20 years (assuming no Excess Withdrawals or step ups). Under the 10% payment option the PB Value will be the MAV, step ups are not available, we will make payments for ten years (assuming no Excess Withdrawals), but the maximum allowable payment will be more. Under the GPWB you would choose the payment option that is most appropriate for your situation. * Step ups will continue to happen automatically until the earliest of: a) the older Owner's 91st birthday, or b) you exhaust the PB Value. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 90 APPENDIX D - GPWB UNDER THE PRIME PLUS BENEFIT o On the tenth Contract Anniversary you exercise the GPWB and select the 5% payment option with annual payments. o On the tenth Contract Anniversary the PB Value is the 7% AIA, which is $175,000, and your Contract Value is $140,000 (see the example that appears in Appendix C). o You elect the maximum allowable payment and your annual GPWB Payments are 5% x $175,000 = $8,750. You take no Excess Withdrawals and do not elect to stop your GPWB Payments
CONTRACT VALUE PB VALUE GPWB PAYMENT On the 10th Contract Anniversary $140,000 $175,000 $8,750 11th Contract Anniversary $144,800 $166,250 $8,750 12th Contract Anniversary $151,900 $157,500 $8,750 13th Contract Anniversary before the step up $160,000 $148,750 $8,750 13TH CONTRACT ANNIVERSARY AFTER THE STEP UP $160,000 $160,000 $8,750 14th Contract Anniversary $151,700 $151,250 $8,750 15th Contract Anniversary $144,300 $142,500 $8,750 16th Contract Anniversary before the step up $132,900 $133,750 $8,750 16TH CONTRACT ANNIVERSARY AFTER THE STEP UP $132,900 $133,750 $8,750
o In this example the PB Value was stepped up on the 13th Contract Anniversary because the Contract Value was greater than the PB Value. However, the GPWB Maximum was not stepped up because the current GPWB Maximum ($8,750) was greater than 5% of the increased PB Value (5% x $160,000 = $8,000). o There was no step up to either the PB Value or the GPWB Payment on the 16th Contract Anniversary in this example because the Contract Value was less than the PB Value. o If on the 16th Contract Anniversary the Contract Value had grown to $180,000, the remaining PB Value would be stepped up to $180,000. The GPWB Maximum would also be stepped up because 5% of the increased PB Value (5% x $180,000 = $9,000) is greater than the current GPWB Maximum ($8,750), however, you would not be able to increase your GPWB Payments until the 17th Contract Anniversary because we do not automatically increase your GPWB Payments upon a step up. EXAMPLE OF THE EFFECT OF AN EXCESS WITHDRAWAL ON GPWB PAYMENTS o Continue the assumptions from the previous example except that you elect to receive $600 per month as your GPWB Payment. If you do not take any Excess Withdrawals you would receive $7,200 of GPWB Payments over the course of each Contract Year without incurring a withdrawal charge. o Assume the Contract Value on the day of (but before) the Excess Withdrawal is $150,000. The PB Value on the day of (but before) the Excess Withdrawal is $170,200. If you take a $500 Excess Withdrawal in the 11th Contract Year after receiving the eighth monthly GPWB Payment: The total partial withdrawals (GPWB Payments and the Excess Withdrawal) for the Contract Year = $7,200 + $500 = $7,700. Because the total partial withdrawals are less than the $8,750 GPWB Maximum, none of the withdrawals will be subject to the withdrawal charge, and the Excess Withdrawal will reduce both the PB Value and Contract Value by the amount withdrawn ($500). The PB Value after the Excess Withdrawal would be $170,200 - $500 = $169,700. If you take a $5,000 Excess Withdrawal in the 11th Contract Year after receiving the eighth monthly GPWB Payment: The total partial withdrawals for the Contract Year = $7,200 + $5,000 = $12,200. Because the total partial withdrawals are greater than the $8,750 GPWB Maximum, some of the withdrawals will be subject to the withdrawal charge. We determine which withdrawals are subject to the withdrawal charge as follows: The GPWB Maximum....................................................$8,750 First eight GPWB Payments..........................................- 4,800 Remaining GPWB Maximum..............................................$3,950 Portion of the Excess Withdrawal that is subject to the withdrawal charge = $5,000 - $3,950 =.......................................$1,050 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 91 When we compute the withdrawal charge we withdraw Purchase Payments on a "first- in-first-out" (FIFO) basis. Your initial Purchase Payment was $100,000 and the withdrawal charge period for this payment has expired. Therefore, there is no withdrawal charge on the Excess Withdrawal. We will adjust the PB Value for the Excess Withdrawal as follows: The PB Value on the day of (but before) the partial withdrawal$170,200.00................................................ The amount of the Excess Withdrawal that does not exceed the GPWB Maximum...................................................- 3,950.00 Reduced proportionately by the remaining amount of the Excess Withdrawal's percentage of Contract Value on the day of (but before) the partial withdrawal = $1,050 {divide} $150,000 = 0.007 x $170,200 =.............- 1,191.40 Remaining PB Value after the Excess Withdrawal..............$165,058.60 IN ADDITION, BECAUSE THE EXCESS WITHDRAWAL EXHAUSTS THE GPWB MAXIMUM FOR THE YEAR, THE FOUR REMAINING GPWB PAYMENTS WILL ALSO BE SUBJECT TO A WITHDRAWAL CHARGE. TO AVOID A WITHDRAWAL CHARGE YOU COULD INSTRUCT US TO STOP GPWB PAYMENTS FOR THE REMAINDER OF THE YEAR. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 92 APPENDIX E - DEATH BENEFIT CALCULATION EXAMPLES o You purchase a Contract with an initial Purchase Payment of $100,000. You are the only Owner and are age 69 or younger on the Issue Date. You make no additional Purchase Payments. o The MAV on the ninth Contract Anniversary is $180,000. o You take a partial withdrawal of $20,000 in the tenth Contract Year when the Contract Value on the date of (but before the partial withdrawal) is $160,000. The withdrawal charge period on the initial Purchase Payment has expired so there is no withdrawal charge on this partial withdrawal. You take no other partial withdrawals. o The Contract Value on the tenth Contract Anniversary is $140,000. NOTE: We calculate the 3% AIA and MAV only for Contracts with the Enhanced GMDB. The M&E charges are higher for Contracts with the Enhanced GMDB or Earnings Protection GMDB than for Contracts with the Traditional GMDB. If the differences in these charges were reflected above, the Contract Values would be lower for Contracts with the Enhanced GMDB or Earnings Protection GMDB than for Contracts with the Traditional GMDB. IF YOU SELECTED THE TRADITIONAL GMDB: We calculate the death benefit on the tenth Contract Anniversary as the greater of: 1)Contract Value............................................................ $140,000 2)The Traditional GMDB value: Total Purchase Payments received..................................$100,000 Reduced proportionately by the percentage of Contract Value withdrawn: ($20,000 / $160,000) = 0.125 x $100,000 =...........- 12,500 .............................................................$ 87,500 Therefore, the death benefit that would be payable as of the tenth Contract Anniversary is the $140,000 Contract Value. IF YOU SELECTED THE ENHANCED GMDB: We calculate the death benefit on the tenth Contract Anniversary as the greater of: 1)Contract Value............................................................ $140,000.00 2)The 3% AIA: Initial Purchase Payment.......................................$100,000.00 Increased by 3% on the first Contract Anniversary......x 1.03 ..........................................................$103,000.00 Increased by 3% on the second Contract Anniversary.....x 1.03 ..........................................................$106,090.00 Increased by 3% on the third Contract Anniversary......x 1.03 ..........................................................$109,272.70 On the ninth Contract Anniversary the 3% AIA is.............$130,477.32 Reduced proportionately by the percentage of Contract Value withdrawn: ($20,000 / $160,000) = 0.125 x $130,477.32 =...........- 16,309.66 ..........................................................$114,167.66 Increased by 3% on the tenth Contract Anniversary......x 1.03 ..........................................................$117,592.69 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 93 Verifying that the 3% AIA is within the maximum limit: 1.5 times Purchase Payments: 1.5 x $100,000 =.$150,000 Reduced proportionately by the percentage of Contract Value withdrawn: ($20,000 / $160,000) = 0.125 x $150,000 =...- 18,750 $131,250 3)The MAV: The MAV on the ninth Contract Anniversary.........................$180,000 Reduced proportionately by the percentage of Contract Value withdrawn: ($20,000 / $160,000) = 0.125 x $180,000 =...................- 22,500 .............................................................$157,500 Therefore, the death benefit that would be payable as of the tenth Contract Anniversary is the $157,500 MAV. IF YOU SELECTED THE EARNINGS PROTECTION GMDB: We calculate the death benefit on the tenth Contract Anniversary as the greater of: 1)Contract Value............................................................ $140,000 2)Total Payments: Total Purchase Payments received..................................$100,000 Less adjusted partial withdrawals calculated as (PW x DB) / CV: ($20,000 x $160,000) / $160,000 = $20,000 x 1 =..............- 20,000 .............................................................$ 80,000 3)CV Plus: Contract Value:........................................................... $140,000 Plus 50% of the lesser of (a) or (b). (a)Contract Value minus total Purchase Payments: $140,000 - $100,000 =........................................$ 40,000 (b)Three times your total Purchase Payments received in the first two Contract Years: 3 x $100,000 =.......................................$300,000 (a) is less than (b), so 50% of (a) = 0.50 x $40,000 =......+ 20,000 .............................................................$160,000 Therefore, the death benefit that would be payable as of the tenth Contract Anniversary is the $160,000 CV Plus. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 94 APPENDIX F - WITHDRAWAL CHARGE EXAMPLES All of the following examples assume you purchase a Contract with an initial Purchase Payment of $100,000 and you make no additional Purchase Payments. The partial withdrawal privilege for each Contract Year is 12% of your total Purchase Payments, less any previous withdrawals taken during that Contract Year under the partial withdrawal privilege or as RMD payments. Any unused partial withdrawal privilege in one Contract Year carries over to the next Contract Year. This means at the beginning of each Contract Year, there would be at least $12,000 available under the partial withdrawal privilege. FULL WITHDRAWAL WHEN THE CONTRACT VALUE HAS DECLINED DUE TO A LOSS IN YOUR SELECTED INVESTMENT OPTIONS: o You take a full withdrawal in the third Contract Year when the Contract Value is $90,000 and the withdrawal charge is 5%. You have taken no other withdrawals from the Contract. o There are no Purchase Payments that are beyond the withdrawal charge period and the partial withdrawal privilege does not apply upon a full withdrawal. Because this is a full withdrawal, we assess the withdrawal charge against the entire Withdrawal Charge Basis. We calculate the withdrawal charge as follows: The Withdrawal Charge Basis is equal to total Purchase Payments (excluding any penalty-free withdrawals) = $100,000 - $0 = ............................................$100,000 Multiplied by the withdrawal charge.......................x 5% .....................................................$ 5,000 Therefore, we would withdraw $90,000 from the Contract and pay you $85,000 ($90,000 less the $5,000 withdrawal charge). PARTIAL WITHDRAWAL UNDER THE PARTIAL WITHDRAWAL PRIVILEGE FOLLOWED BY A FULL WITHDRAWAL: o You take a partial withdrawal of $9,000 in the second Contract Year. The total amount available under the partial withdrawal privilege at this time is $24,000 ($12,000 per year for two years). The $9,000 withdrawn is not subject to a withdrawal charge and will not reduce the Withdrawal Charge Basis. o You take a full withdrawal in the third Contract Year when the Contract Value is $90,000 and the withdrawal charge is 5%. At this time, there are no Purchase Payments that are beyond the withdrawal charge period. Because this is a full withdrawal, the partial withdrawal privilege does not apply and we will assess the withdrawal charge against the entire Withdrawal Charge Basis. We calculate the withdrawal charge for the full withdrawal as follows: The Withdrawal Charge Basis is equal to total Purchase Payments (excluding any penalty-free withdrawals) = $100,000 - $0 = ............................................$100,000 Multiplied by the withdrawal charge.......................x 5% .....................................................$ 5,000 Therefore, upon the full withdrawal, we would withdraw $90,000 from the Contract and pay you $85,000 ($90,000 less the $5,000 withdrawal charge). In this example, your total distributions from the Contract after deducting the withdrawal charges are $94,000. PARTIAL WITHDRAWAL IN EXCESS OF THE PARTIAL WITHDRAWAL PRIVILEGE FOLLOWED BY A FULL WITHDRAWAL: o You take a partial withdrawal of $27,000 in the second Contract Year when the withdrawal charge is 6%. The total amount available under the partial withdrawal privilege at this time is $24,000 ($12,000 per year for two years), so $3,000 of the withdrawal is subject to a withdrawal charge and will reduce the Withdrawal Charge Basis. We calculate the withdrawal charge for the partial withdrawal as follows: The amount you will receive that is subject to a withdrawal charge$3,000........................................................ Multiplied by the withdrawal charge..........................x 6% ........................................................$ 180 Therefore, we would withdraw $27,180 from the Contract and pay you $27,000. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 95 o Continuing the example, assume you take a full withdrawal in the third Contract Year when the Contract Value is $90,000 and the withdrawal charge is 5%. At this time, there are no Purchase Payments that are beyond the withdrawal charge period. Because this is a full withdrawal, the partial withdrawal privilege does not apply and we will assess the withdrawal charge against the entire Withdrawal Charge Basis. We calculate the withdrawal charge for the full withdrawal as follows: The Withdrawal Charge Basis is equal to total Purchase Payments (excluding any penalty-free withdrawals) = $100,000 - $3,000 = .........................................$97,000 Multiplied by the withdrawal charge.........................x 5% ........................................................$ 4,850 Therefore, upon the full withdrawal, we would withdraw $90,000 from the Contract and pay you $85,150 ($90,000 less the $4,850 withdrawal charge). In this example, your total distributions from the Contract after deducting the withdrawal charges are $112,150. A SERIES OF PARTIAL WITHDRAWALS UNDER THE PARTIAL WITHDRAWAL PRIVILEGE FOLLOWED BY A FULL WITHDRAWAL: o You take the maximum amount available under the partial withdrawal privilege each year for five years (total distributions = $60,000). The $60,000 withdrawn is not subject to a withdrawal charge and will not reduce the Withdrawal Charge Basis. o In the sixth Contract Year, the Contract Value is $11,000. Although the maximum available under the partial withdrawal privilege is $12,000, there is only $11,000 of Contract Value available. Assuming you withdraw the $11,000, the partial withdrawal privilege will not apply because this is a full withdrawal. At this time, there are no Purchase Payments that are beyond the withdrawal charge period. Because this is a full withdrawal, we will assess the withdrawal charge against the entire Withdrawal Charge Basis. The withdrawal charge in the sixth Contract Year is 2%. We calculate the withdrawal charge for the full withdrawal as follows: The Withdrawal Charge Basis is equal to total Purchase Payments (excluding any penalty-free withdrawals) = $100,000 - $0 = ............................................$100,000 Multiplied by the withdrawal charge.......................x 2% ......................................................$ 2,000 Therefore, upon the full withdrawal, we would withdraw $11,000 from the Contract and pay you $9,000 ($11,000 less the $2,000 withdrawal charge). In this example, your total distributions from the Contract after deducting the withdrawal charges are $69,000. Alternatively, the largest available partial withdrawal at this time is $9,000, as this amount would reduce the Contract Value to the minimum required Contract Value of $2,000. If instead of a full withdrawal, you take a partial withdrawal of $9,000, it will not be subject to a withdrawal charge. After one additional year, the initial Purchase Payment will be beyond its withdrawal charge period and you could then withdraw all remaining Contract Value without incurring a withdrawal charge. The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 96 FOR SERVICE OR MORE INFORMATION In order to help you understand how your Contract Values vary over time and under different sets of assumptions, we will provide you with certain personalized illustrations upon request and free of charge. You can request illustrations by contacting your registered representative. Illustrations demonstrate how your Contract Value, cash surrender value, death benefits, and (if applicable) the PB Value under the GMIB and/or GPWB change based on the investment experience of the Investment Options or the hypothetical rate of return. The illustrations are hypothetical and may not be used to project or predict investment results. You can review and copy information about us, the Separate Account, the prospectus and the SAI at the SEC's Public Reference Room in Washington, D.C. You may obtain information about the operation of the Public Reference Room by calling (202) 551-8090. The SEC also maintains a website (http://www.sec.gov). The prospectus, the SAI and other information about the Contract are available on the EDGAR database on the SEC's website. If you do not have access to the website you can get copies of information from the website upon payment of a duplication fee by writing to: PUBLIC REFERENCE SECTION OF THE COMMISSION 100 F Street, NE Washington, DC 20549 You can contact us at: ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA 5701 Golden Hills Drive Minneapolis, MN 55416 (800) 624-0197 If you need service (such as changes in Contract information, inquiry into Contract Values, to request a withdrawal, etc.), please contact our Service Center: ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA P.O. Box 561 Minneapolis, MN 55440-0561 (800) 624-0197 The Allianz Alterity[{R}] Variable Annuity Contract Prospectus - April 27, 2009 PART B - SAI 1 STATEMENT OF ADDITIONAL INFORMATION ALLIANZ ALTERITY[TM] INDIVIDUAL FLEXIBLE PURCHASE PAYMENT VARIABLE DEFERRED ANNUITY CONTRACT ISSUED BY ALLIANZ LIFE(R) VARIABLE ACCOUNT B (THE SEPARATE ACCOUNT) AND ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA (ALLIANZ LIFE, WE, US, OUR) APRIL 27, 2009 This is not a prospectus. This Statement of Additional Information (SAI) should be read in conjunction with the prospectus for the Contract, which is dated the same date as this SAI. Definitions of capitalized terms can be found in the glossary in the prospectus. The prospectus is incorporated in this SAI by reference. The prospectus for the Contract concisely sets forth information that a prospective investor ought to know before investing. For a copy of the Contract's prospectus, call or write us at: ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA 5701 Golden Hills Drive Minneapolis, MN 55416 (800) 624-0197 TABLE OF CONTENTS ALLIANZ LIFE............................................2 EXPERTS.................................................2 LEGAL OPINIONS..........................................2 DISTRIBUTOR.............................................2 REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE.......3 FEDERAL TAX STATUS......................................3 General................................................3 Diversification........................................4 Owner Control..........................................4 Contracts Owned by Non-Individuals.....................5 Income Tax Withholding.................................5 Required Distributions.................................5 Qualified Contracts....................................5 ANNUITY PROVISIONS......................................6 Annuity Units/Calculating Variable Annuity Payments....7 MORTALITY AND EXPENSE RISK GUARANTEE....................7 INFORMATION ON MAY 2003 CONTRACTS.......................7 INFORMATION ON CONTRACTS THAT WERE OFFERED BEFORE APRIL 29, 2005.................................................15 INFORMATION ON ORIGINAL CONTRACTS......................16 FINANCIAL STATEMENTS...................................17 APPENDIX - CONDENSED FINANCIAL INFORMATION.............18 ALTSAI-0409 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 2 ALLIANZ LIFE Allianz Life is a stock life insurance company organized under the laws of the state of Minnesota in 1896. We are a subsidiary of Allianz of America, Inc. (AZOA), a financial holding company. AZOA is a subsidiary of Allianz SE, a provider of integrated financial services. Allianz SE is headquartered in Munich, Germany, and has sales outlets throughout the world. We offer fixed and variable annuities, individual and group life insurance, and long-term care insurance. Allianz Life does not have a separate custodian for the assets owned through the Separate Account. Most mutual fund shares are not in certificated form, and as such, Allianz Life in effect acts as self custodian for the non-certificated shares we own through the Separate Account. EXPERTS The financial statements of Allianz Life Variable Account B as of and for the year or period ended December 31, 2008 (including the statements of changes in net assets for each of the years or periods in the two year period then ended and the financial highlights for each of the periods presented) and the consolidated financial statements and supplemental schedules of Allianz Life Insurance Company of North America as of December 31, 2008 and 2007 and for each of the years in the three-year period ended December 31, 2008, included in this SAI in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2008 financial statements and supplemental schedules of Allianz Life Insurance Company of North America refers to an adoption of Statement of Financial Accounting Standards No. 157, Fair Value Measurements, effective January 1, 2008. The principal business address of KPMG LLP is 4200 Wells Fargo Center, Minneapolis, MN. LEGAL OPINIONS Stewart D. Gregg, Senior Securities Counsel of Allianz Life, has provided legal advice on certain matters in connection with the issuance of the Contracts. DISTRIBUTOR Allianz Life Financial Services, LLC (Allianz Life Financial (previously USAllianz Investor Services, LLC)), a wholly owned subsidiary of Allianz Life Insurance Company of North America, acts as the distributor. Allianz Life Financial does not sell the Contracts on a retail basis. Rather, Allianz Life Financial enters into selling agreements with other third-party broker/dealers registered under the Securities Exchange Act of 1934 (selling firms) for the sale of the Contracts. The Contracts are offered to the public on a continuous basis. We anticipate continuing to offer the Contracts, but reserve the right to discontinue the offering. We pay commissions for sales of the Contracts. Allianz Life Financial passes through most of the commissions it receives to selling firms for their sales. Allianz Life Financial received sales compensation with respect to the Contracts issued under Allianz Life Variable Account B in the following amounts during the last three calendar years:
CALENDAR YEAR AGGREGATE AMOUNT OF AGGREGATE AMOUNT OF COMMISSIONS RETAINED BY ALLIANZ LIFE FINANCIAL AFTER PAYMENTS TO COMMISSIONS PAID TO SELLING FIRMS ALLIANZ LIFE FINANCIAL 2006 $207,968,987.55 $0 2007 $218,444,880.80 $0 2008 $198,319,091.42 $0
We may fund Allianz Life Financial's operating and other expenses including: overhead; legal and accounting fees; registered representative training; deferred compensation and insurance benefits for registered representatives; compensation for the Allianz Life Financial management team; and other expenses associated with the Contracts. We also pay for Allianz Life Financial's operating and other expenses, including overhead, legal and accounting fees. As described above, Allianz Life Financial sells its Contracts primarily through "wholesaling," in which Allianz Life Financial sells contracts through a large group of mostly non-affiliated broker/dealer firms. Currently, Allianz Life Financial has agreements with approximately 1,112 retail broker/dealers to sell its Contracts. All of the broker/dealer firms except one are non-affiliated. As described in the prospectus, Allianz Life Financial may pay marketing support payments to certain of these firms for providing marketing support services in the sale of the Contracts. Currently, Allianz Life Financial makes marketing support payments to approximately 47 firms. These payments vary in amount. In 2008, The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 3 the five firms receiving the largest payments, ranging from $522,495 to $2,345,992, are listed below. Marketing support payments may also be made to managers of Investment Options or their affiliates for providing Investment Option information and marketing support. FIRM NAME ---------------------------------- 1 LPL Financial Network 2 AIG Advisor Group 3 National Planning Holdings 4 H D Vest Investment Services 5 Wachovia Securities REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE We may reduce or eliminate the amount of the withdrawal charge on the Contracts when Contract sales are made to individuals or to a group of individuals in a manner that results in savings of sales expenses. We will determine the entitlement to a reduction of the withdrawal charge after examination of the following factors: o the size of the group; o the total amount of Purchase Payments expected to be received from the group; o the nature of the group for which the Contracts are purchased, and the persistency expected in that group (for example, the expectation that the Owners will continue to hold the Contracts for a certain period of time); o the purpose for which the Contracts are purchased and whether that purpose makes it likely that expenses will be reduced; and o any other circumstances which we believe to be relevant to determining whether reduced sales or administrative expenses may be expected. None of these reductions are contractually guaranteed. We may eliminate the withdrawal charge when the Contracts are issued to an officer, director or employee of Allianz Life or any of its affiliates. We may reduce or eliminate the withdrawal charge when the Contract is sold by a registered representative appointed with Allianz Life to any members of his or her immediate family and the commission is waived. In no event will any reduction or elimination of the withdrawal charge be permitted where the reduction or elimination will be unfairly discriminatory to any person. FEDERAL TAX STATUS NOTE: The following description is based upon our understanding of current federal income tax law applicable to annuities in general. We 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. We do 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. An Owner is generally 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. For a lump sum payment received as a full withdrawal (total redemption) or death benefit, the recipient is taxed on the portion of the payment that exceeds the cost basis of the Contract (your investment). For Non-Qualified Contracts, this cost basis is generally the Purchase Payments, while for Qualified Contracts there may be no cost basis. The taxable portion of the lump sum payment is taxed at ordinary income tax rates. A partial withdrawal results in tax on any gain in the Contract (for example, the difference, if any, between the Contract Value immediately before the withdrawal, unreduced by any charges, and the Contract's cash basis). Lump sum withdrawals, whether partial or full, may also be subject to a federal penalty tax equal to 10% of the taxable amount. For Annuity Payments, the portion of each payment included in income equals the excess of the payment over the exclusion amount. The exclusion amount for Annuity 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 (which is determined by Treasury Regulations). The exclusion amount for Annuity Payments based on a fixed Annuity Option is determined by multiplying the Annuity Payment by the ratio that The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 4 the investment in the Contract (adjusted for any period certain or refund guarantee) bears to the expected return under the Contract. Annuity Payments received after the investment in the Contract has been recovered (for example, when 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 tax rates. Partial Annuitizations are taxed as partial withdrawals, not as Annuity Payments, until the entire Contract Value has been applied to Annuity Payments. For certain types of Qualified Contracts there may be no cost basis in the Contract within the meaning of Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts should seek competent financial advice about the tax consequences of any distributions. We are taxed as a life insurance company under the Code. For federal income tax purposes, the Separate Account is not a separate entity from us, and its operations form a part of Allianz Life. Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the Contract. We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity Owners currently receive. We make no guarantee regarding the tax status of any contract and do not intend the above discussion as tax advice. 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 Owner with respect to earnings allocable to the Contract before the receipt of Annuity Payments under the Contract. The Code contains a safe harbor provision which provides that annuity contracts, such as the Contract, 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 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 Options underlying variable contracts such as the Contract. 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 these regulations, an Investment Option will be deemed adequately diversified if: o no more than 55% of the value of the total assets of the Investment Option is represented by any one investment; o no more than 70% of the value of the total assets of the Investment Option is represented by any two investments; o no more than 80% of the value of the total assets of the Investment Option is represented by any three investments; and o no more than 90% of the value of the total assets of the Investment Option 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." We intend that all Investment Options underlying the Contracts will be managed by the investment advisers in such a manner as to comply with these diversification requirements. OWNER CONTROL The Treasury Department has indicated that the diversification regulations do not provide guidance regarding the circumstances in which Owner control of the investments of the Separate Account will cause the 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. In certain circumstances, owners of variable annuity contracts have been considered for federal income tax purposes to be the owners of the assets of the separate account, supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area, and some features of our Contracts, such as the flexibility of an Owner to allocate Purchase Payments and transfer amounts among the investment divisions of the Separate Account, have not been explicitly addressed in published rulings. While we believe that the Contracts do not The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 5 give Owners investment control over Separate Account assets, we reserve the right to modify the Contracts as necessary to prevent an Owner from being treated as the owner of the Separate Account assets supporting the Contract. CONTRACTS OWNED BY NON-INDIVIDUALS Under Section 72(u) of the Code, the investment earnings on Purchase Payments for the Contracts will be taxed currently to the Owner if the Owner is a non- individual, for example, a corporation or certain other entities. Such Contracts generally will not be treated as annuities for federal income tax purposes. However, this treatment is not applied to Contracts held by a trust or other entity as an agent for an individual or to Contracts held by qualified retirement plans. Purchasers should consult a tax adviser before purchasing a Contract to be owned by a non-individual. INCOME TAX WITHHOLDING All distributions or the portion thereof which is included in the gross income of the 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 Owner, in most cases, may elect not to have taxes withheld or to have withholding done at a different rate. Certain distributions from retirement plans qualified under Section 401 of the Code, which are not directly rolled over to another eligible retirement plan or individual retirement account or Individual Retirement Annuity, are subject to a mandatory 20% withholding for federal income tax. The 20% withholding requirement generally does not apply to: o a series of substantially equal payments made at least annually for the life or life expectancy of the participant or joint and last survivor expectancy of the participant and a designated Beneficiary, or for a specified period of ten years or more; or o distributions which are required minimum distributions; or o the portion of the distributions not included in gross income (for example, returns of after-tax contributions); or o hardship withdrawals. Participants should consult a tax adviser regarding withholding requirements. REQUIRED DISTRIBUTIONS In order to be treated as an annuity contract for federal income tax purposes, Section 72(s) of the Code requires any non-qualified contract to contain certain provisions specifying how your interest in the contract will be distributed in the event of the death of an owner. Specifically, with regard to this Contract, Section 72(s) requires that: o if any Owner dies on or after the Income Date, but before the time the entire interest in the Contract has been distributed, the entire interest in the Contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such Owner's death; and o if any Owner dies before the Income Date, the entire interest in the Contract will be distributed within five years after the date of such Owner's death. These requirements will be considered satisfied as to any portion of an Owner's interest which is payable to or for the benefit of a designated Beneficiary and which is distributed over the life of such designated Beneficiary or over a period not extending beyond the life expectancy of that Beneficiary, provided that such distributions begin within one year of the Owner's death. The designated Beneficiary refers to an individual designated by the Owner as a Beneficiary and to whom ownership of the Contract passes by reason of death. However, if the designated Beneficiary is the surviving spouse of the deceased Owner, the Contract may be continued with the surviving spouse as the new Owner. If the Owner is a non-individual, then the death or change of an Annuitant is treated as the death of the Owner. Non-Qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. Other rules may apply to Qualified Contracts. QUALIFIED CONTRACTS The Contract is designed to be suitable for use under various types of qualified plans. Because of the minimum Purchase Payment requirements, these Contracts may not be appropriate for some periodic payment retirement plans. Taxation of participants in each Qualified Contract varies with the type of plan and terms and conditions of each specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under a Qualified Contract may be subject to the terms The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 6 and conditions of the plan regardless of the terms and conditions of the Contracts issued pursuant to the plan. Some retirement plans are subject to distribution and other requirements that are not incorporated into our administrative procedures. We are not bound by the terms and conditions of such plans to the extent such terms conflict with the terms of a Contract, unless we specifically consent to be bound. Owners, participants and Beneficiaries are responsible for determining that contributions, distributions and other transactions with respect to the Contracts comply with applicable law. General descriptions of the types of qualified plans with which the Contracts may be used can be found in the prospectus. Such descriptions are not exhaustive and are for general informational purposes only. The tax rules regarding qualified plans are very complex and will have differing applications, depending on individual facts and circumstances. Each purchaser should obtain competent tax advice before purchasing a Contract issued under a qualified plan. On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v. Norris that optional annuity benefits provided under an employer's deferred compensation plan could not, under Title VII of the Civil Rights Act of 1964, vary between men and women. The Contracts sold by us in connection with qualified plans may utilize annuity tables that do not differentiate on the basis of sex. These annuity tables will also be available for use in connection with certain non-qualified deferred compensation plans. Qualified plans include special provisions restricting Contract provisions that may otherwise be available and described in this SAI. Generally, Contracts issued pursuant to qualified plans are not transferable except upon withdrawal or annuitization. Various penalty and excise taxes may apply to contributions or distributions made in violation of applicable limitations. Furthermore, certain withdrawal penalties and restrictions may apply to withdrawals from Qualified Contracts. Many withdrawals from Qualified Contracts can be rolled over to an IRA or another qualified retirement plan. If you receive a withdrawal from a Qualified Contract that could be rolled over and you do not elect to make a direct rollover of that amount to an IRA or qualified plan, by law 20% of the taxable amount must be withheld by us for taxes. In situations where this mandatory tax withholding does not apply, other tax amounts may be withheld unless you elect out of the withholding. You may request more detailed information about income tax withholding at the time of a withdrawal. For more information see prospectus section 8, Taxes - Distributions - Qualified Contracts. PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the Code permit employers, including self-employed individuals, to establish various types of retirement plans for employees. These retirement plans may permit the purchase of the Contracts to provide benefits under the plan. Contributions to the plan for the benefit of employees will not be included in the gross income of the employee until distributed from the plan. The tax consequences to participants may vary, depending upon the particular plan design. However, the Code places limitations and restrictions on all plans, including on such items as: amount of allowable contributions; form, manner and timing of distributions; transferability of benefits; vesting and nonforfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions and withdrawals. Participant loans are not allowed under the Contracts purchased in connection with these plans. For more information see prospectus section 8, Taxes - Qualified Contracts. Purchasers of Contracts for use with pension or profit-sharing plans should obtain competent tax advice as to the tax treatment and suitability of such an investment. We may choose not to allow pension or profit-sharing plans to purchase this Contract. ANNUITY PROVISIONS We base Traditional Annuity Payments upon the following: o Whether you request fixed payments, variable payments, or a combination of both fixed and variable Traditional Annuity Payments. o The adjusted Contract Value on the Income Date. o The Annuity Option you select. o The age of the Annuitant and any joint Annuitant. o The sex of the Annuitant and any joint Annuitant where allowed. We guarantee fixed Traditional Annuity Payments as to dollar amount and the amount does not vary with the investment experience of an Investment Option. If you request fixed Traditional Annuity Payments, the amount of adjusted Contract Value that you apply to fixed Traditional Annuity Payments will be placed in our general account and it will not participate in the investment experience of the Investment Options. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 7 Variable payments are not predetermined as to dollar amount and will vary in amount with the investment experience of the Investment Option(s) you select. We use Annuity Units to determine the amount of any variable Traditional Annuity Payments you elect to receive. ANNUITY UNITS/CALCULATING VARIABLE ANNUITY PAYMENTS The first variable Traditional Annuity Payment is equal to the amount of adjusted Contract Value you are applying to variable Traditional Annuity Payments on the Income Date, divided first by $1,000 and then multiplied by the appropriate variable annuity payout factor for each $1,000 of value for the Annuity Option you selected. We will then purchase a fixed number of Annuity Units on the Income Date for each subaccount of the Investment Options you select. We do this by dividing the amount of the first Traditional Annuity Payment among the subaccounts for your selected Investment Options according to your most recent allocation instructions. We then divide the amount in each subaccount by the Annuity Unit value for each subaccount on the Income Date. We determine the Annuity Unit value on each Business Day as follows: o multiply the Annuity Unit value for the immediately preceding Business Day by the net investment factor for the current Business Day; and o divide by the assumed net investment factor for the current Business Day. The assumed net investment factor for the current Business Day is one plus the annual AIR adjusted to reflect the number of calendar days that have elapsed since the immediately preceding Business Day. We will allow an AIR of 3%, 5% or 7% based on your selection and applicable law. Thereafter, the number of Annuity Units in each subaccount generally remains unchanged unless you make a transfer. However, the number of Annuity Units will change if Annuity Option 3 is in effect, one Annuitant dies, and the Owner requests Traditional Annuity Payments at 75% or 50% of the previous payment amount. All calculations will appropriately reflect the payment frequency you selected. The Traditional Annuity Payment on each subsequent payment date is equal to the sum of the Traditional Annuity Payments for each subaccount. We determine the Traditional Annuity Payment for each subaccount by multiplying the number of Annuity Units allocated to the subaccount by the Annuity Unit value for that subaccount on the payment date. MORTALITY AND EXPENSE RISK GUARANTEE Allianz Life guarantees that the dollar amount of each Variable Annuity Payment after the first Annuity Payment will not be affected by variations in mortality and expense experience. INFORMATION ON MAY 2003 CONTRACTS The May 2003 Contracts were replaced by the currently offered Contracts beginning in May 2006. The May 2003 Contracts are no longer offered for sale, but Owners of these Contracts can still make additional Purchase Payments. Therefore, we are including information on these Contracts in this SAI. The primary difference between May 2003 Contracts and the currently offered Contracts is that the May 2003 Contracts offered the optional Traditional PRIME Benefit, the optional Enhanced PRIME Benefit, and the partial withdrawal privilege allowed withdrawals of 10% of total Purchase Payments per year on a cumulative basis. THE PRIME BENEFITS The PRIME Benefits include a Guaranteed Minimum Income Benefit (GMIB) and a Guaranteed Partial Withdrawal Benefit and carry an additional M&E charge. The PRIME Benefits were available for selection at Contract issue. AFTER THE ISSUE DATE, NEITHER THE TRADITIONAL PRIME BENEFIT NOR THE ENHANCED PRIME BENEFIT CAN BE ADDED TO, CHANGED, OR REMOVED FROM A CONTRACT. IF YOUR CONTRACT INCLUDES A PRIME BENEFIT AND YOU DO NOT EXERCISE EITHER THE GMIB OR GPWB, YOU WILL HAVE INCURRED HIGHER CONTRACT EXPENSES WITHOUT RECEIVING ANY ADVANTAGE FROM THE PRIME BENEFIT. PLEASE REFER TO THE APPLICABLE ENDORSEMENTS AND/OR RIDERS TO YOUR CONTRACT FOR THE SPECIFIC TERMS AND CONDITIONS OF THE GMIB AND GPWB. We designed the PRIME Benefits to give you options on how to turn your accumulated retirement assets into a stream of retirement income. The GMIBs provide a guaranteed minimum fixed income in the form of Annuity Payments (GMIB Payments). Depending on the Annuity Option you select, the GMIB can provide guaranteed lifetime income, but if the Annuitant(s) die shortly after the Income Date, the Payee may receive less than your investment in the Contract. The The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 8 GPWBs provide a guaranteed minimum amount of income in the form of annual partial withdrawals (GPWB Payments). However, GPWB Payments are not guaranteed for life and you could outlive your payment stream. You must wait seven complete Contract Years before you can exercise a GMIB or GPWB, and they can only be exercised within 30 days after a Contract Anniversary. THE PRIME BENEFITS DO NOT CREATE CONTRACT VALUE OR GUARANTEE THE PERFORMANCE OF ANY INVESTMENT OPTION. Benefit payments under the PRIME Benefits are based on the PB Value. Under Traditional PRIME Benefit, the PB Value is total Purchase Payments adjusted for partial withdrawals and Partial Annuitizations. Under the Enhanced PRIME Benefit, the PB Value is either the MAV, 3% AIA, or 7% AIA. THE PB VALUE UNDER THE ENHANCED PRIME BENEFIT WILL NEVER BE LESS THAN THE PB VALUE UNDER THE TRADITIONAL PRIME BENEFIT, BUT THEY MAY BE EQUAL. YOU CAN ONLY ACCESS THE PB VALUE BY EXERCISING THE GMIB OR GPWB. CANCELING THE PRIME BENEFITS ONCE YOU EXERCISE A PRIME BENEFIT, YOU CANNOT CANCEL IT. However, you can terminate the GPWB by electing to stop GPWB Payments and instead do one of the following. o Take an Excess Withdrawal of the entire Contract Value, less any withdrawal charge and any deduction we make to reimburse ourselves for premium tax (available at anytime). o Request Traditional Annuity Payments under a Full Annuitization based on the entire Contract Value, less any deduction we make to reimburse ourselves for premium tax (available at anytime). o Request GMIB Payments under a Full Annuitization based on the entire remaining PB Value (only available within 30 days following a Contract Anniversary and before we make the next GPWB Payment). If you take an Excess Withdrawal of the entire Contract Value, the Contract will terminate and you may receive less money than you would have received under the GPWB. If you request fixed Traditional Annuity Payments or GMIB Payments, the GPWB will terminate and we will no longer assess the Separate Account annual expense on that portion of the Contract. If you request variable Traditional Annuity Payments, the GPWB will terminate and we will reduce the Separate Account annual expense to 1.50% on that portion of the Contract. Although you can elect to terminate the GPWB, you cannot elect to terminate the GMIB. If you do elect to stop GPWB Payments: o the GPWB will terminate, o the Accumulation Phase of the Contract will end, o the GMDB will terminate, and o if you request Annuity Payments, that portion of the Contract will terminate as indicated in prospectus section 3, The Annuity Phase. PB VALUE UNDER THE TRADITIONAL PRIME BENEFIT The PB Value before the date of any Owner's death or exercise of the GPWB is equal to: o total Purchase Payments received, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn (including any withdrawal charge) for each traditional annuitization or withdrawal taken, and o if you took a GMIB Partial Annuitization, reduced by the dollar amount applied to the GMIB Payments. ANY TRADITIONAL PARTIAL ANNUITIZATIONS OR WITHDRAWALS YOU TAKE MAY REDUCE THE PB VALUE BY MORE THAN THE AMOUNT ANNUITIZED OR WITHDRAWN. If the Contract Value at the time of annuitization or withdrawal is less than the PB Value, we will deduct more than the amount annuitized or withdrawn from the PB Value. IF YOU EXERCISE THE GPWB, THE PB VALUE WILL STOP INCREASING ON THE DATE YOU BEGIN RECEIVING GPWB PAYMENTS AND IT WILL DECREASE: o on a dollar for dollar basis with each GPWB Payment we make; and o proportionately by the percentage of any Contract Value taken as an Excess Withdrawal (including any withdrawal charge) for each Excess Withdrawal taken. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 9 PB VALUE UNDER THE ENHANCED PRIME BENEFIT The PB Value before the date of any Owner's death or exercise of the GPWB is equal to either: o the AIA; or o the MAV. We calculate the AIA two ways. We increase your total Purchase Payments adjusted for partial withdrawals on each Contract Anniversary by: a) 3%, and b) 7%*. * Not available in the state of Washington. If the MAV is greater than both the 3% AIA and the 7% AIA, the PB Value is equal to the MAV. If the 3% AIA is greater than the MAV, you can decide whether to set the PB Value equal to the 3% AIA or the 7% AIA. If only the 7% AIA is greater than the MAV, you can decide whether to set the PB Value equal to the 7% AIA or the MAV. THE 7% AIA MAY BE MORE LIMITED THAN THE 3% AIA OR THE MAV BECAUSE: o the 7% AIA is subject to a maximum of two times Purchase Payments received in the first five Contract Years; o under the GMIB, the guaranteed fixed payout rates for the 7% AIA are lower and there are fewer available Annuity Options; and o under the GPWB, you can only receive GPWB Payments of up to 5% of the PB Value each year. If you take a GMIB Partial Annuitization, the AIA and MAV will decrease, but will continue to be calculated. If you take a GMIB Full Annuitization or exercise the GPWB, we will establish a PB Value and the AIA and MAV will cease to exist. After you exercise the GPWB, only the PB Value will remain and continue to be calculated. CALCULATING THE AIAS For each AIA that was effective on the Issue Date, the AIA on the Issue Date is equal to the initial Purchase Payment received on the Issue Date. For any AIA that was effective after the Issue Date, the AIA on the endorsement effective date is equal to the Contract Value on the endorsement effective date. ON EACH BUSINESS DAY OTHER THAN A CONTRACT ANNIVERSARY, each AIA is equal to: o its value on the immediately preceding Business Day, o plus any additional Purchase Payments received that day, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o if you took a GMIB Partial Annuitization that day based on the: - 3% AIA, we will reduce the 3% AIA by the dollar amount applied to GMIB Payments and we will reduce the 7% AIA proportionately by the percentage of the 3% AIA applied to GMIB Payments. - 7% AIA, we will reduce the 7% AIA by the dollar amount applied to GMIB Payments and we will reduce the 3% AIA proportionately by the percentage of the 7% AIA applied to GMIB Payments. - MAV, we will reduce both the 3% AIA and the 7% AIA proportionately by the percentage of the MAV applied to GMIB Payments. ON EACH CONTRACT ANNIVERSARY BEFORE THE OLDER OWNER'S 81ST BIRTHDAY,* each AIA is equal to its value on the immediately preceding Business Day increased by 3% for Contracts with the 3% AIA, and increased by 7% for Contracts with the 7% AIA. We then process any transactions received on that Contract Anniversary (such as additional Purchase Payments, withdrawals, and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. BEGINNING WITH THE CONTRACT ANNIVERSARY THAT OCCURS ON OR AFTER THE OLDER OWNER'S 81ST BIRTHDAY,* we calculate each AIA in the same way that we do on each Business Day other than a Contract Anniversary. * If the Contract is owned by a non-individual (for example, a qualified plan or trust), we will use the Annuitant's age. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 10 WE LIMIT THE 3% AIA TO A MAXIMUM OF: o 1.5 times total Purchase Payments received, o reduced proportionately by the percentage of Contract Value applied to each traditional Partial Annuitization or withdrawal (including any withdrawal charge) for each traditional annuitization or withdrawal taken, and o reduced proportionately by the percentage of GMIB value applied to each GMIB Partial Annuitization. WE LIMIT THE 7% AIA TO A MAXIMUM OF: o 2 times the total Purchase Payments received in the first five Contract Years, o reduced proportionately by the percentage of Contract Value applied to each traditional Partial Annuitization or withdrawal (including any withdrawal charge) for each traditional annuitization or withdrawal taken, and o reduced proportionately by the percentage of GMIB value applied to each GMIB Partial Annuitization. CALCULATING THE MAV The MAV on the Issue Date is equal to your initial Purchase Payment received on the Issue Date. ON EACH BUSINESS DAY OTHER THAN A CONTRACT ANNIVERSARY, the MAV is equal to: o its value on the immediately preceding Business Day, o plus any additional Purchase Payments received that day, o reduced proportionately by the percentage of Contract Value applied to a traditional Partial Annuitization or withdrawn that day (including any withdrawal charge), and o if you take a GMIB Partial Annuitization that day based on the: - MAV, we will reduce the MAV by the dollar amount applied to GMIB Payments, and - 3% AIA or the 7% AIA, we will reduce the MAV proportionately by the percentage of the 3% AIA or 7% AIA applied to GMIB Payments. ON EACH CONTRACT ANNIVERSARY BEFORE THE OLDER OWNER'S 81ST BIRTHDAY,* the MAV is equal to the greater of its value on the immediately preceding Business Day, or the Contract Value that occurs on that Contract Anniversary before we process any transactions. We then process any transactions we received on that Contract Anniversary (such as additional Purchase Payments, withdrawals, and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. BEGINNING WITH THE CONTRACT ANNIVERSARY THAT OCCURS ON OR AFTER THE OLDER OWNER'S 81ST BIRTHDAY,* we calculate the MAV in the same way that we do on each Business Day other than a Contract Anniversary. * If the Contract is owned by a non-individual (for example, a qualified plan or trust), we will use the Annuitant's age. ANY TRADITIONAL PARTIAL ANNUITIZATIONS OR WITHDRAWALS YOU TAKE MAY REDUCE THE AIAS OR THE MAV BY MORE THAN THE AMOUNT ANNUITIZED OR WITHDRAWN. If the Contract Value at the time of annuitization or withdrawal is less than the AIA (or MAV as appropriate), we will deduct more than the amount annuitized or withdrawn from the AIA (or MAV). IF YOU EXERCISE THE GPWB, THE PB VALUE WILL STOP INCREASING ON THE DATE YOU BEGIN RECEIVING GPWB PAYMENTS AND IT WILL DECREASE: o on a dollar for dollar basis with each GPWB Payment we make; and o proportionately by the percentage of any Contract Value taken as an Excess Withdrawal (including any withdrawal charge) for each withdrawal taken. USING THE PRIME BENEFITS The GPWB guarantees a minimum amount of income in the form of partial withdrawals (GPWB Payments) during the Accumulation Phase. The GMIB guarantees a minimum amount of fixed income in the form of Annuity Payments (GMIB Payments) during the Annuity Phase. Depending on the Annuity Option you select, the GMIB can provide guaranteed lifetime income, but if the Annuitant(s) die shortly after the Income Date, the Payee may receive less than your investment in the Contract. You must hold your Contract for seven complete Contract Years before you can exercise the GPWB or GMIB and you can only exercise the GPWB or GMIB within 30 days following a Contract Anniversary. You cannot exercise the GPWB or GMIB before the expiration of the seven-year waiting period. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 11 IF YOU EXERCISE THE GPWB: o You can no longer make additional Purchase Payments to the Contract. o Partial Annuitizations are no longer available. o The additional M&E charge for the PRIME Benefit will continue until both the GPWB and GMIB terminate. o If you have the Enhanced GMDB or Earnings Protection GMDB, the additional M&E charge for the GMDB will continue as long as the Enhanced GMDB value or the Earnings Protection GMDB value is greater than zero. o The partial withdrawal privilege will no longer be available to you, however, you can still take GPWB Payments and Excess Withdrawals up to the annual GPWB Maximum without a withdrawal charge. Excess Withdrawals (including a full withdrawal of the Contract Value) are available while you are receiving GPWB Payments, however, amounts withdrawn in excess of the annual GPWB Maximum (including GPWB Payments) are subject to a withdrawal charge as set out in prospectus section 7, Expenses - Withdrawal Charge. o The systematic withdrawal and minimum distribution programs will no longer be available to you and if you are participating in these programs, your participation will stop. o The Contract Value will continue to fluctuate as a result of market performance, and it will decrease on a dollar for dollar basis with each GPWB Payment and any Excess Withdrawals. o The GMDB value will no longer increase, each GPWB Payment will reduce the GMDB value on a dollar for dollar basis and any Excess Withdrawals will reduce the GMDB value proportionately by the percentage of Contract Value withdrawn. o The PB Value will no longer increase, each GPWB Payment will reduce the PB Value on a dollar for dollar basis and any Excess Withdrawals will reduce the PB Value proportionately by the percentage of Contract Value withdrawn. o Excess Withdrawals will not affect the GPWB Payment amount or frequency, but they may decrease the time over which you will receive GPWB Payments. IF YOU EXERCISE A GMIB UNDER A FULL ANNUITIZATION: o The Accumulation Phase will end and the Annuity Phase will begin. o The portion of the Contract that you apply to the GMIB will no longer be subject to the Separate Account annual expense, but any portion of the Contract that has been applied to variable Traditional Annuity Payments will continue to be subject to a 1.50% Separate Account annual expense. o If you have not exercised the GPWB, it will no longer be available to you, and you will no longer be able to make additional Purchase Payments to the Contract. o If you exercised the GPWB, GPWB Payments will stop and the GPWB will terminate. o The GMDB will terminate. IF YOU EXERCISE A GMIB UNDER A PARTIAL ANNUITIZATION*: o The Annuity Phase will begin and the Accumulation Phase will continue. o The portion of the Contract that you apply to the GMIB will no longer be subject to the Separate Account annual expense, but any portion of the Contract that is in the Accumulation Phase or that has been applied to variable Traditional Annuity Payments will continue to be subject to the appropriate Separate Account annual expense. o If any portion of the Contract is still in the Accumulation Phase, you may be able to make additional Purchase Payments to the Contract, but you cannot make additional Purchase Payments to any portion of the Contract that is in the Annuity Phase. o The GPWB will continue to be available to you. o The Partial Annuitization will reduce the Contract Value and GMDB value proportionately by the percentage of PB Value you apply to the GMIB. o GMIB Payments will not affect the Contract Value available under the portion of the Contract that is in the Accumulation Phase. * Not available after you exercise the GPWB, or if the PB Value is less than the Contract Value. In addition, if you exercise the GPWB after taking a GMIB Partial Annuitization, all payments (GMIB Payments and GPWB Payments) will be treated as withdrawals and not annuity payments for tax purposes. However, once the entire Contract Value has been applied to Annuity Payments, we intend to treat all Annuity Payments we make after that as annuity payments (and not withdrawals) for tax purposes. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 12 Under the PRIME Benefits the Owner controls: o when to exercise a benefit, o which benefit(s) to exercise, and o the amount of the GPWB Payment (subject to the GPWB Maximum) and Excess Withdrawals from the portion of the Contract that is in the Accumulation Phase. GPWB PAYMENTS In order to begin receiving GPWB Payments, you must submit a GPWB Payment election form to our Service Center after the expiration of the seven-year waiting period and within 30 days following a Contract Anniversary. GPWB Payments will not begin until your request has been received at our Service Center and determined to be in good order. If you exercise the GPWB, we will make GPWB Payments based on the percentage of the initial PB Value you select, subject to the maximum allowable payment (the GPWB Maximum). If you exercise the GPWB you can elect to receive up to: o 10% of the PB Value under the Traditional PRIME Benefit, o 10% of the PB Value under the Enhanced PRIME Benefit if the 3% AIA or MAV applies, or o 5% of the PB Value under the Enhanced PRIME Benefit if the 7% AIA applies. ONCE YOU CHOOSE THE PERCENTAGE OF GPWB VALUE YOU WANT TO RECEIVE YOU CANNOT CHANGE IT. Therefore, under a Qualified Contract that is subject to a minimum distribution requirement, once you select your GPWB Payment percentage you will not be able to adjust your GPWB Payment to meet your required minimum distribution needs. Although GPWB Payments are partial withdrawals, they are not subject to the withdrawal charge. However, withdrawal charges will apply to any Excess Withdrawals you take in the first seven years after you exercise the GPWB. In addition, if you take an Excess Withdrawal, the amount withdrawn will reduce: o the Contract Value, o the PB Value (which determines the amount available for future GPWB Payments and/or future GMIB Payments), and o the GMDB value. Excess Withdrawals will not affect the GPWB Payment amount or frequency, but they may decrease the time over which you will receive GPWB Payments. If you take no Excess Withdrawals while the GPWB is in effect, we would pay the PB value to you: o within ten years under the Traditional PRIME Benefit if you take the maximum allowable payment each year. o within ten years if you elect the 10% payment option under the Enhanced PRIME Benefit and take the maximum allowable payment each year. o within 20 years if you elect the 5% payment option under the Enhanced PRIME Benefit and take the maximum allowable payment each year (assuming no step ups). We will deduct each GPWB Payment proportionately from the Investment Choices. We will continue to allocate the Contract Value among the Investment Choices according to your instructions while the GPWB is in effect. You can also continue to make transfers between the Investment Options (subject to certain restrictions) while the GPWB is in effect. You can continue to receive GPWB Payments until the PB Value is exhausted or the GPWB terminates, even if you have no remaining Contract Value. If there is Contract Value remaining after you exhaust the PB Value, you can elect to either: o receive a lump sum payment of the entire remaining Contract Value (less any withdrawal charges and any deduction we make for premium taxes), the Accumulation Phase of the Contract will end, and the Contract will terminate; or o request Traditional Annuity Payments under a Full Annuitization based on the entire remaining Contract Value (less any deduction we make for premium taxes). We will send you notice at least 30 days before the last GPWB Payment date to ask for your instructions. If we do not receive any instructions from you by the date we make the last GPWB Payment, we will pay you the entire remaining Contract Value (less any withdrawal charges and any deductions we make for premium tax) in a lump sum, the Accumulation Phase of the Contract will end, and the Contract will terminate.* * If you took a Partial Annuitization, those portions of the Contract will continue and we will continue to make Annuity Payments as provided for in the selected Annuity Option. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 13 TAXATION OF GPWB PAYMENTS GPWB Payments are withdrawals and will be treated as such for tax purposes. This means that for Non-Qualified Contracts, Contract gains from the entire Contract are considered to be distributed first and are subject to ordinary income tax. Purchase Payments are distributed after gains have been paid out and are generally considered to be a return of your investment and are not subject to income tax. For Qualified Contracts, the entire GPWB Payment will most likely be subject to ordinary income tax. In addition, GPWB Payments may be subject to premium taxes and, if any Owner is younger than age 59 1/2, may also be subject to a 10% federal penalty tax. GPWB Payments are not subject to a withdrawal charge. TERMINATION OF THE GPWB THE GPWB WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o The Business Day you take an Excess Withdrawal of the entire Contract Value. o The Business Day that the PB Value and Contract Value are both zero. o The Business Day before the Income Date that you take a Full Annuitization. o Contract termination. o The death of any Owner (unless the deceased Owner's spouse continues the Contract as the new Owner). GMIB PAYMENTS The annuity income protection provided by the GMIB will apply only under the following circumstances. o Your Income Date must be within 30 days following a Contract Anniversary beginning with seventh Contract Anniversary. o GMIB Payments can only be made as fixed payments, regardless of the Annuity Option* you select. o Annuity Option 6* is only available if the PB Value is the MAV and the duration of the period certain must be at least ten years. o If the PB Value is the 7% AIA, your available Annuity Options* are restricted to Annuity Option 2 or 4 and the duration of the period certain must be at least ten years. o We will base all GMIB Payments on an interest rate of 1% per year if the PB Value is the MAV and you select Annuity Option 6, or if the PB value is the 7% AIA. * For more information see prospectus section 3, The Annuity Phase - Annuity Options. In order to begin receiving monthly GMIB Payments, you must submit an income option election form to our Service Center after the expiration of the seven- year waiting period and within 30 days following a Contract Anniversary. GMIB Payments will begin after your request has been received at our Service Center and is determined to be in good order. We will make GMIB Payments to you beginning on the 30th day after your Contract Anniversary. If the scheduled GMIB Payment date does not fall on a Business Day, we will make payment to you on the next Business Day. Under the GMIB you can take either a Full Annuitization, or before you exercise the GPWB, or you can take Partial Annuitization(s) if the PB Value is greater than the Contract Value. Any GMIB Partial Annuitization will reduce the Contract Value and GMDB value proportionately by the percentage of PB Value you apply to the GMIB. If you take a Partial Annuitization you cannot: o transfer any amounts you allocated to GMIB Payments back to any portion of the Contract that is in the Accumulation Phase; o transfer amounts from one Annuity Payment stream to another; or o allocate additional PB Value (or Contract Value) to an existing stream of Annuity Payments. If you purchased this Contract under a qualified plan that is subject to minimum distribution requirement and you do not exercise the GMIB on or before the date required minimum distribution payments must begin under the qualified plan, the Owner or Beneficiary may not be able to exercise the GMIB due to the restrictions imposed by the minimum distribution requirements. AMOUNT USED TO CALCULATE GMIB PAYMENTS The GMIB guarantees that the GMIB Payments will be equal to the guaranteed fixed payout rates applied to the PB Value. There may be situations where the PB Value is greater than the Contract Value, but the GMIB Payments are less than fixed Traditional Annuity Payments based on the Contract Value. This may occur because the guaranteed fixed The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 14 payout rates available with the GMIB may be less than the current fixed payout rates that are otherwise available under Traditional Annuity Payments. We will base your Annuity Payments on whichever amount (PB Value or Contract Value) produces the greatest payment. However, if we use the Contract Value and the current fixed payout rates to calculate Traditional Annuity Payments, you will have incurred higher Contract expenses without receiving any explicit benefit from the GMIB. While the 7% AIA may be larger than the 3% AIA and/or MAV, it may produce a lower GMIB Payment because under the 7% AIA you have fewer available Annuity Options and guaranteed fixed payout rates are lower. If the GMIB Payment available under the 7% AIA would always be less than the GMIB Payment available under the 3% AIA or MAV, we will base GMIB Payments on the amount that produces the largest payment. However, it is possible that the GMIB Payments under the 7% AIA may be more or less than the GMIB Payments available under the 3% AIA and/or MAV depending on the Annuity Option you select. In these instances we will allow you to select the amount we use to calculate GMIB Payments and the Annuity Option that you feel is most appropriate. TAXATION OF GMIB PAYMENTS If you take a GMIB Partial Annuitization, GMIB Payments will be treated as withdrawals and not annuity payments for tax purposes. This means that for tax purposes, any Contract earnings in the entire Contract will be considered to be distributed before Purchase Payments and may be subject to ordinary income tax and a 10% federal penalty tax. For Non-Qualified Contracts, gains are generally subject to ordinary income tax and Purchase Payments are not. For Qualified Contracts, the entire GMIB Payment under a Partial Annuitization will most likely be subject to ordinary income taxes. For more information on Partial Annuitizations, please see prospectus section 3, The Annuity Phase - Partial Annuitization. If you take a Full Annuitization under the GMIB, GMIB Payments should be treated as annuity payments for tax purposes. If you take a GMIB Partial Annuitization, GMIB Payments should be treated as annuity payments (and not withdrawals) for tax purposes ONLY after the Income Date on which you have applied the entire remaining Contract Value to Annuity Payments under the GMIB and/or Traditional Annuity Payments, that is, the Income Date after the Contract has been fully annuitized. For Non-Qualified Contracts that have been fully annuitized, a portion of each payment may be treated as gains that are subject to tax as ordinary income, and the remaining portion of the payment will be considered to be a return of your investment and will not be subject to income tax. Once we have paid out all of your Purchase Payments, however, the full amount of each GMIB Payment will be subject to tax as ordinary income. For Qualified Contracts, the entire GMIB Payment will most likely be subject to tax as ordinary income. Once you apply the entire Contract Value to Annuity Payments, GMIB Payments will generally not be subject to the 10% federal penalty tax. TERMINATION OF THE GMIB IF YOU HAVE NOT EXERCISED THE GMIB, IT WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o The Business Day that the PB Value and Contract Value are both zero. o The Business Day before the Income Date you take a Full Annuitization and request Traditional Annuity Payment. o Contract termination. o The death of any Owner (unless the deceased Owner's spouse continues the Contract as the new Owner). IF YOU EXERCISE THE GMIB, EACH PORTION OF THE CONTRACT THAT YOU APPLY TO GMIB PAYMENTS WILL TERMINATE UPON THE EARLIEST OF THE FOLLOWING. o Under Annuity Options 1 and 3, the death of the last surviving Annuitant. o Under Annuity Options 2 and 4, the death of the last surviving Annuitant and expiration of the guaranteed period.* o Under Annuity Option 5, the death of the Annuitant and payment of any lump sum refund. o Under Annuity Option 6, the expiration of the specified period certain. o Contract termination. * If we make a lump sum payment of the remaining guaranteed GMIB Payments at the death of the last surviving Annuitant, this portion of the Contract will terminate upon payment of the lump sum. SEPARATE ACCOUNT ANNUAL EXPENSES FOR MAY 2003 CONTRACTS The Separate Account annual expenses for May 2003 Contracts without a PRIME Benefit during the Accumulation Phase are the same as the expenses for the currently offered Base Contracts. The Separate Account annual expenses for May The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 15 2003 Contracts with Enhanced PRIME Benefit during the Accumulation Phase are the same as the current charges for the currently offered Contracts with the PRIME Plus Benefit. The Separate Account annual expenses for May 2003 Contracts with Traditional PRIME Benefit during the Accumulation Phase are as follows: SEPARATE ACCOUNT ANNUAL EXPENSES[(1) ](as a percentage of average daily assets invested in a subaccount on an annual basis) MAY 2003 CONTRACTS WITH THE TRADITIONAL PRIME BENEFIT M&E CHARGES ADMIN.CHARGE TOTAL TRADITIONAL GMDB 1.55% 0.15% 1.70% ENHANCED GMDB 1.80% 0.15% 1.95% EARNINGS PROTECTION GMDB 1.85% 0.15% 2.00% (1)Some or all of the guaranteed benefits may not be available in all states; check with your registered representative. The Separate Account annual expenses for May 2003 Contracts during the Annuity Phase are the same as the charges for currently offered Contracts. For more information on the expenses and charges of currently offered Contracts please see the Fee Tables in the prospectus. INFORMATION ON CONTRACTS THAT WERE OFFERED BEFORE APRIL 29, 2005 Before April 29, 2005, we offered Contracts that allowed the Owner to take money out of the Contract (take a liquidation) during the Annuity Phase if the Owner elected to have us make variable Annuity Payments under Annuity Options 2, 4, or 6. These liquidations were subject to an additional charge. These Contracts are no longer offered for sale. LIQUIDATIONS UNDER ANNUITY OPTION 2 (LIFE ANNUITY WITH MONTHLY PAYMENTS OVER 5, 10, 15 OR 20 YEARS GUARANTEED). During the lifetime of the Annuitant, and while the number of variable Traditional Annuity Payments made is less than the guaranteed number of payments elected, you may request a partial withdrawal (partial liquidation) of up to 75% of the total liquidation value, less any previously liquidated amounts. The total liquidation value is equal to the present value of the remaining guaranteed variable Traditional Annuity Payments, to the end of the guaranteed period, using the selected AIR as the interest rate for the present value calculation, less a commutation fee, or as set forth in your Contract. The minimum amount that you can liquidate is $500, or the remaining portion of the total liquidation value available (whichever is less). We will subtract a commutation fee from the amount liquidated before we pay you the proceeds. We will process partial liquidations within seven days after your written request is received in good order at our Service Center. After a partial liquidation, we will reduce the subsequent monthly variable Traditional Annuity Payments during the remaining guaranteed period by the percentage of liquidation value withdrawn, including the commutation fee. After we have made the guaranteed number of variable Traditional Annuity Payments, we will restore the number of Annuity Units used in calculating the monthly variable Traditional Annuity Payments to their original values as if no liquidations had taken place. LIQUIDATIONS UNDER ANNUITY OPTION 4 (JOINT AND LAST SURVIVOR WITH MONTHLY PAYMENTS OVER 5, 10, 15 OR 20 YEARS GUARANTEED). While either the Annuitant or joint Annuitant is alive and the number of variable Traditional Annuity Payments we have made is less than the guaranteed number of payments elected, you may request a partial withdrawal (partial liquidation) of up to 75% of the total liquidation value, less any previously liquidated amounts. The total liquidation value is equal to the present value of the remaining guaranteed variable Traditional Annuity Payments, to the end of the guaranteed period, using the selected AIR as the interest rate for the present value calculation, less a commutation fee, or as set forth in your Contract. The minimum amount that you can liquidate is $500, or the remaining portion of the total liquidation value available (whichever is less). We will subtract a commutation fee from the amount liquidated before we pay you the proceeds. We will process partial liquidations within seven days after your written request is received in good order at our Service Center. After a partial liquidation, we will reduce the subsequent monthly variable Traditional Annuity Payments during the remaining guaranteed period by the percentage of liquidation value withdrawn, including the commutation fee. After we have made the guaranteed number of variable Traditional Annuity Payments, we will restore the number of Annuity Units used in calculating the monthly variable Traditional Annuity Payments to their original values as if no liquidations had taken place. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 16 LIQUIDATIONS UNDER ANNUITY OPTION 6 (SPECIFIED PERIOD CERTAIN ANNUITY). If you requested variable Traditional Annuity Payments, you may take a withdrawal (liquidation) at least once each Contract Year of up to 100% of the total liquidation value in the Contract. We will subtract a withdrawal charge from the amount liquidated before we pay you the proceeds. We will process partial liquidations within seven days after your written request is received in good order at our Service Center. After a partial liquidation, we will reduce the subsequent monthly variable Traditional Annuity Payments during the remaining period certain by the percentage of liquidation value withdrawn, including the withdrawal charge. COMMUTATION FEE/WITHDRAWAL CHARGE FOR LIQUIDATIONS UNDER ANNUITY OPTIONS 2, 4, OR 6. If you request variable Traditional Annuity Payments under Annuity Options 2, 4 or 6 and take a liquidation, we may assess a commutation fee or withdrawal charge. For Annuity Options 2 and 4 the commutation fee as a percentage of the amount liquidated is equal to: --------------------------------------------------- |NUMBER OF COMPLETE YEARS SINCE INCOME DATE|CHARGE| --------------------------------------------------- | 0 | 5% | --------------------------------------------------- | 1 | 4% | --------------------------------------------------- | 2 | 3% | --------------------------------------------------- | 3 | 2% | --------------------------------------------------- | 4 years or more | 1% | --------------------------------------------------- In states where variable Traditional Annuity Payments are available under Annuity Option 6, the withdrawal charge as a percentage of the amount liquidated is equal to: ---------------------------------------------------------------------------- |NUMBER OF COMPLETE CONTRACT YEARS SINCE RECEIPT OF PURCHASE PAYMENT|CHARGE| ---------------------------------------------------------------------------- | 0 | 7% | ---------------------------------------------------------------------------- | 1 | 6% | ---------------------------------------------------------------------------- | 2 | 5% | ---------------------------------------------------------------------------- | 3 | 4% | ---------------------------------------------------------------------------- | 4 | 3% | ---------------------------------------------------------------------------- | 5 | 2% | ---------------------------------------------------------------------------- | 6 Contract years or more | 0% | ---------------------------------------------------------------------------- We assess the commutation fee and/or the withdrawal charge to cover distribution expense and lost revenue, as well as internal costs incurred in conjunction with the liquidation. INFORMATION ON ORIGINAL CONTRACTS Original Contracts were first offered in January 2000 and were replaced by the May 2003 Contracts. Original Contracts are no longer offered for sale, but Owners of these Contracts can still make additional Purchase Payments. Therefore, we are including information on these Contracts in this SAI. Original Contracts automatically provided a Traditional GMIB for no additional charge and the Traditional GMIB value under these Contracts is calculated in the same manner as the PB Value under the Traditional PRIME Benefit for May 2003 Contracts. The Enhanced GMIB was available for an additional mortality and expense risk (M&E) charge if all Owners were 79 or younger on the Issue Date and the Enhanced GMIB value was equal to the greater of: o the Maximum Anniversary Value (MAV) before the older Owner's 81st birthday, adjusted for subsequent partial withdrawals and subsequent Purchase Payments; or o the Annual Increase Amount (AIA) before the older Owner's 81st birthday, adjusted for subsequent partial withdrawals and subsequent Purchase Payments. The MAV for Original Contracts is calculated in the same manner as the MAV under the PRIME Plus Benefit for currently offered Contracts. The 5% AIA for Original Contracts is also calculated in the same manner as it is under currently offered Contracts with the PRIME Plus Benefit, on each Business Day other than a Contract Anniversary and on each Contract Anniversary that occurs on or after the older Owner's 81st birthday. However, the 5% AIA on each Contract Anniversary before the older Owner's 81st birthday for Original Contracts, is calculated by taking its value on the immediately preceding Business Day increased by 5%. We then process any transactions we received on that Contract Anniversary (such as additional Purchase Payments, withdrawals and Partial Annuitizations) in the same way that we do on each Business Day other than a Contract Anniversary. There is no limit on the 5% AIA for Original Contracts. For The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 17 details on how the Traditional GMIB and Enhanced GMIB values are calculated, please see the discussion earlier in this SAI. The GPWBs were not available under Original Contracts. The death benefits available under Original Contracts were the same as what is available under currently offered Contracts. However, on Original Contracts, the AIA under the Enhanced GMDB is calculated in the same manner as it is for Original Contracts with the Enhanced GMIB and there is no limit on the AIA. The Earnings Protection GMDB value for Original Contracts is calculated in the same manner as it is for currently offered Contracts, except that the "CV Plus" is calculated as follows: The CV Plus o If all Owners were age 69 or younger on the Issue Date, 40% of the lesser of (a) or (b), or o If the older Owner was age 70 or older on the Issue Date, 25% of the lesser of (a) or (b), where: (a)is the Contract Value determined as of the end of the Business Day during which both due proof of death and an election of the death benefit payment option have been received at our Service Center; and (b)is the total Purchase Payments. For more details on the death benefits please see prospectus section 11, Death Benefit. The charges for Original Contracts differ from the charges of the currently offered Contracts as follows:
SEPARATE ACCOUNT ANNUAL EXPENSES DURING THE ACCUMULATION PHASE (as a percentage of average daily assets invested in a subaccount on an annual basis) CHARGES FOR ORIGINAL CONTRACTS WITH THE CHARGES FOR ORIGINAL CONTRACTS WITH THE TRADITIONAL GMIB ENHANCED GMIB M&E CHARGES ADMIN. CHARGE TOTAL M&E CHARGES ADMIN. CHARGE TOTAL Traditional GMDB 1.25% 0.15% 1.40% 1.55% 0.15% 1.70% Enhanced GMDB 1.55% 0.15% 1.70% 1.75% 0.15% 1.90% Earnings Protection GMDB 1.45% 0.15% 1.60% 1.75% 0.15% 1.90%
During the Annuity Phase, if you request variable Annuity Payments, the Separate Account annual expenses are equal on an annual basis to 1.40%. This expense is equal to the lowest charge because we do not pay a death benefit separate from the benefits provided by the Annuity Option if the Annuitant dies during the Annuity Phase.
WITHDRAWAL CHARGE - during the Accumulation Phase* WITHDRAWAL CHARGE - during the Annuity Phase** (as a percentage of each Purchase Payment withdrawn) (as a percentage of amount liquidated under Annuity Option 6) NUMBER OF COMPLETE CONTRACT YEARS SINCE RECEIPT OF NUMBER OF COMPLETE CONTRACT YEARS SINCE RECEIPT OF PURCHASE PAYMENT CHARGE PURCHASE PAYMENT CHARGE 0 7% 0 7% 1 6% 1 6% 2 5% 2 5% 3 4% 3 4% 4 3% 4 3% 5 years or more 0% 5 years or more 0%
* Each year, on a cumulative basis (less any withdrawals taken in the current Contract Year that were not subject to a withdrawal charge), you may take partial withdrawals that when added together do not exceed 10% of total Purchase Payments and we will not assess a withdrawal charge. For more details and additional information on other penalty-free withdrawal options please see the discussion of the partial withdrawal privilege and other information that appears in the prospectus section 9, Access to Your Money. **May not be applicable in all states. For more details on the other charges of Original Contracts, please see the Fee Tables and section 7, Expenses in the prospectus. FINANCIAL STATEMENTS The audited consolidated financial statements of Allianz Life as of and for the year ended December 31, 2008 included herein should be considered only as bearing upon the ability of Allianz Life to meet its obligations under the Contracts. The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 18 The audited financial statements of the Separate Account as of and for the year ended December 31, 2008 are also included herein. APPENDIX - 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 are found in this SAI. Accumulation Unit value (AUV) information corresponding to the highest and lowest combination of charges for Contracts we currently offer is found in Appendix B to the prospectus. AUV information listing the additional combinations of charges for the Contracts we currently offer and for Original Contracts that we no longer offer is found below. This information should be read in conjunction with the financial statements and related notes of the Separate Account included in this SAI.
KEY TO BENEFIT OPTION* SEPARATE ACCOUNT ANNUAL EXPENSES[(1)] ALE Allianz Alterity - Original Contract with the Enhanced GMDB and Enhanced GMIB 1.90% 1 ALE Allianz Alterity - Currently offered Base and May 2003 Contract with the Enhanced GMDB 1.80% 3 ALE Allianz Alterity - May 2003 Contract with the Enhanced GMDB and Traditional PRIME Benefit 1.95% 4 ALE Allianz Alterity - May 2003 Contract with the Enhanced GMDB and Enhanced PRIME Benefit and currently offered 2.40% 5 Contract with the Traditional GMDB and the PRIME Plus Benefit ALO Allianz Alterity - Original Contract with the Traditional GMDB and Enhanced GMIB and Original Contract with the 1.70% 1 Enhanced GMDB and Traditional GMIB ALO Allianz Alterity - Original Contract with Earnings Protection GMDB and Enhanced GMIB 1.90% 2 ALO Allianz Alterity - Currently offered Base and May 2003 Contract with the Earnings Protection GMDB 1.80% 3 ALO Allianz Alterity - May 2003 Contract with the Earnings Protection GMDB and 2.00% 4 Traditional PRIME Benefit ALT Allianz Alterity - Original Contract with Traditional GMDB and Traditional GMIB 1.40% 1 ALT Allianz Alterity - Original Contract with Earnings Protection GMDB and Traditional GMIB 1.60% 2 ALT Allianz Alterity - May 2003 Contract with the Traditional GMDB and Traditional PRIME Benefit 1.70% 4 ALT Allianz Alterity - May 2003 Contract with the Traditional GMDB and Enhanced PRIME Benefit and the currently 2.20% 5 offered Contract with the Traditional GMDB and the PRIME Plus Benefit
(1)The Separate Account annual expenses for a May 2003 Contract with the Traditional GMDB and No PRIME Benefit (1.50%) and a May 2003 Contract with the Earnings Protection GMDB and Enhanced PRIME Benefit (2.45%) are the same as the expenses for the currently offered Contract, therefore the AUV information is included in the prospectus. The following Investment Options commenced operations under this Contract after December 31, 2008. Therefore, no AUV information is shown for them: AZL Allianz Global Investors Select Fund; AZL Balanced Index Strategy Fund; AZL Franklin Templeton Founding Strategy Plus Fund; AZL Fusion Conservative Fund; AZL International Index Fund; AZL Moderate Index Strategy Fund; AZL OCC Growth Fund; and PIMCO VIT Global Multi-Asset Portfolio. (Number of Accumulation Units in thousands) Number of AUV Accumulation Period at Units or AUV at End Outstanding Benefit Year Beginning of at End of Option * Ended of Period Period Period -------------------- ------------ -------- -------------- --------------------------------------------------------- Investment Option ------------------------------------------------------------ AZL AIM International Equity Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.057 466 12/31/2003 8.057 10.051 764 12/31/2004 10.051 12.043 873 12/31/2005 12.043 13.750 1001 12/31/2006 13.750 17.141 1065 12/31/2007 17.141 19.276 1054 12/31/2008 19.276 11.062 795 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.067 4 12/31/2004 10.067 12.075 9 12/31/2005 12.075 13.801 12 12/31/2006 13.801 17.221 17 12/31/2007 17.221 19.385 27 12/31/2008 19.385 11.136 27 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 19 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.042 0 12/31/2004 10.042 12.027 7 12/31/2005 12.027 13.725 8 12/31/2006 13.725 17.101 16 12/31/2007 17.101 19.221 14 12/31/2008 19.221 11.025 8 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.967 67 12/31/2004 9.967 11.883 298 12/31/2005 11.883 13.500 880 12/31/2006 13.500 16.745 1472 12/31/2007 16.745 18.736 1932 12/31/2008 18.736 10.699 1628 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.067 209 12/31/2003 8.067 10.084 361 12/31/2004 10.084 12.107 470 12/31/2005 12.107 13.852 532 12/31/2006 13.852 17.302 527 12/31/2007 17.302 19.496 484 12/31/2008 19.496 11.211 333 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.057 25 12/31/2003 8.057 10.051 54 12/31/2004 10.051 12.043 57 12/31/2005 12.043 13.750 76 12/31/2006 13.750 17.141 73 12/31/2007 17.141 19.276 88 12/31/2008 19.276 11.062 73 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.067 0 12/31/2004 10.067 12.075 1 12/31/2005 12.075 13.801 3 12/31/2006 13.801 17.221 3 12/31/2007 17.221 19.385 4 12/31/2008 19.385 11.136 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.034 0 12/31/2004 10.034 12.011 0 12/31/2005 12.011 13.700 0 12/31/2006 13.700 17.061 0 12/31/2007 17.061 19.167 0 12/31/2008 19.167 10.988 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.084 96 12/31/2003 8.084 10.135 37 12/31/2004 10.135 12.205 32 12/31/2005 12.205 14.005 44 12/31/2006 14.005 17.546 42 12/31/2007 17.546 19.830 44 12/31/2008 19.830 11.438 21 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.073 0 12/31/2003 8.073 10.101 0 12/31/2004 10.101 12.140 1 12/31/2005 12.140 13.903 1 12/31/2006 13.903 17.383 1 12/31/2007 17.383 19.607 1 12/31/2008 19.607 11.286 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.084 4 12/31/2004 10.084 12.107 19 12/31/2005 12.107 13.852 28 12/31/2006 13.852 17.302 36 12/31/2007 17.302 19.496 30 12/31/2008 19.496 11.211 21 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.000 64 12/31/2004 10.000 11.947 326 12/31/2005 11.947 13.600 683 12/31/2006 13.600 16.903 967 12/31/2007 16.903 18.950 1372 12/31/2008 18.950 10.843 1238 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 20 AZL BlackRock Capital Appreciation Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.927 151 12/31/2006 11.927 11.887 243 12/31/2007 11.887 12.936 165 12/31/2008 12.936 8.076 225 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.935 3 12/31/2006 11.935 11.907 6 12/31/2007 11.907 12.970 6 12/31/2008 12.970 8.105 10 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.923 2 12/31/2006 11.923 11.877 2 12/31/2007 11.877 12.918 2 12/31/2008 12.918 8.061 1 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.887 230 12/31/2006 11.887 11.788 343 12/31/2007 11.788 12.764 411 12/31/2008 12.764 7.929 592 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.943 85 12/31/2006 11.943 11.927 100 12/31/2007 11.927 13.005 87 12/31/2008 13.005 8.135 170 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.927 31 12/31/2006 11.927 11.887 30 12/31/2007 11.887 12.936 35 12/31/2008 12.936 8.076 35 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.935 1 12/31/2006 11.935 11.907 1 12/31/2007 11.907 12.970 2 12/31/2008 12.970 8.105 2 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.919 0 12/31/2006 11.919 11.867 2 12/31/2007 11.867 12.901 1 12/31/2008 12.901 8.046 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.967 8 12/31/2006 11.967 11.987 3 12/31/2007 11.987 13.110 3 12/31/2008 13.110 8.225 3 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.951 0 12/31/2006 11.951 11.947 0 12/31/2007 11.947 13.040 0 12/31/2008 13.040 8.165 1 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 21 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.943 7 12/31/2006 11.943 11.927 19 12/31/2007 11.927 13.005 14 12/31/2008 13.005 8.135 11 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.903 220 12/31/2006 11.903 11.828 421 12/31/2007 11.828 12.832 523 12/31/2008 12.832 7.987 577 AZL BlackRock Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.523 266 12/31/2003 7.523 10.075 699 12/31/2004 10.075 10.683 684 12/31/2005 10.683 11.642 831 12/31/2006 11.642 11.503 907 12/31/2007 11.503 12.980 964 12/31/2008 12.980 5.005 2027 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.092 3 12/31/2004 10.092 10.712 4 12/31/2005 10.712 11.684 12 12/31/2006 11.684 11.557 29 12/31/2007 11.557 13.054 40 12/31/2008 13.054 5.038 92 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.067 2 12/31/2004 10.067 10.669 4 12/31/2005 10.669 11.620 10 12/31/2006 11.620 11.476 10 12/31/2007 11.476 12.944 14 12/31/2008 12.944 4.988 34 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.991 100 12/31/2004 9.991 10.541 437 12/31/2005 10.541 11.430 622 12/31/2006 11.430 11.237 821 12/31/2007 11.237 12.617 1190 12/31/2008 12.617 4.840 3390 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.534 175 12/31/2003 7.534 10.109 353 12/31/2004 10.109 10.740 326 12/31/2005 10.740 11.727 469 12/31/2006 11.727 11.611 483 12/31/2007 11.611 13.129 569 12/31/2008 13.129 5.072 1022 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.523 44 12/31/2003 7.523 10.075 71 12/31/2004 10.075 10.683 69 12/31/2005 10.683 11.642 94 12/31/2006 11.642 11.503 59 12/31/2007 11.503 12.980 56 12/31/2008 12.980 5.005 174 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.092 0 12/31/2004 10.092 10.712 1 12/31/2005 10.712 11.684 4 12/31/2006 11.684 11.557 3 12/31/2007 11.557 13.054 6 12/31/2008 13.054 5.038 15 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.058 0 12/31/2004 10.058 10.655 6 12/31/2005 10.655 11.599 6 12/31/2006 11.599 11.449 6 12/31/2007 11.449 12.907 5 12/31/2008 12.907 4.972 11 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 22 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.549 24 12/31/2003 7.549 10.159 40 12/31/2004 10.159 10.827 28 12/31/2005 10.827 11.857 57 12/31/2006 11.857 11.775 42 12/31/2007 11.775 13.354 46 12/31/2008 13.354 5.175 104 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.539 0 12/31/2003 7.539 10.126 0 12/31/2004 10.126 10.769 0 12/31/2005 10.769 11.771 0 12/31/2006 11.771 11.665 4 12/31/2007 11.665 13.203 3 12/31/2008 13.203 5.106 10 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.109 4 12/31/2004 10.109 10.740 6 12/31/2005 10.740 11.727 19 12/31/2006 11.727 11.611 24 12/31/2007 11.611 13.129 29 12/31/2008 13.129 5.072 55 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.025 109 12/31/2004 10.025 10.598 369 12/31/2005 10.598 11.514 591 12/31/2006 11.514 11.343 858 12/31/2007 11.343 12.761 1554 12/31/2008 12.761 4.906 2927 AZL Columbia Mid Cap Value Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.043 390 12/31/2007 10.043 10.233 432 12/31/2008 10.233 4.804 447 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.050 13 12/31/2007 10.050 10.250 21 12/31/2008 10.250 4.817 23 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.040 0 12/31/2007 10.040 10.224 2 12/31/2008 10.224 4.798 2 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.009 134 12/31/2007 10.009 10.147 496 12/31/2008 10.147 4.740 685 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.057 15 12/31/2007 10.057 10.267 44 12/31/2008 10.267 4.830 43 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.043 7 12/31/2007 10.043 10.233 11 12/31/2008 10.233 4.804 13 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 23 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.050 2 12/31/2007 10.050 10.250 12 12/31/2008 10.250 4.817 12 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.036 0 12/31/2007 10.036 10.216 0 12/31/2008 10.216 4.791 6 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.077 2 12/31/2007 10.077 10.319 3 12/31/2008 10.319 4.869 2 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.063 0 12/31/2007 10.063 10.284 0 12/31/2008 10.284 4.843 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.057 5 12/31/2007 10.057 10.267 6 12/31/2008 10.267 4.830 6 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.023 146 12/31/2007 10.023 10.181 432 12/31/2008 10.181 4.766 389 AZL Columbia Small Cap Value Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.017 159 12/31/2005 12.017 12.192 231 12/31/2006 12.192 13.566 196 12/31/2007 13.566 12.213 126 12/31/2008 12.213 8.138 135 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.025 0 12/31/2005 12.025 12.212 4 12/31/2006 12.212 13.602 11 12/31/2007 13.602 12.258 10 12/31/2008 12.258 8.176 10 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.013 3 12/31/2005 12.013 12.182 9 12/31/2006 12.182 13.548 9 12/31/2007 13.548 12.191 9 12/31/2008 12.191 8.119 5 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.977 280 12/31/2005 11.977 12.090 437 12/31/2006 12.090 13.387 539 12/31/2007 13.387 11.991 535 12/31/2008 11.991 7.950 507 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 24 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.034 36 12/31/2005 12.034 12.232 65 12/31/2006 12.232 13.639 92 12/31/2007 13.639 12.303 65 12/31/2008 12.303 8.214 58 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.017 19 12/31/2005 12.017 12.192 19 12/31/2006 12.192 13.566 21 12/31/2007 13.566 12.213 11 12/31/2008 12.213 8.138 5 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.025 0 12/31/2005 12.025 12.212 2 12/31/2006 12.212 13.602 0 12/31/2007 13.602 12.258 0 12/31/2008 12.258 8.176 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.009 0 12/31/2005 12.009 12.171 0 12/31/2006 12.171 13.530 1 12/31/2007 13.530 12.168 1 12/31/2008 12.168 8.100 4 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.058 5 12/31/2005 12.058 12.294 3 12/31/2006 12.294 13.748 7 12/31/2007 13.748 12.439 3 12/31/2008 12.439 8.330 1 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.042 0 12/31/2005 12.042 12.253 0 12/31/2006 12.253 13.675 0 12/31/2007 13.675 12.348 0 12/31/2008 12.348 8.253 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 12.034 5 12/31/2005 12.034 12.232 15 12/31/2006 12.232 13.639 14 12/31/2007 13.639 12.303 13 12/31/2008 12.303 8.214 12 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.993 203 12/31/2005 11.993 12.131 400 12/31/2006 12.131 13.458 515 12/31/2007 13.458 12.079 551 12/31/2008 12.079 8.024 611 AZL Columbia Technology Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.737 13 12/31/2002 10.737 6.202 656 12/31/2003 6.202 8.638 1634 12/31/2004 8.638 8.108 1472 12/31/2005 8.108 8.012 1205 12/31/2006 8.012 8.063 1039 12/31/2007 8.063 9.710 929 12/31/2008 9.710 4.703 766 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.657 6 12/31/2004 8.657 8.134 7 12/31/2005 8.134 8.045 8 12/31/2006 8.045 8.104 14 12/31/2007 8.104 9.770 27 12/31/2008 9.770 4.737 18 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 25 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.628 4 12/31/2004 8.628 8.095 5 12/31/2005 8.095 7.995 5 12/31/2006 7.995 8.042 4 12/31/2007 8.042 9.680 5 12/31/2008 9.680 4.686 5 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.545 191 12/31/2004 8.545 7.981 593 12/31/2005 7.981 7.847 776 12/31/2006 7.847 7.857 937 12/31/2007 7.857 9.415 1454 12/31/2008 9.415 4.537 1231 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.740 3 12/31/2002 10.740 6.216 153 12/31/2003 6.216 8.675 478 12/31/2004 8.675 8.160 389 12/31/2005 8.160 8.079 335 12/31/2006 8.079 8.146 281 12/31/2007 8.146 9.830 368 12/31/2008 9.830 4.771 270 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.737 0 12/31/2002 10.737 6.202 34 12/31/2003 6.202 8.638 98 12/31/2004 8.638 8.108 97 12/31/2005 8.108 8.012 89 12/31/2006 8.012 8.063 58 12/31/2007 8.063 9.710 63 12/31/2008 9.710 4.703 49 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.657 1 12/31/2004 8.657 8.134 2 12/31/2005 8.134 8.045 3 12/31/2006 8.045 8.104 3 12/31/2007 8.104 9.770 5 12/31/2008 9.770 4.737 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.619 0 12/31/2004 8.619 8.082 1 12/31/2005 8.082 7.979 1 12/31/2006 7.979 8.021 1 12/31/2007 8.021 9.650 1 12/31/2008 9.650 4.669 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.746 0 12/31/2002 10.746 6.238 19 12/31/2003 6.238 8.732 31 12/31/2004 8.732 8.237 39 12/31/2005 8.237 8.180 28 12/31/2006 8.180 8.273 11 12/31/2007 8.273 10.014 20 12/31/2008 10.014 4.874 6 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.742 0 12/31/2002 10.742 6.223 2 12/31/2003 6.223 8.694 7 12/31/2004 8.694 8.185 7 12/31/2005 8.185 8.112 7 12/31/2006 8.112 8.188 6 12/31/2007 8.188 9.891 4 12/31/2008 9.891 4.805 4 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.675 1 12/31/2004 8.675 8.160 11 12/31/2005 8.160 8.079 6 12/31/2006 8.079 8.146 2 12/31/2007 8.146 9.830 8 12/31/2008 9.830 4.771 1 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.582 92 12/31/2004 8.582 8.031 214 12/31/2005 8.031 7.912 290 12/31/2006 7.912 7.939 379 12/31/2007 7.939 9.532 839 12/31/2008 9.532 4.603 726 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 26 AZL Davis NY Venture Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.435 9 12/31/2002 10.435 7.763 733 12/31/2003 7.763 9.858 1133 12/31/2004 9.858 10.693 1214 12/31/2005 10.693 11.508 1617 12/31/2006 11.508 12.863 1820 12/31/2007 12.863 13.143 1526 12/31/2008 13.143 7.672 4540 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.879 4 12/31/2004 9.879 10.727 37 12/31/2005 10.727 11.556 57 12/31/2006 11.556 12.929 80 12/31/2007 12.929 13.224 80 12/31/2008 13.224 7.728 159 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.847 2 12/31/2004 9.847 10.676 12 12/31/2005 10.676 11.484 36 12/31/2006 11.484 12.830 42 12/31/2007 12.830 13.103 38 12/31/2008 13.103 7.645 67 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.752 135 12/31/2004 9.752 10.525 953 12/31/2005 10.525 11.271 1960 12/31/2006 11.271 12.535 2705 12/31/2007 12.535 12.744 2922 12/31/2008 12.744 7.402 5656 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.438 8 12/31/2002 10.438 7.781 357 12/31/2003 7.781 9.901 663 12/31/2004 9.901 10.761 752 12/31/2005 10.761 11.604 947 12/31/2006 11.604 12.996 1119 12/31/2007 12.996 13.306 984 12/31/2008 13.306 7.783 1960 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.435 0 12/31/2002 10.435 7.763 85 12/31/2003 7.763 9.858 152 12/31/2004 9.858 10.693 167 12/31/2005 10.693 11.508 197 12/31/2006 11.508 12.863 219 12/31/2007 12.863 13.143 196 12/31/2008 13.143 7.672 494 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.879 1 12/31/2004 9.879 10.727 4 12/31/2005 10.727 11.556 6 12/31/2006 11.556 12.929 16 12/31/2007 12.929 13.224 29 12/31/2008 13.224 7.728 35 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.837 0 12/31/2004 9.837 10.659 12 12/31/2005 10.659 11.460 20 12/31/2006 11.460 12.797 19 12/31/2007 12.797 13.062 19 12/31/2008 13.062 7.618 24 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.443 2 12/31/2002 10.443 7.808 67 12/31/2003 7.808 9.965 79 12/31/2004 9.965 10.864 113 12/31/2005 10.864 11.750 123 12/31/2006 11.750 13.199 138 12/31/2007 13.199 13.555 96 12/31/2008 13.555 7.952 211 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.440 0 12/31/2002 10.440 7.790 5 12/31/2003 7.790 9.922 5 12/31/2004 9.922 10.795 6 12/31/2005 10.795 11.653 6 12/31/2006 11.653 13.064 9 12/31/2007 13.064 13.389 9 12/31/2008 13.389 7.839 12 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 27 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.901 5 12/31/2004 9.901 10.761 56 12/31/2005 10.761 11.604 107 12/31/2006 11.604 12.996 129 12/31/2007 12.996 13.306 107 12/31/2008 13.306 7.783 125 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.794 101 12/31/2004 9.794 10.592 1055 12/31/2005 10.592 11.365 2152 12/31/2006 11.365 12.665 2867 12/31/2007 12.665 12.902 3170 12/31/2008 12.902 7.509 5015 AZL Dreyfus Equity Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.518 16 12/31/2002 10.518 7.151 941 12/31/2003 7.151 8.718 1747 12/31/2004 8.718 9.214 1725 12/31/2005 9.214 9.453 1475 12/31/2006 9.453 10.475 1482 12/31/2007 10.475 11.176 3407 12/31/2008 11.176 6.400 2696 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.737 18 12/31/2004 8.737 9.243 21 12/31/2005 9.243 9.492 22 12/31/2006 9.492 10.529 28 12/31/2007 10.529 11.245 84 12/31/2008 11.245 6.446 78 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.709 2 12/31/2004 8.709 9.199 7 12/31/2005 9.199 9.433 9 12/31/2006 9.433 10.448 9 12/31/2007 10.448 11.142 29 12/31/2008 11.142 6.377 25 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.624 242 12/31/2004 8.624 9.069 567 12/31/2005 9.069 9.258 803 12/31/2006 9.258 10.208 978 12/31/2007 10.208 10.837 2774 12/31/2008 10.837 6.175 2575 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.521 21 12/31/2002 10.521 7.168 774 12/31/2003 7.168 8.756 891 12/31/2004 8.756 9.272 894 12/31/2005 9.272 9.532 894 12/31/2006 9.532 10.584 836 12/31/2007 10.584 11.315 1683 12/31/2008 11.315 6.493 1188 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.518 2 12/31/2002 10.518 7.151 115 12/31/2003 7.151 8.718 219 12/31/2004 8.718 9.214 207 12/31/2005 9.214 9.453 194 12/31/2006 9.453 10.475 211 12/31/2007 10.475 11.176 328 12/31/2008 11.176 6.400 262 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.737 0 12/31/2004 8.737 9.243 5 12/31/2005 9.243 9.492 6 12/31/2006 9.492 10.529 7 12/31/2007 10.529 11.245 33 12/31/2008 11.245 6.446 31 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.699 0 12/31/2004 8.699 9.185 4 12/31/2005 9.185 9.414 4 12/31/2006 9.414 10.421 4 12/31/2007 10.421 11.108 5 12/31/2008 11.108 6.355 4 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 28 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.526 4 12/31/2002 10.526 7.193 119 12/31/2003 7.193 8.813 127 12/31/2004 8.813 9.361 111 12/31/2005 9.361 9.652 84 12/31/2006 9.652 10.749 85 12/31/2007 10.749 11.526 141 12/31/2008 11.526 6.634 119 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.523 0 12/31/2002 10.523 7.176 1 12/31/2003 7.176 8.775 2 12/31/2004 8.775 9.302 3 12/31/2005 9.302 9.572 2 12/31/2006 9.572 10.638 2 12/31/2007 10.638 11.385 11 12/31/2008 11.385 6.539 10 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.756 2 12/31/2004 8.756 9.272 9 12/31/2005 9.272 9.532 13 12/31/2006 9.532 10.584 18 12/31/2007 10.584 11.315 50 12/31/2008 11.315 6.493 37 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.662 104 12/31/2004 8.662 9.127 266 12/31/2005 9.127 9.336 466 12/31/2006 9.336 10.314 745 12/31/2007 10.314 10.971 1943 12/31/2008 10.971 6.264 1813 AZL First Trust Target Double Play Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.555 569 12/31/2008 10.555 4.799 554 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.566 5 12/31/2008 10.566 4.809 10 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.550 1 12/31/2008 10.550 4.795 3 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.502 687 12/31/2008 10.502 4.751 786 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.577 143 12/31/2008 10.577 4.819 179 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.555 15 12/31/2008 10.555 4.799 14 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 29 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.566 4 12/31/2008 10.566 4.809 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.545 0 12/31/2008 10.545 4.790 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.609 10 12/31/2008 10.609 4.848 8 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.587 0 12/31/2008 10.587 4.828 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.577 11 12/31/2008 10.577 4.819 6 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.523 464 12/31/2008 10.523 4.770 551 AZL Franklin Small Cap Value Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.675 194 12/31/2004 12.675 15.308 433 12/31/2005 15.308 16.077 547 12/31/2006 16.077 18.207 712 12/31/2007 18.207 17.081 568 12/31/2008 17.081 11.106 473 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.684 9 12/31/2004 12.684 15.334 25 12/31/2005 15.334 16.120 61 12/31/2006 16.120 18.274 83 12/31/2007 18.274 17.161 78 12/31/2008 17.161 11.169 59 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.671 3 12/31/2004 12.671 15.295 10 12/31/2005 15.295 16.056 23 12/31/2006 16.056 18.173 25 12/31/2007 18.173 17.042 24 12/31/2008 17.042 11.075 21 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.633 136 12/31/2004 12.633 15.180 827 12/31/2005 15.180 15.864 1500 12/31/2006 15.864 17.876 1883 12/31/2007 17.876 16.687 1901 12/31/2008 16.687 10.795 1742 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 30 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.692 87 12/31/2004 12.692 15.359 220 12/31/2005 15.359 16.163 285 12/31/2006 16.163 18.341 384 12/31/2007 18.341 17.242 311 12/31/2008 17.242 11.233 233 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.675 13 12/31/2004 12.675 15.308 30 12/31/2005 15.308 16.077 32 12/31/2006 16.077 18.207 49 12/31/2007 18.207 17.081 49 12/31/2008 17.081 11.106 46 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.684 0 12/31/2004 12.684 15.334 2 12/31/2005 15.334 16.120 4 12/31/2006 16.120 18.274 6 12/31/2007 18.274 17.161 11 12/31/2008 17.161 11.169 12 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.667 0 12/31/2004 12.667 15.282 0 12/31/2005 15.282 16.034 0 12/31/2006 16.034 18.140 0 12/31/2007 18.140 17.002 0 12/31/2008 17.002 11.043 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.718 6 12/31/2004 12.718 15.437 34 12/31/2005 15.437 16.293 54 12/31/2006 16.293 18.544 40 12/31/2007 18.544 17.485 22 12/31/2008 17.485 11.426 15 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.701 0 12/31/2004 12.701 15.385 0 12/31/2005 15.385 16.206 0 12/31/2006 16.206 18.408 1 12/31/2007 18.408 17.323 1 12/31/2008 17.323 11.297 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.692 4 12/31/2004 12.692 15.359 20 12/31/2005 15.359 16.163 46 12/31/2006 16.163 18.341 47 12/31/2007 18.341 17.242 35 12/31/2008 17.242 11.233 23 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.650 100 12/31/2004 12.650 15.231 682 12/31/2005 15.231 15.949 1468 12/31/2006 15.949 18.007 1910 12/31/2007 18.007 16.844 2026 12/31/2008 16.844 10.919 1874 AZL Fusion Balanced Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.594 203 12/31/2006 10.594 11.381 1207 12/31/2007 11.381 11.960 957 12/31/2008 11.960 8.514 967 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.601 38 12/31/2006 10.601 11.400 83 12/31/2007 11.400 11.992 147 12/31/2008 11.992 8.546 120 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 31 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.590 3 12/31/2006 10.590 11.372 19 12/31/2007 11.372 11.944 27 12/31/2008 11.944 8.499 21 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.559 695 12/31/2006 10.559 11.287 1460 12/31/2007 11.287 11.802 1878 12/31/2008 11.802 8.359 2256 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.608 66 12/31/2006 10.608 11.419 264 12/31/2007 11.419 12.025 276 12/31/2008 12.025 8.577 491 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.594 33 12/31/2006 10.594 11.381 65 12/31/2007 11.381 11.960 89 12/31/2008 11.960 8.514 78 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.601 3 12/31/2006 10.601 11.400 4 12/31/2007 11.400 11.992 25 12/31/2008 11.992 8.546 10 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.587 0 12/31/2006 10.587 11.362 0 12/31/2007 11.362 11.929 0 12/31/2008 11.929 8.483 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.630 37 12/31/2006 10.630 11.477 56 12/31/2007 11.477 12.121 94 12/31/2008 12.121 8.672 76 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.615 0 12/31/2006 10.615 11.439 0 12/31/2007 11.439 12.057 0 12/31/2008 12.057 8.609 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.608 210 12/31/2006 10.608 11.419 255 12/31/2007 11.419 12.025 266 12/31/2008 12.025 8.577 113 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.573 681 12/31/2006 10.573 11.325 1766 12/31/2007 11.325 11.865 2214 12/31/2008 11.865 8.421 3338 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 32 AZL Fusion Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.068 1403 12/31/2006 11.068 12.186 3531 12/31/2007 12.186 12.643 2445 12/31/2008 12.643 7.574 2495 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.075 54 12/31/2006 11.075 12.206 111 12/31/2007 12.206 12.677 150 12/31/2008 12.677 7.602 142 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.064 31 12/31/2006 11.064 12.175 113 12/31/2007 12.175 12.626 110 12/31/2008 12.626 7.560 81 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.031 2761 12/31/2006 11.031 12.084 6732 12/31/2007 12.084 12.475 8534 12/31/2008 12.475 7.436 8635 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.083 579 12/31/2006 11.083 12.226 1043 12/31/2007 12.226 12.711 1001 12/31/2008 12.711 7.630 706 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.068 178 12/31/2006 11.068 12.186 321 12/31/2007 12.186 12.643 310 12/31/2008 12.643 7.574 264 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.075 5 12/31/2006 11.075 12.206 31 12/31/2007 12.206 12.677 57 12/31/2008 12.677 7.602 59 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.061 10 12/31/2006 11.061 12.165 1 12/31/2007 12.165 12.609 1 12/31/2008 12.609 7.547 29 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.105 12 12/31/2006 11.105 12.288 89 12/31/2007 12.288 12.813 82 12/31/2008 12.813 7.715 53 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.090 1 12/31/2006 11.090 12.247 0 12/31/2007 12.247 12.745 0 12/31/2008 12.745 7.658 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 33 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.083 55 12/31/2006 11.083 12.226 111 12/31/2007 12.226 12.711 147 12/31/2008 12.711 7.630 83 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.046 3155 12/31/2006 11.046 12.125 9735 12/31/2007 12.125 12.542 13044 12/31/2008 12.542 7.491 11872 AZL Fusion Moderate Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.772 1370 12/31/2006 10.772 11.702 2008 12/31/2007 11.702 12.231 1890 12/31/2008 12.231 8.070 2067 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.779 37 12/31/2006 10.779 11.721 90 12/31/2007 11.721 12.264 119 12/31/2008 12.264 8.099 112 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.768 17 12/31/2006 10.768 11.692 61 12/31/2007 11.692 12.215 47 12/31/2008 12.215 8.055 47 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.736 2465 12/31/2006 10.736 11.604 4727 12/31/2007 11.604 12.069 5581 12/31/2008 12.069 7.923 5359 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.786 316 12/31/2006 10.786 11.741 529 12/31/2007 11.741 12.297 533 12/31/2008 12.297 8.129 330 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.772 52 12/31/2006 10.772 11.702 149 12/31/2007 11.702 12.231 132 12/31/2008 12.231 8.070 92 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.779 5 12/31/2006 10.779 11.721 26 12/31/2007 11.721 12.264 44 12/31/2008 12.264 8.099 128 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.765 6 12/31/2006 10.765 11.682 12 12/31/2007 11.682 12.199 12 12/31/2008 12.199 8.040 12 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 34 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.808 33 12/31/2006 10.808 11.800 74 12/31/2007 11.800 12.396 93 12/31/2008 12.396 8.219 54 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.793 0 12/31/2006 10.793 11.760 0 12/31/2007 11.760 12.330 0 12/31/2008 12.330 8.159 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.786 171 12/31/2006 10.786 11.741 217 12/31/2007 11.741 12.297 188 12/31/2008 12.297 8.129 131 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.750 2618 12/31/2006 10.750 11.643 5316 12/31/2007 11.643 12.133 6671 12/31/2008 12.133 7.981 6983 AZL Jennison 20/20 Focus Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.205 423 12/31/2006 12.205 13.507 676 12/31/2007 13.507 14.674 604 12/31/2008 14.674 8.622 1213 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.213 19 12/31/2006 12.213 13.529 28 12/31/2007 13.529 14.713 40 12/31/2008 14.713 8.654 56 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.201 1 12/31/2006 12.201 13.496 9 12/31/2007 13.496 14.654 11 12/31/2008 14.654 8.607 22 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.164 544 12/31/2006 12.164 13.395 1172 12/31/2007 13.395 14.479 1624 12/31/2008 14.479 8.465 2608 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.221 251 12/31/2006 12.221 13.552 334 12/31/2007 13.552 14.752 296 12/31/2008 14.752 8.686 584 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.205 30 12/31/2006 12.205 13.507 63 12/31/2007 13.507 14.674 78 12/31/2008 14.674 8.622 136 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 35 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.213 1 12/31/2006 12.213 13.529 1 12/31/2007 13.529 14.713 8 12/31/2008 14.713 8.654 12 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.197 1 12/31/2006 12.197 13.484 4 12/31/2007 13.484 14.634 4 12/31/2008 14.634 8.591 5 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.246 24 12/31/2006 12.246 13.620 43 12/31/2007 13.620 14.871 31 12/31/2008 14.871 8.782 43 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.229 0 12/31/2006 12.229 13.575 0 12/31/2007 13.575 14.792 0 12/31/2008 14.792 8.718 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.221 5 12/31/2006 12.221 13.552 14 12/31/2007 13.552 14.752 12 12/31/2008 14.752 8.686 27 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 12.180 479 12/31/2006 12.180 13.439 1085 12/31/2007 13.439 14.556 1314 12/31/2008 14.556 8.528 2118 AZL JPMorgan Large Cap Equity Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.132 4 12/31/2002 10.132 8.064 377 12/31/2003 8.064 9.961 800 12/31/2004 9.961 11.254 904 12/31/2005 11.254 11.734 1195 12/31/2006 11.734 12.286 1178 12/31/2007 12.286 11.308 795 12/31/2008 11.308 5.004 635 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.982 5 12/31/2004 9.982 11.289 20 12/31/2005 11.289 11.783 44 12/31/2006 11.783 12.350 52 12/31/2007 12.350 11.378 49 12/31/2008 11.378 5.040 39 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.950 0 12/31/2004 9.950 11.236 4 12/31/2005 11.236 11.710 11 12/31/2006 11.710 12.255 13 12/31/2007 12.255 11.273 8 12/31/2008 11.273 4.987 8 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.854 105 12/31/2004 9.854 11.077 513 12/31/2005 11.077 11.493 1728 12/31/2006 11.493 11.974 1770 12/31/2007 11.974 10.965 1770 12/31/2008 10.965 4.828 1603 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 36 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.135 6 12/31/2002 10.135 8.083 197 12/31/2003 8.083 10.004 389 12/31/2004 10.004 11.325 488 12/31/2005 11.325 11.832 631 12/31/2006 11.832 12.414 618 12/31/2007 12.414 11.448 399 12/31/2008 11.448 5.077 285 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.132 0 12/31/2002 10.132 8.064 43 12/31/2003 8.064 9.961 79 12/31/2004 9.961 11.254 93 12/31/2005 11.254 11.734 122 12/31/2006 11.734 12.286 103 12/31/2007 12.286 11.308 76 12/31/2008 11.308 5.004 62 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.982 1 12/31/2004 9.982 11.289 1 12/31/2005 11.289 11.783 2 12/31/2006 11.783 12.350 2 12/31/2007 12.350 11.378 2 12/31/2008 11.378 5.040 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.939 0 12/31/2004 9.939 11.218 0 12/31/2005 11.218 11.685 0 12/31/2006 11.685 12.223 2 12/31/2007 12.223 11.238 1 12/31/2008 11.238 4.969 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.140 2 12/31/2002 10.140 8.111 28 12/31/2003 8.111 10.069 62 12/31/2004 10.069 11.433 76 12/31/2005 11.433 11.981 102 12/31/2006 11.981 12.608 73 12/31/2007 12.608 11.662 49 12/31/2008 11.662 5.187 35 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.137 0 12/31/2002 10.137 8.092 2 12/31/2003 8.092 10.026 3 12/31/2004 10.026 11.361 4 12/31/2005 11.361 11.882 4 12/31/2006 11.882 12.478 4 12/31/2007 12.478 11.519 4 12/31/2008 11.519 5.113 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.004 8 12/31/2004 10.004 11.325 28 12/31/2005 11.325 11.832 45 12/31/2006 11.832 12.414 51 12/31/2007 12.414 11.448 45 12/31/2008 11.448 5.077 36 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.896 75 12/31/2004 9.896 11.147 324 12/31/2005 11.147 11.589 1546 12/31/2006 11.589 12.098 1933 12/31/2007 12.098 11.101 1860 12/31/2008 11.101 4.898 1900 AZL JPMorgan U.S. Equity Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.723 86 12/31/2005 10.723 11.095 87 12/31/2006 11.095 12.475 182 12/31/2007 12.475 12.704 156 12/31/2008 12.704 7.643 134 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.730 12 12/31/2005 10.730 11.113 16 12/31/2006 11.113 12.509 25 12/31/2007 12.509 12.751 30 12/31/2008 12.751 7.679 27 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 37 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.719 12 12/31/2005 10.719 11.086 13 12/31/2006 11.086 12.459 13 12/31/2007 12.459 12.681 9 12/31/2008 12.681 7.625 8 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.687 763 12/31/2005 10.687 11.003 1183 12/31/2006 11.003 12.310 1429 12/31/2007 12.310 12.473 1716 12/31/2008 12.473 7.467 1375 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.737 47 12/31/2005 10.737 11.132 37 12/31/2006 11.132 12.542 55 12/31/2007 12.542 12.798 48 12/31/2008 12.798 7.715 37 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.723 2 12/31/2005 10.723 11.095 6 12/31/2006 11.095 12.475 16 12/31/2007 12.475 12.704 62 12/31/2008 12.704 7.643 20 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.730 3 12/31/2005 10.730 11.113 6 12/31/2006 11.113 12.509 12 12/31/2007 12.509 12.751 12 12/31/2008 12.751 7.679 13 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.715 2 12/31/2005 10.715 11.076 2 12/31/2006 11.076 12.442 2 12/31/2007 12.442 12.657 2 12/31/2008 12.657 7.607 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.759 3 12/31/2005 10.759 11.188 4 12/31/2006 11.188 12.643 3 12/31/2007 12.643 12.939 5 12/31/2008 12.939 7.824 1 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.744 0 12/31/2005 10.744 11.151 0 12/31/2006 11.151 12.576 0 12/31/2007 12.576 12.845 0 12/31/2008 12.845 7.751 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.737 30 12/31/2005 10.737 11.132 51 12/31/2006 11.132 12.542 52 12/31/2007 12.542 12.798 52 12/31/2008 12.798 7.715 47 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.701 565 12/31/2005 10.701 11.040 862 12/31/2006 11.040 12.376 1067 12/31/2007 12.376 12.565 1230 12/31/2008 12.565 7.537 1169 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 38 AZL Money Market Fund ALE 1 1.90% 12/31/2000 N/A 10.342 11 12/31/2001 10.342 10.479 375 12/31/2002 10.479 10.368 3068 12/31/2003 10.368 10.208 2432 12/31/2004 10.208 10.083 1767 12/31/2005 10.083 10.148 1965 12/31/2006 10.148 10.400 2388 12/31/2007 10.400 10.693 3449 12/31/2008 10.693 10.748 3764 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.248 18 12/31/2004 10.248 10.133 31 12/31/2005 10.133 10.208 46 12/31/2006 10.208 10.472 117 12/31/2007 10.472 10.778 154 12/31/2008 10.778 10.844 209 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.188 3 12/31/2004 10.188 10.058 30 12/31/2005 10.058 10.118 31 12/31/2006 10.118 10.364 49 12/31/2007 10.364 10.651 101 12/31/2008 10.651 10.700 162 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.010 658 12/31/2004 10.010 9.838 1205 12/31/2005 9.838 9.852 1915 12/31/2006 9.852 10.046 2245 12/31/2007 10.046 10.278 3231 12/31/2008 10.278 10.279 5580 ALO 1 1.70% 12/31/2000 N/A 10.361 57 12/31/2001 10.361 10.519 386 12/31/2002 10.519 10.429 1929 12/31/2003 10.429 10.288 1943 12/31/2004 10.288 10.183 1045 12/31/2005 10.183 10.269 1087 12/31/2006 10.269 10.545 1359 12/31/2007 10.545 10.864 1816 12/31/2008 10.864 10.941 2202 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.479 3 12/31/2002 10.479 10.368 320 12/31/2003 10.368 10.208 296 12/31/2004 10.208 10.083 178 12/31/2005 10.083 10.148 195 12/31/2006 10.148 10.400 279 12/31/2007 10.400 10.693 285 12/31/2008 10.693 10.748 443 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.248 6 12/31/2004 10.248 10.133 6 12/31/2005 10.133 10.208 2 12/31/2006 10.208 10.472 87 12/31/2007 10.472 10.778 5 12/31/2008 10.778 10.844 23 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.168 0 12/31/2004 10.168 10.033 10 12/31/2005 10.033 10.088 1 12/31/2006 10.088 10.328 0 12/31/2007 10.328 10.609 0 12/31/2008 10.609 10.652 8 ALT 1 1.40% 12/31/2000 N/A 10.389 93 12/31/2001 10.389 10.580 299 12/31/2002 10.580 10.521 714 12/31/2003 10.521 10.410 541 12/31/2004 10.410 10.334 396 12/31/2005 10.334 10.453 378 12/31/2006 10.453 10.766 471 12/31/2007 10.766 11.125 396 12/31/2008 11.125 11.238 436 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.539 0 12/31/2002 10.539 10.459 9 12/31/2003 10.459 10.329 11 12/31/2004 10.329 10.233 3 12/31/2005 10.233 10.330 23 12/31/2006 10.330 10.618 2 12/31/2007 10.618 10.950 0 12/31/2008 10.950 11.039 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 39 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.288 19 12/31/2004 10.288 10.183 90 12/31/2005 10.183 10.269 165 12/31/2006 10.269 10.545 166 12/31/2007 10.545 10.864 170 12/31/2008 10.864 10.941 382 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.089 369 12/31/2004 10.089 9.935 861 12/31/2005 9.935 9.969 1505 12/31/2006 9.969 10.186 1870 12/31/2007 10.186 10.442 2802 12/31/2008 10.442 10.464 5845 AZL NACM International Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.439 27 12/31/2008 9.439 5.102 86 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.446 0 12/31/2008 9.446 5.110 1 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.436 0 12/31/2008 9.436 5.098 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.408 41 12/31/2008 9.408 5.059 96 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.452 17 12/31/2008 9.452 5.119 11 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.439 0 12/31/2008 9.439 5.102 2 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.446 0 12/31/2008 9.446 5.110 7 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.433 0 12/31/2008 9.433 5.093 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 40 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.471 3 12/31/2008 9.471 5.145 2 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.458 0 12/31/2008 9.458 5.128 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.452 0 12/31/2008 9.452 5.119 1 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.420 81 12/31/2008 9.420 5.076 68 AZL OCC Opportunity Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.987 601 12/31/2003 7.987 12.699 1239 12/31/2004 12.699 13.426 1409 12/31/2005 13.426 13.843 1233 12/31/2006 13.843 15.170 1064 12/31/2007 15.170 16.205 767 12/31/2008 16.205 8.402 623 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.720 3 12/31/2004 12.720 13.462 17 12/31/2005 13.462 13.894 19 12/31/2006 13.894 15.241 22 12/31/2007 15.241 16.298 21 12/31/2008 16.298 8.459 23 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.688 3 12/31/2004 12.688 13.408 11 12/31/2005 13.408 13.818 13 12/31/2006 13.818 15.134 7 12/31/2007 15.134 16.159 6 12/31/2008 16.159 8.374 4 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.593 220 12/31/2004 12.593 13.248 1094 12/31/2005 13.248 13.592 1209 12/31/2006 13.592 14.820 1473 12/31/2007 14.820 15.752 1659 12/31/2008 15.752 8.126 1403 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.998 193 12/31/2003 7.998 12.741 494 12/31/2004 12.741 13.498 450 12/31/2005 13.498 13.945 336 12/31/2006 13.945 15.312 272 12/31/2007 15.312 16.390 269 12/31/2008 16.390 8.515 210 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 7.987 41 12/31/2003 7.987 12.699 101 12/31/2004 12.699 13.426 115 12/31/2005 13.426 13.843 103 12/31/2006 13.843 15.170 85 12/31/2007 15.170 16.205 90 12/31/2008 16.205 8.402 57 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 41 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.720 4 12/31/2004 12.720 13.462 8 12/31/2005 13.462 13.894 9 12/31/2006 13.894 15.241 12 12/31/2007 15.241 16.298 11 12/31/2008 16.298 8.459 11 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.677 0 12/31/2004 12.677 13.391 3 12/31/2005 13.391 13.793 3 12/31/2006 13.793 15.099 3 12/31/2007 15.099 16.114 3 12/31/2008 16.114 8.346 2 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.014 21 12/31/2003 8.014 12.805 47 12/31/2004 12.805 13.607 45 12/31/2005 13.607 14.100 30 12/31/2006 14.100 15.528 34 12/31/2007 15.528 16.672 24 12/31/2008 16.672 8.688 17 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A 8.004 3 12/31/2003 8.004 12.762 6 12/31/2004 12.762 13.535 4 12/31/2005 13.535 13.997 2 12/31/2006 13.997 15.384 2 12/31/2007 15.384 16.484 2 12/31/2008 16.484 8.572 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.741 9 12/31/2004 12.741 13.498 18 12/31/2005 13.498 13.945 22 12/31/2006 13.945 15.312 31 12/31/2007 15.312 16.390 35 12/31/2008 16.390 8.515 29 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.635 123 12/31/2004 12.635 13.319 597 12/31/2005 13.319 13.692 718 12/31/2006 13.692 14.959 839 12/31/2007 14.959 15.932 900 12/31/2008 15.932 8.236 911 AZL Oppenheimer Global Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.433 83 12/31/2005 11.433 12.635 277 12/31/2006 12.635 14.417 373 12/31/2007 14.417 14.958 278 12/31/2008 14.958 8.651 263 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.441 7 12/31/2005 11.441 12.656 15 12/31/2006 12.656 14.456 29 12/31/2007 14.456 15.014 37 12/31/2008 15.014 8.692 39 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.429 16 12/31/2005 11.429 12.624 27 12/31/2006 12.624 14.398 34 12/31/2007 14.398 14.931 29 12/31/2008 14.931 8.631 20 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.395 935 12/31/2005 11.395 12.530 1644 12/31/2006 12.530 14.226 2046 12/31/2007 14.226 14.686 2057 12/31/2008 14.686 8.451 2036 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 42 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.449 112 12/31/2005 11.449 12.677 193 12/31/2006 12.677 14.494 329 12/31/2007 14.494 15.069 241 12/31/2008 15.069 8.733 172 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.433 5 12/31/2005 11.433 12.635 14 12/31/2006 12.635 14.417 25 12/31/2007 14.417 14.958 25 12/31/2008 14.958 8.651 21 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.441 4 12/31/2005 11.441 12.656 6 12/31/2006 12.656 14.456 15 12/31/2007 14.456 15.014 13 12/31/2008 15.014 8.692 13 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.426 4 12/31/2005 11.426 12.613 5 12/31/2006 12.613 14.379 4 12/31/2007 14.379 14.904 4 12/31/2008 14.904 8.611 3 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.472 20 12/31/2005 11.472 12.740 15 12/31/2006 12.740 14.611 20 12/31/2007 14.611 15.236 19 12/31/2008 15.236 8.856 9 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.456 0 12/31/2005 11.456 12.698 0 12/31/2006 12.698 14.533 0 12/31/2007 14.533 15.124 0 12/31/2008 15.124 8.773 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.449 18 12/31/2005 11.449 12.677 33 12/31/2006 12.677 14.494 45 12/31/2007 14.494 15.069 42 12/31/2008 15.069 8.733 35 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.410 734 12/31/2005 11.410 12.571 1423 12/31/2006 12.571 14.302 1924 12/31/2007 14.302 14.795 2003 12/31/2008 14.795 8.531 1794 AZL Oppenheimer International Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.219 0 12/31/2002 10.219 8.633 64 12/31/2003 8.633 11.331 190 12/31/2004 11.331 12.727 240 12/31/2005 12.727 14.259 351 12/31/2006 14.259 18.046 513 12/31/2007 18.046 19.881 540 12/31/2008 19.881 10.895 415 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.355 0 12/31/2004 11.355 12.768 6 12/31/2005 12.768 14.318 9 12/31/2006 14.318 18.140 21 12/31/2007 18.140 20.004 42 12/31/2008 20.004 10.973 43 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 43 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.319 0 12/31/2004 11.319 12.707 4 12/31/2005 12.707 14.229 4 12/31/2006 14.229 18.000 6 12/31/2007 18.000 19.820 6 12/31/2008 19.820 10.856 5 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.209 97 12/31/2004 11.209 12.527 285 12/31/2005 12.527 13.965 539 12/31/2006 13.965 17.587 923 12/31/2007 17.587 19.277 1354 12/31/2008 19.277 10.512 1091 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.222 0 12/31/2002 10.222 8.653 58 12/31/2003 8.653 11.380 111 12/31/2004 11.380 12.808 121 12/31/2005 12.808 14.378 140 12/31/2006 14.378 18.234 235 12/31/2007 18.234 20.128 311 12/31/2008 20.128 11.052 217 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.219 0 12/31/2002 10.219 8.633 8 12/31/2003 8.633 11.331 33 12/31/2004 11.331 12.727 41 12/31/2005 12.727 14.259 42 12/31/2006 14.259 18.046 52 12/31/2007 18.046 19.881 65 12/31/2008 19.881 10.895 43 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.355 0 12/31/2004 11.355 12.768 0 12/31/2005 12.768 14.318 1 12/31/2006 14.318 18.140 3 12/31/2007 18.140 20.004 5 12/31/2008 20.004 10.973 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.306 0 12/31/2004 11.306 12.687 0 12/31/2005 12.687 14.200 1 12/31/2006 14.200 17.954 1 12/31/2007 17.954 19.759 1 12/31/2008 19.759 10.817 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.227 0 12/31/2002 10.227 8.683 9 12/31/2003 8.683 11.454 20 12/31/2004 11.454 12.930 20 12/31/2005 12.930 14.559 41 12/31/2006 14.559 18.518 42 12/31/2007 18.518 20.503 35 12/31/2008 20.503 11.293 21 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.224 0 12/31/2002 10.224 8.663 0 12/31/2003 8.663 11.405 1 12/31/2004 11.405 12.849 1 12/31/2005 12.849 14.438 1 12/31/2006 14.438 18.328 1 12/31/2007 18.328 20.252 1 12/31/2008 20.252 11.132 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.380 4 12/31/2004 11.380 12.808 8 12/31/2005 12.808 14.378 14 12/31/2006 14.378 18.234 34 12/31/2007 18.234 20.128 30 12/31/2008 20.128 11.052 13 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.258 49 12/31/2004 11.258 12.607 214 12/31/2005 12.607 14.082 506 12/31/2006 14.082 17.769 871 12/31/2007 17.769 19.517 1159 12/31/2008 19.517 10.663 1053 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 44 AZL PIMCO Fundamental IndexPLUS Total Return Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.044 8 12/31/2007 11.044 11.557 13 12/31/2008 11.557 6.706 38 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.052 1 12/31/2007 11.052 11.577 2 12/31/2008 11.577 6.724 3 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.040 0 12/31/2007 11.040 11.547 0 12/31/2008 11.547 6.697 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.007 59 12/31/2007 11.007 11.461 74 12/31/2008 11.461 6.617 108 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.059 12 12/31/2007 11.059 11.596 6 12/31/2008 11.596 6.742 76 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.044 5 12/31/2007 11.044 11.557 14 12/31/2008 11.557 6.706 14 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.052 0 12/31/2007 11.052 11.577 0 12/31/2008 11.577 6.724 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.037 0 12/31/2007 11.037 11.538 0 12/31/2008 11.538 6.688 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.081 1 12/31/2007 11.081 11.654 1 12/31/2008 11.654 6.796 2 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.066 0 12/31/2007 11.066 11.615 1 12/31/2008 11.615 6.760 1 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 45 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.059 4 12/31/2007 11.059 11.596 7 12/31/2008 11.596 6.742 4 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.022 23 12/31/2007 11.022 11.499 48 12/31/2008 11.499 6.652 144 AZL S&P 500 Index Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.849 212 12/31/2008 9.849 6.028 3789 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.855 5 12/31/2008 9.855 6.038 58 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.846 0 12/31/2008 9.846 6.023 36 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.816 144 12/31/2008 9.816 5.978 3067 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.862 441 12/31/2008 9.862 6.048 2186 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.849 39 12/31/2008 9.849 6.028 300 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.855 1 12/31/2008 9.855 6.038 10 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.842 0 12/31/2008 9.842 6.018 11 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 46 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.882 1 12/31/2008 9.882 6.079 140 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.869 0 12/31/2008 9.869 6.058 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.862 0 12/31/2008 9.862 6.048 88 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.829 154 12/31/2008 9.829 5.998 3109 AZL Schroder Emerging Markets Equity Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.436 190 12/31/2007 10.436 13.343 564 12/31/2008 13.343 6.299 1769 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.443 11 12/31/2007 10.443 13.365 18 12/31/2008 13.365 6.316 57 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.433 1 12/31/2007 10.433 13.332 8 12/31/2008 13.332 6.290 31 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.402 708 12/31/2007 10.402 13.232 1521 12/31/2008 13.232 6.215 2941 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.450 55 12/31/2007 10.450 13.388 148 12/31/2008 13.388 6.333 1187 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.436 21 12/31/2007 10.436 13.343 42 12/31/2008 13.343 6.299 184 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 47 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.443 1 12/31/2007 10.443 13.365 3 12/31/2008 13.365 6.316 9 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.429 1 12/31/2007 10.429 13.321 1 12/31/2008 13.321 6.282 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.472 22 12/31/2007 10.472 13.455 28 12/31/2008 13.455 6.384 55 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.458 0 12/31/2007 10.458 13.410 0 12/31/2008 13.410 6.350 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.450 19 12/31/2007 10.450 13.388 26 12/31/2008 13.388 6.333 38 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.415 348 12/31/2007 10.415 13.276 1033 12/31/2008 13.276 6.248 2535 AZL Schroder International Small Cap Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.212 47 12/31/2008 9.212 4.919 67 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.218 0 12/31/2008 9.218 4.927 0 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.209 0 12/31/2008 9.209 4.915 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.181 89 12/31/2008 9.181 4.878 141 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 48 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.224 5 12/31/2008 9.224 4.935 24 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.212 0 12/31/2008 9.212 4.919 5 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.218 0 12/31/2008 9.218 4.927 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.206 0 12/31/2008 9.206 4.910 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.243 1 12/31/2008 9.243 4.960 0 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.230 0 12/31/2008 9.230 4.943 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.224 0 12/31/2008 9.224 4.935 0 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.193 44 12/31/2008 9.193 4.894 117 AZL Small Cap Stock Index Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.298 56 12/31/2008 9.298 6.300 2316 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.304 1 12/31/2008 9.304 6.310 30 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 49 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.295 0 12/31/2008 9.295 6.294 20 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.267 85 12/31/2008 9.267 6.247 2307 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.310 151 12/31/2008 9.310 6.321 1559 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.298 3 12/31/2008 9.298 6.300 200 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.304 0 12/31/2008 9.304 6.310 6 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.292 0 12/31/2008 9.292 6.289 5 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.329 5 12/31/2008 9.329 6.353 87 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.317 0 12/31/2008 9.317 6.331 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.310 0 12/31/2008 9.310 6.321 44 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.279 158 12/31/2008 9.279 6.268 2325 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 50 AZL TargetPLUS Balanced Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.083 3 12/31/2008 10.083 7.478 49 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.089 1 12/31/2008 10.089 7.491 0 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.079 0 12/31/2008 10.079 7.472 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.049 14 12/31/2008 10.049 7.416 67 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.096 1 12/31/2008 10.096 7.503 13 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.083 0 12/31/2008 10.083 7.478 1 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.089 0 12/31/2008 10.089 7.491 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.076 0 12/31/2008 10.076 7.466 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.116 2 12/31/2008 10.116 7.541 14 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.103 0 12/31/2008 10.103 7.516 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 51 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.096 17 12/31/2008 10.096 7.503 15 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.062 24 12/31/2008 10.062 7.441 69 AZL TargetPLUS Equity Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.471 340 12/31/2008 10.471 5.288 337 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.482 1 12/31/2008 10.482 5.299 0 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.466 3 12/31/2008 10.466 5.283 3 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.418 646 12/31/2008 10.418 5.235 699 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.492 84 12/31/2008 10.492 5.310 37 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.471 8 12/31/2008 10.471 5.288 8 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.482 9 12/31/2008 10.482 5.299 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.460 0 12/31/2008 10.460 5.278 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 52 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.524 10 12/31/2008 10.524 5.342 6 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.503 0 12/31/2008 10.503 5.320 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.492 3 12/31/2008 10.492 5.310 0 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.919 0 12/31/2007 9.919 10.439 886 12/31/2008 10.439 5.256 907 AZL TargetPLUS Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.906 55 12/31/2008 9.906 5.892 117 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.913 6 12/31/2008 9.913 5.902 10 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.903 0 12/31/2008 9.903 5.887 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.873 133 12/31/2008 9.873 5.843 201 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.919 24 12/31/2008 9.919 5.912 16 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.906 4 12/31/2008 9.906 5.892 4 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 53 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.913 4 12/31/2008 9.913 5.902 5 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.899 0 12/31/2008 9.899 5.882 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.939 0 12/31/2008 9.939 5.942 0 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.926 0 12/31/2008 9.926 5.922 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.919 0 12/31/2008 9.919 5.912 0 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.886 242 12/31/2008 9.886 5.863 255 AZL TargetPLUS Moderate Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.046 4 12/31/2008 10.046 6.666 81 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.053 1 12/31/2008 10.053 6.677 4 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.043 0 12/31/2008 10.043 6.660 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.012 57 12/31/2008 10.012 6.610 148 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 54 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.059 0 12/31/2008 10.059 6.688 4 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.046 6 12/31/2008 10.046 6.666 7 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.053 3 12/31/2008 10.053 6.677 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.039 0 12/31/2008 10.039 6.655 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.080 0 12/31/2008 10.080 6.722 0 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.066 0 12/31/2008 10.066 6.699 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.059 0 12/31/2008 10.059 6.688 0 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 10.026 80 12/31/2008 10.026 6.632 295 AZL Turner Quantitative Small Cap Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.088 156 12/31/2006 11.088 12.110 168 12/31/2007 12.110 12.602 133 12/31/2008 12.602 7.005 128 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.095 0 12/31/2006 11.095 12.130 7 12/31/2007 12.130 12.636 6 12/31/2008 12.636 7.030 6 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 55 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.084 0 12/31/2006 11.084 12.100 0 12/31/2007 12.100 12.585 0 12/31/2008 12.585 6.992 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.051 227 12/31/2006 11.051 12.009 504 12/31/2007 12.009 12.435 401 12/31/2008 12.435 6.877 428 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.103 42 12/31/2006 11.103 12.150 62 12/31/2007 12.150 12.670 37 12/31/2008 12.670 7.056 27 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.088 9 12/31/2006 11.088 12.110 16 12/31/2007 12.110 12.602 11 12/31/2008 12.602 7.005 10 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.095 0 12/31/2006 11.095 12.130 1 12/31/2007 12.130 12.636 1 12/31/2008 12.636 7.030 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.080 0 12/31/2006 11.080 12.090 1 12/31/2007 12.090 12.569 1 12/31/2008 12.569 6.979 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.125 6 12/31/2006 11.125 12.211 4 12/31/2007 12.211 12.772 2 12/31/2008 12.772 7.135 1 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.110 0 12/31/2006 11.110 12.171 0 12/31/2007 12.171 12.704 0 12/31/2008 12.704 7.082 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.103 0 12/31/2006 11.103 12.150 6 12/31/2007 12.150 12.670 6 12/31/2008 12.670 7.056 5 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.065 125 12/31/2006 11.065 12.049 270 12/31/2007 12.049 12.502 291 12/31/2008 12.502 6.928 301 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 56 AZL Van Kampen Comstock Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.318 442 12/31/2002 9.318 7.325 4762 12/31/2003 7.325 9.382 7559 12/31/2004 9.382 10.781 7728 12/31/2005 10.781 10.993 7289 12/31/2006 10.993 12.487 6313 12/31/2007 12.487 11.979 5987 12/31/2008 11.979 7.500 4343 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.407 9 12/31/2004 9.407 10.820 62 12/31/2005 10.820 11.045 95 12/31/2006 11.045 12.558 94 12/31/2007 12.558 12.059 134 12/31/2008 12.059 7.558 123 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.369 6 12/31/2004 9.369 10.761 37 12/31/2005 10.761 10.968 56 12/31/2006 10.968 12.452 58 12/31/2007 12.452 11.939 66 12/31/2008 11.939 7.472 62 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.257 685 12/31/2004 9.257 10.584 2490 12/31/2005 10.584 10.739 3773 12/31/2006 10.739 12.138 4329 12/31/2007 12.138 11.586 5214 12/31/2008 11.586 7.218 4632 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.330 153 12/31/2002 9.330 7.350 2054 12/31/2003 7.350 9.432 3152 12/31/2004 9.432 10.860 3413 12/31/2005 10.860 11.096 3176 12/31/2006 11.096 12.630 2736 12/31/2007 12.630 12.140 2663 12/31/2008 12.140 7.616 1801 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.318 3 12/31/2002 9.318 7.325 321 12/31/2003 7.325 9.382 544 12/31/2004 9.382 10.781 609 12/31/2005 10.781 10.993 547 12/31/2006 10.993 12.487 518 12/31/2007 12.487 11.979 560 12/31/2008 11.979 7.500 377 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.407 1 12/31/2004 9.407 10.820 4 12/31/2005 10.820 11.045 8 12/31/2006 11.045 12.558 8 12/31/2007 12.558 12.059 14 12/31/2008 12.059 7.558 13 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.357 0 12/31/2004 9.357 10.741 11 12/31/2005 10.741 10.942 17 12/31/2006 10.942 12.417 17 12/31/2007 12.417 11.899 18 12/31/2008 11.899 7.443 12 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.349 37 12/31/2002 9.349 7.387 312 12/31/2003 7.387 9.508 347 12/31/2004 9.508 10.980 372 12/31/2005 10.980 11.253 341 12/31/2006 11.253 12.846 243 12/31/2007 12.846 12.386 268 12/31/2008 12.386 7.794 209 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.336 10 12/31/2002 9.336 7.362 33 12/31/2003 7.362 9.457 38 12/31/2004 9.457 10.900 39 12/31/2005 10.900 11.148 36 12/31/2006 11.148 12.701 32 12/31/2007 12.701 12.221 23 12/31/2008 12.221 7.675 15 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 57 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.432 34 12/31/2004 9.432 10.860 86 12/31/2005 10.860 11.096 128 12/31/2006 11.096 12.630 125 12/31/2007 12.630 12.140 132 12/31/2008 12.140 7.616 110 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.307 321 12/31/2004 9.307 10.662 1723 12/31/2005 10.662 10.840 2768 12/31/2006 10.840 12.277 2969 12/31/2007 12.277 11.742 3733 12/31/2008 11.742 7.330 3308 AZL Van Kampen Equity and Income Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.774 611 12/31/2005 10.774 11.285 903 12/31/2006 11.285 12.460 1029 12/31/2007 12.460 12.599 857 12/31/2008 12.599 9.404 551 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.781 23 12/31/2005 10.781 11.304 42 12/31/2006 11.304 12.493 51 12/31/2007 12.493 12.645 70 12/31/2008 12.645 9.448 53 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.770 7 12/31/2005 10.770 11.276 24 12/31/2006 11.276 12.443 28 12/31/2007 12.443 12.575 30 12/31/2008 12.575 9.382 21 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.738 704 12/31/2005 10.738 11.191 1500 12/31/2006 11.191 12.295 2089 12/31/2007 12.295 12.369 2402 12/31/2008 12.369 9.187 2189 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.788 495 12/31/2005 10.788 11.323 638 12/31/2006 11.323 12.526 613 12/31/2007 12.526 12.691 531 12/31/2008 12.691 9.492 375 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.774 3 12/31/2005 10.774 11.285 22 12/31/2006 11.285 12.460 32 12/31/2007 12.460 12.599 28 12/31/2008 12.599 9.404 43 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.781 1 12/31/2005 10.781 11.304 1 12/31/2006 11.304 12.493 8 12/31/2007 12.493 12.645 10 12/31/2008 12.645 9.448 14 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.767 1 12/31/2005 10.767 11.266 1 12/31/2006 11.266 12.427 0 12/31/2007 12.427 12.552 0 12/31/2008 12.552 9.360 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 58 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.810 24 12/31/2005 10.810 11.380 36 12/31/2006 11.380 12.627 67 12/31/2007 12.627 12.832 47 12/31/2008 12.832 9.627 16 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.795 1 12/31/2005 10.795 11.342 2 12/31/2006 11.342 12.560 1 12/31/2007 12.560 12.738 0 12/31/2008 12.738 9.537 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.788 10 12/31/2005 10.788 11.323 41 12/31/2006 11.323 12.526 43 12/31/2007 12.526 12.691 40 12/31/2008 12.691 9.492 37 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 10.752 365 12/31/2005 10.752 11.229 890 12/31/2006 11.229 12.360 1169 12/31/2007 12.360 12.461 1387 12/31/2008 12.461 9.273 1562 AZL Van Kampen Global Franchise Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.233 349 12/31/2004 12.233 13.467 846 12/31/2005 13.467 14.753 1157 12/31/2006 14.753 17.553 1342 12/31/2007 17.553 18.912 1122 12/31/2008 18.912 13.255 756 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.241 2 12/31/2004 12.241 13.490 43 12/31/2005 13.490 14.793 102 12/31/2006 14.793 17.618 101 12/31/2007 17.618 19.001 104 12/31/2008 19.001 13.331 95 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.229 1 12/31/2004 12.229 13.456 8 12/31/2005 13.456 14.734 19 12/31/2006 14.734 17.521 20 12/31/2007 17.521 18.868 17 12/31/2008 18.868 13.218 13 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.192 178 12/31/2004 12.192 13.355 1188 12/31/2005 13.355 14.558 2206 12/31/2006 14.558 17.234 2956 12/31/2007 17.234 18.475 2757 12/31/2008 18.475 12.884 2526 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.250 110 12/31/2004 12.250 13.512 375 12/31/2005 13.512 14.832 601 12/31/2006 14.832 17.683 783 12/31/2007 17.683 19.090 713 12/31/2008 19.090 13.407 659 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.233 38 12/31/2004 12.233 13.467 49 12/31/2005 13.467 14.753 71 12/31/2006 14.753 17.553 100 12/31/2007 17.553 18.912 67 12/31/2008 18.912 13.255 55 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 59 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.241 0 12/31/2004 12.241 13.490 1 12/31/2005 13.490 14.793 3 12/31/2006 14.793 17.618 6 12/31/2007 17.618 19.001 10 12/31/2008 19.001 13.331 12 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.225 0 12/31/2004 12.225 13.445 0 12/31/2005 13.445 14.714 0 12/31/2006 14.714 17.489 1 12/31/2007 17.489 18.824 1 12/31/2008 18.824 13.180 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.274 5 12/31/2004 12.274 13.581 21 12/31/2005 13.581 14.952 42 12/31/2006 14.952 17.878 44 12/31/2007 17.878 19.359 50 12/31/2008 19.359 13.637 13 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.258 0 12/31/2004 12.258 13.535 1 12/31/2005 13.535 14.872 1 12/31/2006 14.872 17.748 1 12/31/2007 17.748 19.179 1 12/31/2008 19.179 13.483 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.250 17 12/31/2004 12.250 13.512 34 12/31/2005 13.512 14.832 62 12/31/2006 14.832 17.683 48 12/31/2007 17.683 19.090 34 12/31/2008 19.090 13.407 27 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.208 74 12/31/2004 12.208 13.400 510 12/31/2005 13.400 14.636 1322 12/31/2006 14.636 17.361 1845 12/31/2007 17.361 18.649 2024 12/31/2008 18.649 13.031 1819 AZL Van Kampen Global Real Estate Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.011 343 12/31/2007 12.011 10.761 481 12/31/2008 10.761 5.719 512 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.019 7 12/31/2007 12.019 10.779 38 12/31/2008 10.779 5.734 37 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.007 2 12/31/2007 12.007 10.752 4 12/31/2008 10.752 5.711 1 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.971 635 12/31/2007 11.971 10.671 880 12/31/2008 10.671 5.643 864 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 60 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.028 172 12/31/2007 12.028 10.797 254 12/31/2008 10.797 5.750 178 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.011 31 12/31/2007 12.011 10.761 44 12/31/2008 10.761 5.719 28 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.019 1 12/31/2007 12.019 10.779 5 12/31/2008 10.779 5.734 5 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.003 1 12/31/2007 12.003 10.743 1 12/31/2008 10.743 5.704 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.052 22 12/31/2007 12.052 10.852 16 12/31/2008 10.852 5.796 4 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.036 1 12/31/2007 12.036 10.815 0 12/31/2008 10.815 5.765 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 12.028 12 12/31/2007 12.028 10.797 13 12/31/2008 10.797 5.750 3 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 11.987 453 12/31/2007 11.987 10.707 867 12/31/2008 10.707 5.673 852 AZL Van Kampen Growth and Income Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.635 220 12/31/2002 9.635 8.063 2170 12/31/2003 8.063 10.084 4069 12/31/2004 10.084 11.260 3926 12/31/2005 11.260 12.070 3875 12/31/2006 12.070 13.726 3507 12/31/2007 13.726 13.822 2647 12/31/2008 13.822 9.106 1971 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.111 20 12/31/2004 10.111 11.302 37 12/31/2005 11.302 12.126 46 12/31/2006 12.126 13.804 61 12/31/2007 13.804 13.915 57 12/31/2008 13.915 9.176 48 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 61 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.070 16 12/31/2004 10.070 11.240 28 12/31/2005 11.240 12.042 31 12/31/2006 12.042 13.687 34 12/31/2007 13.687 13.776 28 12/31/2008 13.776 9.071 24 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.950 415 12/31/2004 9.950 11.055 1287 12/31/2005 11.055 11.791 2334 12/31/2006 11.791 13.342 2702 12/31/2007 13.342 13.368 2480 12/31/2008 13.368 8.763 2382 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.648 179 12/31/2002 9.648 8.090 1370 12/31/2003 8.090 10.138 2477 12/31/2004 10.138 11.344 2200 12/31/2005 11.344 12.183 2149 12/31/2006 12.183 13.883 2001 12/31/2007 13.883 14.008 1566 12/31/2008 14.008 9.246 1120 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.635 1 12/31/2002 9.635 8.063 160 12/31/2003 8.063 10.084 266 12/31/2004 10.084 11.260 243 12/31/2005 11.260 12.070 252 12/31/2006 12.070 13.726 238 12/31/2007 13.726 13.822 179 12/31/2008 13.822 9.106 146 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.111 2 12/31/2004 10.111 11.302 4 12/31/2005 11.302 12.126 5 12/31/2006 12.126 13.804 5 12/31/2007 13.804 13.915 6 12/31/2008 13.915 9.176 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.057 0 12/31/2004 10.057 11.219 2 12/31/2005 11.219 12.013 2 12/31/2006 12.013 13.648 2 12/31/2007 13.648 13.730 2 12/31/2008 13.730 9.036 2 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.667 42 12/31/2002 9.667 8.131 202 12/31/2003 8.131 10.219 319 12/31/2004 10.219 11.469 325 12/31/2005 11.469 12.355 302 12/31/2006 12.355 14.121 260 12/31/2007 14.121 14.291 208 12/31/2008 14.291 9.462 143 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.654 0 12/31/2002 9.654 8.104 14 12/31/2003 8.104 10.165 17 12/31/2004 10.165 11.385 17 12/31/2005 11.385 12.240 15 12/31/2006 12.240 13.961 15 12/31/2007 13.961 14.102 14 12/31/2008 14.102 9.318 13 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.138 40 12/31/2004 10.138 11.344 74 12/31/2005 11.344 12.183 103 12/31/2006 12.183 13.883 86 12/31/2007 13.883 14.008 68 12/31/2008 14.008 9.246 55 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.003 229 12/31/2004 10.003 11.137 830 12/31/2005 11.137 11.902 1521 12/31/2006 11.902 13.495 1834 12/31/2007 13.495 13.548 1817 12/31/2008 13.548 8.898 1632 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 62 AZL Van Kampen Mid Cap Growth Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.488 20 12/31/2002 9.488 7.052 1204 12/31/2003 7.052 8.887 1991 12/31/2004 8.887 10.571 1900 12/31/2005 10.571 12.192 2279 12/31/2006 12.192 13.065 2403 12/31/2007 13.065 15.661 2803 12/31/2008 15.661 7.910 2280 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.911 9 12/31/2004 8.911 10.610 31 12/31/2005 10.610 12.249 38 12/31/2006 12.249 13.139 40 12/31/2007 13.139 15.766 55 12/31/2008 15.766 7.971 55 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.875 2 12/31/2004 8.875 10.552 9 12/31/2005 10.552 12.163 21 12/31/2006 12.163 13.028 21 12/31/2007 13.028 15.609 24 12/31/2008 15.609 7.880 22 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.769 164 12/31/2004 8.769 10.379 581 12/31/2005 10.379 11.910 1645 12/31/2006 11.910 12.699 2215 12/31/2007 12.699 15.147 3680 12/31/2008 15.147 7.613 3344 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.501 60 12/31/2002 9.501 7.076 617 12/31/2003 7.076 8.935 951 12/31/2004 8.935 10.649 758 12/31/2005 10.649 12.306 957 12/31/2006 12.306 13.213 866 12/31/2007 13.213 15.872 1206 12/31/2008 15.872 8.033 843 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.488 0 12/31/2002 9.488 7.052 55 12/31/2003 7.052 8.887 110 12/31/2004 8.887 10.571 108 12/31/2005 10.571 12.192 173 12/31/2006 12.192 13.065 160 12/31/2007 13.065 15.661 217 12/31/2008 15.661 7.910 160 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.911 0 12/31/2004 8.911 10.610 0 12/31/2005 10.610 12.249 1 12/31/2006 12.249 13.139 1 12/31/2007 13.139 15.766 9 12/31/2008 15.766 7.971 13 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.864 0 12/31/2004 8.864 10.532 1 12/31/2005 10.532 12.135 2 12/31/2006 12.135 12.991 3 12/31/2007 12.991 15.557 8 12/31/2008 15.557 7.850 8 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.520 5 12/31/2002 9.520 7.112 100 12/31/2003 7.112 9.007 158 12/31/2004 9.007 10.767 174 12/31/2005 10.767 12.480 168 12/31/2006 12.480 13.440 120 12/31/2007 13.440 16.193 120 12/31/2008 16.193 8.220 68 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.507 0 12/31/2002 9.507 7.088 1 12/31/2003 7.088 8.959 2 12/31/2004 8.959 10.688 2 12/31/2005 10.688 12.364 2 12/31/2006 12.364 13.289 2 12/31/2007 13.289 15.978 2 12/31/2008 15.978 8.095 3 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 63 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.935 5 12/31/2004 8.935 10.649 16 12/31/2005 10.649 12.306 29 12/31/2006 12.306 13.213 38 12/31/2007 13.213 15.872 46 12/31/2008 15.872 8.033 32 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.816 103 12/31/2004 8.816 10.455 434 12/31/2005 10.455 12.022 1245 12/31/2006 12.022 12.844 1608 12/31/2007 12.844 15.351 2554 12/31/2008 15.351 7.730 2483 BlackRock Global Allocation V.I. Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.893 348 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.898 13 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.890 1 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.866 784 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.903 193 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.893 14 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.898 10 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.888 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 64 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.919 24 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.909 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.903 2 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A N/A N/A 12/31/2008 N/A 7.877 584 Davis VA Financial Portfolio ALE 1 1.90% 12/31/2000 N/A 13.258 7 12/31/2001 13.258 11.658 130 12/31/2002 11.658 9.512 904 12/31/2003 9.512 12.334 1467 12/31/2004 12.334 13.350 1499 12/31/2005 13.350 14.198 1421 12/31/2006 14.198 16.509 1248 12/31/2007 16.509 15.217 882 12/31/2008 15.217 8.008 775 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.383 4 12/31/2004 12.383 13.416 7 12/31/2005 13.416 14.282 7 12/31/2006 14.282 16.624 7 12/31/2007 16.624 15.338 8 12/31/2008 15.338 8.080 29 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.310 2 12/31/2004 12.310 13.317 6 12/31/2005 13.317 14.156 13 12/31/2006 14.156 16.452 12 12/31/2007 16.452 15.157 11 12/31/2008 15.157 7.972 8 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.095 139 12/31/2004 12.095 13.026 490 12/31/2005 13.026 13.784 652 12/31/2006 13.784 15.948 814 12/31/2007 15.948 14.626 693 12/31/2008 14.626 7.659 671 ALO 1 1.70% 12/31/2000 N/A 13.283 11 12/31/2001 13.283 11.703 97 12/31/2002 11.703 9.568 377 12/31/2003 9.568 12.431 554 12/31/2004 12.431 13.482 563 12/31/2005 13.482 14.367 536 12/31/2006 14.367 16.739 604 12/31/2007 16.739 15.460 431 12/31/2008 15.460 8.152 368 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 11.658 2 12/31/2002 11.658 9.512 115 12/31/2003 9.512 12.334 179 12/31/2004 12.334 13.350 178 12/31/2005 13.350 14.198 175 12/31/2006 14.198 16.509 131 12/31/2007 16.509 15.217 95 12/31/2008 15.217 8.008 66 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 65 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.383 0 12/31/2004 12.383 13.416 1 12/31/2005 13.416 14.282 1 12/31/2006 14.282 16.624 2 12/31/2007 16.624 15.338 2 12/31/2008 15.338 8.080 2 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.286 0 12/31/2004 12.286 13.285 2 12/31/2005 13.285 14.114 2 12/31/2006 14.114 16.395 2 12/31/2007 16.395 15.097 2 12/31/2008 15.097 7.937 2 ALT 1 1.40% 12/31/2000 N/A 13.319 25 12/31/2001 13.319 11.771 88 12/31/2002 11.771 9.652 107 12/31/2003 9.652 12.578 107 12/31/2004 12.578 13.683 101 12/31/2005 13.683 14.624 92 12/31/2006 14.624 17.090 65 12/31/2007 17.090 15.832 50 12/31/2008 15.832 8.373 48 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 11.725 0 12/31/2002 11.725 9.596 3 12/31/2003 9.596 12.480 5 12/31/2004 12.480 13.549 5 12/31/2005 13.549 14.452 6 12/31/2006 14.452 16.855 5 12/31/2007 16.855 15.583 4 12/31/2008 15.583 8.225 3 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.431 12 12/31/2004 12.431 13.482 20 12/31/2005 13.482 14.367 32 12/31/2006 14.367 16.739 33 12/31/2007 16.739 15.460 31 12/31/2008 15.460 8.152 17 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.190 56 12/31/2004 12.190 13.155 253 12/31/2005 13.155 13.948 365 12/31/2006 13.948 16.170 479 12/31/2007 16.170 14.860 453 12/31/2008 14.860 7.797 477 Davis VA Value Portfolio ALE 1 1.90% 12/31/2000 N/A 10.869 8 12/31/2001 10.869 9.556 241 12/31/2002 9.556 7.851 2536 12/31/2003 7.851 9.996 4628 12/31/2004 9.996 11.016 4555 12/31/2005 11.016 11.830 4185 12/31/2006 11.830 13.350 3792 12/31/2007 13.350 13.704 3068 12/31/2008 13.704 8.024 2375 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.035 33 12/31/2004 10.035 11.071 25 12/31/2005 11.071 11.901 25 12/31/2006 11.901 13.442 24 12/31/2007 13.442 13.813 24 12/31/2008 13.813 8.096 21 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.976 6 12/31/2004 9.976 10.989 9 12/31/2005 10.989 11.795 7 12/31/2006 11.795 13.304 6 12/31/2007 13.304 13.650 5 12/31/2008 13.650 7.988 5 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.802 607 12/31/2004 9.802 10.749 985 12/31/2005 10.749 11.485 916 12/31/2006 11.485 12.896 815 12/31/2007 12.896 13.172 752 12/31/2008 13.172 7.674 614 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 66 ALO 1 1.70% 12/31/2000 N/A 10.889 74 12/31/2001 10.889 9.592 377 12/31/2002 9.592 7.897 1571 12/31/2003 7.897 10.074 2440 12/31/2004 10.074 11.125 2286 12/31/2005 11.125 11.971 2062 12/31/2006 11.971 13.536 1815 12/31/2007 13.536 13.923 1400 12/31/2008 13.923 8.169 1078 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.556 2 12/31/2002 9.556 7.851 252 12/31/2003 7.851 9.996 388 12/31/2004 9.996 11.016 396 12/31/2005 11.016 11.830 374 12/31/2006 11.830 13.350 349 12/31/2007 13.350 13.704 272 12/31/2008 13.704 8.024 216 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.035 1 12/31/2004 10.035 11.071 3 12/31/2005 11.071 11.901 3 12/31/2006 11.901 13.442 3 12/31/2007 13.442 13.813 2 12/31/2008 13.813 8.096 2 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.957 0 12/31/2004 9.957 10.962 1 12/31/2005 10.962 11.761 1 12/31/2006 11.761 13.258 1 12/31/2007 13.258 13.596 1 12/31/2008 13.596 7.953 1 ALT 1 1.40% 12/31/2000 N/A 10.919 41 12/31/2001 10.919 9.648 256 12/31/2002 9.648 7.967 485 12/31/2003 7.967 10.193 560 12/31/2004 10.193 11.291 540 12/31/2005 11.291 12.186 486 12/31/2006 12.186 13.819 408 12/31/2007 13.819 14.258 312 12/31/2008 14.258 8.390 231 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.611 0 12/31/2002 9.611 7.920 15 12/31/2003 7.920 10.114 20 12/31/2004 10.114 11.180 20 12/31/2005 11.180 12.042 8 12/31/2006 12.042 13.629 8 12/31/2007 13.629 14.034 8 12/31/2008 14.034 8.242 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.074 25 12/31/2004 10.074 11.125 24 12/31/2005 11.125 11.971 20 12/31/2006 11.971 13.536 17 12/31/2007 13.536 13.923 12 12/31/2008 13.923 8.169 9 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.879 296 12/31/2004 9.879 10.855 687 12/31/2005 10.855 11.622 579 12/31/2006 11.622 13.076 516 12/31/2007 13.076 13.383 440 12/31/2008 13.383 7.812 371 Franklin Global Real Estate Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.630 4 12/31/2002 27.630 27.672 392 12/31/2003 27.672 36.856 766 12/31/2004 36.856 47.661 807 12/31/2005 47.661 53.068 776 12/31/2006 53.068 62.790 649 12/31/2007 62.790 48.750 455 12/31/2008 48.750 27.554 335 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 37.405 9 12/31/2004 37.405 48.419 17 12/31/2005 48.419 53.965 19 12/31/2006 53.965 63.916 18 12/31/2007 63.916 49.675 14 12/31/2008 49.675 28.105 12 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 67 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 36.585 3 12/31/2004 36.585 47.286 8 12/31/2005 47.286 52.624 12 12/31/2006 52.624 62.235 12 12/31/2007 62.235 48.295 9 12/31/2008 48.295 27.283 6 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 34.232 100 12/31/2004 34.232 44.045 437 12/31/2005 44.045 48.798 666 12/31/2006 48.798 57.451 626 12/31/2007 57.451 44.381 498 12/31/2008 44.381 24.959 407 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 28.345 5 12/31/2002 28.345 28.445 203 12/31/2003 28.445 37.962 352 12/31/2004 37.962 49.189 388 12/31/2005 49.189 54.878 331 12/31/2006 54.878 65.062 266 12/31/2007 65.062 50.616 186 12/31/2008 50.616 28.667 131 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.630 0 12/31/2002 27.630 27.672 86 12/31/2003 27.672 36.856 123 12/31/2004 36.856 47.661 116 12/31/2005 47.661 53.068 93 12/31/2006 53.068 62.790 79 12/31/2007 62.790 48.750 61 12/31/2008 48.750 27.554 46 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 37.405 0 12/31/2004 37.405 48.419 2 12/31/2005 48.419 53.965 3 12/31/2006 53.965 63.916 4 12/31/2007 63.916 49.675 4 12/31/2008 49.675 28.105 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 36.316 0 12/31/2004 36.316 46.914 6 12/31/2005 46.914 52.185 6 12/31/2006 52.185 61.684 7 12/31/2007 61.684 47.843 8 12/31/2008 47.843 27.015 2 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 29.453 3 12/31/2002 29.453 29.645 84 12/31/2003 29.645 39.683 88 12/31/2004 39.683 51.573 87 12/31/2005 51.573 57.711 77 12/31/2006 57.711 68.626 64 12/31/2007 68.626 53.550 46 12/31/2008 53.550 30.419 37 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 28.710 0 12/31/2002 28.710 28.839 4 12/31/2003 28.839 38.527 3 12/31/2004 38.527 49.971 3 12/31/2005 49.971 55.807 3 12/31/2006 55.807 66.229 3 12/31/2007 66.229 51.576 3 12/31/2008 51.576 29.239 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 37.962 6 12/31/2004 37.962 49.189 17 12/31/2005 49.189 54.878 26 12/31/2006 54.878 65.062 25 12/31/2007 65.062 50.616 15 12/31/2008 50.616 28.667 9 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 35.258 60 12/31/2004 35.258 45.457 323 12/31/2005 45.457 50.463 573 12/31/2006 50.463 59.530 550 12/31/2007 59.530 46.080 469 12/31/2008 46.080 25.967 410 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 68 Franklin Growth and Income Securities Fund ALE 1 1.90% 12/31/2000 N/A 28.664 1 12/31/2001 28.664 27.482 70 12/31/2002 27.482 22.727 453 12/31/2003 22.727 28.029 786 12/31/2004 28.029 30.419 772 12/31/2005 30.419 30.896 699 12/31/2006 30.896 35.396 601 12/31/2007 35.396 33.439 513 12/31/2008 33.439 21.278 391 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.345 8 12/31/2004 28.345 30.793 13 12/31/2005 30.793 31.308 15 12/31/2006 31.308 35.903 17 12/31/2007 35.903 33.952 18 12/31/2008 33.952 21.626 14 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 27.724 0 12/31/2004 27.724 30.073 4 12/31/2005 30.073 30.530 14 12/31/2006 30.530 34.959 15 12/31/2007 34.959 33.009 14 12/31/2008 33.009 20.994 13 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 25.940 82 12/31/2004 25.940 28.011 337 12/31/2005 28.011 28.310 460 12/31/2006 28.310 32.271 547 12/31/2007 32.271 30.334 465 12/31/2008 30.334 19.206 411 ALO 1 1.70% 12/31/2000 N/A 29.337 13 12/31/2001 29.337 28.184 81 12/31/2002 28.184 23.354 291 12/31/2003 23.354 28.860 432 12/31/2004 28.860 31.383 433 12/31/2005 31.383 31.940 394 12/31/2006 31.940 36.665 343 12/31/2007 36.665 34.707 257 12/31/2008 34.707 22.129 186 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.482 0 12/31/2002 27.482 22.727 58 12/31/2003 22.727 28.029 85 12/31/2004 28.029 30.419 88 12/31/2005 30.419 30.896 85 12/31/2006 30.896 35.396 72 12/31/2007 35.396 33.439 59 12/31/2008 33.439 21.278 39 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.345 0 12/31/2004 28.345 30.793 1 12/31/2005 30.793 31.308 1 12/31/2006 31.308 35.903 2 12/31/2007 35.903 33.952 2 12/31/2008 33.952 21.626 2 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 27.520 0 12/31/2004 27.520 29.836 0 12/31/2005 29.836 30.275 1 12/31/2006 30.275 34.649 0 12/31/2007 34.649 32.701 0 12/31/2008 32.701 20.787 0 ALT 1 1.40% 12/31/2000 N/A 30.377 8 12/31/2001 30.377 29.270 67 12/31/2002 29.270 24.327 153 12/31/2003 24.327 30.153 159 12/31/2004 30.153 32.888 135 12/31/2005 32.888 33.572 118 12/31/2006 33.572 38.653 93 12/31/2007 38.653 36.700 60 12/31/2008 36.700 23.471 43 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 28.455 0 12/31/2002 28.455 23.602 10 12/31/2003 23.602 29.195 7 12/31/2004 29.195 31.780 7 12/31/2005 31.780 32.376 10 12/31/2006 32.376 37.202 7 12/31/2007 37.202 35.252 5 12/31/2008 35.252 22.499 4 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 69 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.767 7 12/31/2004 28.767 31.283 14 12/31/2005 31.283 31.838 23 12/31/2006 31.838 36.547 23 12/31/2007 36.547 34.596 18 12/31/2008 34.596 22.058 12 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 26.718 43 12/31/2004 26.718 28.909 243 12/31/2005 28.909 29.276 430 12/31/2006 29.276 33.439 482 12/31/2007 33.439 31.495 469 12/31/2008 31.495 19.981 417 Franklin High Income Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.198 2 12/31/2002 17.198 15.194 137 12/31/2003 15.194 19.556 382 12/31/2004 19.556 21.082 366 12/31/2005 21.082 21.372 329 12/31/2006 21.372 22.934 375 12/31/2007 22.934 23.111 296 12/31/2008 23.111 17.374 212 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.848 5 12/31/2004 19.848 21.417 9 12/31/2005 21.417 21.733 17 12/31/2006 21.733 23.346 18 12/31/2007 23.346 23.549 20 12/31/2008 23.549 17.721 22 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.412 25 12/31/2004 19.412 20.916 9 12/31/2005 20.916 21.193 12 12/31/2006 21.193 22.731 33 12/31/2007 22.731 22.895 14 12/31/2008 22.895 17.203 12 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.164 77 12/31/2004 18.164 19.482 310 12/31/2005 19.482 19.652 434 12/31/2006 19.652 20.984 510 12/31/2007 20.984 21.040 534 12/31/2008 21.040 15.738 423 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.643 1 12/31/2002 17.643 15.618 83 12/31/2003 15.618 20.143 255 12/31/2004 20.143 21.758 231 12/31/2005 21.758 22.101 172 12/31/2006 22.101 23.764 183 12/31/2007 23.764 23.996 148 12/31/2008 23.996 18.075 114 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.198 0 12/31/2002 17.198 15.194 26 12/31/2003 15.194 19.556 61 12/31/2004 19.556 21.082 61 12/31/2005 21.082 21.372 47 12/31/2006 21.372 22.934 48 12/31/2007 22.934 23.111 37 12/31/2008 23.111 17.374 28 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.848 0 12/31/2004 19.848 21.417 1 12/31/2005 21.417 21.733 1 12/31/2006 21.733 23.346 2 12/31/2007 23.346 23.549 5 12/31/2008 23.549 17.721 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.270 0 12/31/2004 19.270 20.752 1 12/31/2005 20.752 21.016 1 12/31/2006 21.016 22.530 1 12/31/2007 22.530 22.681 1 12/31/2008 22.681 17.034 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 70 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 18.333 1 12/31/2002 18.333 16.277 69 12/31/2003 16.277 21.056 129 12/31/2004 21.056 22.813 113 12/31/2005 22.813 23.242 81 12/31/2006 23.242 25.066 67 12/31/2007 25.066 25.387 69 12/31/2008 25.387 19.180 23 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.870 0 12/31/2002 17.870 15.835 2 12/31/2003 15.835 20.443 5 12/31/2004 20.443 22.104 5 12/31/2005 22.104 22.475 5 12/31/2006 22.475 24.190 5 12/31/2007 24.190 24.451 4 12/31/2008 24.451 18.436 4 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.143 7 12/31/2004 20.143 21.758 27 12/31/2005 21.758 22.101 61 12/31/2006 22.101 23.764 56 12/31/2007 23.764 23.996 21 12/31/2008 23.996 18.075 18 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.708 82 12/31/2004 18.708 20.107 270 12/31/2005 20.107 20.323 345 12/31/2006 20.323 21.743 407 12/31/2007 21.743 21.845 457 12/31/2008 21.845 16.373 503 Franklin Income Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 26.630 0 12/31/2002 26.630 25.970 310 12/31/2003 25.970 33.563 632 12/31/2004 33.563 37.492 702 12/31/2005 37.492 37.378 830 12/31/2006 37.378 43.367 999 12/31/2007 43.367 44.144 894 12/31/2008 44.144 30.467 696 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 34.063 6 12/31/2004 34.063 38.088 13 12/31/2005 38.088 38.011 23 12/31/2006 38.011 44.144 46 12/31/2007 44.144 44.981 69 12/31/2008 44.981 31.076 62 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 33.316 0 12/31/2004 33.316 37.197 5 12/31/2005 37.197 37.066 12 12/31/2006 37.066 42.983 20 12/31/2007 42.983 43.732 20 12/31/2008 43.732 30.167 12 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 31.173 37 12/31/2004 31.173 34.648 335 12/31/2005 34.648 34.371 806 12/31/2006 34.371 39.679 1133 12/31/2007 39.679 40.188 1483 12/31/2008 40.188 27.597 1311 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.320 0 12/31/2002 27.320 26.695 136 12/31/2003 26.695 34.570 312 12/31/2004 34.570 38.694 350 12/31/2005 38.694 38.654 375 12/31/2006 38.654 44.936 404 12/31/2007 44.936 45.834 422 12/31/2008 45.834 31.696 467 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 26.630 0 12/31/2002 26.630 25.970 43 12/31/2003 25.970 33.563 81 12/31/2004 33.563 37.492 93 12/31/2005 37.492 37.378 93 12/31/2006 37.378 43.367 107 12/31/2007 43.367 44.144 104 12/31/2008 44.144 30.467 102 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 71 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 34.063 0 12/31/2004 34.063 38.088 5 12/31/2005 38.088 38.011 5 12/31/2006 38.011 44.144 9 12/31/2007 44.144 44.981 10 12/31/2008 44.981 31.076 10 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 33.071 0 12/31/2004 33.071 36.905 1 12/31/2005 36.905 36.757 2 12/31/2006 36.757 42.603 2 12/31/2007 42.603 43.323 2 12/31/2008 43.323 29.870 2 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 28.387 1 12/31/2002 28.387 27.822 54 12/31/2003 27.822 36.137 71 12/31/2004 36.137 40.570 91 12/31/2005 40.570 40.649 88 12/31/2006 40.649 47.397 88 12/31/2007 47.397 48.490 63 12/31/2008 48.490 33.635 43 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.671 0 12/31/2002 27.671 27.066 1 12/31/2003 27.066 35.085 4 12/31/2004 35.085 39.310 2 12/31/2005 39.310 39.308 1 12/31/2006 39.308 45.742 3 12/31/2007 45.742 46.703 2 12/31/2008 46.703 32.330 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 34.570 2 12/31/2004 34.570 38.694 15 12/31/2005 38.694 38.654 45 12/31/2006 38.654 44.936 52 12/31/2007 44.936 45.834 48 12/31/2008 45.834 31.696 40 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 32.108 7 12/31/2004 32.108 35.759 235 12/31/2005 35.759 35.544 755 12/31/2006 35.544 41.115 1228 12/31/2007 41.115 41.726 1633 12/31/2008 41.726 28.711 1580 Franklin Large Cap Growth Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.791 4 12/31/2002 17.791 13.408 498 12/31/2003 13.408 16.701 1074 12/31/2004 16.701 17.686 1157 12/31/2005 17.686 17.537 1130 12/31/2006 17.537 19.083 990 12/31/2007 19.083 19.889 824 12/31/2008 19.889 12.776 636 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.830 7 12/31/2004 16.830 17.840 18 12/31/2005 17.840 17.708 24 12/31/2006 17.708 19.288 26 12/31/2007 19.288 20.122 28 12/31/2008 20.122 12.939 27 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.637 7 12/31/2004 16.637 17.609 19 12/31/2005 17.609 17.453 29 12/31/2006 17.453 18.982 32 12/31/2007 18.982 19.773 28 12/31/2008 19.773 12.695 25 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.072 180 12/31/2004 16.072 16.935 720 12/31/2005 16.935 16.709 1147 12/31/2006 16.709 18.092 1230 12/31/2007 18.092 18.761 1156 12/31/2008 18.761 11.991 1052 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 72 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.994 2 12/31/2002 17.994 13.589 317 12/31/2003 13.589 16.959 702 12/31/2004 16.959 17.995 757 12/31/2005 17.995 17.880 699 12/31/2006 17.880 19.495 674 12/31/2007 19.495 20.359 503 12/31/2008 20.359 13.104 360 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.791 1 12/31/2002 17.791 13.408 62 12/31/2003 13.408 16.701 116 12/31/2004 16.701 17.686 125 12/31/2005 17.686 17.537 126 12/31/2006 17.537 19.083 118 12/31/2007 19.083 19.889 90 12/31/2008 19.889 12.776 75 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.830 1 12/31/2004 16.830 17.840 2 12/31/2005 17.840 17.708 2 12/31/2006 17.708 19.288 2 12/31/2007 19.288 20.122 1 12/31/2008 20.122 12.939 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.573 0 12/31/2004 16.573 17.533 4 12/31/2005 17.533 17.369 4 12/31/2006 17.369 18.881 4 12/31/2007 18.881 19.658 4 12/31/2008 19.658 12.615 3 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 18.303 5 12/31/2002 18.303 13.863 93 12/31/2003 13.863 17.354 135 12/31/2004 17.354 18.470 129 12/31/2005 18.470 18.406 114 12/31/2006 18.406 20.129 90 12/31/2007 20.129 21.084 69 12/31/2008 21.084 13.612 48 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 18.096 0 12/31/2002 18.096 13.679 2 12/31/2003 13.679 17.090 4 12/31/2004 17.090 18.152 4 12/31/2005 18.152 18.054 4 12/31/2006 18.054 19.704 4 12/31/2007 19.704 20.598 4 12/31/2008 20.598 13.271 4 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.959 20 12/31/2004 16.959 17.995 32 12/31/2005 17.995 17.880 61 12/31/2006 17.880 19.495 63 12/31/2007 19.495 20.359 47 12/31/2008 20.359 13.104 37 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.321 151 12/31/2004 16.321 17.231 705 12/31/2005 17.231 17.036 1150 12/31/2006 17.036 18.482 1207 12/31/2007 18.482 19.204 1121 12/31/2008 19.204 12.299 986 Franklin Rising Dividends Securities Fund ALE 1 1.90% 12/31/2000 N/A 21.483 0 12/31/2001 21.483 23.937 73 12/31/2002 23.937 23.114 1006 12/31/2003 23.114 28.255 1895 12/31/2004 28.255 30.771 1981 12/31/2005 30.771 31.228 1801 12/31/2006 31.228 35.888 1557 12/31/2007 35.888 34.263 1232 12/31/2008 34.263 24.506 933 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.594 16 12/31/2004 28.594 31.172 29 12/31/2005 31.172 31.666 39 12/31/2006 31.666 36.428 39 12/31/2007 36.428 34.813 37 12/31/2008 34.813 24.925 31 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 73 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.087 5 12/31/2004 28.087 30.572 17 12/31/2005 30.572 31.011 20 12/31/2006 31.011 35.621 21 12/31/2007 35.621 33.990 18 12/31/2008 33.990 24.300 14 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 26.617 202 12/31/2004 26.617 28.842 864 12/31/2005 28.842 29.124 1263 12/31/2006 29.124 33.304 1260 12/31/2007 33.304 31.637 1122 12/31/2008 31.637 22.515 945 ALO 1 1.70% 12/31/2000 N/A 21.860 1 12/31/2001 21.860 24.405 73 12/31/2002 24.405 23.614 668 12/31/2003 23.614 28.924 1135 12/31/2004 28.924 31.562 1165 12/31/2005 31.562 32.095 1037 12/31/2006 32.095 36.958 872 12/31/2007 36.958 35.356 689 12/31/2008 35.356 25.339 432 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 23.937 1 12/31/2002 23.937 23.114 140 12/31/2003 23.114 28.255 218 12/31/2004 28.255 30.771 226 12/31/2005 30.771 31.228 190 12/31/2006 31.228 35.888 164 12/31/2007 35.888 34.263 129 12/31/2008 34.263 24.506 97 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.594 0 12/31/2004 28.594 31.172 3 12/31/2005 31.172 31.666 4 12/31/2006 31.666 36.428 4 12/31/2007 36.428 34.813 4 12/31/2008 34.813 24.925 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 27.919 0 12/31/2004 27.919 30.375 7 12/31/2005 30.375 30.795 7 12/31/2006 30.795 35.356 8 12/31/2007 35.356 33.720 8 12/31/2008 33.720 24.095 2 ALT 1 1.40% 12/31/2000 N/A 22.438 4 12/31/2001 22.438 25.126 54 12/31/2002 25.126 24.384 201 12/31/2003 24.384 29.957 228 12/31/2004 29.957 32.788 235 12/31/2005 32.788 33.442 213 12/31/2006 33.442 38.624 175 12/31/2007 38.624 37.061 118 12/31/2008 37.061 26.641 79 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 24.548 0 12/31/2002 24.548 23.776 6 12/31/2003 23.776 29.151 6 12/31/2004 29.151 31.842 5 12/31/2005 31.842 32.412 5 12/31/2006 32.412 37.361 5 12/31/2007 37.361 35.776 4 12/31/2008 35.776 25.666 3 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 28.938 13 12/31/2004 28.938 31.578 36 12/31/2005 31.578 32.111 59 12/31/2006 32.111 36.977 53 12/31/2007 36.977 35.373 39 12/31/2008 35.373 25.351 32 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 27.260 144 12/31/2004 27.260 29.598 658 12/31/2005 29.598 29.948 1081 12/31/2006 29.948 34.315 1111 12/31/2007 34.315 32.662 954 12/31/2008 32.662 23.291 825 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 74 Franklin Small Cap Value Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.479 0 12/31/2002 10.479 9.330 1000 12/31/2003 9.330 12.095 1813 12/31/2004 12.095 14.684 1958 12/31/2005 14.684 15.671 1827 12/31/2006 15.671 17.989 1573 12/31/2007 17.989 17.228 1187 12/31/2008 17.228 11.322 911 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.163 25 12/31/2004 12.163 14.782 43 12/31/2005 14.782 15.792 36 12/31/2006 15.792 18.145 33 12/31/2007 18.145 17.396 30 12/31/2008 17.396 11.444 21 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.060 3 12/31/2004 12.060 14.635 18 12/31/2005 14.635 15.611 22 12/31/2006 15.611 17.911 19 12/31/2007 17.911 17.145 16 12/31/2008 17.145 11.262 12 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.756 170 12/31/2004 11.756 14.202 887 12/31/2005 14.202 15.082 1114 12/31/2006 15.082 17.225 952 12/31/2007 17.225 16.415 814 12/31/2008 16.415 10.734 674 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.556 2 12/31/2002 10.556 9.417 568 12/31/2003 9.417 12.233 1048 12/31/2004 12.233 14.881 1206 12/31/2005 14.881 15.914 1076 12/31/2006 15.914 18.303 970 12/31/2007 18.303 17.565 659 12/31/2008 17.565 11.567 465 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.479 1 12/31/2002 10.479 9.330 104 12/31/2003 9.330 12.095 160 12/31/2004 12.095 14.684 179 12/31/2005 14.684 15.671 169 12/31/2006 15.671 17.989 122 12/31/2007 17.989 17.228 108 12/31/2008 17.228 11.322 81 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.163 1 12/31/2004 12.163 14.782 2 12/31/2005 14.782 15.792 2 12/31/2006 15.792 18.145 1 12/31/2007 18.145 17.396 1 12/31/2008 17.396 11.444 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.026 0 12/31/2004 12.026 14.586 0 12/31/2005 14.586 15.552 0 12/31/2006 15.552 17.833 0 12/31/2007 17.833 17.062 0 12/31/2008 17.062 11.202 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.673 1 12/31/2002 10.673 9.550 129 12/31/2003 9.550 12.442 104 12/31/2004 12.442 15.182 115 12/31/2005 15.182 16.284 102 12/31/2006 16.284 18.785 82 12/31/2007 18.785 18.082 55 12/31/2008 18.082 11.943 45 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 10.595 0 12/31/2002 10.595 9.461 3 12/31/2003 9.461 12.302 5 12/31/2004 12.302 14.981 5 12/31/2005 14.981 16.036 5 12/31/2006 16.036 18.463 5 12/31/2007 18.463 17.736 5 12/31/2008 17.736 11.691 3 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 75 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.233 4 12/31/2004 12.233 14.881 16 12/31/2005 14.881 15.914 35 12/31/2006 15.914 18.303 31 12/31/2007 18.303 17.565 24 12/31/2008 17.565 11.567 18 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.891 108 12/31/2004 11.891 14.393 627 12/31/2005 14.393 15.315 834 12/31/2006 15.315 17.527 776 12/31/2007 17.527 16.735 664 12/31/2008 16.735 10.965 554 Franklin Small-Mid Cap Growth Securities Fund ALE 1 1.90% 12/31/2000 N/A 23.236 13 12/31/2001 23.236 19.321 81 12/31/2002 19.321 13.520 1073 12/31/2003 13.520 18.205 1696 12/31/2004 18.205 19.911 1634 12/31/2005 19.911 20.473 1448 12/31/2006 20.473 21.835 1234 12/31/2007 21.835 23.830 906 12/31/200823.830 13.445 734 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.355 5 12/31/2004 18.355 20.095 18 12/31/2005 20.095 20.682 18 12/31/2006 20.682 22.080 20 12/31/2007 22.080 24.122 20 12/31/2008 24.122 13.623 18 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.131 1 12/31/2004 18.131 19.820 6 12/31/2005 19.820 20.369 6 12/31/2006 20.369 21.713 7 12/31/2007 21.713 23.685 5 12/31/2008 23.685 13.357 4 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.476 159 12/31/2004 17.476 19.019 549 12/31/2005 19.019 19.457 680 12/31/2006 19.457 20.649 654 12/31/2007 20.649 22.422 629 12/31/2008 22.422 12.587 571 ALO 1 1.70% 12/31/2000 N/A 23.470 20 12/31/2001 23.470 19.554 94 12/31/2002 19.554 13.710 517 12/31/2003 13.710 18.499 847 12/31/2004 18.499 20.274 822 12/31/2005 20.274 20.887 757 12/31/2006 20.887 22.321 650 12/31/2007 22.321 24.409 493 12/31/2008 24.409 13.799 370 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 19.321 0 12/31/2002 19.321 13.520 98 12/31/2003 13.520 18.205 143 12/31/2004 18.205 19.911 141 12/31/2005 19.911 20.473 128 12/31/2006 20.473 21.835 100 12/31/2007 21.835 23.830 77 12/31/2008 23.830 13.445 57 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.355 3 12/31/2004 18.355 20.095 6 12/31/2005 20.095 20.682 6 12/31/2006 20.682 22.080 7 12/31/2007 22.080 24.122 5 12/31/2008 24.122 13.623 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.057 0 12/31/2004 18.057 19.730 1 12/31/2005 19.730 20.266 1 12/31/2006 20.266 21.592 1 12/31/2007 21.592 23.541 1 12/31/2008 23.541 13.269 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 76 ALT 1 1.40% 12/31/2000 N/A 23.825 30 12/31/2001 23.825 19.910 86 12/31/2002 19.910 14.002 171 12/31/2003 14.002 18.949 207 12/31/2004 18.949 20.829 176 12/31/2005 20.829 21.524 158 12/31/2006 21.524 23.070 109 12/31/2007 23.070 25.305 80 12/31/2008 25.305 14.349 56 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 19.613 0 12/31/2002 19.613 13.765 3 12/31/2003 13.765 18.592 7 12/31/2004 18.592 20.396 5 12/31/2005 20.396 21.033 5 12/31/2006 21.033 22.500 5 12/31/2007 22.500 24.630 5 12/31/2008 24.630 13.938 4 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.506 5 12/31/2004 18.506 20.280 13 12/31/2005 20.280 20.894 19 12/31/2006 20.894 22.328 17 12/31/2007 22.328 24.417 13 12/31/2008 24.417 13.804 11 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.765 118 12/31/2004 17.765 19.371 442 12/31/2005 19.371 19.857 614 12/31/2006 19.857 21.115 612 12/31/2007 21.115 22.975 570 12/31/2008 22.975 12.924 500 Franklin Templeton VIP Founding Funds Allocation Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.223 107 12/31/2008 9.223 5.803 161 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.228 4 12/31/2008 9.228 5.812 4 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.221 0 12/31/2008 9.221 5.799 1 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.200 17 12/31/2008 9.200 5.760 348 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.232 44 12/31/2008 9.232 5.821 129 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.223 0 12/31/2008 9.223 5.803 18 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 77 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.228 11 12/31/2008 9.228 5.812 14 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.219 0 12/31/2008 9.219 5.795 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.246 0 12/31/2008 9.246 5.847 9 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.237 0 12/31/2008 9.237 5.829 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.232 0 12/31/2008 9.232 5.821 0 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 9.210 101 12/31/2008 9.210 5.777 374 Franklin U.S. Government Fund ALE 1 1.90% 12/31/2000 N/A 19.262 1 12/31/2001 19.262 20.290 77 12/31/2002 20.290 21.854 1523 12/31/2003 21.854 21.917 2450 12/31/2004 21.917 22.251 2174 12/31/2005 22.251 22.358 1972 12/31/2006 22.358 22.819 1736 12/31/2007 22.819 23.866 1425 12/31/2008 23.866 25.193 1252 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 22.178 8 12/31/2004 22.178 22.538 23 12/31/2005 22.538 22.669 31 12/31/2006 22.669 23.160 29 12/31/2007 23.160 24.248 38 12/31/2008 24.248 25.621 54 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 21.692 2 12/31/2004 21.692 22.011 10 12/31/2005 22.011 22.106 11 12/31/2006 22.106 22.551 12 12/31/2007 22.551 23.574 12 12/31/2008 23.574 24.872 17 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.296 239 12/31/2004 20.296 20.502 669 12/31/2005 20.502 20.498 1012 12/31/2006 20.498 20.817 1043 12/31/2007 20.817 21.664 1063 12/31/2008 21.664 22.753 1253 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 78 ALO 1 1.70% 12/31/2000 N/A 19.717 16 12/31/2001 19.717 20.811 87 12/31/2002 20.811 22.460 816 12/31/2003 22.460 22.570 1127 12/31/2004 22.570 22.960 997 12/31/2005 22.960 23.117 968 12/31/2006 23.117 23.641 861 12/31/2007 23.641 24.776 646 12/31/2008 24.776 26.205 528 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 20.290 2 12/31/2002 20.290 21.854 134 12/31/2003 21.854 21.917 230 12/31/2004 21.917 22.251 190 12/31/2005 22.251 22.358 189 12/31/2006 22.358 22.819 162 12/31/2007 22.819 23.866 145 12/31/2008 23.866 25.193 122 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 22.178 0 12/31/2004 22.178 22.538 2 12/31/2005 22.538 22.669 2 12/31/2006 22.669 23.160 3 12/31/2007 23.160 24.248 3 12/31/2008 24.248 25.621 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 21.532 0 12/31/2004 21.532 21.838 1 12/31/2005 21.838 21.921 2 12/31/2006 21.921 22.351 1 12/31/2007 22.351 23.354 1 12/31/2008 23.354 24.627 1 ALT 1 1.40% 12/31/2000 N/A 20.421 4 12/31/2001 20.421 21.619 89 12/31/2002 21.619 23.402 400 12/31/2003 23.402 23.587 391 12/31/2004 23.587 24.067 320 12/31/2005 24.067 24.304 291 12/31/2006 24.304 24.929 234 12/31/2007 24.929 26.205 172 12/31/2008 26.205 27.800 161 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 21.021 0 12/31/2002 21.021 22.709 14 12/31/2003 22.709 22.843 12 12/31/2004 22.843 23.261 7 12/31/2005 23.261 23.443 4 12/31/2006 23.443 23.998 3 12/31/2007 23.998 25.176 3 12/31/2008 25.176 26.655 3 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 22.508 13 12/31/2004 22.508 22.897 39 12/31/2005 22.897 23.053 59 12/31/2006 23.053 23.576 52 12/31/2007 23.576 24.707 56 12/31/2008 24.707 26.133 49 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.905 133 12/31/2004 20.905 21.160 424 12/31/2005 21.160 21.198 617 12/31/2006 21.198 21.571 748 12/31/2007 21.571 22.493 740 12/31/2008 22.493 23.672 946 Franklin Zero Coupon Fund 2010 ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.639 1 12/31/2002 27.639 32.570 131 12/31/2003 32.570 33.105 201 12/31/2004 33.105 34.012 160 12/31/2005 34.012 33.886 177 12/31/2006 33.886 34.152 150 12/31/2007 34.152 36.395 118 12/31/2008 36.395 38.385 157 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 33.597 1 12/31/2004 33.597 34.553 2 12/31/2005 34.553 34.459 3 12/31/2006 34.459 34.765 3 12/31/2007 34.765 37.085 3 12/31/2008 37.085 39.152 3 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 79 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 32.861 1 12/31/2004 32.861 33.745 2 12/31/2005 33.745 33.603 4 12/31/2006 33.603 33.850 3 12/31/2007 33.850 36.055 2 12/31/2008 36.055 38.007 4 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 30.747 23 12/31/2004 30.747 31.432 68 12/31/2005 31.432 31.160 108 12/31/2006 31.160 31.248 108 12/31/2007 31.248 33.133 117 12/31/2008 33.133 34.770 177 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 28.354 0 12/31/2002 28.354 33.480 51 12/31/2003 33.480 34.098 72 12/31/2004 34.098 35.103 65 12/31/2005 35.103 35.043 71 12/31/2006 35.043 35.388 59 12/31/2007 35.388 37.788 63 12/31/2008 37.788 39.934 50 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 27.639 0 12/31/2002 27.639 32.570 21 12/31/2003 32.570 33.105 28 12/31/2004 33.105 34.012 24 12/31/2005 34.012 33.886 24 12/31/2006 33.886 34.152 21 12/31/2007 34.152 36.395 16 12/31/2008 36.395 38.385 16 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 33.597 0 12/31/2004 33.597 34.553 0 12/31/2005 34.553 34.459 0 12/31/2006 34.459 34.765 0 12/31/2007 34.765 37.085 0 12/31/2008 37.085 39.152 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 32.619 0 12/31/2004 32.619 33.480 0 12/31/2005 33.480 33.322 1 12/31/2006 33.322 33.550 1 12/31/2007 33.550 35.718 1 12/31/2008 35.718 37.633 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 29.462 44 12/31/2002 29.462 34.892 25 12/31/2003 34.892 35.643 29 12/31/2004 35.643 36.804 22 12/31/2005 36.804 36.851 23 12/31/2006 36.851 37.326 20 12/31/2007 37.326 39.978 16 12/31/2008 39.978 42.376 12 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 28.719 0 12/31/2002 28.719 33.944 0 12/31/2003 33.944 34.605 0 12/31/2004 34.605 35.661 0 12/31/2005 35.661 35.635 0 12/31/2006 35.635 36.023 0 12/31/2007 36.023 38.504 1 12/31/2008 38.504 40.732 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 34.098 1 12/31/2004 34.098 35.103 5 12/31/2005 35.103 35.043 7 12/31/2006 35.043 35.388 9 12/31/2007 35.388 37.788 7 12/31/2008 37.788 39.934 10 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 31.669 15 12/31/2004 31.669 32.439 60 12/31/2005 32.439 32.223 96 12/31/2006 32.223 32.379 105 12/31/2007 32.379 34.401 114 12/31/2008 34.401 36.173 222 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 80 Mutual Global Discovery Securities Fund ALE 1 1.90% 12/31/2000 N/A 14.598 5 12/31/2001 14.598 14.355 36 12/31/2002 14.355 12.761 1216 12/31/2003 12.761 16.151 2530 12/31/2004 16.151 18.729 2511 12/31/2005 18.729 21.312 2722 12/31/2006 21.312 25.733 2814 12/31/2007 25.733 28.237 2431 12/31/2008 28.237 19.821 1996 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.267 20 12/31/2004 16.267 18.882 32 12/31/2005 18.882 21.508 47 12/31/2006 21.508 25.995 64 12/31/2007 25.995 28.554 78 12/31/2008 28.554 20.063 69 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.093 5 12/31/2004 16.093 18.653 18 12/31/2005 18.653 21.214 26 12/31/2006 21.214 25.602 37 12/31/2007 25.602 28.080 34 12/31/2008 28.080 19.701 29 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 15.584 273 12/31/2004 15.584 17.981 905 12/31/2005 17.981 20.358 1573 12/31/2006 20.358 24.459 2173 12/31/2007 24.459 26.705 2313 12/31/2008 26.705 18.652 2252 ALO 1 1.70% 12/31/2000 N/A 14.714 5 12/31/2001 14.714 14.499 94 12/31/2002 14.499 12.915 658 12/31/2003 12.915 16.378 1227 12/31/2004 16.378 19.030 1283 12/31/2005 19.030 21.698 1511 12/31/2006 21.698 26.251 1548 12/31/2007 26.251 28.864 1306 12/31/2008 28.864 20.302 1035 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 14.355 3 12/31/2002 14.355 12.761 191 12/31/2003 12.761 16.151 285 12/31/2004 16.151 18.729 286 12/31/2005 18.729 21.312 286 12/31/2006 21.312 25.733 269 12/31/2007 25.733 28.237 242 12/31/2008 28.237 19.821 210 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.267 0 12/31/2004 16.267 18.882 3 12/31/2005 18.882 21.508 5 12/31/2006 21.508 25.995 9 12/31/2007 25.995 28.554 10 12/31/2008 28.554 20.063 12 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.036 0 12/31/2004 16.036 18.577 1 12/31/2005 18.577 21.117 2 12/31/2006 21.117 25.473 3 12/31/2007 25.473 27.924 3 12/31/2008 27.924 19.582 2 ALT 1 1.40% 12/31/2000 N/A 14.890 14 12/31/2001 14.890 14.717 54 12/31/2002 14.717 13.148 170 12/31/2003 13.148 16.724 211 12/31/2004 16.724 19.491 227 12/31/2005 19.491 22.290 254 12/31/2006 22.290 27.048 251 12/31/2007 27.048 29.830 179 12/31/2008 29.830 21.045 103 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 14.535 5 12/31/2002 14.535 12.959 5 12/31/2003 12.959 16.451 9 12/31/2004 16.451 19.134 9 12/31/2005 19.134 21.838 10 12/31/2006 21.838 26.448 12 12/31/2007 26.448 29.109 12 12/31/2008 29.109 20.495 11 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 81 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.384 18 12/31/2004 16.384 19.037 30 12/31/2005 19.037 21.705 54 12/31/2006 21.705 26.260 66 12/31/2007 26.260 28.874 70 12/31/2008 28.874 20.309 49 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 15.808 153 12/31/2004 15.808 18.276 741 12/31/2005 18.276 20.734 1595 12/31/2006 20.734 24.961 2179 12/31/2007 24.961 27.308 2516 12/31/2008 27.308 19.111 2314 Mutual Shares Securities Fund ALE 1 1.90% 12/31/2000 N/A 14.491 9 12/31/2001 14.491 15.219 149 12/31/2002 15.219 13.168 1514 12/31/2003 13.168 16.170 2813 12/31/2004 16.170 17.869 2839 12/31/2005 17.869 19.384 3037 12/31/2006 19.384 22.516 3206 12/31/2007 22.516 22.858 2643 12/31/2008 22.858 14.105 2022 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.286 26 12/31/2004 16.286 18.015 38 12/31/2005 18.015 19.562 67 12/31/2006 19.562 22.745 100 12/31/2007 22.745 23.115 148 12/31/2008 23.115 14.277 137 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.112 3 12/31/2004 16.112 17.796 9 12/31/2005 17.796 19.295 21 12/31/2006 19.295 22.402 41 12/31/2007 22.402 22.731 41 12/31/2008 22.731 14.019 34 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 15.602 311 12/31/2004 15.602 17.155 1112 12/31/2005 17.155 18.517 2019 12/31/2006 18.517 21.402 3068 12/31/2007 21.402 21.618 3202 12/31/2008 21.618 13.273 2884 ALO 1 1.70% 12/31/2000 N/A 14.607 9 12/31/2001 14.607 15.371 214 12/31/2002 15.371 13.327 1013 12/31/2003 13.327 16.397 1699 12/31/2004 16.397 18.156 1713 12/31/2005 18.156 19.735 1804 12/31/2006 19.735 22.969 1837 12/31/2007 22.969 23.365 1611 12/31/2008 23.365 14.447 1142 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 15.219 3 12/31/2002 15.219 13.168 197 12/31/2003 13.168 16.170 311 12/31/2004 16.170 17.869 291 12/31/2005 17.869 19.384 308 12/31/2006 19.384 22.516 343 12/31/2007 22.516 22.858 277 12/31/2008 22.858 14.105 228 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.286 7 12/31/2004 16.286 18.015 8 12/31/2005 18.015 19.562 4 12/31/2006 19.562 22.745 12 12/31/2007 22.745 23.115 17 12/31/2008 23.115 14.277 16 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.055 0 12/31/2004 16.055 17.723 3 12/31/2005 17.723 19.207 5 12/31/2006 19.207 22.288 6 12/31/2007 22.288 22.605 6 12/31/2008 22.605 13.934 5 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 82 ALT 1 1.40% 12/31/2000 N/A 14.782 28 12/31/2001 14.782 15.602 133 12/31/2002 15.602 13.568 326 12/31/2003 13.568 16.744 350 12/31/2004 16.744 18.596 331 12/31/2005 18.596 20.273 296 12/31/2006 20.273 23.667 260 12/31/2007 23.667 24.148 207 12/31/2008 24.148 14.975 143 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 15.467 0 12/31/2002 15.467 13.424 11 12/31/2003 13.424 16.533 18 12/31/2004 16.533 18.325 14 12/31/2005 18.325 19.938 13 12/31/2006 19.938 23.229 11 12/31/2007 23.229 23.654 5 12/31/2008 23.654 14.640 5 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.403 17 12/31/2004 16.403 18.162 42 12/31/2005 18.162 19.742 93 12/31/2006 19.742 22.977 113 12/31/2007 22.977 23.374 111 12/31/2008 23.374 14.452 75 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 15.827 185 12/31/2004 15.827 17.437 782 12/31/2005 17.437 18.859 1855 12/31/2006 18.859 21.840 2863 12/31/2007 21.840 22.106 3530 12/31/2008 22.106 13.600 3278 OpCap Mid Cap Portfolio ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.976 39 12/31/2007 9.976 10.495 84 12/31/2008 10.495 6.006 153 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.982 4 12/31/2007 9.982 10.512 12 12/31/2008 10.512 6.022 10 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.972 0 12/31/2007 9.972 10.486 1 12/31/2008 10.486 5.998 4 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.942 148 12/31/2007 9.942 10.407 304 12/31/2008 10.407 5.926 514 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.989 39 12/31/2007 9.989 10.530 104 12/31/2008 10.530 6.038 141 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.976 0 12/31/2007 9.976 10.495 6 12/31/2008 10.495 6.006 7 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 83 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.982 0 12/31/2007 9.982 10.512 2 12/31/2008 10.512 6.022 2 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.969 0 12/31/2007 9.969 10.477 0 12/31/2008 10.477 5.990 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 10.009 21 12/31/2007 10.009 10.583 21 12/31/2008 10.583 6.087 23 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.996 0 12/31/2007 9.996 10.548 0 12/31/2008 10.548 6.054 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.989 6 12/31/2007 9.989 10.530 7 12/31/2008 10.530 6.038 10 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A 9.956 191 12/31/2007 9.956 10.442 367 12/31/2008 10.442 5.958 485 Oppenheimer Global Securities Fund/VA ALE 1 1.90% 12/31/2000 N/A 10.331 33 12/31/2001 10.331 8.916 238 12/31/2002 8.916 6.812 3056 12/31/2003 6.812 9.559 5544 12/31/2004 9.559 11.175 5554 12/31/2005 11.175 12.535 5152 12/31/2006 12.535 14.475 4627 12/31/2007 14.475 15.099 3621 12/31/2008 15.099 8.860 2745 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.596 27 12/31/2004 9.596 11.231 35 12/31/2005 11.231 12.609 34 12/31/2006 12.609 14.576 34 12/31/2007 14.576 15.219 34 12/31/2008 15.219 8.940 33 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.540 22 12/31/2004 9.540 11.148 30 12/31/2005 11.148 12.498 29 12/31/2006 12.498 14.425 28 12/31/2007 14.425 15.039 20 12/31/2008 15.039 8.821 19 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.373 627 12/31/2004 9.373 10.904 1374 12/31/2005 10.904 12.169 1226 12/31/2006 12.169 13.983 1117 12/31/2007 13.983 14.512 961 12/31/2008 14.512 8.474 823 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 84 ALO 1 1.70% 12/31/2000 N/A 10.350 65 12/31/2001 10.350 8.950 460 12/31/2002 8.950 6.852 1839 12/31/2003 6.852 9.634 3121 12/31/2004 9.634 11.286 3057 12/31/2005 11.286 12.684 2605 12/31/2006 12.684 14.677 2282 12/31/2007 14.677 15.340 1771 12/31/2008 15.340 9.020 1197 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 8.916 1 12/31/2002 8.916 6.812 256 12/31/2003 6.812 9.559 380 12/31/2004 9.559 11.175 366 12/31/2005 11.175 12.535 331 12/31/2006 12.535 14.475 293 12/31/2007 14.475 15.099 216 12/31/2008 15.099 8.860 166 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.596 0 12/31/2004 9.596 11.231 4 12/31/2005 11.231 12.609 4 12/31/2006 12.609 14.576 4 12/31/2007 14.576 15.219 4 12/31/2008 15.219 8.940 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.521 0 12/31/2004 9.521 11.121 1 12/31/2005 11.121 12.461 1 12/31/2006 12.461 14.375 1 12/31/2007 14.375 14.980 1 12/31/2008 14.980 8.782 1 ALT 1 1.40% 12/31/2000 N/A 10.379 44 12/31/2001 10.379 9.002 168 12/31/2002 9.002 6.912 361 12/31/2003 6.912 9.748 452 12/31/2004 9.748 11.454 406 12/31/2005 11.454 12.911 356 12/31/2006 12.911 14.985 302 12/31/2007 14.985 15.709 205 12/31/2008 15.709 9.265 147 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 8.967 0 12/31/2002 8.967 6.872 6 12/31/2003 6.872 9.672 10 12/31/2004 9.672 11.342 5 12/31/2005 11.342 12.759 3 12/31/2006 12.759 14.779 2 12/31/2007 14.779 15.462 2 12/31/2008 15.462 9.101 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.634 21 12/31/2004 9.634 11.286 43 12/31/2005 11.286 12.684 40 12/31/2006 12.684 14.677 35 12/31/2007 14.677 15.340 27 12/31/2008 15.340 9.020 21 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 9.447 358 12/31/2004 9.447 11.012 830 12/31/2005 11.012 12.314 725 12/31/2006 12.314 14.178 615 12/31/2007 14.178 14.744 539 12/31/2008 14.744 8.626 454 Oppenheimer High Income Fund/VA ALE 1 1.90% 12/31/2000 N/A 9.487 1 12/31/2001 9.487 9.491 56 12/31/2002 9.491 9.089 382 12/31/2003 9.089 11.055 706 12/31/2004 11.055 11.819 668 12/31/2005 11.819 11.865 603 12/31/2006 11.865 12.739 458 12/31/2007 12.739 12.486 360 12/31/2008 12.486 2.613 349 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.098 1 12/31/2004 11.098 11.877 3 12/31/2005 11.877 11.935 4 12/31/2006 11.935 12.828 4 12/31/2007 12.828 12.585 4 12/31/2008 12.585 2.636 3 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 85 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.033 3 12/31/2004 11.033 11.790 5 12/31/2005 11.790 11.830 4 12/31/2006 11.830 12.695 4 12/31/2007 12.695 12.436 4 12/31/2008 12.436 2.601 4 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.840 98 12/31/2004 10.840 11.531 209 12/31/2005 11.531 11.519 215 12/31/2006 11.519 12.306 187 12/31/2007 12.306 12.001 151 12/31/2008 12.001 2.499 157 ALO 1 1.70% 12/31/2000 N/A 9.504 0 12/31/2001 9.504 9.527 75 12/31/2002 9.527 9.142 264 12/31/2003 9.142 11.142 513 12/31/2004 11.142 11.935 426 12/31/2005 11.935 12.006 361 12/31/2006 12.006 12.917 298 12/31/2007 12.917 12.685 234 12/31/2008 12.685 2.660 216 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.491 1 12/31/2002 9.491 9.089 31 12/31/2003 9.089 11.055 62 12/31/2004 11.055 11.819 58 12/31/2005 11.819 11.865 49 12/31/2006 11.865 12.739 40 12/31/2007 12.739 12.486 33 12/31/2008 12.486 2.613 29 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.098 0 12/31/2004 11.098 11.877 2 12/31/2005 11.877 11.935 2 12/31/2006 11.935 12.828 2 12/31/2007 12.828 12.585 1 12/31/2008 12.585 2.636 4 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.011 0 12/31/2004 11.011 11.761 0 12/31/2005 11.761 11.795 0 12/31/2006 11.795 12.652 1 12/31/2007 12.652 12.387 1 12/31/2008 12.387 2.590 3 ALT 1 1.40% 12/31/2000 N/A 9.530 32 12/31/2001 9.530 9.582 92 12/31/2002 9.582 9.223 159 12/31/2003 9.223 11.273 174 12/31/2004 11.273 12.113 148 12/31/2005 12.113 12.221 118 12/31/2006 12.221 13.188 93 12/31/2007 13.188 12.990 68 12/31/2008 12.990 2.732 40 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.546 0 12/31/2002 9.546 9.169 3 12/31/2003 9.169 11.185 4 12/31/2004 11.185 11.994 4 12/31/2005 11.994 12.078 4 12/31/2006 12.078 13.006 3 12/31/2007 13.006 12.786 3 12/31/2008 12.786 2.684 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.142 24 12/31/2004 11.142 11.935 35 12/31/2005 11.935 12.006 33 12/31/2006 12.006 12.917 11 12/31/2007 12.917 12.685 8 12/31/2008 12.685 2.660 6 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.926 43 12/31/2004 10.926 11.645 117 12/31/2005 11.645 11.656 102 12/31/2006 11.656 12.478 92 12/31/2007 12.478 12.192 117 12/31/2008 12.192 2.544 94 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 86 Oppenheimer Main Street Fund/VA ALE 1 1.90% 12/31/2000 N/A 9.377 20 12/31/2001 9.377 8.265 360 12/31/2002 8.265 6.585 2894 12/31/2003 6.585 8.187 5441 12/31/2004 8.187 8.793 5415 12/31/2005 8.793 9.143 4705 12/31/2006 9.143 10.319 4078 12/31/2007 10.319 10.572 3330 12/31/2008 10.572 6.382 2630 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.219 43 12/31/2004 8.219 8.836 44 12/31/2005 8.836 9.197 46 12/31/2006 9.197 10.391 44 12/31/2007 10.391 10.656 43 12/31/2008 10.656 6.439 34 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.171 19 12/31/2004 8.171 8.771 27 12/31/2005 8.771 9.116 28 12/31/2006 9.116 10.284 28 12/31/2007 10.284 10.530 28 12/31/2008 10.530 6.354 27 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.028 700 12/31/2004 8.028 8.579 1268 12/31/2005 8.579 8.877 1081 12/31/2006 8.877 9.969 1001 12/31/2007 9.969 10.161 884 12/31/2008 10.161 6.104 761 ALO 1 1.70% 12/31/2000 N/A 9.394 38 12/31/2001 9.394 8.297 364 12/31/2002 8.297 6.624 1709 12/31/2003 6.624 8.252 2771 12/31/2004 8.252 8.880 2713 12/31/2005 8.880 9.252 2384 12/31/2006 9.252 10.463 2078 12/31/2007 10.463 10.741 1607 12/31/2008 10.741 6.497 1279 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 8.265 4 12/31/2002 8.265 6.585 281 12/31/2003 6.585 8.187 500 12/31/2004 8.187 8.793 481 12/31/2005 8.793 9.143 437 12/31/2006 9.143 10.319 346 12/31/2007 10.319 10.572 298 12/31/2008 10.572 6.382 243 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.219 2 12/31/2004 8.219 8.836 6 12/31/2005 8.836 9.197 6 12/31/2006 9.197 10.391 5 12/31/2007 10.391 10.656 5 12/31/2008 10.656 6.439 3 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.155 0 12/31/2004 8.155 8.749 1 12/31/2005 8.749 9.089 1 12/31/2006 9.089 10.248 2 12/31/2007 10.248 10.489 2 12/31/2008 10.489 6.326 2 ALT 1 1.40% 12/31/2000 N/A 9.420 124 12/31/2001 9.420 8.344 338 12/31/2002 8.344 6.682 667 12/31/2003 6.682 8.349 766 12/31/2004 8.349 9.012 663 12/31/2005 9.012 9.418 547 12/31/2006 9.418 10.682 381 12/31/2007 10.682 10.999 282 12/31/2008 10.999 6.674 230 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 8.312 0 12/31/2002 8.312 6.643 25 12/31/2003 6.643 8.284 27 12/31/2004 8.284 8.923 22 12/31/2005 8.923 9.307 21 12/31/2006 9.307 10.536 20 12/31/2007 10.536 10.826 20 12/31/2008 10.826 6.555 16 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 87 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.252 36 12/31/2004 8.252 8.880 56 12/31/2005 8.880 9.252 47 12/31/2006 9.252 10.463 40 12/31/2007 10.463 10.741 29 12/31/2008 10.741 6.497 23 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.092 267 12/31/2004 8.092 8.664 686 12/31/2005 8.664 8.982 603 12/31/2006 8.982 10.108 523 12/31/2007 10.108 10.324 447 12/31/2008 10.324 6.214 391 PIMCO VIT All Asset Portfolio ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.838 388 12/31/2005 11.838 12.339 740 12/31/2006 12.339 12.672 607 12/31/2007 12.672 13.467 530 12/31/2008 13.467 11.120 492 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.846 7 12/31/2005 11.846 12.360 20 12/31/2006 12.360 12.706 23 12/31/2007 12.706 13.517 19 12/31/2008 13.517 11.172 16 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.834 7 12/31/2005 11.834 12.329 19 12/31/2006 12.329 12.655 15 12/31/2007 12.655 13.443 11 12/31/2008 13.443 11.094 10 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.798 548 12/31/2005 11.798 12.237 1037 12/31/2006 12.237 12.504 960 12/31/2007 12.504 13.222 889 12/31/2008 13.222 10.863 910 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.854 177 12/31/2005 11.854 12.381 437 12/31/2006 12.381 12.740 305 12/31/2007 12.740 13.567 250 12/31/2008 13.567 11.224 199 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.838 31 12/31/2005 11.838 12.339 30 12/31/2006 12.339 12.672 32 12/31/2007 12.672 13.467 22 12/31/2008 13.467 11.120 35 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.846 1 12/31/2005 11.846 12.360 2 12/31/2006 12.360 12.706 1 12/31/2007 12.706 13.517 1 12/31/2008 13.517 11.172 2 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.830 0 12/31/2005 11.830 12.319 0 12/31/2006 12.319 12.638 0 12/31/2007 12.638 13.418 0 12/31/2008 13.418 11.068 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 88 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.878 18 12/31/2005 11.878 12.443 59 12/31/2006 12.443 12.842 62 12/31/2007 12.842 13.717 29 12/31/2008 13.717 11.383 30 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.862 0 12/31/2005 11.862 12.401 5 12/31/2006 12.401 12.774 4 12/31/2007 12.774 13.617 3 12/31/2008 13.617 11.277 3 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.854 27 12/31/2005 11.854 12.381 53 12/31/2006 12.381 12.740 37 12/31/2007 12.740 13.567 32 12/31/2008 13.567 11.224 24 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A 11.814 358 12/31/2005 11.814 12.278 1099 12/31/2006 12.278 12.571 1025 12/31/2007 12.571 13.320 926 12/31/2008 13.320 10.965 837 PIMCO VIT CommodityRealReturn Strategy Portfolio ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.000 323 12/31/2006 11.000 10.459 622 12/31/2007 10.459 12.645 545 12/31/2008 12.645 6.974 612 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.007 8 12/31/2006 11.007 10.476 13 12/31/2007 10.476 12.679 9 12/31/2008 12.679 7.000 24 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.996 2 12/31/2006 10.996 10.450 1 12/31/2007 10.450 12.629 1 12/31/2008 12.629 6.961 7 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.963 372 12/31/2006 10.963 10.372 682 12/31/2007 10.372 12.478 789 12/31/2008 12.478 6.847 1087 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.014 125 12/31/2006 11.014 10.494 231 12/31/2007 10.494 12.713 184 12/31/2008 12.713 7.025 234 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.000 16 12/31/2006 11.000 10.459 19 12/31/2007 10.459 12.645 13 12/31/2008 12.645 6.974 32 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 89 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.007 1 12/31/2006 11.007 10.476 1 12/31/2007 10.476 12.679 1 12/31/2008 12.679 7.000 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.992 0 12/31/2006 10.992 10.441 1 12/31/2007 10.441 12.612 1 12/31/2008 12.612 6.948 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.037 22 12/31/2006 11.037 10.546 14 12/31/2007 10.546 12.816 11 12/31/2008 12.816 7.103 15 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.022 1 12/31/2006 11.022 10.511 1 12/31/2007 10.511 12.747 0 12/31/2008 12.747 7.051 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 11.014 11 12/31/2006 11.014 10.494 21 12/31/2007 10.494 12.713 14 12/31/2008 12.713 7.025 11 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.977 434 12/31/2006 10.977 10.406 742 12/31/2007 10.406 12.544 912 12/31/2008 12.544 6.897 1109 PIMCO VIT Emerging Markets Bond Portfolio ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.891 88 12/31/2006 10.891 11.678 178 12/31/2007 11.678 12.124 124 12/31/2008 12.124 10.159 107 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.898 6 12/31/2006 10.898 11.697 12 12/31/2007 11.697 12.156 10 12/31/2008 12.156 10.196 8 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.887 4 12/31/2006 10.887 11.668 3 12/31/2007 11.668 12.108 2 12/31/2008 12.108 10.140 1 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.854 142 12/31/2006 10.854 11.581 227 12/31/2007 11.581 11.963 247 12/31/2008 11.963 9.974 218 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 90 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.905 42 12/31/2006 10.905 11.717 84 12/31/2007 11.717 12.189 86 12/31/2008 12.189 10.234 67 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.891 9 12/31/2006 10.891 11.678 13 12/31/2007 11.678 12.124 8 12/31/2008 12.124 10.159 21 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.898 1 12/31/2006 10.898 11.697 0 12/31/2007 11.697 12.156 0 12/31/2008 12.156 10.196 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.884 0 12/31/2006 10.884 11.658 0 12/31/2007 11.658 12.091 0 12/31/2008 12.091 10.122 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.927 1 12/31/2006 10.927 11.776 7 12/31/2007 11.776 12.287 3 12/31/2008 12.287 10.347 3 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.913 0 12/31/2006 10.913 11.736 0 12/31/2007 11.736 12.221 2 12/31/2008 12.221 10.272 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.905 2 12/31/2006 10.905 11.717 8 12/31/2007 11.717 12.189 3 12/31/2008 12.189 10.234 3 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 10.869 203 12/31/2006 10.869 11.619 351 12/31/2007 11.619 12.027 412 12/31/2008 12.027 10.047 381 PIMCO VIT Global Bond Portfolio (Unhedged) ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.318 59 12/31/2006 9.318 9.568 109 12/31/2007 9.568 10.302 152 12/31/2008 10.302 10.022 300 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.324 2 12/31/2006 9.324 9.584 12 12/31/2007 9.584 10.329 8 12/31/2008 10.329 10.059 21 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 91 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.314 1 12/31/2006 9.314 9.560 1 12/31/2007 9.560 10.288 3 12/31/2008 10.288 10.003 9 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.286 64 12/31/2006 9.286 9.488 167 12/31/2007 9.488 10.165 280 12/31/2008 10.165 9.839 769 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.330 23 12/31/2006 9.330 9.600 71 12/31/2007 9.600 10.357 114 12/31/2008 10.357 10.096 157 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.318 4 12/31/2006 9.318 9.568 2 12/31/2007 9.568 10.302 11 12/31/2008 10.302 10.022 24 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.324 0 12/31/2006 9.324 9.584 1 12/31/2007 9.584 10.329 6 12/31/2008 10.329 10.059 12 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.311 0 12/31/2006 9.311 9.552 0 12/31/2007 9.552 10.274 0 12/31/2008 10.274 9.985 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.349 4 12/31/2006 9.349 9.648 9 12/31/2007 9.648 10.440 15 12/31/2008 10.440 10.208 10 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.336 0 12/31/2006 9.336 9.616 0 12/31/2007 9.616 10.385 1 12/31/2008 10.385 10.133 1 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.330 2 12/31/2006 9.330 9.600 8 12/31/2007 9.600 10.357 12 12/31/2008 10.357 10.096 12 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A 9.299 127 12/31/2006 9.299 9.520 298 12/31/2007 9.520 10.219 471 12/31/2008 10.219 9.912 690 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 92 PIMCO VIT High Yield Portfolio ALE 1 1.90% 12/31/2000 N/A 9.449 4 12/31/2001 9.449 9.489 209 12/31/2002 9.489 9.197 917 12/31/2003 9.197 11.092 2061 12/31/2004 11.092 11.923 1881 12/31/2005 11.923 12.182 1769 12/31/2006 12.182 13.042 1483 12/31/2007 13.042 13.244 1250 12/31/2008 13.244 9.935 852 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.135 12 12/31/2004 11.135 11.982 32 12/31/2005 11.982 12.254 36 12/31/2006 12.254 13.132 42 12/31/2007 13.132 13.349 33 12/31/2008 13.349 10.024 27 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.070 3 12/31/2004 11.070 11.894 9 12/31/2005 11.894 12.146 14 12/31/2006 12.146 12.997 15 12/31/2007 12.997 13.192 9 12/31/2008 13.192 9.891 23 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.876 276 12/31/2004 10.876 11.633 708 12/31/2005 11.633 11.827 972 12/31/2006 11.827 12.598 987 12/31/2007 12.598 12.730 911 12/31/2008 12.730 9.502 834 ALO 1 1.70% 12/31/2000 N/A 9.466 30 12/31/2001 9.466 9.525 84 12/31/2002 9.525 9.251 608 12/31/2003 9.251 11.179 1309 12/31/2004 11.179 12.041 1151 12/31/2005 12.041 12.327 1017 12/31/2006 12.327 13.223 895 12/31/2007 13.223 13.456 734 12/31/2008 13.456 10.114 559 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.489 2 12/31/2002 9.489 9.197 131 12/31/2003 9.197 11.092 260 12/31/2004 11.092 11.923 204 12/31/2005 11.923 12.182 176 12/31/2006 12.182 13.042 167 12/31/2007 13.042 13.244 127 12/31/2008 13.244 9.935 105 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.135 1 12/31/2004 11.135 11.982 5 12/31/2005 11.982 12.254 7 12/31/2006 12.254 13.132 7 12/31/2007 13.132 13.349 6 12/31/2008 13.349 10.024 5 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.048 0 12/31/2004 11.048 11.865 3 12/31/2005 11.865 12.110 3 12/31/2006 12.110 12.952 2 12/31/2007 12.952 13.140 2 12/31/2008 13.140 9.847 1 ALT 1 1.40% 12/31/2000 N/A 9.492 14 12/31/2001 9.492 9.580 55 12/31/2002 9.580 9.333 229 12/31/2003 9.333 11.311 341 12/31/2004 11.311 12.220 330 12/31/2005 12.220 12.548 328 12/31/2006 12.548 13.500 254 12/31/2007 13.500 13.779 182 12/31/2008 13.779 10.389 106 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 9.903 0 12/31/2002 9.903 9.627 11 12/31/2003 9.627 11.645 19 12/31/2004 11.645 12.555 19 12/31/2005 12.555 12.866 13 12/31/2006 12.866 13.816 9 12/31/2007 13.816 14.073 4 12/31/2008 14.073 10.589 1 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 93 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 11.179 28 12/31/2004 11.179 12.041 59 12/31/2005 12.041 12.327 68 12/31/2006 12.327 13.223 74 12/31/2007 13.223 13.456 61 12/31/2008 13.456 10.114 46 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.962 171 12/31/2004 10.962 11.748 589 12/31/2005 11.748 11.968 871 12/31/2006 11.968 12.774 1024 12/31/2007 12.774 12.933 1003 12/31/2008 12.933 9.673 873 PIMCO VIT Real Return Portfolio ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.481 427 12/31/2004 10.481 11.200 1025 12/31/2005 11.200 11.221 1020 12/31/2006 11.221 11.089 778 12/31/2007 11.089 12.039 620 12/31/2008 12.039 10.979 802 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.488 16 12/31/2004 10.488 11.219 20 12/31/2005 11.219 11.251 42 12/31/2006 11.251 11.129 46 12/31/2007 11.129 12.096 48 12/31/2008 12.096 11.042 52 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.477 7 12/31/2004 10.477 11.191 15 12/31/2005 11.191 11.206 32 12/31/2006 11.206 11.068 23 12/31/2007 11.068 12.011 19 12/31/2008 12.011 10.948 23 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.446 374 12/31/2004 10.446 11.107 1290 12/31/2005 11.107 11.072 1925 12/31/2006 11.072 10.887 1749 12/31/2007 10.887 11.761 1631 12/31/2008 11.761 10.672 2532 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.495 214 12/31/2004 10.495 11.238 509 12/31/2005 11.238 11.281 529 12/31/2006 11.281 11.170 369 12/31/2007 11.170 12.153 332 12/31/2008 12.153 11.104 433 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.481 29 12/31/2004 10.481 11.200 48 12/31/2005 11.200 11.221 52 12/31/2006 11.221 11.089 46 12/31/2007 11.089 12.039 50 12/31/2008 12.039 10.979 80 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.488 1 12/31/2004 10.488 11.219 3 12/31/2005 11.219 11.251 5 12/31/2006 11.251 11.129 4 12/31/2007 11.129 12.096 6 12/31/2008 12.096 11.042 5 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.474 0 12/31/2004 10.474 11.182 0 12/31/2005 11.182 11.191 5 12/31/2006 11.191 11.048 6 12/31/2007 11.048 11.983 5 12/31/2008 11.983 10.917 4 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 94 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.516 43 12/31/2004 10.516 11.294 54 12/31/2005 11.294 11.371 61 12/31/2006 11.371 11.294 53 12/31/2007 11.294 12.324 61 12/31/2008 12.324 11.295 87 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.502 0 12/31/2004 10.502 11.257 1 12/31/2005 11.257 11.311 1 12/31/2006 11.311 11.211 1 12/31/2007 11.211 12.209 2 12/31/2008 12.209 11.168 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.495 16 12/31/2004 10.495 11.238 59 12/31/2005 11.238 11.281 113 12/31/2006 11.281 11.170 105 12/31/2007 11.170 12.153 108 12/31/2008 12.153 11.104 106 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 10.460 196 12/31/2004 10.460 11.144 1055 12/31/2005 11.144 11.131 1768 12/31/2006 11.131 10.967 1797 12/31/2007 10.967 11.872 1758 12/31/2008 11.872 10.794 1989 PIMCO VIT StocksPLUS Growth and Income Portfolio ALE 1 1.90% 12/31/2000 N/A 9.423 1 12/31/2001 9.423 8.188 73 12/31/2002 8.188 6.409 961 12/31/2003 6.409 8.199 1346 12/31/2004 8.199 8.914 1202 12/31/2005 8.914 9.052 973 12/31/2006 9.052 10.205 824 12/31/2007 10.205 10.698 652 12/31/2008 10.698 6.022 500 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.231 2 12/31/2004 8.231 8.958 2 12/31/2005 8.958 9.105 2 12/31/2006 9.105 10.276 2 12/31/2007 10.276 10.783 2 12/31/2008 10.783 6.076 2 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.183 0 12/31/2004 8.183 8.892 0 12/31/2005 8.892 9.025 0 12/31/2006 9.025 10.170 0 12/31/2007 10.170 10.656 0 12/31/2008 10.656 5.995 0 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.040 7 12/31/2004 8.040 8.697 11 12/31/2005 8.697 8.788 18 12/31/2006 8.788 9.858 25 12/31/2007 9.858 10.283 17 12/31/2008 10.283 5.759 13 ALO 1 1.70% 12/31/2000 N/A 9.440 10 12/31/2001 9.440 8.219 97 12/31/2002 8.219 6.447 518 12/31/2003 6.447 8.263 743 12/31/2004 8.263 9.002 725 12/31/2005 9.002 9.159 588 12/31/2006 9.159 10.347 515 12/31/2007 10.347 10.869 436 12/31/2008 10.869 6.130 310 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 8.188 0 12/31/2002 8.188 6.409 96 12/31/2003 6.409 8.199 143 12/31/2004 8.199 8.914 131 12/31/2005 8.914 9.052 113 12/31/2006 9.052 10.205 108 12/31/2007 10.205 10.698 82 12/31/2008 10.698 6.022 65 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 95 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.231 0 12/31/2004 8.231 8.958 0 12/31/2005 8.958 9.105 0 12/31/2006 9.105 10.276 0 12/31/2007 10.276 10.783 0 12/31/2008 10.783 6.076 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.167 0 12/31/2004 8.167 8.870 1 12/31/2005 8.870 8.998 3 12/31/2006 8.998 10.135 3 12/31/2007 10.135 10.614 2 12/31/2008 10.614 5.968 2 ALT 1 1.40% 12/31/2000 N/A 9.466 8 12/31/2001 9.466 8.266 40 12/31/2002 8.266 6.503 106 12/31/2003 6.503 8.361 106 12/31/2004 8.361 9.136 82 12/31/2005 9.136 9.323 64 12/31/2006 9.323 10.564 47 12/31/2007 10.564 11.130 39 12/31/2008 11.130 6.297 25 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 8.235 0 12/31/2002 8.235 6.466 1 12/31/2003 6.466 8.296 2 12/31/2004 8.296 9.046 2 12/31/2005 9.046 9.214 2 12/31/2006 9.214 10.419 1 12/31/2007 10.419 10.956 1 12/31/2008 10.956 6.185 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.263 0 12/31/2004 8.263 9.002 0 12/31/2005 9.002 9.159 1 12/31/2006 9.159 10.347 1 12/31/2007 10.347 10.869 1 12/31/2008 10.869 6.130 1 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 8.103 3 12/31/2004 8.103 8.783 4 12/31/2005 8.783 8.892 2 12/31/2006 8.892 9.995 1 12/31/2007 9.995 10.447 1 12/31/2008 10.447 5.863 2 PIMCO VIT Total Return Portfolio ALE 1 1.90% 12/31/2000 N/A 10.629 2 12/31/2001 10.629 11.303 239 12/31/2002 11.303 12.097 5144 12/31/2003 12.097 12.468 7057 12/31/2004 12.468 12.831 6330 12/31/2005 12.831 12.899 5858 12/31/2006 12.899 13.145 5417 12/31/2007 13.145 14.026 4618 12/31/2008 14.026 14.422 3850 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.517 26 12/31/2004 12.517 12.895 71 12/31/2005 12.895 12.976 81 12/31/2006 12.976 13.236 90 12/31/2007 13.236 14.137 91 12/31/2008 14.137 14.551 78 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.444 14 12/31/2004 12.444 12.800 28 12/31/2005 12.800 12.861 42 12/31/2006 12.861 13.099 52 12/31/2007 13.099 13.970 53 12/31/2008 13.970 14.358 57 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.226 634 12/31/2004 12.226 12.519 1510 12/31/2005 12.519 12.523 2043 12/31/2006 12.523 12.698 2260 12/31/2007 12.698 13.481 2364 12/31/2008 13.481 13.792 2804 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 96 ALO 1 1.70% 12/31/2000 N/A 10.649 21 12/31/2001 10.649 11.347 296 12/31/2002 11.347 12.168 2801 12/31/2003 12.168 12.566 3706 12/31/2004 12.566 12.958 3315 12/31/2005 12.958 13.053 3034 12/31/2006 13.053 13.328 2673 12/31/2007 13.328 14.250 2311 12/31/2008 14.250 14.681 1994 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 11.303 4 12/31/2002 11.303 12.097 579 12/31/2003 12.097 12.468 810 12/31/2004 12.468 12.831 714 12/31/2005 12.831 12.899 678 12/31/2006 12.899 13.145 604 12/31/2007 13.145 14.026 554 12/31/2008 14.026 14.422 500 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.517 4 12/31/2004 12.517 12.895 6 12/31/2005 12.895 12.976 10 12/31/2006 12.976 13.236 12 12/31/2007 13.236 14.137 24 12/31/2008 14.137 14.551 25 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.419 0 12/31/2004 12.419 12.768 6 12/31/2005 12.768 12.823 8 12/31/2006 12.823 13.054 10 12/31/2007 13.054 13.915 9 12/31/2008 13.915 14.294 8 ALT 1 1.40% 12/31/2000 N/A 10.678 24 12/31/2001 10.678 11.412 241 12/31/2002 11.412 12.275 1139 12/31/2003 12.275 12.715 1211 12/31/2004 12.715 13.151 932 12/31/2005 13.151 13.287 855 12/31/2006 13.287 13.607 717 12/31/2007 13.607 14.592 539 12/31/2008 14.592 15.080 453 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 11.675 0 12/31/2002 11.675 12.532 32 12/31/2003 12.532 12.956 33 12/31/2004 12.956 13.373 30 12/31/2005 13.373 13.484 22 12/31/2006 13.484 13.782 19 12/31/2007 13.782 14.750 16 12/31/2008 14.750 15.212 15 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.566 53 12/31/2004 12.566 12.958 104 12/31/2005 12.958 13.053 171 12/31/2006 13.053 13.328 168 12/31/2007 13.328 14.250 155 12/31/2008 14.250 14.681 149 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 12.322 288 12/31/2004 12.322 12.643 1105 12/31/2005 12.643 12.672 1779 12/31/2006 12.672 12.875 2065 12/31/2007 12.875 13.696 2177 12/31/2008 13.696 14.041 2424 Seligman Smaller-Cap Value Portfolio ALE 1 1.90% 12/31/2000 N/A 13.610 1 12/31/2001 13.610 16.493 138 12/31/2002 16.493 13.696 2008 12/31/2003 13.696 20.149 2775 12/31/2004 20.149 23.713 2645 12/31/2005 23.713 22.342 2224 12/31/2006 22.342 26.581 1788 12/31/2007 26.581 27.158 1254 12/31/2008 27.158 16.112 990 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.228 15 12/31/2004 20.228 23.830 10 12/31/2005 23.830 22.475 8 12/31/2006 22.475 26.765 7 12/31/2007 26.765 27.374 7 12/31/2008 27.374 16.256 7 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 97 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.110 3 12/31/2004 20.110 23.655 5 12/31/2005 23.655 22.276 3 12/31/2006 22.276 26.489 4 12/31/2007 26.489 27.051 4 12/31/2008 27.051 16.040 3 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.758 233 12/31/2004 19.758 23.137 468 12/31/2005 23.137 21.691 418 12/31/2006 21.691 25.677 349 12/31/2007 25.677 26.104 300 12/31/2008 26.104 15.409 261 ALO 1 1.70% 12/31/2000 N/A 13.635 13 12/31/2001 13.635 16.557 108 12/31/2002 16.557 13.776 872 12/31/2003 13.776 20.308 1300 12/31/2004 20.308 23.948 1243 12/31/2005 23.948 22.608 1007 12/31/2006 22.608 26.951 778 12/31/2007 26.951 27.592 608 12/31/2008 27.592 16.402 480 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 16.493 3 12/31/2002 16.493 13.696 215 12/31/2003 13.696 20.149 287 12/31/2004 20.149 23.713 266 12/31/2005 23.713 22.342 211 12/31/2006 22.342 26.581 170 12/31/2007 26.581 27.158 140 12/31/2008 27.158 16.112 101 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.228 1 12/31/2004 20.228 23.830 2 12/31/2005 23.830 22.475 2 12/31/2006 22.475 26.765 2 12/31/2007 26.765 27.374 1 12/31/2008 27.374 16.256 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.070 0 12/31/2004 20.070 23.597 1 12/31/2005 23.597 22.211 1 12/31/2006 22.211 26.398 1 12/31/2007 26.398 26.944 1 12/31/2008 26.944 15.969 0 ALT 1 1.40% 12/31/2000 N/A 13.672 15 12/31/2001 13.672 16.652 78 12/31/2002 16.652 13.897 199 12/31/2003 13.897 20.548 223 12/31/2004 20.548 24.304 200 12/31/2005 24.304 23.013 147 12/31/2006 23.013 27.516 109 12/31/2007 27.516 28.256 68 12/31/2008 28.256 16.847 50 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 16.588 2 12/31/2002 16.588 13.816 5 12/31/2003 13.816 20.387 6 12/31/2004 20.387 24.066 6 12/31/2005 24.066 22.743 6 12/31/2006 22.743 27.138 5 12/31/2007 27.138 27.812 5 12/31/2008 27.812 16.549 4 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 20.308 5 12/31/2004 20.308 23.948 14 12/31/2005 23.948 22.608 14 12/31/2006 22.608 26.951 13 12/31/2007 26.951 27.592 8 12/31/2008 27.592 16.402 8 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.914 155 12/31/2004 19.914 23.366 311 12/31/2005 23.366 21.949 225 12/31/2006 21.949 26.035 196 12/31/2007 26.035 26.521 164 12/31/2008 26.521 15.686 150 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 98 SP International Growth Portfolio ALE 1 1.90% 12/31/2000 N/A 8.483 0 12/31/2001 8.483 5.333 12 12/31/2002 5.333 4.038 191 12/31/2003 4.038 5.512 431 12/31/2004 5.512 6.280 397 12/31/2005 6.280 7.136 357 12/31/2006 7.136 8.414 326 12/31/2007 8.414 9.834 290 12/31/2008 9.834 4.777 254 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.529 5 12/31/2004 5.529 6.306 4 12/31/2005 6.306 7.172 3 12/31/2006 7.172 8.465 3 12/31/2007 8.465 9.903 4 12/31/2008 9.903 4.816 3 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.504 0 12/31/2004 5.504 6.268 5 12/31/2005 6.268 7.118 5 12/31/2006 7.118 8.389 2 12/31/2007 8.389 9.799 3 12/31/2008 9.799 4.758 2 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.429 106 12/31/2004 5.429 6.154 294 12/31/2005 6.154 6.958 264 12/31/2006 6.958 8.164 233 12/31/2007 8.164 9.493 303 12/31/2008 9.493 4.589 268 ALO 1 1.70% 12/31/2000 N/A 8.484 0 12/31/2001 8.484 5.344 16 12/31/2002 5.344 4.054 89 12/31/2003 4.054 5.546 432 12/31/2004 5.546 6.331 283 12/31/2005 6.331 7.208 168 12/31/2006 7.208 8.516 149 12/31/2007 8.516 9.973 135 12/31/2008 9.973 4.855 119 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 5.333 3 12/31/2002 5.333 4.038 71 12/31/2003 4.038 5.512 113 12/31/2004 5.512 6.280 81 12/31/2005 6.280 7.136 79 12/31/2006 7.136 8.414 45 12/31/2007 8.414 9.834 35 12/31/2008 9.834 4.777 30 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.529 1 12/31/2004 5.529 6.306 0 12/31/2005 6.306 7.172 0 12/31/2006 7.172 8.465 0 12/31/2007 8.465 9.903 1 12/31/2008 9.903 4.816 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.496 0 12/31/2004 5.496 6.255 0 12/31/2005 6.255 7.100 0 12/31/2006 7.100 8.363 0 12/31/2007 8.363 9.765 0 12/31/2008 9.765 4.739 0 ALT 1 1.40% 12/31/2000 N/A 8.485 0 12/31/2001 8.485 5.361 5 12/31/2002 5.361 4.079 81 12/31/2003 4.079 5.597 42 12/31/2004 5.597 6.409 53 12/31/2005 6.409 7.318 20 12/31/2006 7.318 8.672 10 12/31/2007 8.672 10.186 5 12/31/2008 10.186 4.973 4 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 5.350 0 12/31/2002 5.350 4.063 0 12/31/2003 4.063 5.563 0 12/31/2004 5.563 6.357 0 12/31/2005 6.357 7.245 0 12/31/2006 7.245 8.568 0 12/31/2007 8.568 10.044 0 12/31/2008 10.044 4.894 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 99 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.546 4 12/31/2004 5.546 6.331 8 12/31/2005 6.331 7.208 7 12/31/2006 7.208 8.516 6 12/31/2007 8.516 9.973 6 12/31/2008 9.973 4.855 4 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.462 95 12/31/2004 5.462 6.204 203 12/31/2005 6.204 7.028 158 12/31/2006 7.028 8.263 150 12/31/2007 8.263 9.628 211 12/31/2008 9.628 4.663 145 SP Strategic Partners Focused Growth Portfolio ALE 1 1.90% 12/31/2000 N/A 7.947 0 12/31/2001 7.947 6.571 45 12/31/2002 6.571 4.802 588 12/31/2003 4.802 5.911 918 12/31/2004 5.911 6.373 998 12/31/2005 6.373 7.181 925 12/31/2006 7.181 6.968 723 12/31/2007 6.968 7.839 455 12/31/2008 7.839 4.727 313 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.929 3 12/31/2004 5.929 6.399 20 12/31/2005 6.399 7.217 15 12/31/2006 7.217 7.010 15 12/31/2007 7.010 7.895 14 12/31/2008 7.895 4.765 13 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.902 0 12/31/2004 5.902 6.360 6 12/31/2005 6.360 7.163 7 12/31/2006 7.163 6.947 5 12/31/2007 6.947 7.812 5 12/31/2008 7.812 4.708 5 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.821 67 12/31/2004 5.821 6.246 223 12/31/2005 6.246 7.002 405 12/31/2006 7.002 6.761 332 12/31/2007 6.761 7.568 301 12/31/2008 7.568 4.540 286 ALO 1 1.70% 12/31/2000 N/A 7.948 0 12/31/2001 7.948 6.585 7 12/31/2002 6.585 4.821 208 12/31/2003 4.821 5.947 403 12/31/2004 5.947 6.425 524 12/31/2005 6.425 7.254 552 12/31/2006 7.254 7.053 431 12/31/2007 7.053 7.951 254 12/31/2008 7.951 4.804 178 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 6.571 0 12/31/2002 6.571 4.802 30 12/31/2003 4.802 5.911 54 12/31/2004 5.911 6.373 63 12/31/2005 6.373 7.181 60 12/31/2006 7.181 6.968 46 12/31/2007 6.968 7.839 37 12/31/2008 7.839 4.727 27 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.929 0 12/31/2004 5.929 6.399 1 12/31/2005 6.399 7.217 2 12/31/2006 7.217 7.010 1 12/31/2007 7.010 7.895 1 12/31/2008 7.895 4.765 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.893 0 12/31/2004 5.893 6.348 8 12/31/2005 6.348 7.145 8 12/31/2006 7.145 6.926 8 12/31/2007 6.926 7.784 8 12/31/2008 7.784 4.689 0 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 100 ALT 1 1.40% 12/31/2000 N/A 7.949 0 12/31/2001 7.949 6.605 28 12/31/2002 6.605 4.851 106 12/31/2003 4.851 6.001 85 12/31/2004 6.001 6.504 77 12/31/2005 6.504 7.364 73 12/31/2006 7.364 7.182 44 12/31/2007 7.182 8.121 38 12/31/2008 8.121 4.921 34 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 6.592 0 12/31/2002 6.592 4.831 1 12/31/2003 4.831 5.965 0 12/31/2004 5.965 6.451 0 12/31/2005 6.451 7.290 0 12/31/2006 7.290 7.095 0 12/31/2007 7.095 8.007 0 12/31/2008 8.007 4.842 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.947 2 12/31/2004 5.947 6.425 10 12/31/2005 6.425 7.254 8 12/31/2006 7.254 7.053 2 12/31/2007 7.053 7.951 3 12/31/2008 7.951 4.804 3 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 5.857 37 12/31/2004 5.857 6.296 227 12/31/2005 6.296 7.073 441 12/31/2006 7.073 6.843 382 12/31/2007 6.843 7.675 326 12/31/2008 7.675 4.614 244 Templeton Foreign Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 16.906 1 12/31/2002 16.906 13.509 528 12/31/2003 13.509 17.525 1009 12/31/2004 17.525 20.379 1053 12/31/2005 20.379 22.030 1046 12/31/2006 22.030 26.253 948 12/31/2007 26.253 29.737 710 12/31/2008 29.737 17.395 551 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.734 2 12/31/2004 17.734 20.643 5 12/31/2005 20.643 22.338 7 12/31/2006 22.338 26.646 14 12/31/2007 26.646 30.212 18 12/31/2008 30.212 17.691 18 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.420 2 12/31/2004 17.420 20.248 9 12/31/2005 20.248 21.877 10 12/31/2006 21.877 26.057 11 12/31/2007 26.057 29.501 13 12/31/2008 29.501 17.248 10 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.509 34 12/31/2004 16.509 19.103 318 12/31/2005 19.103 20.548 600 12/31/2006 20.548 24.364 709 12/31/2007 24.364 27.459 680 12/31/2008 27.459 15.982 592 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.243 3 12/31/2002 17.243 13.806 344 12/31/2003 13.806 17.945 613 12/31/2004 17.945 20.911 655 12/31/2005 20.911 22.650 610 12/31/2006 22.650 27.045 571 12/31/2007 27.045 30.696 464 12/31/2008 30.696 17.992 370 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 16.906 1 12/31/2002 16.906 13.509 34 12/31/2003 13.509 17.525 81 12/31/2004 17.525 20.379 90 12/31/2005 20.379 22.030 96 12/31/2006 22.030 26.253 103 12/31/2007 26.253 29.737 86 12/31/2008 29.737 17.395 60 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 101 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.734 0 12/31/2004 17.734 20.643 0 12/31/2005 20.643 22.338 2 12/31/2006 22.338 26.646 1 12/31/2007 26.646 30.212 1 12/31/2008 30.212 17.691 1 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.318 0 12/31/2004 17.318 20.119 0 12/31/2005 20.119 21.727 1 12/31/2006 21.727 25.865 2 12/31/2007 25.865 29.269 2 12/31/2008 29.269 17.104 1 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.761 1 12/31/2002 17.761 14.263 30 12/31/2003 14.263 18.596 45 12/31/2004 18.596 21.734 69 12/31/2005 21.734 23.612 63 12/31/2006 23.612 28.278 66 12/31/2007 28.278 32.192 44 12/31/2008 32.192 18.926 22 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 17.414 0 12/31/2002 17.414 13.957 1 12/31/2003 13.957 18.160 3 12/31/2004 18.160 21.182 3 12/31/2005 21.182 22.966 3 12/31/2006 22.966 27.450 2 12/31/2007 27.450 31.187 2 12/31/2008 31.187 18.298 2 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 17.945 1 12/31/2004 17.945 20.911 7 12/31/2005 20.911 22.650 16 12/31/2006 22.650 27.045 16 12/31/2007 27.045 30.696 12 12/31/2008 30.696 17.992 10 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 16.908 14 12/31/2004 16.908 19.604 217 12/31/2005 19.604 21.128 497 12/31/2006 21.128 25.102 674 12/31/2007 25.102 28.348 657 12/31/2008 28.348 16.533 598 Templeton Global Bond Securities Fund ALE 1 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 29.551 56 12/31/2008 29.551 30.792 150 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 30.095 2 12/31/2008 30.095 31.391 7 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 29.282 2 12/31/2008 29.282 30.497 4 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 26.971 75 12/31/2008 26.971 27.964 276 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 102 ALO 1 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 30.650 53 12/31/2008 30.650 32.002 101 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 29.551 4 12/31/2008 29.551 30.792 9 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 30.095 0 12/31/2008 30.095 31.391 0 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 29.016 0 12/31/2008 29.016 30.205 0 ALT 1 1.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 32.376 3 12/31/2008 32.376 33.906 6 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 31.215 0 12/31/2008 31.215 32.625 0 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 30.650 1 12/31/2008 30.650 32.002 4 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A N/A N/A 12/31/2004 N/A N/A N/A 12/31/2005 N/A N/A N/A 12/31/2006 N/A N/A N/A 12/31/2007 N/A 27.975 116 12/31/2008 27.975 29.063 216 Templeton Growth Securities Fund ALE 1 1.90% 12/31/2000 N/A 18.833 7 12/31/2001 18.833 18.234 78 12/31/2002 18.234 14.583 931 12/31/2003 14.583 18.907 1819 12/31/2004 18.907 21.523 1723 12/31/2005 21.523 22.990 1781 12/31/2006 22.990 27.478 1734 12/31/2007 27.478 27.591 1469 12/31/2008 27.591 15.614 1062 ALE 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.056 4 12/31/2004 19.056 21.714 18 12/31/2005 21.714 23.218 29 12/31/2006 23.218 27.778 50 12/31/2007 27.778 27.920 89 12/31/2008 27.920 15.816 74 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 103 ALE 4 1.95% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.814 0 12/31/2004 18.814 21.407 8 12/31/2005 21.407 22.855 21 12/31/2006 22.855 27.303 28 12/31/2007 27.303 27.401 26 12/31/2008 27.401 15.498 23 ALE 5 2.40% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.002 62 12/31/2004 18.002 20.390 582 12/31/2005 20.390 21.672 1193 12/31/2006 21.672 25.774 1592 12/31/2007 25.774 25.750 1732 12/31/2008 25.750 14.499 1538 ALO 1 1.70% 12/31/2000 N/A 19.084 9 12/31/2001 19.084 18.515 64 12/31/2002 18.515 14.837 445 12/31/2003 14.837 19.275 838 12/31/2004 19.275 21.985 855 12/31/2005 21.985 23.532 857 12/31/2006 23.532 28.182 903 12/31/2007 28.182 28.354 759 12/31/2008 28.354 16.078 559 ALO 2 1.90% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 18.234 1 12/31/2002 18.234 14.583 68 12/31/2003 14.583 18.907 144 12/31/2004 18.907 21.523 159 12/31/2005 21.523 22.990 160 12/31/2006 22.990 27.478 147 12/31/2007 27.478 27.591 118 12/31/2008 27.591 15.614 96 ALO 3 1.80% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.056 4 12/31/2004 19.056 21.714 6 12/31/2005 21.714 23.218 4 12/31/2006 23.218 27.778 9 12/31/2007 27.778 27.920 14 12/31/2008 27.920 15.816 14 ALO 4 2.00% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.722 0 12/31/2004 18.722 21.291 0 12/31/2005 21.291 22.721 2 12/31/2006 22.721 27.129 2 12/31/2007 27.129 27.213 2 12/31/2008 27.213 15.384 3 ALT 1 1.40% 12/31/2000 N/A 19.467 12 12/31/2001 19.467 18.944 51 12/31/2002 18.944 15.227 160 12/31/2003 15.227 19.840 170 12/31/2004 19.840 22.699 172 12/31/2005 22.699 24.368 169 12/31/2006 24.368 29.270 142 12/31/2007 29.270 29.538 108 12/31/2008 29.538 16.799 73 ALT 2 1.60% 12/31/2000 N/A N/A N/A 12/31/2001 N/A 18.630 0 12/31/2002 18.630 14.944 4 12/31/2003 14.944 19.433 6 12/31/2004 19.433 22.189 6 12/31/2005 22.189 23.773 6 12/31/2006 23.773 28.499 6 12/31/2007 28.499 28.702 6 12/31/2008 28.702 16.291 5 ALT 4 1.70% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 19.275 3 12/31/2004 19.275 21.985 14 12/31/2005 21.985 23.532 65 12/31/2006 23.532 28.182 73 12/31/2007 28.182 28.354 66 12/31/2008 28.354 16.078 49 ALT 5 2.20% 12/31/2000 N/A N/A N/A 12/31/2001 N/A N/A N/A 12/31/2002 N/A N/A N/A 12/31/2003 N/A 18.358 25 12/31/2004 18.358 20.836 377 12/31/2005 20.836 22.190 1032 12/31/2006 22.190 26.443 1585 12/31/2007 26.443 26.471 1994 12/31/2008 26.471 14.935 1818 The Allianz Alterity(R) Variable Annuity Contract SAI - April 27, 2009 [KPMG Logo] ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA FINANCIAL STATEMENTS DECEMBER 31, 2008 (WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THEREON) [KPMG Logo] KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Report of Independent Registered Public Accounting Firm 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 (the Variable Account) as of December 31, 2008, and the related statements of operations for the year or period then ended, the statements of changes in net assets for each of the years or periods in the two-year period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Variable Account's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights 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 transfer agents of the underlying mutual 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 and financial highlights referred to above present fairly, in all material respects, the financial position of the sub-accounts of Allianz Life Variable Account B as of December 31, 2008, the results of their operations, the changes in their net assets, and the financial highlights for each of the periods stated in the first paragraph above, in conformity with U.S. generally accepted accounting principles. /s/ KPMG LLP Minneapolis, Minnesota March 30, 2009 KPMG, LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative 2
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements Statements of Assets and Liabilities December 31, 2008 (In thousands) Alger Alger Alger AIM V.I. AIM V.I. AIM V.I. American American American Capital Core International Capital LargeCap MidCap Appreciation Equity Growth Appreciation Growth Growth Fund Fund Fund Portfolio Portfolio Portfolio ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $4,594 2,884 1,221 1,750 2,797 2,941 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 4,594 2,884 1,221 1,750 2,797 2,941 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $4,594 2,884 1,221 1,750 2,797 2,941 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 4,588 2,884 1,218 1,719 2,788 2,941 Contracts in Annuity Payment Period (Note 2) 6 - 3 31 9 - ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $4,594 2,884 1,221 1,750 2,797 2,941 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 272 146 63 58 106 418 Investments at Cost $7,145 3,653 1,141 2,946 5,720 7,536
See Accompanying Notes to Financial Statements 3
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) Alger AZL American AZL AIM BlackRock AZL AZL AZL SmallCap International Capital Columbia Columbia Columbia Growth Equity Appreciation Mid Cap Small Cap Technology Portfolio Fund Fund Value Fund Value Fund Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $479 133,883 42,814 25,031 34,886 38,287 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 479 133,883 42,814 25,031 34,886 38,287 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $479 133,883 42,814 25,031 34,886 38,287 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 479 133,872 42,814 25,031 34,876 38,286 Contracts in Annuity Payment Period (Note 2) - 11 - - 10 1 ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $479 133,883 42,814 25,031 34,886 38,287 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 27 12,986 4,944 4,996 5,005 8,010 Investments at Cost $660 208,588 56,797 43,803 52,993 68,454
See Accompanying Notes to Financial Statements 4
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) AZL Dreyfus AZL First AZL Davis Founders Trust AZL AZL AZL NY Equity Target Franklin Fusion Fusion Venture Growth Double Small Cap Balanced Growth Fund Fund Play Fund Value Fund Fund Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $326,971 121,848 55,560 142,496 286,477 610,094 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 326,971 121,848 55,560 142,496 286,477 610,094 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $326,971 121,848 55,560 142,496 286,477 610,094 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 326,904 121,821 55,560 142,487 286,415 610,089 Contracts in Annuity Payment Period (Note 2) 67 27 - 9 62 5 ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $326,971 121,848 55,560 142,496 286,477 610,094 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 40,417 20,793 11,224 13,821 34,350 83,119 Investments at Cost $389,593 204,892 98,316 213,597 364,054 934,517
See Accompanying Notes to Financial Statements 5
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) AZL AZL AZL Legg AZL LMP Fusion Jennison Mason AZL Legg Large Cap AZL Money Moderate 20/20 Growth Mason Growth Market Fund Focus Fund Fund Value Fund Fund Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $419,531 162,427 132,498 57,418 - 968,860 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 419,531 162,427 132,498 57,418 - 968,860 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $419,531 162,427 132,498 57,418 - 968,860 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 419,531 162,415 132,469 57,397 - 968,701 Contracts in Annuity Payment Period (Note 2) - 12 29 21 - 159 ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $419,531 162,427 132,498 57,418 - 968,860 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 54,273 19,245 26,185 11,507 - 968,860 Investments at Cost $592,655 243,405 198,552 116,719 - 968,862
See Accompanying Notes to Financial Statements 6
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) AZL AZL AZL Oppenheimer Oppenheimer AZL NACM AZL OCC Oppenheimer International Main International Opportunity AZL OCC Global Growth Street Fund Fund Value Fund Fund Fund Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $6,463 66,668 - 93,043 100,915 60,030 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 6,463 66,668 - 93,043 100,915 60,030 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $6,463 66,668 - 93,043 100,915 60,030 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 6,463 66,664 - 93,043 100,910 60,030 Contracts in Annuity Payment Period (Note 2) - 4 - - 5 - ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $6,463 66,668 - 93,043 100,915 60,030 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 1,262 9,565 - 11,347 9,703 9,454 Investments at Cost $9,492 124,345 - 139,655 163,251 97,958
See Accompanying Notes to Financial Statements 7
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) AZL PIMCO AZL AZL Fundamental Schroder Schroder AZL IndexPLUS Emerging Emerging Schroder Total AZL S&P Markets Markets International AZL Small Return 500 Index Equity Equity Small Cap Cap Stock Fund Fund Fund CL 1 Fund CL 2 Fund Index Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $9,303 183,421 32,104 146,807 12,122 116,150 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 9,303 183,421 32,104 146,807 12,122 116,150 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $ $9,303 183,421 32,104 146,807 12,122 116,150 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 9,303 183,421 32,036 146,806 12,122 116,150 Contracts in Annuity Payment Period (Note 2) - - 68 1 - - ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $9,303 183,421 32,104 146,807 12,122 116,150 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 1,538 29,822 7,040 32,195 2,439 18,263 Investments at Cost $12,850 243,166 27,520 205,534 18,058 163,880
See Accompanying Notes to Financial Statements 8
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) AZL Turner AZL AZL AZL AZL QuantitativeAZL Van TargetPLUS TargetPLUS TargetPLUS TargetPLUS Small Cap Kampen Balanced Equity Growth Moderate Growth Comstock Fund Fund Fund Fund Fund Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $47,834 55,753 63,851 52,043 17,898 236,303 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 47,834 55,753 63,851 52,043 17,898 236,303 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $47,834 55,753 63,851 52,043 17,898 236,303 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 47,834 55,753 63,851 52,043 17,897 236,291 Contracts in Annuity Payment Period (Note 2) - - - - 1 12 ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $47,834 55,753 63,851 52,043 17,898 236,303 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 6,302 10,249 10,606 7,665 3,054 38,299 Investments at Cost $52,857 93,896 89,694 63,925 31,278 388,596
See Accompanying Notes to Financial Statements 9
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) AZL Van AZL Van AZL Van Kampen AZL Van Kampen Kampen AZL Van Equity Kampen Global Growth Kampen BlackRock and Global Real and Mid Cap Global Income Franchise Estate Income Growth Allocations Fund Fund Fund Fund Fund V.I. Fund ----------- ----------- ----------- ----------- ----------- ----------- Assets: Investments at Net Asset Value $133,400 202,363 45,174 156,857 184,718 129,553 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets 133,400 202,363 45,174 156,857 184,718 129,553 ----------- ----------- ----------- ----------- ----------- ----------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- Net Assets $133,400 202,363 45,174 156,857 184,718 129,553 ----------- ----------- ----------- ----------- ----------- ----------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 133,400 202,350 45,174 156,829 184,717 129,553 Contracts in Annuity Payment Period (Note 2) - 13 - 28 1 - ----------- ----------- ----------- ----------- ----------- ----------- Total Contract Owners' Equity $133,400 202,363 45,174 156,857 184,718 129,553 ----------- ----------- ----------- ----------- ----------- ----------- Investment Shares 14,822 15,847 8,274 19,730 26,966 11,465 Investments at Cost $167,093 253,575 81,744 217,116 333,786 136,748
See Accompanying Notes to Financial Statements 10
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) Dreyfus Franklin Davis VA IP Small Global Davis VA Real Davis VA Cap Stock Dreyfus Communications Financial Estate Value Index Stock Securities Portfolio Portfolio Portfolio Portfolio Index Fund Fund ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $48,716 684 67,417 - - 106,966 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 48,716 684 67,417 - - 106,966 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $48,716 684 67,417 - - 106,966 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 48,712 684 67,391 - - 106,724 Contracts in Annuity Payment Period (Note 2) 4 - 26 - - 242 ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $48,716 684 67,417 - - 106,966 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 6,842 118 8,162 - - 15,945 Investments at Cost $78,122 1,470 80,406 - - 197,261
See Accompanying Notes to Financial Statements 11
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) Franklin Growth Franklin Franklin and High Franklin Large Cap Franklin Income Income Income Growth Money Franklin Securities Securities Securities Securities Market Real Estate Fund Fund Fund Fund Fund Fund ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $210,956 107,397 633,722 128,233 24,004 114,219 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 210,956 107,397 633,722 128,233 24,004 114,219 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $210,956 107,397 633,722 128,233 24,004 114,219 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 210,179 107,264 633,009 128,108 23,796 114,059 Contracts in Annuity Payment Period (Note 2) 777 133 713 125 208 160 ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $210,956 107,397 633,722 128,233 24,004 114,219 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 24,314 23,201 55,528 12,145 24,004 10,694 Investments at Cost $363,972 151,345 855,559 179,573 24,004 243,426
See Accompanying Notes to Financial Statements 12
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) Franklin Franklin Templeton Franklin Franklin Small-Mid VIP Rising Small Cap Cap Founding Franklin Dividends Value Growth Funds U.S. Franklin Securities Securities Securities Allocation Government Zero Coupon Fund Fund Fund Fund Fund Fund 2010 ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $265,219 64,002 102,678 114,681 438,305 116,167 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 265,219 64,002 102,678 114,681 438,305 116,167 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $265,219 64,002 102,678 114,681 438,305 116,167 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 264,720 63,878 102,550 114,681 437,728 116,108 Contracts in Annuity Payment Period (Note 2) 499 124 128 - 577 59 ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $265,219 64,002 102,678 114,681 438,305 116,167 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 19,196 6,051 8,636 20,442 33,576 6,964 Investments at Cost $299,114 84,575 156,530 154,542 427,042 112,761
See Accompanying Notes to Financial Statements 13
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) J.P. Morgan J.P. U.S. Morgan Large Cap Jennison Mutual Mutual International Core 20/20 Discovery Shares OpCap Mid Opportunitity Equity Focus Securities Securities Cap Portfolio Portfolio Portfolio Fund Fund Portfolio ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $179 322 - 463,812 497,934 30,318 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 179 322 - 463,812 497,934 30,318 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets 322 - 463,812 497,934 30,318 $179 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 179 322 - 463,666 497,655 30,318 Contracts in Annuity Payment Period (Note 2) - - - 146 279 - ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $179 322 - 463,812 497,934 30,318 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 23 31 - 29,183 42,168 3,501 Investments at Cost $251 444 - 527,144 704,710 45,725
See Accompanying Notes to Financial Statements 14
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) PIMCO VIT PIMCO VIT Oppenheimer Oppenheimer Oppenheimer Commodity Emerging Global High Main PIMCO VIT RealReturn Markets Securities Income Street All Asset Strategy Bond Fund/VA Fund/VA Fund/VA Portfolio Portfolio Portfolio ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $81,580 9,566 58,515 114,617 85,230 33,044 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 81,580 9,566 58,515 114,617 85,230 33,044 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $81,580 9,566 58,515 114,617 85,230 33,044 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 81,485 9,566 58,478 114,603 85,230 33,044 Contracts in Annuity Payment Period (Note 2) 95 - 37 14 - - ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $81,580 9,566 58,515 114,617 85,230 33,044 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 4,037 6,054 4,019 12,458 12,176 3,202 Investments at Cost $98,717 23,504 72,778 139,487 154,120 41,326
See Accompanying Notes to Financial Statements 15
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) PIMCO VIT StocksPLUS PIMCO VIT PIMCO VIT PIMCO VIT Growth PIMCO VIT Seligman Global High Real and Total Global Bond Yield Return Income Return Technology Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $75,572 96,790 210,471 7,623 492,177 1,245 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 75,572 96,790 210,471 7,623 492,177 1,245 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $75,572 96,790 210,471 7,623 492,177 1,245 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 75,570 96,767 210,399 7,623 492,003 1,245 Contracts in Annuity Payment Period (Note 2) 2 23 72 - 174 - ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $75,572 96,790 210,471 7,623 492,177 1,245 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 6,169 17,101 18,692 1,292 47,738 113 Investments at Cost $78,983 128,988 234,170 11,111 493,355 1,892
See Accompanying Notes to Financial Statements 16
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) SP Strategic Templeton Seligman Partners SP Templeton Developing Templeton Small-Cap Focused International Asset Markets Foreign Value Growth Growth Strategy Securities Securities Portfolio Portfolio Portfolio Fund Fund Fund ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $53,475 10,121 8,551 9,555 - 192,585 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 53,475 10,121 8,551 9,555 - 192,585 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $53,475 10,121 8,551 9,555 - 192,585 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 53,446 10,121 8,551 9,538 - 192,327 Contracts in Annuity Payment Period (Note 2) 29 - - 17 - 258 ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $53,475 10,121 8,551 9,555 - 192,585 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 11,164 2,195 2,537 1,107 - 17,711 Investments at Cost $104,571 15,006 16,652 17,729 - 261,790
See Accompanying Notes to Financial Statements 17
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Assets and Liabilities (continued) December 31, 2008 (In thousands) Van Van Kampen Templeton Kampen Van LIT Global Templeton LIT Kampen Growth Income Growth Capital LIT and Securities Securities Growth Enterprise Income Total All Fund Fund Portfolio Portfolio Portfolio Funds ----------- ----------- ----------- ----------- ----------- ------------- Assets: Investments at Net Asset Value $124,761 351,451 1,424 99 632 11,283,535 ----------- ----------- ----------- ----------- ----------- ------------- Total Assets 124,761 351,451 1,424 99 632 11,283,535 ----------- ----------- ----------- ----------- ----------- ------------- Liabilities: Accrued Mortality and Expense Risk and Administrative Charges - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Total Liabilities - - - - - - ----------- ----------- ----------- ----------- ----------- ------------- Net Assets $124,761 351,451 1,424 99 632 11,283,535 ----------- ----------- ----------- ----------- ----------- ------------- Contract Owners' Equity: (Note 6) Contracts in Accumulation Period 124,614 351,021 1,421 68 608 11,277,384 Contracts in Annuity Payment Period (Note 2) 147 430 3 31 24 6,151 ----------- ----------- ----------- ----------- ----------- ------------- Total Contract Owners' Equity $124,761 351,451 1,424 99 632 11,283,535 ----------- ----------- ----------- ----------- ----------- ------------- Investment Shares 7,266 42,646 84 10 46 2,195,273 Investments at Cost $117,289 557,121 2,314 181 778 15,160,453
See Accompanying Notes to Financial Statements 18
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, 2008 (In thousands) Alger Alger Alger AIM V.I. AIM V.I. AIM V.I. American American American Capital Core International Capital LargeCap MidCap Appreciation Equity Growth Appreciation Growth Growth Fund Fund Fund Portfolio Portfolio Portfolio ----------- ----------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $ - 84 10 - 10 10 ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 113 72 32 41 69 100 ----------- ----------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net (113) 12 (22) (41) (59) (90) ----------- ----------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds - - 23 - - 2,033 Realized Gains (Losses) on Sales of Investments, Net (133) 35 128 (105) (340) (423) ----------- ----------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (133) 35 151 (105) (340) 1,610 ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (3,548) (1,477) (1,076) (1,478) (2,270) (6,220) ----------- ----------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (3,681) (1,442) (925) (1,583) (2,610) (4,610) ----------- ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(3,794) (1,430) (947) (1,624) (2,669) (4,700) ----------- ----------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 19
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) Alger AZL American AZL AIM BlackRock AZL AZL AZL SmallCap International Capital Columbia Columbia Columbia Growth Equity AppreciationMid Cap Small Cap Technology Portfolio Fund Fund Value Fund Value Fund Fund ----------- ----------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $ - 1,018 - 201 281 - ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 13 4,467 1,048 718 960 1,372 ----------- ----------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net (13) (3,449) (1,048) (517) (679) (1,372) ----------- ----------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 11 22,132 - - 4,927 6,938 Realized Gains (Losses) on Sales of Investments, Net 157 (16,252) (4,399) (4,546) (10,652) (12,646) ----------- ----------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net 168 5,880 (4,399) (4,546) (5,725) (5,708) ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (630) (119,437) (19,459) (18,633) (13,302) (40,210) ----------- ----------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (462) (113,557) (23,858) (23,179) (19,027) (45,918) ----------- ----------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From $(475) (117,006) (24,906) (23,696) (19,706) (47,290) Operations ----------- ----------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 20
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) AZL Dreyfus AZL First Founders Trust AZL AZL AZL AZL Davis Equity Target Franklin Fusion Fusion NY Venture Growth Double Small Cap Balanced Growth Fund Fund Play Fund Value Fund Fund Fund ------------ ---------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $2,964 582 600 2,488 8,205 13,304 ------------ ---------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 6,160 4,003 1,514 4,393 6,668 18,409 ------------ ---------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net (3,196) (3,421) (914) (1,905) 1,537 (5,105) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 7,976 17,243 10 10,578 11,130 50,629 Realized Gains (Losses) on Sales of Investments, Net (14,139) (21,509) (13,718) (24,380) (23,757) (66,069) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (6,163) (4,266) (13,708) (13,802) (12,627) (15,440) ------------ ---------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (126,101) (97,602) (42,470) (70,307) (102,824) (412,444) ------------ ---------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (132,264) (101,868) (56,178) (84,109) (115,451) (427,884) ------------ ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(135,460) (105,289) (57,092) (86,014) (113,914) (432,989) ------------ ---------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 21
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) AZL Jennison AZL Legg AZL LMP AZL Fusion 20/20 Mason AZL Legg Large Cap AZL Money Moderate Focus Growth Mason Growth Market Fund Fund Fund Value Fund Fund Fund ------------ ---------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $14,532 217 - - 245 17,472 ------------ ---------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 12,459 3,586 2,747 2,141 2,056 14,237 ------------ ---------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net 2,073 (3,369) (2,747) (2,141) (1,811) 3,235 ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 33,571 9,221 4,662 7,942 6,700 - Realized Gains (Losses) on Sales of Investments, Net (53,824) (25,088) (24,702) (23,302) (40,859) - ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (20,253) (15,867) (20,040) (15,360) (34,159) - ------------ ---------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (237,537) (98,887) (76,394) (67,522) (22,671) (1) ------------ ---------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (257,790) (114,754) (96,434) (82,882) (56,830) (1) ------------ ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(255,717) (118,123) (99,181) (85,023) (58,641) 3,234 ------------ ---------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 22
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) AZL AZL AZL Oppenheimer Oppenheimer AZL NACM AZL OCC Oppenheimer International Main International Opportunity AZL OCC Global Growth Street Fund Fund Value Fund Fund Fund Fund ------------ ---------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $ 157 - 8,171 1,198 1,775 943 ------------ ---------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 123 2,332 5,150 3,119 3,433 1,945 ------------ ---------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net 34 (2,332) 3,021 (1,921) (1,658) (1,002) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds - 13,193 39,607 9,968 13,638 13,889 Realized Gains (Losses) on Sales of Investments, Net (1,356) (20,179) (277,861) (9,694) (13,479) (10,737) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (1,356) (6,986) (238,254) 274 159 3,152 ------------ ---------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (2,713) (62,707) 28,734 (79,167) (95,153) (48,227) ------------ ---------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (4,069) (69,693) (209,520) (78,893) (94,994) (45,075) ------------ ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(4,035) (72,025) (206,499) (80,814) (96,652) (46,077) ------------ ---------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 23
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) AZL AZL AZL PIMCO Schroder Schroder AZL Fundamental AZL S&P Emerging Emerging Schroder IndexPLUS 500 Markets Markets International AZL Small Total Index Equity Equity Small Cap Cap Stock Return Fund Fund Fund CL 1 Fund CL 2 Fund Index Fund ------------ ---------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $ - 3 1 198 241 589 ------------ ---------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 181 1,497 51 2,523 242 886 ------------ ---------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net (181) (1,494) (50) (2,325) (1) (297) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds - 3 59 30,054 - 25 Realized Gains (Losses) on Sales of Investments, Net (1,307) (17,246) 36 (21,792) (2,966) (14,386) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (1,307) (17,243) 95 8,262 (2,966) (14,361) ------------ ---------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (3,249) (59,104) 4,592 (76,510) (5,506) (46,896) ------------ ---------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (4,556) (76,347) 4,687 (68,248) (8,472) (61,257) ------------ ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(4,737) (77,841) 4,637 (70,573) (8,473) (61,554) ------------ ---------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 24
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) AZL Turner AZL AZL AZL AZL Quantitative AZL Van TargetPLUS TargetPLUS TargetPLUS TargetPLUS Small Cap Kampen Balanced Equity Growth Moderate Growth Comstock Fund Fund Fund Fund Fund Fund ------------ ---------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $ - 13 - - - 8,106 ------------ ---------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 494 1,468 1,174 717 531 7,871 ------------ ---------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net (494) (1,455) (1,174) (717) (531) 235 ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds - - - - 5,421 45,493 Realized Gains (Losses) on Sales of Investments, Net (2,395) (11,782) (6,072) (3,490) (4,620) (48,562) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (2,395) (11,782) (6,072) (3,490) 801 (3,069) ------------ ---------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (4,898) (36,233) (25,000) (11,331) (15,073) (173,263) ------------ ---------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (7,293) (48,015) (31,072) (14,821) (14,272) (176,332) ------------ ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(7,787) (49,470) (32,246) (15,538) (14,803) (176,097) ------------ ---------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 25
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) AZL Van AZL Van AZL Van Kampen Kampen AZL Van AZL Van Kampen Global Growth Kampen BlackRock Kampen Global Real and Mid Cap Global Equity and Franchise Estate Income Growth Allocations Income Fund Fund Fund Fund Fund V.I. Fund (A) ------------ ---------- ----------- ----------- ----------- ----------- Investment Income: Dividends Reinvested in Fund Shares $5,000 6,177 1,245 5,052 982 3,296 ------------ ---------- ----------- ----------- ----------- ----------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 3,637 6,101 1,337 4,637 6,569 1,202 ------------ ---------- ----------- ----------- ----------- ----------- Investment Income (Loss), Net 1,363 76 (92) 415 (5,587) 2,094 ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 6,096 20,462 4,258 14,614 42,837 619 Realized Gains (Losses) on Sales of Investments, Net (10,756) (9,070) (15,011) (15,495) (31,978) (3,911) ------------ ---------- ----------- ----------- ----------- ----------- Realized Gains (Losses) on Investments, Net (4,660) 11,392 (10,753) (881) 10,859 (3,292) ------------ ---------- ----------- ----------- ----------- ----------- Net Change in Unrealized Appreciation (Depreciation) on Investments (51,339) (123,200) (29,504) (95,787) (208,600) (7,195) ------------ ---------- ----------- ----------- ----------- ----------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (55,999) (111,808) (40,257) (96,668) (197,741) (10,487) ------------ ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets From Operations $(54,636) (111,732) (40,349) (96,253) (203,328) (8,393) ------------ ---------- ----------- ----------- ----------- -----------
See Accompanying Notes to Financial Statements 26
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) Dreyfus Franklin Davis VA IP Small Global Davis VA Real Davis VA Cap Stock Dreyfus Communications Financial Estate Value Index Stock Securities Portfolio Portfolio Portfolio Portfolio Index Fund Fund ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $- 20 997 1,482 2,160 287 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 1,447 21 2,230 2,537 3,593 3,131 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net (1,447) (1) (1,233) (1,055) (1,433) (2,844) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 2,801 13 1,811 25,641 - - Realized Gains (Losses) on Sales of Investments, Net (9,055) (58) 5,028 1,921 22,557 (12,227) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net (6,254) (45) 6,839 27,562 22,557 (12,227) ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (37,060) (613) (63,566) (30,559) (65,587) (96,227) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (43,314) (658) (56,727) (2,997) (43,030) (108,454) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $(44,761) (659) (57,960) (4,052) (44,463) (111,298) ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 27
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) Franklin Franklin Franklin Growth and High Franklin Large Cap Franklin Income Income Income Growth Money Franklin Securities Securities Securities Securities Market Real Estate Fund Fund Fund Fund Fund Fund ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $11,434 15,988 54,615 3,004 400 2,504 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 5,343 2,761 16,703 3,835 356 3,933 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net 6,091 13,227 37,912 (831) 44 (1,429) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 29,418 - 22,562 14,277 - 60,572 Realized Gains (Losses) on Sales of Investments, Net (31,311) (14,788) (64,064) (8,031) - (50,127) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net (1,893) (14,788) (41,502) 6,246 - 10,445 ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (143,342) (37,897) (332,045) (94,568) (44) (117,235) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (145,235) (52,685) (373,547) (88,322) (44) (106,790) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $(139,144) (39,458) (335,635) (89,153) - (108,219) ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 28
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) Franklin Franklin Franklin Templeton Franklin Small Small-Mid VIP Rising Cap Cap Founding Franklin Dividends Value Growth Funds U.S. Franklin Securities Securities Securities Allocation Government Zero Coupon Fund Fund Fund Fund Fund Fund 2010 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $8,100 1,359 - 3,074 20,457 4,554 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 7,292 2,156 3,083 1,777 7,491 1,863 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net 808 (797) (3,083) 1,297 12,966 2,691 ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 3,310 9,093 22,356 3,049 - - Realized Gains (Losses) on Sales of Investments, Net (972) (1,168) (6,210) (8,054) (280) 920 ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net 2,338 7,925 16,146 (5,005) (280) 920 ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (135,242) (48,425) (105,047) (39,333) 11,376 1,714 ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (132,904) (40,500) (88,901) (44,338) 11,096 2,634 ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $(132,096) (41,297) (91,984) (43,041) 24,062 5,325 ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 29
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) J.P. Morgan J.P. U.S. Morgan Large Jennison Mutual Mutual International Cap Core 20/20 Discovery Shares OpCap Mid Opportunitie Equity Focus Securities Securities Cap Portfolio Portfolio Portfolio Fund Fund Portfolio ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $ 7 6 - 15,485 25,125 139 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 6 8 1,380 12,605 14,833 674 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net 1 (2) (1,380) 2,880 10,292 (535) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 63 - 5,952 28,497 35,086 3,366 Realized Gains (Losses) on Sales of Investments, Net (7) (7) 2,268 11,210 (48,856) (6,584) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net 56 (7) 8,220 39,707 (13,770) (3,218) ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (233) (182) (19,261) (280,116) (373,104) (15,726) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (177) (189) (11,041) (240,409) (386,874) (18,944) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From $ (176) (191) (12,421) (237,529) (376,582) (19,479) Operations ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 30
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) PIMCO VIT PIMCO VIT Oppenheimer Oppenheimer Oppenheimer Commodity Emerging Global High Main PIMCO VIT RealReturn Markets Securities Income Street All Asset Strategy Bond Fund/VA Fund/VA Fund/VA Portfolio Portfolio Portfolio ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $ 2,376 1,540 1,612 8,957 7,677 2,835 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 2,712 410 1,909 3,024 3,388 854 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net (336) 1,130 (297) 5,933 4,289 1,981 ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 10,442 - 7,005 373 1,292 1,743 Realized Gains (Losses) on Sales of Investments, Net 3,964 (5,542) 1,348 (13,290) (16,016) (3,560) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net 14,406 (5,542) 8,353 (12,917) (14,724) (1,817) ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (85,443) (13,076) (54,983) (25,021) (78,367) (8,017) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (71,037) (18,618) (46,630) (37,938) (93,091) (9,834) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $(71,373) (17,488) (46,927) (32,005) (88,802) (7,853) ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 31
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) PIMCO VIT StocksPLUS PIMCO VIT PIMCO PIMCO VIT Growth PIMCO VIT Seligman Global VIT High Real and Total Global Bond Yield Return Income Return Technology Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $3,090 10,435 9,866 913 22,652 - ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 1,811 2,610 5,413 234 9,622 33 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net 1,279 7,825 4,453 679 13,030 (33) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds - 290 326 - 9,329 - Realized Gains (Losses) on Sales of Investments, Net (2,413) (12,304) (9,043) (46) 1,729 (23) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net (2,413) (12,014) (8,717) (46) 11,058 (23) ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (5,507) (30,843) (23,895) (7,400) (11,347) (869) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (7,920) (42,857) (32,612) (7,446) (289) (892) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $(6,641) (35,032) (28,159) (6,767) 12,741 (925) ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 32
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) SP Strategic Templeton Seligman Partners SP Templeton Developing Templeton Small-Cap Focused International Asset Markets Foreign Value Growth Growth Strategy Securities Securities Portfolio Portfolio Portfolio Fund Fund Fund ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $ - - 311 1,333 6,313 8,177 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 1,684 378 430 174 3,919 5,290 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net (1,684) (378) (119) 1,159 2,394 2,887 ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds 28,134 1,553 4,875 1,622 45,910 31,224 Realized Gains (Losses) on Sales of Investments, Net (5,049) (443) (6,212) (978) (83,034) 801 ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net 23,085 1,110 (1,337) 644 (37,124) 32,025 ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments (66,014) (9,406) (11,813) (5,440) (132,011) (195,626) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments (42,929) (8,296) (13,150) (4,796) (169,135) (163,601) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $(44,613) (8,674) (13,269) (3,637) (166,741) (160,714) ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 33
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Operations (continued) For the year ended December 31, 2008 (In thousands) Van Van Kampen Templeton Kampen Van LIT Global Templeton LIT Kampen Growth Income Growth Capital LIT and Securities Securities Growth Enterprise Income Total All Fund Fund Portfolio Portfolio Portfolio Funds ------------ ---------- ----------- ----------- ----------- ------------- Investment Income: Dividends Reinvested in Fund Shares $4,754 11,555 5 1 17 380,986 ------------ ---------- ----------- ----------- ----------- ------------- Expenses: Mortality and Expense Risk and Administrative Charges (Note 2) 2,221 10,500 46 2 13 300,333 ------------ ---------- ----------- ----------- ----------- ------------- Investment Income (Loss), Net 2,533 1,055 (41) (1) 4 80,653 ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Investments: Realized Capital Gain Distributions on Mutual Funds - 43,430 - - 29 911,406 Realized Gains (Losses) on Sales of Investments, Net 575 (57,640) (15) (12) - (1,359,730) ------------ ---------- ----------- ----------- ----------- ------------- Realized Gains (Losses) on Investments, Net 575 (14,210) (15) (12) 29 (448,324) ------------ ---------- ----------- ----------- ----------- ------------- Net Change in Unrealized Appreciation (Depreciation) on Investments 89 (312,302) (1,595) (57) (353) (5,911,447) ------------ ---------- ----------- ----------- ----------- ------------- Total Realized Gains (Losses) & Changes in Appreciation (Depreciation) on Investments 664 (326,512) (1,610) (69) (324) (6,359,771) ------------ ---------- ----------- ----------- ----------- ------------- Net Increase (Decrease) in Net Assets From Operations $3,197 (325,457) (1,651) (70) (320) (6,279,118) ------------ ---------- ----------- ----------- ----------- -------------
See Accompanying Notes to Financial Statements 34
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets For the year ended December 31, 2008 and 2007 (In thousands) AIM V.I. AIM V.I. Capital AIM V.I. Core Equity International Growth Appreciation Fund Fund Fund ----------- ----------- ---------- ----------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ----------- ---------- ----------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (113) (175) 12 (77) (22) (67) Realized Gains (Losses) on Investments, Net (133) 261 35 232 151 436 Net Change in Unrealized Appreciation (Depreciation) on Investments (3,548) 943 (1,477) 187 (1,076) (62) ----------- ----------- ---------- ----------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (3,794) 1,029 (1,430) 342 (947) 307 ----------- ----------- ---------- ----------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments - 13 - - - 7 Transfers Between Funds (Note 2) (280) (1,137) (220) (212) (112) (250) Surrenders and Terminations (717) (2,299) (662) (1,571) (212) (600) Rescissions - - - - - - Bonus (Recapture) - - - - - - Contract Maintenance Charge (Note 2) (5) (14) (3) (4) (1) (8) ----------- ----------- ---------- ----------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (1,002) (3,437) (885) (1,787) (325) (851) ----------- ----------- ---------- ----------- ----------- ---------- Increase (Decrease) in Net Assets (4,796) (2,408) (2,315) (1,445) (1,272) (544) Net Assets at Beginning of Period 9,390 11,798 5,199 6,644 2,493 3,037 ----------- ----------- ---------- ----------- ----------- ---------- Net Assets at End of Period $ 4,594 9,390 2,884 5,199 1,221 2,493 ----------- ----------- ---------- ----------- ----------- ----------
See Accompanying Notes to Financial Statements 35
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Alger American Alger American Alger American Capital Appreciation LargeCap Growth MidCap Growth Portfolio Portfolio Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (41) (56) (59) (77) (90) (158) Realized Gains (Losses) on Investments, Net (105) (53) (340) (472) 1,610 1,584 Net Change in Unrealized Appreciation (Depreciation) on Investments (1,478) 1,136 (2,270) 1,660 (6,220) 906 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (1,624) 1,027 (2,669) 1,111 (4,700) 2,332 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments - 1 - - - - Transfers Between Funds (Note 2) (108) (115) (237) (434) (521) (1,021) Surrenders and Terminations (397) (552) (646) (1,427) (790) (1,780) Rescissions - - - - - - Bonus (Recapture) - - - - - - Contract Maintenance Charge (Note 2) (2) (3) (3) (3) (3) (5) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (507) (669) (886) 1,864) (1,314) (2,806) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (2,131) 358 (3,555) (753) (6,014) (474) Net Assets at Beginning of Period 3,881 3,523 6,352 7,105 8,955 9,429 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $1,750 3,881 2,797 6,352 2,941 8,955 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 36
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Alger American AZL AIM SmallCap Growth AZL AIM Basic Value International Equity Portfolio Fund Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(13) (18) - (1,520) (3,449) (3,873) Realized Gains (Losses) on Investments, Net 168 40 - 43,775 5,880 32,023 Net Change in Unrealized Appreciation (Depreciation) on Investments (630) 126 - (36,617) (119,437) (1,918) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (475) 148 - 5,638 (117,006) 26,232 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments - - - 7,524 41,399 53,138 Transfers Between Funds (Note 2) (60) (8) - (182,712) (74,617) 21,678 Surrenders and Terminations (62) (81) - (10,725) (15,302) (18,915) Rescissions - - - (90) (2,009) (1,665) Bonus (Recapture) - - - 104 633 996 Contract Maintenance Charge (Note 2) - (1) - (28) (53) (64) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (122) (90) - (185,927) (49,949) 55,168 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (597) 58 - (180,289) (166,955) 81,400 Net Assets at Beginning of Period 1,076 1,018 - 180,289 300,838 219,438 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 479 1,076 - - 133,883 300,838 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 37
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL BlackRock Capital Appreciation AZL Columbia Mid Cap AZL Columbia Small Fund Value Fund Cap Value Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(1,048) (1,020) (517) (741) (679) (1,225) Realized Gains (Losses) on Investments, Net (4,399) 1,612 (4,546) 334 (5,725) 5,843 Net Change in Unrealized Appreciation (Depreciation) on Investments (19,459) 3,416 (18,633) (1,154) (13,302) (11,696) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (24,906) 4,008 (23,696) (1,561) (19,706) (7,078) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 17,754 11,602 14,409 14,515 8,443 11,921 Transfers Between Funds (Note 2) (7,081) (577) (3,818) 10,317 (7,495) (14,785) Surrenders and Terminations (2,984) (3,002) (1,489) (2,206) (3,357) (3,892) Rescissions (370) (170) (308) (322) (180) (419) Bonus (Recapture) 175 154 153 211 88 185 Contract Maintenance Charge (Note 2) (13) (11) (7) (4) (13) (12) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 7,481 7,996 8,940 22,511 (2,514) (7,002) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (17,425) 12,004 (14,756) 20,950 (22,220) (14,080) Net Assets at Beginning of Period 60,239 48,235 39,787 18,837 57,106 71,186 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 42,814 60,239 25,031 39,787 34,886 57,106 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 38
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Columbia AZL Davis NY Venture AZL Dreyfus Founders Technology Fund Fund Equity Growth Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(1,372) (1,327) (3,196) (5,884) (3,421) (3,192) Realized Gains (Losses) on Investments, Net (5,708) 3,458 (6,163) 18,048 (4,266) 9,510 Net Change in Unrealized Appreciation (Depreciation) on Investments (40,210) 7,414 (126,101) (4,716) (97,602) 1,200 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (47,290) 9,545 (135,460) 7,448 (105,289) 7,518 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 13,792 11,434 57,015 56,546 19,855 22,751 Transfers Between Funds (Note 2) (24,865) 37,625 34,789 (32,228) (60,641) 154,630 Surrenders and Terminations (4,875) (5,256) (23,057) (24,990) (19,106) (15,713) Rescissions (421) (379) (2,194) (1,144) (562) (425) Bonus (Recapture) 251 255 526 654 182 331 Contract Maintenance Charge (Note 2) (18) (43) (91) (64) (63) (56) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (16,136) 43,636 66,988 (1,226) (60,335) 161,518 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (63,426) 53,181 (68,472) 6,222 (165,624) 169,036 Net Assets at Beginning of Period 101,713 48,532 395,443 389,221 287,472 118,436 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 38,287 101,713 326,971 395,443 121,848 287,472 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 39
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL First Trust Target Double Play AZL Franklin Small AZL Fusion Balanced Fund Cap Value Fund Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 (B) 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (914) (810) (1,905) (4,907) 1,537 (1,608) Realized Gains (Losses) on Investments, Net (13,708) (292) (13,802) 23,082 (12,627) 10,785 Net Change in Unrealized Appreciation (Depreciation) on Investments (42,470) (286) (70,307) (39,216) (102,824) 5,567 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (57,092) (1,388) (86,014) (21,041) (113,914) 14,744 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 42,319 41,733 31,569 59,874 134,234 83,096 Transfers Between Funds (Note 2) (11,624) 48,684 (70,214) (63,272) (59,126) 12,499 Surrenders and Terminations (4,466) (1,470) (15,138) (19,363) (30,297) (21,368) Rescissions (1,023) (1,099) (1,043) (1,274) (3,555) (1,556) Bonus (Recapture) 354 653 405 791 1,253 1,060 Contract Maintenance Charge (Note 2) (17) (4) (62) (7) (73) (35) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 25,543 88,497 (54,483) (23,251) 42,436 73,696 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (31,549) 87,109 (140,497) (44,292) (71,478) 88,440 Net Assets at Beginning of Period 87,109 - 282,993 327,285 357,955 269,515 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $55,560 87,109 142,496 282,993 286,477 357,955 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 40
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Fusion Growth AZL Fusion Moderate AZL Jennison 20/20 Fund Fund Focus Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(5,105) (15,829) 2,073 (7,157) (3,369) (3,065) Realized Gains (Losses) on Investments, Net (15,440) 39,924 (20,253) 27,034 (15,867) 13,129 Net Change in Unrealized Appreciation (Depreciation) on Investments (412,444) 4,456 (237,537) 8,200 (98,887) 2,077 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (432,989) 28,551 255,717) 28,077 (118,123) 12,141 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 231,627 316,144 162,682 214,906 48,108 40,601 Transfers Between Funds (Note 2) (239,071) (67,113) (247,181) (23,219) 47,189 1,438 Surrenders and Terminations (48,850) (54,147) (45,875) (41,839) (11,600) (9,547) Rescissions (6,634) (9,133) (5,042) (4,493) (1,623) (725) Bonus (Recapture) 3,249 5,237 1,553 2,150 456 391 Contract Maintenance Charge (Note 2) (254) (102) (175) (190) (47) (56) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (59,933) 190,886 (134,038) 147,315 82,483 32,102 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (492,922) 219,437 (389,755) 175,392 (35,640) 44,243 Net Assets at Beginning of Period 1,103,016 883,579 809,286 633,894 198,067 153,824 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 610,094 1,103,016 419,531 809,286 162,427 198,067 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 41
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Legg Mason AZL Legg Mason Value AZL LMP Large Cap Growth Fund Fund Growth Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(2,747) (2,507) (2,141) (3,939) (1,811) (3,191) Realized Gains (Losses) on Investments, Net (20,040) 7,216 (15,360) 12,082 (34,159) 6,493 Net Change in Unrealized Appreciation (Depreciation) on Investments (76,394) 4,069 (67,522) (23,925) (22,671) 916 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (99,181) 8,778 (85,023) (15,782) (58,641) 4,218 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 30,556 34,289 11,858 22,718 5,044 7,668 Transfers Between Funds (Note 2) 22,142 60,468 (34,707) (39,286) (83,046) (20,127) Surrenders and Terminations (9,029) (8,964) (7,696) (14,722) (10,095) (11,736) Rescissions (1,308) (735) (435) (448) (123) (183) Bonus (Recapture) 441 512 147 314 64 105 Contract Maintenance Charge (Note 2) (36) (9) (35) (15) (30) (43) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 42,766 85,561 (30,868) (31,439) (88,186) (24,316) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (56,415) 94,339 (115,891) (47,221) (146,827) (20,098) Net Assets at Beginning of Period 188,913 94,574 173,309 220,530 146,827 166,925 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $132,498 188,913 57,418 173,309 - 146,827 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 42
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL NACM AZL OCC Opportunity AZL Money Market Fund International Fund Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 (B) 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $3,235 14,696 34 (27) (2,332) (3,258) Realized Gains (Losses) on Investments, Net - - (1,356) (67) (6,986) 27,955 Net Change in Unrealized Appreciation (Depreciation) on Investments (1) 1 (2,713) (316) (62,707) (16,027) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations 3,234 14,697 (4,035) (410) (72,025) 8,670 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 453,325 342,462 4,925 2,954 13,149 17,033 Transfers Between Funds (Note 2) 111,641 9,768 (161) 3,990 (29,872) (3,468) Surrenders and Terminations (167,065) (170,998) (363) (282) (8,166) (10,977) Rescissions (13,417) (10,485) (223) (15) (461) (440) Bonus (Recapture) 5,136 3,561 41 43 164 310 Contract Maintenance Charge (Note 2) (141) (166) (1) - (35) (35) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 389,479 174,142 4,218 6,690 (25,221) 2,423 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets 392,713 188,839 183 6,280 (97,246) 11,093 Net Assets at Beginning of Period 576,147 387,308 6,280 - 163,914 152,821 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $968,860 576,147 6,463 6,280 66,668 163,914 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 43
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL OCC Renaissance AZL Oppenheimer Fund AZL OCC Value Fund Global Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $- (1,691) 3,021 (2,998) (1,921) (3,274) Realized Gains (Losses) on Investments, Net - 53,020 (238,254) 23,320 274 18,630 Net Change in Unrealized Appreciation (Depreciation) on Investments - (28,368) 28,734 64,919) (79,167) (8,185) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations - 22,961 (206,499) (44,597) (80,814) 7,171 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments - 14,436 5,968 14,847 20,733 32,905 Transfers Between Funds (Note 2) - 353,604) (206,511) 249,680 (49,384) (29,776) Surrenders and Terminations - (20,947) (27,785) (24,887) (8,784) (9,894) Rescissions - (443) (372) (350) (860) (1,142) Bonus (Recapture) - 141 53 192 261 463 Contract Maintenance Charge (Note 2) - (58) (91) (62) (45) (27) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions - (360,475) (228,738) 239,420 (38,079) (7,471) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets - (337,514) (435,237) 194,823 (118,893) (300) Net Assets at Beginning of Period - 337,514 435,237 240,414 211,936 212,236 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $- - - 435,237 93,043 211,936 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 44
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL PIMCO AZL Oppenheimer Fundamental International Growth AZL Oppenheimer Main IndexPLUS Total Fund Street Fund Return Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(1,658) (2,935) (1,002) (1,946) (181) 416 Realized Gains (Losses) on Investments, Net 159 18,309 3,152 11,425 (1,307) 36 Net Change in Unrealized Appreciation (Depreciation) on Investments (95,153) 598 (48,227) (7,781) (3,249) (263) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (96,652) 15,972 (46,077) 1,698 (4,737) 189 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 37,702 49,687 13,176 20,461 4,523 2,591 Transfers Between Funds (Note 2) (68,680) 30,635 (35,289) (4,677) 2,990 260 Surrenders and Terminations (11,255) (13,094) (6,241) (6,709) (410) (428) Rescissions (1,346) (1,542) (419) (687) (189) (177) Bonus (Recapture) 641 834 212 360 53 54 Contract Maintenance Charge (Note 2) (43) (25) (28) (24) (2) (1) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (42,981) 66,495 (28,589) 8,724 6,965 2,299 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (139,633) 82,467 (74,666) 10,422 2,228 2,488 Net Assets at Beginning of Period 240,548 158,081 134,696 124,274 7,075 4,587 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 100,915 240,548 60,030 134,696 9,303 7,075 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 45
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Schroder AZL Schroder AZL S&P 500 Index Emerging Markets Emerging Markets Fund Equity Fund CL 1 Equity Fund CL 2 ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 (B) 2008 2007 (B) 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(1,494) 75 (50) (3) (2,325) (1,780) Realized Gains (Losses) on Investments, Net (17,243) (24) 95 35 8,262 5,892 Net Change in Unrealized Appreciation (Depreciation) on Investments (59,104) (641) 4,592 (8) (76,510) 12,515 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (77,841) (590) 4,637 24 (70,573) 16,627 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 37,536 13,299 508 82 35,163 39,102 Transfers Between Funds (Note 2) 201,960 14,960 27,195 145 20,630 73,579 Surrenders and Terminations (5,471) (410) (569) 97 (6,927) (5,130) Rescissions (586) (82) - (3) (1,281) (1,331) Bonus (Recapture) 521 154 - 1 513 655 Contract Maintenance Charge (Note 2) (28) (1) (2) (11) (31) (317) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 233,932 27,920 27,132 311 48,067 106,558 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets 156,091 27,330 31,769 335 (22,506) 123,185 Net Assets at Beginning of Period 27,330 - 335 - 169,313 46,128 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $183,421 27,330 32,104 335 146,807 169,313 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 46
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Schroder International Small AZL Small Cap Stock AZL TargetPLUS Cap Fund Index Fund Balanced Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 (B) 2008 2007 (B) 2008 2007 (B) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (1) (71) (297) 154 (494) 120 Realized Gains (Losses) on Investments, Net (2,966) (168) (14,361) 9 (2,395) (7) Net Change in Unrealized Appreciation (Depreciation) on Investments (5,506) (430) (46,896) (996) (4,898) (125) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (8,473) (669) (61,554) (833) (7,787) (12) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 10,108 6,778 14,384 7,623 45,425 6,767 Transfers Between Funds (Note 2) 495 4,479 154,950 4,904 1,665 4,085 Surrenders and Terminations (353) (87) (2,939) (75) (1,008) 6 Rescissions (260) (141) (398) (138) (1,758) (84) Bonus (Recapture) 133 114 140 104 490 48 Contract Maintenance Charge (Note 2) (2) - (18) - (3) - ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 10,121 11,143 166,119 12,418 44,811 10,822 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets 1,648 10,474 104,565 11,585 37,024 10,810 Net Assets at Beginning of Period 10,474 - 11,585 - 10,810 - ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $12,122 10,474 116,150 11,585 47,834 10,810 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 47
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL TargetPLUS AZL TargetPLUS AZL TargetPLUS Equity Fund Growth Fund Moderate Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 (B) 2008 2007 (B) 2008 2007 (B) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $(1,455) (147) (1,174) 155 (717) 169 Realized Gains (Losses) on Investments, Net (11,782) (17) (6,072) (211) (3,490) (177) Net Change in Unrealized Appreciation (Depreciation) on Investments (36,233) (1,910) (25,000) (843) (11,331) (550) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (49,470) (2,074) (32,246) (899) (15,538) (558) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 38,788 38,767 64,227 34,373 51,407 14,086 Transfers Between Funds (Note 2) (13,861) 50,148 (3,446) 5,094 (2,340) 9,707 Surrenders and Terminations (3,457) (2,161) (1,612) (350) (2,638) (422) Rescissions (1,168) (798) (1,760) (978) (2,118) (575) Bonus (Recapture) 473 587 904 560 874 163 Contract Maintenance Charge (Note 2) (17) (4) (10) (6) (4) (1) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 20,758 86,539 58,303 38,693 45,181 22,958 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (28,712) 84,465 26,057 37,794 29,643 22,400 Net Assets at Beginning of Period 84,465 - 37,794 - 22,400 - ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 55,753 84,465 63,851 37,794 52,043 22,400 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 48
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Turner AZL Van Kampen Quantitative Small Aggressive Growth AZL Van Kampen Cap Growth Fund Fund Comstock Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (531) (761) - (1,543) 235 (2,652) Realized Gains (Losses) on Investments, Net 801 2,520 - 26,584 (3,069) 36,121 Net Change in Unrealized Appreciation (Depreciation) on Investments (15,073) (647) - (10,590) (173,263) (63,244) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (14,803) 1,112 - 14,451 (176,097) (29,775) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 5,988 6,825 - 7,992 22,188 45,591 Transfers Between Funds (Note 2) (5,215) (8,321) - (115,230) (134,542) 66,912 Surrenders and Terminations (1,328) (1,737) - (5,481) (39,002) (45,751) Rescissions (140) (211) - (184) (677) (1,108) Bonus (Recapture) 69 85 - 143 198 528 Contract Maintenance Charge (Note 2) (6) (11) - (17) (132) (74) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (632) (3,370) - (112,777) (151,967) 66,098 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (15,435) (2,258) - (98,326) (328,064) 36,323 Net Assets at Beginning of Period 33,333 35,591 - 98,326 564,367 528,044 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $17,898 33,333 - - 236,303 564,367 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 49
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Van Kampen AZL Van Kampen Equity and Income AZL Van Kampen Global Real Estate Fund Global Franchise Fund Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 1,363 (775) 76 (8,250) (92) (1,352) Realized Gains (Losses) on Investments, Net (4,660) 13,066 11,392 33,896 (10,753) 1,756 Net Change in Unrealized Appreciation (Depreciation) on Investments (51,339) (10,511) (123,200) 2,872 (29,504) (14,183) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (54,636) 1,780 (111,732) 28,518 (40,349) (13,779) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 39,995 54,967 44,269 75,664 18,476 43,645 Transfers Between Funds (Note 2) (79,130) (23,017) (113,849) (59,289) (13,786) (3,123) Surrenders and Terminations (14,190) (13,981) (21,493) (23,354) (3,435) (4,329) Rescissions (1,304) (1,237) (1,440) (2,157) (790) (1,166) Bonus (Recapture) 347 610 396 773 219 601 Contract Maintenance Charge (Note 2) (45) (46) (80) (73) (17) (12) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (54,327) 17,296 (92,197) (8,436) 667 35,616 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (108,963) 19,076 (203,929) 20,082 (39,682) 21,837 Net Assets at Beginning of Period 242,363 223,287 406,292 386,210 84,856 63,019 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $133,400 242,363 202,363 406,292 45,174 84,856 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 50
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) AZL Van Kampen Growth and Income AZL Van Kampen Mid AZL Van Kampen Fund Cap Growth Fund Strategic Growth Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 415 (2,498) (5,587) (6,202) - (2,335) Realized Gains (Losses) on Investments, Net (881) 34,345 10,859 31,252 - 46,305 Net Change in Unrealized Appreciation (Depreciation) on Investments (95,787) (29,641) (208,600) 24,763 - (24,325) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (96,253) 2,206 (203,328) 49,813 - 19,645 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 22,766 37,293 53,960 53,080 - 9,035 Transfers Between Funds (Note 2) (67,353) (50,392) (103,414) 142,745 - (186,137) Surrenders and Terminations (24,891) (29,922) (25,194) (21,342) - (8,939) Rescissions (944) (925) (2,695) (1,336) - (191) Bonus (Recapture) 227 451 708 778 - 120 Contract Maintenance Charge (Note 2) (70) (102) (89) (77) - (26) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (70,265) (43,597) (76,724) 173,848 - (186,138) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (166,518) (41,391) (280,052) 223,661 (166,493) - Net Assets at Beginning of Period 323,375 364,766 464,770 241,109 - 166,493 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 156,857 323,375 184,718 464,770 - - ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 51
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) BlackRock Global Davis VA Financial Davis VA Real Estate Allocations V.I. Fund Portfolio Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 (A) 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 2,094 - (1,447) (1,185) (1) 35 Realized Gains (Losses) on Investments, Net (3,292) - (6,254) 16,227 (45) 704 Net Change in Unrealized Appreciation (Depreciation) on Investments (7,195) - (37,060) (23,864) (613) (1,093) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (8,393) - (44,761) (8,822) (659) (354) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 92,699 - 13,680 12,849 - - Transfers Between Funds (Note 2) 48,237 - (11,239) (26,607) (147) (111) Surrenders and Terminations (1,397) - (6,651) (10,897) (115) (413) Rescissions (2,222) - (378) (234) - - Bonus (Recapture) 634 - 163 176 - - Contract Maintenance Charge (Note 2) (5) - (23) (9) - - ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 137,946 - (4,448) (24,722) (262) (524) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets 129,553 - (49,209) (33,544) (921) (878) Net Assets at Beginning of Period - - 97,925 131,469 1,605 2,483 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 129,553 - 48,716 97,925 684 1,605 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 52
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Davis VA Value Dreyfus IP Small Cap Dreyfus Stock Index Portfolio Stock Index Portfolio Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (1,233) (1,547) (1,055) (4,083) (1,433) (1,622) Realized Gains (Losses) on Investments, Net 6,839 21,268 27,562 27,858 22,557 25,175 Net Change in Unrealized Appreciation (Depreciation) on Investments (63,566) (14,321) (30,559) (28,325) (65,587) (10,806) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (57,960) 5,400 (4,052) (4,550) (44,463) 12,747 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 669 1,427 1,773 15,009 2,020 16,875 Transfers Between Funds (Note 2) (27,614) (16,660) (209,849) (53,361) (265,090) (66,741) Surrenders and Terminations (14,262) (20,392) (11,313) (16,840) (21,748) (31,112) Rescissions (13) (24) (55) (598) (165) (461) Bonus (Recapture) 8 12 12 154 9 132 Contract Maintenance Charge (Note 2) (38) (48) (36) (10) (56) (163) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (41,250) (35,685) (219,468) (55,646) (285,030) (81,470) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (99,210) (30,285) (223,520) (60,196) (329,493) (68,723) Net Assets at Beginning of Period 166,627 196,912 223,520 283,716 329,493 398,216 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 67,417 166,627 - 223,520 - 329,493 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 53
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Franklin Global Franklin Growth and Communications Income Securities Franklin High Income Securities Fund Fund Securities Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (2,844) (4,109) 6,091 3,996 13,227 10,919 Realized Gains (Losses) on Investments, Net (12,227) 4,036 (1,893) 37,418 (14,788) (1,728) Net Change in Unrealized Appreciation (Depreciation) on Investments (96,227) 45,281 (143,342) (63,994) (37,897) (7,638) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (111,298) 45,208 (139,144) (22,580) (39,458) 1,553 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 15,708 22,770 4,983 17,642 16,349 28,435 Transfers Between Funds (Note 2) (53,937) 25,643 (49,397) (40,808) (45,460) (29,980) Surrenders and Terminations (18,154) (27,173) (44,664) (69,802) (17,652) (23,361) Rescissions (539) (904) (236) (406) (676) (430) Bonus (Recapture) 286 524 29 203 192 351 Contract Maintenance Charge (Note 2) (100) (176) (152) (252) (55) (101) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (56,736) 20,684 (89,437) (93,423) (47,302) (25,086) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (168,034) 65,892 (228,581) (116,003) (86,760) (23,533) Net Assets at Beginning of Period 275,000 209,108 439,537 555,540 194,157 217,690 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 106,966 275,000 210,956 439,537 107,397 194,157 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 54
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Franklin Large Cap Franklin Income Growth Securities Franklin Money Securities Fund Fund Market Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 37,912 22,662 (831) (3,215) 44 873 Realized Gains (Losses) on Investments, Net (41,502) 38,782 6,246 16,886 - - Net Change in Unrealized Appreciation (Depreciation) on Investments (332,045) (42,106) (94,568) 2,235 (44) - ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (335,635) 19,338 (89,153) 15,906 - 873 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 141,658 271,558 3,196 10,944 5 7 Transfers Between Funds (Note 2) (308,052) (66,393) (56,958) (40,730) (440) (810) Surrenders and Terminations (95,961) (108,671) (22,506) (33,550) (2,527) (4,658) Rescissions (5,198) (6,391) (282) (285) - - Bonus (Recapture) 1,072 2,265 21 104 - - Contract Maintenance Charge (Note 2) (311) (335) (82) (168) (14) (15) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (266,792) 92,033 (76,611) (63,685) (2,976) (5,476) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (602,427) 111,371 (165,764) (47,779) (2,976) (4,603) Net Assets at Beginning of Period 1,236,149 1,124,778 293,997 341,776 26,980 31,583 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period 633,722 1,236,149 128,233 293,997 24,004 26,980 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 55
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Franklin Rising Franklin Real Estate Dividends Securities Franklin Small Cap Fund Fund Value Securities Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (1,429) 2,461 808 4,692 (797) (2,269) Realized Gains (Losses) on Investments, Net 10,445 49,531 2,338 47,818 7,925 27,492 Net Change in Unrealized Appreciation (Depreciation) on Investments (117,235) (155,934) (135,242) (77,137) (48,425) (30,984) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (108,219) (103,942) (132,096) (24,627) (41,297) (5,761) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 2,164 8,125 2,956 14,048 820 2,274 Transfers Between Funds (Note 2) (63,531) (98,967) (105,581) (94,045) (32,132) (29,812) Surrenders and Terminations (22,534) (46,942) (49,254) (68,098) (12,428) (19,262) Rescissions (85) (250) (185) (294) (124) (79) Bonus (Recapture) 24 66 8 46 8 38 Contract Maintenance Charge (Note 2) (81) (84) (151) (158) (37) (36) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (84,043) (138,052) (152,207) (148,501) (43,893) (46,877) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (192,262) (241,994) (284,303) (173,128) (85,190) (52,638) Net Assets at Beginning of Period 306,481 548,475 549,522 722,650 149,192 201,830 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 114,219 306,481 265,219 549,522 64,002 149,192 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 56
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Franklin Small-Mid Franklin Templeton Cap Growth VIP Founding Funds Franklin U.S. Securities Fund Allocation Fund Government Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 (B) 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (3,083) (4,666) 1,297 (90) 12,966 14,340 Realized Gains (Losses) on Investments, Net 16,146 36,515 (5,005) (57) (280) (3,628) Net Change in Unrealized Appreciation (Depreciation) on Investments (105,047) (6,906) (39,333) (528) 11,376 10,372 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (91,984) 24,943 (43,041) (675) 24,062 21,084 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 1,510 3,139 130,046 18,368 43,958 25,101 Transfers Between Funds (Note 2) (29,439) (22,709) (7,937) 24,944 (5,617) (19,576) Surrenders and Terminations (19,793) (32,635) (3,382) (274) (52,182) (55,910) Rescissions (72) (86) (4,280) (571) (1,898) (291) Bonus (Recapture) 30 23 1,308 186 398 231 Contract Maintenance Charge (Note 2) (73) (126) (10) (1) (136) (194) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (47,837) (52,394) 115,745 42,652 (15,477) (50,639) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (139,821) (27,451) 72,704 41,977 8,585 (29,555) Net Assets at Beginning of Period 242,499 269,950 41,977 - 429,720 459,275 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 102,678 242,499 114,681 41,977 438,305 429,720 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 57
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) J.P. Morgan International J.P. Morgan U.S. Franklin Zero Coupon Opportunities Large Cap Core Fund 2010 Portfolio Equity Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 2,691 2,817 1 (3) (2) (4) Realized Gains (Losses) on Investments, Net 920 (423) 56 24 (7) 17 Net Change in Unrealized Appreciation (Depreciation) on Investments 1,714 3,409 (233) 16 (182) (11) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations 5,325 5,803 (176) 37 (191) 2 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 13,898 5,206 - - - - Transfers Between Funds (Note 2) 19,166 (105) (100) (23) - (40) Surrenders and Terminations (12,462) (8,481) (36) (46) (83) (71) Rescissions (773) (187) - - - - Bonus (Recapture) 128 72 - - - - Contract Maintenance Charge (Note 2) (26) (17) - - - - ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 19,931 (3,512) (136) (69) (83) (111) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets 25,256 2,291 (312) (32) (274) (109) Net Assets at Beginning of Period 90,911 88,620 491 523 596 705 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 116,167 90,911 179 491 322 596 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 58
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Jennison 20/20 Focus Mutual Discovery Mutual Shares Portfolio Securities Fund Securities Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (1,380) (2,176) 2,880 (2,771) 10,292 (3,157) Realized Gains (Losses) on Investments, Net 8,220 22,051 39,707 70,456 (13,770) 97,207 Net Change in Unrealized Appreciation (Depreciation) on Investments (19,261) (10,668) (280,116) 8,728 (373,104) (80,557) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (12,421) 9,207 (237,529) 76,413 (376,582) 13,493 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 664 1,651 91,756 125,184 106,763 257,489 Transfers Between Funds (Note 2) (92,904) (17,803) (219,054) (25,247) (304,737) (108,156) Surrenders and Terminations (6,388) (8,649) (61,506) (69,851) (83,642) (104,919) Rescissions (24) (52) (4,322) (2,487) (5,052) (6,829) Bonus (Recapture) 1 30 912 1,538 893 2,467 Contract Maintenance Charge (Note 2) (18) (30) (191) (256) (253) (272) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (98,669) (24,853) (192,405) 28,881 (286,028) 39,780 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (111,090) (15,646) (429,934) 105,294 (662,610) 53,273 Net Assets at Beginning of Period 111,090 126,736 893,746 788,452 1,160,544 1,107,271 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ - 111,090 463,812 893,746 497,934 1,160,544 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 59
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) OpCap Mid Cap Oppenheimer Global Oppenheimer High Portfolio Securities Fund/VA Income Fund/VA ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (535) (419) (336) (1,184) 1,130 1,938 Realized Gains (Losses) on Investments, Net (3,218) 1,306 14,406 32,378 (5,542) (180) Net Change in Unrealized Appreciation (Depreciation) on Investments (15,726) (391) (85,443) (20,473) (13,076) (2,414) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (19,479) 496 (71,373) 10,721 (17,488) (656) ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 16,520 15,115 901 2,154 105 321 Transfers Between Funds (Note 2) 4,316 1,983 (36,176) (24,242) (76) (4,312) Surrenders and Terminations (1,683) (845) (17,209) (24,652) (2,687) (3,888) Rescissions (654) (331) (62) (69) - (4) Bonus (Recapture) 189 222 10 20 2 5 Contract Maintenance Charge (Note 2) (8) (6) (44) (135) (7) (8) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions 18,680 16,138 (52,580) (46,924) (2,663) (7,886) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (799) 16,634 (123,953) (36,203) (20,151) (8,542) Net Assets at Beginning of Period 31,117 14,483 205,533 241,736 29,717 38,259 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 30,318 31,117 81,580 205,533 9,566 29,717 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 60
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) PIMCO VIT Commodity Oppenheimer Main PIMCO VIT All Asset RealReturn Strategy Street Fund/VA Portfolio Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (297) (1,369) 5,933 10,490 4,289 2,507 Realized Gains (Losses) on Investments, Net 8,353 10,885 (12,917) 581 (14,724) (671) Net Change in Unrealized Appreciation (Depreciation) on Investments (54,983) (5,099) (25,021) 231 (78,367) 14,960 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (46,927) 4,417 (32,005) 11,302 (88,802) 16,796 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 981 1,636 35,539 15,673 54,044 15,508 Transfers Between Funds (Note 2) (22,577) (13,137) (55,935) (37,988) 20,586 445 Surrenders and Terminations (11,898) (18,083) (12,978) (13,842) (11,806) (4,530) Rescissions (94) (30) (814) (562) (1,954) (393) Bonus (Recapture) 5 15 547 288 767 237 Contract Maintenance Charge (Note 2) (39) (54) (39) (49) (38) (18) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (33,622) (29,653) (33,680) (36,480) 61,599 11,249 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (80,549) (25,236) (65,685) (25,178) (27,203) 28,045 Net Assets at Beginning of Period 139,064 164,300 180,302 205,480 112,433 84,388 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 58,515 139,064 114,617 180,302 85,230 112,433 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 61
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) PIMCO VIT Emerging Markets Bond PIMCO VIT Global PIMCO VIT High Yield Portfolio Bond Portfolio Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 1,981 1,546 1,279 596 7,825 9,900 Realized Gains (Losses) on Investments, Net (1,817) 951 (2,413) 244 (12,014) 347 Net Change in Unrealized Appreciation (Depreciation) on Investments (8,017) (1,092) (5,507) 2,227 (30,843) (7,396) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (7,853) 1,405 (6,641) 3,067 (35,032) 2,851 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 13,894 10,332 28,439 11,309 14,557 15,773 Transfers Between Funds (Note 2) (14,006) (944) 6,180 14,109 (41,815) (31,201) Surrenders and Terminations (3,042) (2,061) (7,253) (2,201) (13,770) (15,650) Rescissions (340) (317) (1,199) (225) (557) (494) Bonus (Recapture) 187 174 283 205 160 231 Contract Maintenance Charge (Note 2) (9) (3) (18) (5) (38) (38) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (3,316) 7,181 26,432 23,192 (41,463) (31,379) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (11,169) 8,586 19,791 26,259 (76,495) (28,528) Net Assets at Beginning of Period 44,213 35,627 55,781 29,522 173,285 201,813 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 33,044 44,213 75,572 55,781 96,790 173,285 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 62
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) PIMCO VIT StocksPLUS PIMCO VIT Real Growth and Income PIMCO VIT Total Return Portfolio Portfolio Return Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 4,453 7,084 679 1,143 13,030 14,974 Realized Gains (Losses) on Investments, Net (8,717) (3,537) (46) 1,242 11,058 (2,161) Net Change in Unrealized Appreciation (Depreciation) on Investments (23,895) 16,616 (7,400) (1,346) (11,347) 19,947 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (28,159) 20,163 (6,767) 1,039 12,741 32,760 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 51,311 18,775 125 181 85,638 51,922 Transfers Between Funds (Note 2) (39,008) (24,751) (1,604) (1,984) (50,819) (22,574) Surrenders and Terminations (21,748) (17,777) (2,446) (2,281) (59,458) (48,315) Rescissions (1,978) (447) (28) (1) (2,706) (1,039) Bonus (Recapture) 686 206 - 3 1,088 860 Contract Maintenance Charge (Note 2) (69) (50) (6) (12) (138) (123) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (10,806) (24,044) (3,959) (4,094) (26,395) (19,269) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (38,965) (3,881) (10,726) (3,055) (13,654) 13,491 Net Assets at Beginning of Period 249,436 253,317 18,349 21,404 505,831 492,340 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 210,471 249,436 7,623 18,349 492,177 505,831 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 63
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) SP Strategic Seligman Global Seligman Small-Cap Partners Focused Technology Portfolio Value Portfolio Growth Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (33) (47) (1,684) (2,882) (378) (591) Realized Gains (Losses) on Investments, Net (23) 45 23,085 24,738 1,110 2,749 Net Change in Unrealized Appreciation (Depreciation) on Investments (869) 344 (66,014) (17,213) (9,406) 1,111 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (925) 342 (44,613) 4,643 (8,674) 3,269 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments - - 651 1,170 259 370 Transfers Between Funds (Note 2) (76) (194) (18,630) (20,010) (6,303) (4,819) Surrenders and Terminations (161) (691) (10,661) (18,945) (1,905) (2,835) Rescissions - - (10) (36) - (2) Bonus (Recapture) - - 7 12 4 5 Contract Maintenance Charge (Note 2) (1) (3) (34) (48) (6) (11) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (238) (888) (28,677) (37,857) (7,951) (7,292) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (1,163) (546) (73,290) (33,214) (16,625) (4,023) Net Assets at Beginning of Period 2,408 2,954 126,765 159,979 26,746 30,769 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 1,245 2,408 53,475 126,765 10,121 26,746 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 64
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Templeton Developing SP International Templeton Asset Markets Securities Growth Portfolio Strategy Fund Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (119) (349) 1,159 2,576 2,394 1,948 Realized Gains (Losses) on Investments, Net (1,337) 5,479 644 3,572 (37,124) 73,177 Net Change in Unrealized Appreciation (Depreciation) on Investments (11,813) (1,916) (5,440) (4,781) (132,011) 4,432 ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (13,269) 3,214 (3,637) 1,367 (166,741) 79,557 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 212 263 7 3 2,561 7,803 Transfers Between Funds (Note 2) (6,061) 5,978 (360) (462) (159,531) (62,469) Surrenders and Terminations (1,728) (1,875) (1,467) (2,844) (18,240) (33,336) Rescissions (76) (2) - - (414) (112) Bonus (Recapture) 1 3 - - 16 77 Contract Maintenance Charge (Note 2) (5) (5) (5) (5) (65) (107) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (7,657) 4,362 (1,825) (3,308) (175,673) (88,144) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (20,926) 7,576 (5,462) (1,941) (342,414) (8,587) Net Assets at Beginning of Period 29,477 21,901 15,017 16,958 342,414 351,001 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 8,551 29,477 9,555 15,017 - 342,414 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 65
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Templeton Global Templeton Foreign Income Securities Templeton Growth Securities Fund Fund Securities Fund ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 2,887 2,090 2,533 192 1,055 (2,756) Realized Gains (Losses) on Investments, Net 32,025 51,002 575 995 (14,210) 71,050 Net Change in Unrealized Appreciation (Depreciation) on Investments (195,626) 5,188 89 2,249 (312,302) (66,815) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (160,714) 58,280 3,197 3,436 (325,457) 1,479 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 2,627 17,459 43,547 16,305 78,480 195,669 Transfers Between Funds (Note 2) (55,926) (35,142) 5,248 42,634 (210,750) (89,312) Surrenders and Terminations (37,006) (55,227) (10,417) (5,874) (58,374) (79,585) Rescissions (88) (665) (1,256) (352) (3,117) (4,416) Bonus (Recapture) 34 133 389 221 668 1,719 Contract Maintenance Charge (Note 2) (128) (214) (30) (13) (213) (291) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (90,487) (73,656) 37,481 52,921 (193,306) 23,784 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (251,201) (15,376) 40,678 56,357 (518,763) 25,263 Net Assets at Beginning of Period 443,786 459,162 84,083 27,726 870,214 844,951 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 192,585 443,786 124,761 84,083 351,451 870,214 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 66
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Van Kampen LIT Van Kampen LIT Capital Growth Van Kampen LIT Growth and Income Portfolio Enterprise Portfolio Portfolio ----------- ---------- ----------- ---------- ----------- ---------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ (41) (78) (1) (2) 4 - Realized Gains (Losses) on Investments, Net (15) 181 (12) (14) 29 61 Net Change in Unrealized Appreciation (Depreciation) on Investments (1,595) 496 (57) 34 (353) (47) ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets From Operations (1,651) 599 (70) 18 (320) 14 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions-All Products (Note 5) Purchase Payments 4 - 42 - 30 - Transfers Between Funds (Note 2) (356) (736) (10) (23) (10) (18) Surrenders and Terminations (590) (1,038) (12) (32) (43) (64) Rescissions - - - - - - Bonus (Recapture) - - - - - - Contract Maintenance Charge (Note 2) (2) (2) - - - - ----------- ---------- ----------- ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (944) (1,776) 20 (55) (23) (82) ----------- ---------- ----------- ---------- ----------- ---------- Increase (Decrease) in Net Assets (2,595) (1,177) (50) (37) (343) (68) Net Assets at Beginning of Period 4,019 5,196 149 186 975 1,043 ----------- ---------- ----------- ---------- ----------- ---------- Net Assets at End of Period $ 1,424 4,019 99 149 632 975 ----------- ---------- ----------- ---------- ----------- ----------
See Accompanying Notes to Financial Statements 67
ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Financial Statements (continued) Statements of Changes in Net Assets (continued) For the year ended December 31, 2008 and 2007 (In thousands) Total All Funds ----------------- ------------------ 2008 2007 ----------------- ------------------ Increase (Decrease) in Net Assets: Operations: Investment Income (Loss), Net $ 80,653 (11,931) Realized Gains (Losses) on Investments, Net (448,324) 1,447,938 Net Change in Unrealized Appreciation (Depreciation) on Investments (5,911,447) (867,050) ----------------- ------------------ Net Increase (Decrease) in Net Assets From Operations (6,279,118) 568,957 ----------------- ------------------ Contract Transactions-All Products (Note 5) Purchase Payments 3,047,102 3,258,668 Transfers Between Funds (Note 2) (3,731,722) (1,282,366) Surrenders and Terminations (1,528,500) (1,816,227) Rescissions (103,362) (82,542) Bonus (Recapture) 33,882 39,790 Contract Maintenance Charge (Note 2) (4,734) (5,608) ----------------- ------------------ Net Increase (Decrease) in Net Assets Resulting From Contract Transactions (2,287,334) 111,715 ----------------- ------------------ Increase (Decrease) in Net Assets (8,566,452) 680,672 Net Assets at Beginning of Period 19,849,987 19,169,315 ----------------- ------------------ Net Assets at End of Period $11,283,535 $19,849,987 ----------------- ------------------
(A) Period from May 1, 2008 (fund commencement) to December 31, 2008 (B) Period from May 1, 2007 (fund commencement) to December 31, 2007 See Accompanying Notes to Financial Statements 68 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements December 31, 2008 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 invest, at net asset values, in one or more of select portfolios of AIM Variable Insurance Funds, Inc., The Alger American Fund, Allianz Investment Management, LLC, BlackRock Advisors, Inc., Davis Variable Account Fund, Inc., Dreyfus Service Corporation, Franklin Templeton Variable Insurance Products Trust (formerly, Franklin Valuemark Funds), J.P. Morgan Series Trust II, OpCap Advisors, LLC, Oppenheimer Variable Account Funds, Pacific Investment Management Company, Prudential Investments Fund Management, LLC, Seligman Portfolios, Inc., LLC, Van Kampen Life Investment Trust and William Blair & Company LLC, in accordance with the selection made by the contract owner. Not all portfolios are available as investment options for the products, which comprise the Variable Account. The investment advisers and Specialist Manager for each portfolio are listed in the following table.
Portfolio Investment Adviser Specialist Manager/Adviser ----------- ----------------------- --------------------------- AIM V.I. Capital Appreciation Fund Invesco AIM Advisors, Inc. N/A AIM V.I. Core Equity Fund Invesco AIM Advisors, Inc. N/A AIM V.I. International Growth Fund Invesco AIM Advisors, Inc. N/A Alger American Capital Appreciation Portfolio Fred Alger Management, Inc. N/A Alger American LargeCap Growth Portfolio Fred Alger Management, Inc. N/A Alger American MidCap Growth Portfolio Fred Alger Management, Inc. N/A Alger American SmallCap Growth Portfolio Fred Alger Management, Inc. N/A AZL AIM International Equity Fund * t Allianz Investment Management, LLC Invesco Aim Capital Management, Inc. AZL BlackRock Capital Appreciation Fund * t Allianz Investment Management, LLC BlackRock Capital Management, Inc. AZL Columbia Mid Cap Value Fund t Allianz Investment Management, LLC Columbia Management Advisors, LLC AZL Columbia Small Cap Value Fund t Allianz Investment Management, LLC Columbia Management Advisors, LLC AZL Columbia Technology Fund * t Allianz Investment Management, LLC Columbia Management Advisors, LLC AZL Davis NY Venture Fund * t Allianz Investment Management, LLC Davis Selected Advisers, L.P. AZL Dreyfus Founders Equity Growth Fund * t Allianz Investment Management, LLC Founders Asset Management, LLC AZL First Trust Target Double Play Fund t Allianz Investment Management, LLC First Trust Adivsors L.P. AZL Franklin Small Cap Value Fund * t Allianz Investment Management, LLC Franklin Advisory Services LLC AZL Fusion Balanced Fund t Allianz Investment Management, LLC Allianz Investment Management, LLC AZL Fusion Growth Fund t Allianz Investment Management, LLC Allianz Investment Management, LLC AZL Fusion Moderate Fund t Allianz Investment Management, LLC Allianz Investment Management, LLC AZL Jennison 20/20 Focus Fund * t Allianz Investment Management, LLC Jennison Associates LLC AZL Legg Mason Growth Fund * t Allianz Investment Management, LLC Legg Mason Funds Management, Inc. AZL Legg Mason Value Fund * t Allianz Investment Management, LLC Legg Mason Funds Management, Inc. AZL Money Market Fund * t Allianz Investment Management, LLC BlackRock Institutional Management Corporation AZL NACM International Fund t Allianz Investment Management, LLC Nicholas Applegate Capital Management, Inc. AZL OCC Opportunity Fund * t Allianz Investment Management, LLC Oppenheimer Capital, LLC AZL Oppenheimer Global Fund * t Allianz Investment Management, LLC OppenheimerFunds, Inc. AZL Oppenheimer International Growth Fund * Allianz Investment Management, LLC OppenheimerFunds, Inc. AZL Oppenheimer Main Street Fund * t Allianz Investment Management, LLC OppenheimerFunds, Inc. AZL PIMCO Fundamental IndexPLUS Total Return Allianz Investment Management, LLC Pacific Investment Management Company LLC AZL S&P 500 Index Fund t Allianz Investment Management, LLC The Dreyfus Corporation AZL Schroder Emerging Markets Equity Fund Cl1 Allianz Investment Management, LLC Schroder Investment Management NA Inc. AZL Schroder Emerging Markets Equity Fund Cl2 Allianz Investment Management, LLC Schroder Investment Management NA Inc. AZL Schroder International Small Cap Fund t Allianz Investment Management, LLC Schroder Investment Management NA Inc. AZL Small Cap Stock Index Fund t Allianz Investment Management, LLC The Dreyfus Corporation AZL TargetPLUS Balanced Fund t Allianz Investment Management, LLC First Trust Adivsors L.P./PacificInvstMgmtCoLLC AZL TargetPLUS Equity Fund t Allianz Investment Management, LLC First Trust Adivsors L.P.
69 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 1. ORGANIZATION (CONTINUED)
Portfolio Investment Adviser Specialist Manager/Adviser --------- --------------------- -------------------------- AZL TargetPLUS Growth Fund t Allianz Investment Management, LLC FirstTrustAdivsorsL.P./PacificInvst MgmtCoLLC AZL TargetPLUS Moderate Fund t Allianz Investment Management, LLC FirstTrustAdivsorsL.P./PacificInvst MgmtCoLLC AZL Turner Quantitative Small Cap Growth Fund Allianz Investment Management, LLC Turner Investment Partners, Inc. AZL Van Kampen Comstock Fund * t Allianz Investment Management, LLC Van Kampen Asset Management, Inc. AZL Van Kampen Equity and Income Fund * t Allianz Investment Management, LLC Van Kampen Asset Management, Inc. AZL Van Kampen Global Franchise Fund * t Allianz Investment Management, LLC Van Kampen Asset Management, Inc. AZL Van Kampen Global Real Estate Fund * t Allianz Investment Management, LLC Van Kampen Asset Management, Inc. AZL Van Kampen Growth and Income Fund * t Allianz Investment Management, LLC Van Kampen Asset Management, Inc. AZL Van Kampen Mid Cap Growth Fund * t Allianz Investment Management, LLC Van Kampen Asset Management, Inc. BlackRock Global Allocations V.I. Fund BlackRock Investment Management,LLC N/A Davis VA Financial Portfolio Davis Selected Advisers, LP N/A Davis VA Real Estate Portfolio Davis Selected Advisers, LP N/A Davis VA Value Portfolio Davis Selected Advisers, LP N/A Franklin Global Communications Securities Fund Franklin Advisers, Inc. N/A Franklin Growth and Income Securities Fund * Franklin Advisers, Inc. N/A Franklin High Income Securities Fund * Franklin Advisers, Inc. N/A Franklin Income Securities Fund * Franklin Advisers, Inc. N/A Franklin Large Cap Growth Securities Fund * Franklin Advisers, Inc. N/A Franklin Money Market Fund * Franklin Advisers, Inc. N/A Franklin Real Estate Fund * Franklin Templeton Institutional, N/A Franklin Rising Dividends Securities Fund * Franklin Advisory Services, LLC N/A Franklin Small Cap Value Securities Fund * Franklin Advisory Services, LLC N/A Franklin Small-Mid Cap Growth Securities Fund Franklin Advisers, Inc. N/A Franklin Templeton VIP Founding Funds Allocation FranklindTempleton Services, LLC N/A Franklin U.S. Government Fund * Franklin Advisers, Inc. N/A Franklin Zero Coupon Fund 2010 Franklin Advisers, Inc. N/A J.P. Morgan International Opportunities Port J.P.oMorgan Investment Management N/A J.P. Morgan U.S. Large Cap Core Equity Portfolio J.P. Morgan Investment Management N/A Mutual Discovery Securities Fund * Franklin Mutual Advisers, LLC N/A Mutual Shares Securities Fund * Franklin Mutual Advisers, LLC N/A OpCap Mid Cap Portfolio t Allianz Global Invsetors Fund Mana N/A Oppenheimer Global Securities Fund/VA OppenheimerFunds, Inc. N/A Oppenheimer High Income Fund/VA OppenheimerFunds, Inc. N/A Oppenheimer Main Street Fund/VA OppenheimerFunds, Inc. N/A PIMCO VIT All Asset Portfolio t Pacific Investment Management Comp N/A PIMCO VIT CommodityRealReturn Strategy Portf Pacific Investment Management Comp N/A PIMCO VIT Emerging Markets Bond Portfolio t Pacific Investment Management Comp N/A PIMCO VIT Global Bond Portfolio t Pacific Investment Management Comp N/A PIMCO VIT High Yield Portfolio t Pacific Investment Management Comp N/A PIMCO VIT Real Return Portfolio t Pacific Investment Management Comp N/A PIMCO VIT StocksPLUS Growth and Income Portf Pacific Investment Management Comp N/A PIMCO VIT Total Return Portfolio t Pacific Investment Management Comp N/A Seligman Global Technology Portfolio J & W Seligman & Co. Inc. N/A Seligman Small-Cap Value Portfolio J & W Seligman & Co. Inc. N/A SP Strategic Partners Focused Growth Portfolio Prudential Investments LLC N/A SP International Growth Portfolio * Prudential Investments LLC N/A Templeton Asset Strategy Fund * Templeton Investment Counsel, LLC N/A
70 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 1. ORGANIZATION (CONTINUED)
Portfolio Investment Adviser Specialist Manager/Adviser ----------- ----------------------------- -------------------------- Templeton Foreign Securities Fund * Templeton Investment Counsel, LLC N/A Templeton Global Income Securities Fund * Franklin Advisers, Inc. N/A Templeton Growth Securities Fund * Templeton Global Advisors Limited N/A Van Kampen LIT Capital Growth Portfolio Van Kampen Asset Management, Inc. N/A Van Kampen LIT Enterprise Portfolio Van Kampen Asset Management, Inc. N/A Van Kampen LIT Growth and Income Portfolio Van Kampen Asset Management, Inc. N/A
* Portfolio contains class 2 shares which assess 12b-1 fees. {t} The investment adviser of this fund is an affiliate of Allianz Life and is paid an investment management fee by the fund. 2.SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) 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 each day the markets are open at fair value using net asset values provided by the investment advisers of the portfolios after the 4 PM Eastern market close. On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" - This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The changes to current GAAP from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and expanded disclosures about fair value measurements. Various inputs are used in determining the value of a Funds' investments under SFAS No. 157 guidance. The inputs are summarized into three broad categories. Level 1 includes valuations based on quoted prices of identical securities in active markets. Level 2 includes valuations for which all significant inputs are observable, either directly or indirectly. Direct observable inputs include closing prices of similar securities in active markets or closing prices for identical or similar securities in non-active markets. Indirect observable inputs include factors such as interest rates, yield curves, prepayment speeds, and credit risks. Level 3 includes valuations based on inputs that are unobservable and significant to the fair value measurement including a Funds' own assumptions in determining the fair value of the investment. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. As of December 31, 2008, all of the Separate Account's investments are in funds for which quoted prices are available in an active market. Therefore, all investments have been categorized as Level 1. The characterization of the underlying securities held by the funds in accordance with SFAS No. 157 differs from the characterization of an investment in the fund. Realized gains on investments include realized gain distributions received from the respective portfolios and gains on the sale of portfolio shares as determined by the average cost method. Realized gain distributions are reinvested in the respective portfolios. Dividend distributions received from the portfolios are reinvested in additional shares of the portfolios and are recorded as income to the Variable Account on the ex-dividend date. Three Fixed Account investment options are available to deferred annuity contract owners. A Flexible Fixed Option is available to Valuemark II, Valuemark III, Allianz Valuemark IV, Allianz Rewards, and Allianz Alterity deferred annuity contract owners. Fixed Period Accounts are available to Allianz High Five and Allianz High Five Bonus contract owners. A Dollar Cost Averaging Option is available to Allianz Valuemark II, Allianz Valuemark III, Allianz Valuemark IV, Allianz Rewards, Allianz Alterity, Allianz High Five, Allianz High Five Bonus, and Allianz Vision 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, including the guaranteed minimum rate of return on the Fixed Account of 3%, are part of the general obligations of Allianz Life and are not included in the Variable Account. Certain of the sub-accounts invest in Investment Options that invest in various forms of fixed income securities, including mortgage backed securities. These types of securities may present a variety of potential risks, including credit risk, extension and prepayment risk, and interest rate risk. Recently, certain types of mortgage backed securities, such as structured investment vehicles (SIVs), subprime mortgage backed bonds, and commercial paper backed by mortgage backed securities have experienced losses as a result of defaults on underlying mortgages and a lack of liquidity. These securities have also been subject to price declines resulting from lack of a trading market for the securities. As a result of the lack of liquidity, it is possible that certain securities may become more difficult to value. It is possible that these types of securities may continue to experience price declines as a result of defaults and lack of liquidity. 71 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENTS (CONTINUED) Available investment options, including the date the investment option became available for each product, as of December 31, 2008 are listed in the following table.
Allianz Allianz Allianz High Allianz Valuemark Allianz Allianz Allianz High Five High Allianz II and Valuemark Allianz Portfolio Alterity Connections Five Bonus Five L Rewards III IV Vision --------- ---------- -------- --------- -------- --------- --------- --------- ------- AZL AIM International 5/1/2002 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/1/2002 5/1/2002 5/1/2002 5/1/2007 Equity Fund AZL BlackRock Capital Appreciation Fund 5/2/2005 11/12/2007 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 AZL Columbia Mid Cap Value Fund 5/1/2006 11/12/2007 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2007 AZL Columbia Small Cap Value Fund 5/3/2004 11/12/2007 5/3/2004 5/3/2004 5/2/2005 5/3/2004 5/3/2004 5/3/2004 5/1/2007 AZL Columbia Technology Fund 11/6/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 11/5/2001 11/5/2001 5/1/2007 AZL Davis NY Venture Fund 11/6/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 11/5/2001 11/5/2001 5/1/2007 AZL Dreyfus Founders Equity Growth Fund 11/6/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 11/5/2001 11/5/2001 5/1/2007 AZL First Trust Target Double Play Fund 12/28/2006 11/12/2007 12/28/2006 12/28/2006 12/28/2006 12/28/2006 12/28/2006 12/28/20065/1/2007 AZL Franklin Small Cap Value Fund 5/1/2003 11/12/2007 5/1/2003 5/3/2004 5/2/2005 5/1/2003 5/1/2003 5/1/2003 5/1/2007 AZL Fusion Balanced Fund 5/2/2005 11/12/2007 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 AZL Fusion Growth Fund 5/2/2005 11/12/2007 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 AZL Fusion Moderate Fund 5/2/2005 11/12/2007 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 AZL Jennison 20/20 Focus Fund 5/2/2005 11/12/2007 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 AZL Legg Mason Growth Fund 5/1/2002 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/1/2002 5/1/2002 5/1/2002 5/1/2007 AZL Legg Mason Value Fund 11/6/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 11/5/2001 11/5/2001 5/1/2007 AZL Money Market Fund 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2001 11/5/2001 11/5/2001 5/1/2007 AZL NACM International Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL OCC Opportunity Fund 5/1/2002 11/12/2007 5/1/2002 5/1/2004 5/2/2005 5/1/2002 5/1/2002 5/1/2002 5/1/2007 AZL Oppenheimer Global Fund 5/3/2004 11/12/2007 5/3/2004 5/3/2004 5/2/2005 5/3/2004 5/3/2004 5/3/2004 5/1/2007 AZL Oppenheimer International Growth Fund 11/6/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 11/5/2001 11/5/2001 5/1/2007 AZL Oppenheimer Main Street Fund 5/3/2004 11/12/2007 5/3/2004 5/3/2004 5/2/2005 5/3/2004 5/3/2004 5/3/2004 5/1/2007 AZL PIMCO Fundamental IndexPLUS Total Return Fund 5/1/2006 11/12/2007 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2007 AZL S&P 500 Index Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL Schroder Emerging Markets Equity Fund CL 2 5/1/2006 11/12/2007 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2007 AZL Schroder International Small Cap Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL Small Cap Stock Index Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL TargetPLUS Balanced Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL TargetPLUS Equity Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL TargetPLUS Growth Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 AZL TargetPLUS Moderate Fund 5/1/2007 11/12/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007 5/1/2007
72 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENTS (CONTINUED)
Allianz Allianz Allianz High Allianz Valuemark Allianz Allianz Allianz High Five High Allianz II and Valuemark Allianz Portfolio Alterity Connections Five Bonus Five L Rewards III IV Vision -------- ---------- --------- -------- -------- -------- -------- --------- ------- AZL Turner Quantitative 5/2/2005 11/12/2007 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 Small Cap Growth Fund AZL Van Kampen Comstock Fund 5/1/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/1/2001 5/1/2001 5/1/2001 5/1/2007 AZL Van Kampen Equity and Income Fund 5/3/2004 11/12/2007 5/3/2004 5/3/2004 5/2/2005 5/3/2004 5/3/2004 5/3/2004 5/1/2007 AZL Van Kampen Global Franchise Fund 5/1/2003 11/12/2007 5/1/2003 5/3/2004 5/2/2005 5/1/2003 5/1/2003 5/1/2003 5/1/2007 AZL Van Kampen Global Real Estate Fund 5/1/2006 11/12/2007 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2007 AZL Van Kampen Growth and Income Fund 5/1/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/1/2001 5/1/2001 5/1/2001 5/1/2007 AZL Van Kampen Mid Cap Growth Fund 5/1/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/1/2001 5/1/2001 5/1/2001 5/1/2007 BlackRock Global Allocations V.I. Fund 5/1/2008 5/1/2008 5/1/2008 5/1/2008 5/1/2008 5/1/2008 5/1/2008 5/1/2008 5/1/2008 Davis VA Financial Portfolio 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 5/1/2002 5/1/2002 5/1/2007 Franklin Global Communications Securities Fund 11/5/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 1/24/1989 2/3/1997 5/1/2007 Franklin High Income Securities Fund 11/5/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 1/24/1989 2/3/1997 5/1/2007 Franklin Income Securities Fund 11/5/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 1/24/1989 2/3/1997 5/1/2007 Franklin Templeton VIP Founding Funds Allocation Fund 9/25/2007 11/12/2007 9/25/2007 9/25/2007 9/25/2007 9/25/2007 9/25/2007 9/25/2007 5/1/2007 Franklin U.S. Government Fund 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 3/14/1989 2/3/1997 5/1/2007 Franklin Zero Coupon Fund 2010 11/5/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 3/14/1989 2/3/1997 5/1/2007 Mutual Discovery Securities Fund 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 11/8/1996 2/3/1997 5/1/2007 Mutual Shares Securities Fund 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 11/8/1996 2/3/1997 5/1/2007 OpCap Mid Cap Portfolio 5/1/2006 11/12/2007 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2006 5/1/2007 PIMCO VIT All Asset Portfolio 5/3/2004 11/12/2007 5/3/2004 5/3/2004 5/2/2005 5/3/2004 5/3/2004 5/3/2004 5/1/2007 PIMCO VIT CommodityRealReturn Strategy Portfolio 5/2/2005 11/12/2007 5/2/2005 5/2/2006 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 PIMCO VIT Emerging Markets Bond Portfolio 5/2/2005 11/12/2007 5/2/2005 5/2/2006 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 PIMCO VIT Global Bond Portfolio 5/2/2005 11/12/2007 5/2/2005 5/2/2006 5/2/2005 5/2/2005 5/2/2005 5/2/2005 5/1/2007 PIMCO VIT High Yield Portfolio 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 11/5/2001 11/5/2001 5/1/2007 PIMCO VIT Real Return Portfolio 5/1/2003 11/12/2007 5/1/2003 5/3/2004 5/2/2005 5/1/2003 5/1/2003 5/1/2003 5/1/2007 PIMCO VIT Total Return Portfolio 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 11/5/2001 11/5/2001 5/1/2007 Templeton Global Income Securities Fund 11/5/2001 11/12/2007 10/25/2002 5/3/2004 5/2/2005 11/5/2001 1/27/1992 2/3/1997 5/1/2007 Templeton Growth Securities Fund 2/1/2000 11/12/2007 10/25/2002 5/3/2004 5/2/2005 5/5/2000 3/15/1994 2/3/1997 5/1/2007
73 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENTS (CONTINUED) During the years ended December 31, 2008 and 2007, several portfolios changed their name as summarized with the effective date of the change, in the following table.
Current Portfolio Name Prior Portfolio Name Effective Date ------------------------ ------------------------ ----------------------- AZL Turner Quantitative Small Cap Growth Fund AZL LMP Small Cap Growth Fund June 26, 2007 AZL Schroder Emerging Markets Equity Fund CL 2 AZL Oppenheimer Developing Markets Fund December 7, 2007 Alger American Capital Appreciation Portfolio Alger American Leveraged AllCap Portfolio May 1, 2008 Alger American LargeCap Growth Portfolio Alger American Growth Portfolio May 1, 2008 Alger American SmallCap Growth Portfolio Alger American Small Capitalization PortfolioMay 1, 2008 Van Kampen LIT Capital Growth Portfolio Van Kampen LIT Strategic Growth Portfolio May 1, 2008 AZL Columbia Small Cap Value Fund AZL Dreyfus Premier Small Cap Value Fund September 20, 2008 AZL BlackRock Capital Appreciation fund AZL Jennison Growth fund November 21, 2008 AZL Columbia Mid Cap Value Fund AZL Neuberger Regency Fund November 21, 2008
During the years ended December 31, 2008 and 2007, no portfolios were closed to new money. During the years ended December 31, 2008 and 2007, several portfolios merged or replaced. The portfolio names and effective date of the mergers or replacements are summarized in the following table.
Closed Portfolio Receiving Portfolio Date Merged -------------------- -------------------------- --------------------- AZL AIM Basic Value Fund AZL Van Kampen Comstock Fund September 21, 2007 AZL Van Kampen Strategic Equity Growth Fund AZL Dreyfus Founders Equity Growth Fund September 21, 2007 AZL OCC Renaissance Fund AZL OCC Value Fund September 21, 2007 AZL Van Kampen Aggressive Growth Fund AZL Van Kampen Mid Growth Fund September 21, 2007 Jennison 20/20 Focus Portfolio AZL Jennison 20/20 Fucus Fund September 20, 2008 Dreyfus Stock Index Fund AZL S&P 500 Index Fund September 20, 2008 Dreyfus IP Small Cap Stock Index Portfolio AZL Small Cap Stock Index Fund September 20, 2008 AZL LMP Large Cap Growth Fund AZL Legg Mason Growth Fund November 21, 2008 AZL OCC Value Fund AZL Davis NY Venture Fund November 21, 2008 Templeton Developing Markets Securities Fund AZL Schroder Emerging Markets Equity Fund CL November 21, 2008 Templeton Developing Markets Securities Fund AZL Schroder Emerging Markets Equity Fund CL November 21, 2008
CONTRACTS IN ANNUITY PAYMENT PERIOD Annuity reserves are computed for currently payable contracts according to the 1983 and 2000 Individual Annuity Mortality Tables, 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. 74 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREMIUM BONUS A premium bonus is awarded to the contract owner of the Allianz Rewards, Allianz High Five Bonus and Allianz Vision Bonus products at the time of deposit. The bonus paid is based on the following schedule.
Allianz Rewards Allianz High Five Bonus Allianz Vision Bonus Net Deposit Bonus Paid Bonus Paid Bonus Paid ----------- ---------- ------------ ----------- $0 to $14,999 0% 0% 6% $15,000 to $24,999 4% 3% 6% $25,000 to $99,000 5% 4% 6% $100,000 to $999,999 6% 5% 6% $1,000,000 to $4,999,999 7% 6% 6% $5,000,000 or more 8% 7% 6%
The bonus is vested over three years; therefore, if the contract owner surrenders the policy before the full vesting period, a portion of the bonus can be lost. The accumulated gain/loss on the bonus is 100% vested as it is earned. The vesting rates are presented in the following schedule.
Allianz Rewards Allianz High Five Bonus Allianz Vision Bonus Months Following Deposit Amount Vested Amount Vested Amount Vested ------------------------ -------------- ------------- ------------------- 0 to 12 0% 0% 0% 13 to 24 35% 35% 35% 25 to 36 70% 70% 70% 37+ 100% 100% 100%
The M&E charge and administrative charge for Allianz Alterity can be summarized as follows: The currently offered Allianz Alterity Base Contract provides a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB), where the death benefit is the greater of current contract value or total purchase payments adjusted for partial withdrawals. If an owner so chooses, they can instead select either the Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB), or the Earnings Protection Guaranteed Minimum Death Benefit (Earnings Protection GMDB). Under the Enhanced GMDB, the death benefit is the current contract value or the greater of: a) the highest contract anniversary value, or (b) total purchase payments adjusted for partial withdrawals increased annually by 3%. Under the Earnings Protection GMDB, the death benefit is the current contract value or the greater of: a) total purchase payments adjusted for partial withdrawals, or b) contract value plus an additional amount based on the owner's age and the lesser of total purchase payments or contract value. The currently offered Allianz Alterity Contract also provides an optional PRIME Plus Benefit, which includes a Guaranteed Minimum Income Benefit (GMIB) and a Guaranteed Partial Withdrawal Benefit (GPWB). The PRIME Plus Benefit provides a guaranteed minimum fixed income stream and is designed for owners who want flexibility in the way they access income. The guaranteed income is based on the greater of: (a) current contract value, (b) the highest contract anniversary value, or (c) total purchase payments adjusted for partial withdrawals increased annually by 7%. 75 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) There are also two older versions of the Allianz Alterity Contract that are no longer offered for sale. The May 2003 Contract was replaced by the currently offered Contract in May 2006. The primary difference between May 2003 Contract and the currently offered Contract is the May 2003 Contracts offered a choice of either the Traditional PRIME Benefit (where the guaranteed value is based on total purchase payments adjusted for partial withdrawals) or the Enhanced PRIME Benefit [where the guaranteed values are based on the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3%]. Both PRIME Benefits included a GMIB and a GPWB. The Original Contract was first offered in January 2000 and was replaced by the May 2003 Contract. The Original Contract automatically provided a Traditional GMIB (where the guaranteed value is based on total purchase payments adjusted for partial withdrawals), or owners could select the optional Enhanced GMIB for an additional charge [where the guaranteed values are based on the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 5%].
Charges during the Original Original Currently Offered May 2003 Currently Offered Contract with the PRIME Plus Accumulation Phase Contract Contract Base Contract and Contract with Benefit and May 2003 Contract with the Enhanced (includes 0.15% of (which with May 2003 Contract the PRIME Benefit administrative includes the Enhanced without a PRIME Traditional charge) Traditional GMIB Benefit PRIME Benefit GMIB) ------------------------------------------------------------------------------------------------------------------------------------ Traditional GMDB 1.40% 1.70% 1.50% 1.70% 2.20% (Traditional (Optional (Traditional - (Traditional (Traditional - Option 5) - Option 1) - Option Option 3) - Option 4) 1) Earnings Protection 1.60% 1.90% 1.80% 2.00% 2.45% GMDB (Traditional (Optional (Optional - Option (Optional - (Optional - Option 5) -Option 2) - Option 3) Option 4) 2) Enhanced GMDB 1.70% 1.90% 1.80% 1.95% 2.40% (Optional - (Enhanced - (Enhanced - (Enhanced - Option 5) Option 1) (Enhanced Option 3) Option 4) - Option 1)
The charges during the Annuity Phase if the owner takes variable annuity payments are 1.50% for the currently offered Allianz Alterity Contract and the May 2003 Contract; and the charges are 1.40% for the Original Contract. The M&E charge and administrative charge for Allianz Rewards can be summarized as follows: The currently offered Allianz Rewards Base Contract automatically provides a bonus of 4% to 8% on each purchase payment received before age 81. The bonus is subject to a three-year vesting schedule. The currently offered Allianz Rewards Base Contract provides a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB), where the death benefit is the greater of current contract value or total purchase payments adjusted for partial withdrawals. If an owner so chooses, they can instead select the Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB). Under the Enhanced GMDB, the death benefit is the current contract value or the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3%. The currently offered Allianz Rewards Contract also provides an optional PRIME Plus Benefit, which includes a Guaranteed Minimum Income Benefit (GMIB) and a Guaranteed Partial Withdrawal Benefit (GPWB). The PRIME Plus Benefit provides a guaranteed minimum fixed income stream and is designed for owners who want flexibility in the way they access income. The guaranteed income is based on the greater of: (a) current contract value, (b) the highest contract anniversary value, or (c) total purchase payments adjusted for partial withdrawals increased annually by 7%. There are also three older versions of the Allianz Rewards Contract that are no longer offered for sale. The Original Contract was first offered in May 2000. The primary difference between the Original Contract and the currently offered Contract is the mortality and expense risk (M&E) charge for the Original Contract without any optional benefits is lower than the currently offered Contract, and the Original Contract also offered a choice of either the Traditional PRIME Benefit (where the guaranteed value is based on total purchase payments adjusted for partial withdrawals) or Enhanced PRIME Benefit [where the guaranteed values are based on the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3%]. Both PRIME Benefits included a GMIB and a GPWB. The September 2002 Contract without any optional benefits had the same M&E charge as the Original Contract, but the September 2002 Contract only offered an Enhanced GMIB for an additional charge [where the guaranteed values are based on the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 5%], but did not offer a PRIME Benefit. The May 2003 Contract replaced both the Original Contract and the September 2002 Contract. The May 2003 Contract also offered a choice of either the Traditional PRIME Benefit or Enhanced PRIME Benefit that were available on the Original Contract, but the charge for these features was higher than for the Original Contract. 76 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED)
Charges Original Contract Original Original September 2002 September 2002 Currently Offered during the without a PRIME Contract with Contract with Contract without the Contract with the Base Contract and Accumulation Benefit the the Enhanced GMIB Enhanced GMIB May 2003 Contract Phase (includes Traditional PRIME Benefit without a PRIME 0.15% of PRIME Benefit Benefit administrative charge) ------------------------------------------------------------------------------------------------------------------------------------ Traditional 1.65% 1.85% 2.35% 1.65% 1.95% 1.70% GMDB (Traditional-Option (Traditional- (Traditional- (Traditional-Option (Traditional-Option (Traditional-Option 1) Option 7) Option 8) 1) 2) 4) Enhanced GMDB 1.85% 2.05% 2.55% 1.95% (Enhanced- 2.15% 2.00% (Enhanced- (Enhanced-Option 1) (Enhanced- (Enhanced- Option 2) (Enhanced-Option 3) Option 4) Option 7) Option 8)
Charges May 2003 Currently during the Contract with Offered Accumulation the Contract with Phase (includes Traditional the PRIME 0.15% of PRIME Benefit Plus Benefit administrative and a May charge) 2003 Contract with the Enhanced PRIME Benefit --------------------------------------------- Traditional 1.90% 2.40% GMDB (Traditional- (Traditional- Option 5) Option 6) Enhanced GMDB 2.15% 2.60% (Enhanced- (Enhanced- Option 5) Option 6) The charges during the Annuity Phase if the owner takes variable annuity payments are 1.70% for the currently offered Allianz Rewards Contract and the May 2003 Contract; and the charges are 1.65% for the Original Contract and the September 2002 Contract. The M&E charge and administrative charge for Allianz Charter can be summarized as follows: Allianz Charter was launched in January 1999 and sales were discontinued in May 2003. The Charter contract automatically provided a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments less partial withdrawals. For an additional charge, the owner could instead select the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB) where the death benefit is the current contract value or the greater of: a) total purchase payments less partial withdrawals, or b) the highest contract anniversary value.
Charges during the Accumulation Charges during the Annuity Phase if the owner takes variable annuity Phase (includes a 0.15% administrative payments (includes a 0.15% administrative charge) charge) Traditional 1.15% 1.15% GMDB Enhanced 1.35% 1.15% GMDB
The M&E charge for Allianz Charter II can be summarized as follows: Allianz Charter II was launched in May 2003 and sales were discontinued in May 2005. The Charter II contract automatically provided a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. For an additional charge, the owner could instead select either the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB), or the optional Earnings Protections Guaranteed Minimum Death Benefit (Earnings Protection GMDB). Under the Enhanced GMDB, the death benefit is the current contract value or the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3%. Under the Earnings Protection GMDB, the death benefit is the current contract value or the greater of: a) total purchase payments adjusted for partial withdrawals, or b) contract value plus an additional amount based on the owner's age and the lesser of total purchase payments or contract value. The Charter II contract also offered a choice of the Traditional PRIME Benefit (where the guaranteed value is based on total purchase payments adjusted for partial withdrawals) or Enhanced PRIME Benefit [where the guaranteed values are based on the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3% and 7%]. The PRIME Benefits include a Guaranteed Partial Withdrawal Benefit (GPWB) and a Guaranteed Minimum Income Benefit (GMIB). The PRIME Benefits provide guarantees on future income that can be accessed through partial withdrawals under the GPWB or through annuity payments under the GMIB. 77 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED)
M&E charges during the Accumulation Phase Contracts without a PRIME Contracts with the Traditional PRIME Contracts with the Enhanced PRIME Benefit Benefit Benefit ----------------------------------------------------------------------------------------------------------------------------------- Traditional GMDB 1.75% 1.95% 2.45% (Option 1) (Option 4) (Option 7) Enhanced GMDB 2.05% 2.20% 2.65% (Option 2) (Option 5) (Option 8) Earnings Protection 2.05% 2.25% 2.70% GMDB (Option 3) (Option 6) (Option 9)
The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.75%. The M&E charge for Allianz Dimensions can be summarized as follows: Allianz Dimensions was launched in March 2001 and sales were discontinued in May 2002. The Dimensions contract automatically provided a Return of Principal Guaranteed Minimum Death Benefit (Return of Principal GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. In all states except Washington, the owner could instead select either the optional Double Principal Guaranteed Minimum Death Benefit (Double Principal GMDB), or the Earnings Protection Guaranteed Minimum Death Benefit (Earnings Protection GMDB) for an additional charge. Under the Double Principal, GMDB the death benefit is the greater of: a) current contract value, b) the highest contract anniversary value, or c) after the fifth Contract Anniversary, double total purchase payments adjusted for partial withdrawals. Under the Earnings Protection GMDB, the death benefit is the current contract value or the greater of: a) the Return of Principal GMDB, or b) contract value plus an additional amount based on the owner's age and the lesser of either total purchase payments or contract value less total purchase payments. In the state of Washington, the owner could instead select the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB) for an additional charge. Under the Enhanced GMDB, the death benefit is the greater of: a) current contract value, b) the highest contract anniversary value, or c) total purchase payments adjusted for partial withdrawals increased annually by 3%. The Dimensions contract also automatically included the Guaranteed Value Protection (GVP) through the Guaranteed Principal Protector Benefit (GPP Benefit), or the owner could instead select the Guaranteed Performance Accumulator Benefit (GPA Benefit) that was available under the GVP for an additional charge. However, if the contract was owned by a non-individual or trust, the GVP was not available. The GPP Benefit guaranteed the return of principal adjusted for withdrawals. The GPA Benefit locked in the highest contract value every ten years, with the minimum guarantee of two times the total purchase payments adjusted for partial withdrawals at the 20th Contract Anniversary.
M&E charges during the Accumulation Return of Principal Double Principal Earnings Protection GMDB or the Enhanced Phase GMDB GMDB GMDB ------------------------------------------------------------------------------------------------------------------------------------ GPP Benefit or no GVP 1.50% 1.80% 1.70% (Option 1) (Option 3) (Option 5) GPA Benefit 1.70% 2.00% 1.90% (Option 2) (Option 4) (Option 6)
The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.50%. 78 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) The M&E charge for Allianz Elite can be summarized as follows: Allianz Elite was launched in September of 2006 and sales were discontinued December 31, 2007. Allianz Elite featured a decreasing M&E charge. The M&E charge decreases 0.05% each year for three years beginning in the third contract year, until it has decreased by a total of 0.15% by the fifth contract year. Allianz Elite also offered the optional Short Withdrawal Charge Option that reduced the withdrawal charge period from seven years to four years. The Short Withdrawal Charge Option carried an additional M&E charge of 0.35% for the first seven contract years. Allianz Elite automatically provided a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. For an additional 0.30% M&E charge, the owner could instead select the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB) where the death benefit is the current contract value or the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3%. Allianz Elite also offered the optional PRIME Plus Benefit which carried an additional M&E charge. The PRIME Plus Benefit is the only optional benefit that can be selected after the contract is issued and it includes a Guaranteed Partial Withdrawal Benefit (GPWB) and a Guaranteed Minimum Income Benefit (GMIB). The PRIME Plus Benefit provides a guaranteed minimum fixed income stream and is designed for owners who want flexibility in the way they access income. The guaranteed income is based on the greater of: (a) current contract value, (b) the highest contract anniversary value, or (c) total purchase payments adjusted for partial withdrawals increased annually by 7%.
M&E charges during the Accumulation Phase Contracts Contracts with the Short Withdrawal Charge Contracts Contracts with Short Withdrawal Charge with no Option with the Option and the PRIME Plus Benefit* optional PRIME Plus benefits Benefit* ------------------------------------------------------------------------------------------------------------------------------------ Traditional GMDB 1.15% 1.50% decreasing to 1.35% by the 5[th] 1.85% 2.20% decreasing to 2.05% by the 5[th] decreasing contract anniversary and then decreasing to decreasing contract anniversary and then decreasing to to 1.00% by 1.00% by the 7[th] contract anniversary to 1.70% by 1.70% by the 7[th] contract anniversary the 5[th] the 5[th] contract contract anniversary anniversary Enhanced GMDB 1.45% 1.80% decreasing to 1.65% by the 5[th] 2.05% 2.40% decreasing to 2.25% by the 5[th] decreasing contract anniversary and then decreasing to decreasing contract anniversary and then decreasing to to 1.30% by 1.30% by the 7[th] contract anniversary to 1.90% by 1.90% by the 7[th] contract anniversary the 5[th] the 5[th] contract contract anniversary anniversary
*Assumes the PRIME Plus Benefit is selected at contract issue. The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.00%. The M&E charge for Allianz Custom Income can be summarized as follows: Allianz Custom Income was launched in January 2006 and sales were discontinued on December 31, 2007. Allianz Custom Income automatically provided a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) for no additional charge where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. Allianz Custom Income also automatically provides the Total Income Package (TIP) of benefits for an additional M&E charge unless the owner elects otherwise at Contract issue. The TIP includes the Increasing Withdrawals Benefit (IWB), the Withdrawals Plus Benefit (WPB), and the Lifetime Income Benefit (LIB). The IWB guarantees a minimum amount of income in the form of partial withdrawals, and the maximum amount that you are able to withdraw can increase each year. The WPB guarantees a minimum amount of lifetime income in the form of partial withdrawals and continued access to Contract Value. The LIB provides lifetime income in the form of Annuity Payments that are guaranteed never to be less than the initial payment we make, and the payment amount can increase based on the performance of the Investment Options as frequently as every year. The LIB also provides a Liquidation Value that is available for Excess Withdrawals and/or payment of a death benefit for a limited period of time. 79 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED)
M&E charges For Contracts with the TIP For Contracts without the TIP --------------------------------------------------------- During the Accumulation Phase 2.20% 1.45% During the Annuity Phase under the LIB 2.20% During the Annuity Phase under Traditional Annuity Payments 1.45% 1.45%
The M&E charge for Allianz High Five can be summarized as follows: The currently offered Allianz High Five February 2007 Contract automatically provides a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. For an additional charge, the owner can instead select the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB) where the death benefit is the greater of: a) current contract value, b) total purchase payments adjusted for partial withdrawals, or c) the highest contract anniversary value. The February 2007 Contract also automatically provides Living Guarantees unless the owner elects otherwise at Contract issue. The Living Guarantees include the Guaranteed Account Value Benefit (GAV Benefit), the Guaranteed Minimum Income Benefit (GMIB) and the Guaranteed Withdrawal Benefit (GWB). There are no additional fees or charges associated with the Living Guarantees. However, we monitor the contract value daily and systematically transfer amounts between the selected investment options and the Fixed Period Accounts (FPAs) to support the Living Guarantees. Owners that transfer or withdraw contract value from a FPA may have the value of the withdrawal or transfer adjusted based on a formula called a Market Value Adjustment (MVA). The MVA formula compares the interest rates credited at the time of investment, to interest rates being credited when the withdrawal or transfer is made. The amount of any MVA can be either positive or negative, depending on the rates that are currently being credited on the FPAs. The GAV Benefit guarantees that beginning on your fifth contract anniversary, and on each subsequent contract anniversary until the contract terminates or you begin receiving annuity payments, your contract value will be at least equal to an amount we call the Guaranteed Account Value (GAV) from five years ago, reduced by subsequent withdrawals. The GAV is initially equal to the purchase payments received within 90 days of contract issue. The GAV is recalculated on each contract anniversary to equal the greater of: a) the previous GAV adjusted for subsequent purchase payments and partial withdrawals, or b) the current contract value. The GAV Benefit does not provide any protection until the fifth and subsequent contract anniversaries, and does not lock in any investment gains until at least five years after they occur. The GMIB guarantees a minimum level of income through annuity payments after the fifth contract year. The GWB guarantees a minimum level of income through partial withdrawals. There are also three older versions of the Allianz High Five Contract. The Original Contract first became available on September 20, 2002. The Original Contract issued before June 22, 2007 is no longer offered for sale; however, the Original Contract issued on or after June 22, 2007 is still for sale in the state of Washington. The primary difference between the February 2007 Contract and the Original Contract is the Original Contract had fewer restrictions on the availability of certain features and benefits. The May 2005 Contract was replaced by the February 2007 Contract. The primary difference between the February 2007 Contract and the May 2005 Contract is the M&E charge.
M&E charges during the Accumulation February 2007 Contract and May 2005 Contract and Phase Original Contract issued on or after June 22, Original Contract issued before June 22, 2007 2007 ------------------------------------------------------------------------------------------- Traditional GMDB 1.25% 1.40% Enhanced GMDB 1.45% 1.60%
The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.25%. 80 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) The M&E charge and administrative charge for Allianz High Five Bonus can be summarized as follows: The Allianz High Five Bonus May 2007 Contract automatically provides a bonus of 3% to 7% on each purchase payment received before age 81. The bonus is subject to a three-year vesting schedule. The High Five Bonus Contracts also automatically provides a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. For an additional charge, the owner can instead elect the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB) where the death benefit is the greater of: a) current contract value, b) total purchase payments adjusted for partial withdrawals, or c) the highest contract anniversary value. Allianz High Five Bonus also automatically provides Living Guarantees. The Living Guarantees include the Guaranteed Account Value Benefit (GAV Benefit), the Guaranteed Minimum Income Benefit (GMIB) and the Guaranteed Withdrawal Benefit (GWB). There are no additional fees or charges associated with the Living Guarantees. However, we monitor the contract value daily and systematically transfer amounts between your selected Investment Options and the Fixed Period Accounts (FPAs) to support the Living Guarantees. Owners that transfer or withdraw contract value from a FPA may have the value of the withdrawal or transfer adjusted based on a formula called a Market Value Adjustment (MVA). The MVA formula compares the interest rates credited at the time of investment, to interest rates being credited when the withdrawal or transfer is made. The amount of any MVA can be either positive or negative, depending on the rates that are currently being credited on the FPAs. The GAV Benefit guarantees that beginning on your fifth contract anniversary, and on each subsequent contract anniversary until the contract terminates or you begin receiving annuity payments, your contract value will be at least equal to an amount we call the Guaranteed Account Value (GAV) from five years ago, reduced by subsequent withdrawals. The GAV is initially equal to the purchase payments received within 90 days of Contract issue. The GAV is recalculated on each Contract Anniversary to equal the greater of: a) the previous GAV adjusted for subsequent purchase payments and partial withdrawals, or b) the current contract value. The GAV Benefit does not provide any protection until the fifth and subsequent contract anniversaries, and does not lock in any investment gains until at least five years after they occur. The GMIB guarantees a minimum level of income through annuity payments after the fifth contract year. The GWB guarantees a minimum level of income through partial withdrawals. There are also two older versions of the Allianz High Five Bonus Contract. The Original Contract first became available on April 30, 2004 and was replaced in nearly all states by the May 2005 Contract. The May 2005 Contract is being replaced by the May 2007 Contract. The primary difference between the May 2007 Contract and the Original and May 2005 Contracts are the length of the withdrawal charge period. Original and May 2005 Contracts have a ten-year withdrawal charge period and the May 2007 Contract has a nine-year withdrawal charge period. The primary difference between the Original Contract and May 2005 Contract is that Original Contracts have no waiting period on the exercise of the GWB and there are no restrictions on allocations of Purchase Payments to the FPAs.
Charges during the Accumulation Phase (includes a 0.15% administrative charge) Charges ----------------------------------------------------------------------------------------- Traditional GMDB 1.70% Enhanced GMDB 1.90%
The charges during the Annuity Phase if the owner takes variable annuity payments are 1.70%. The M&E charge for Allianz High Five L can be summarized as follows: Allianz High Five L May 2007 Contract automatically provides a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. For an additional charge, the owner can instead elect the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB) where the death benefit is the greater of: a) current contract value, b) total purchase payments adjusted for partial withdrawals, or c) the highest contract anniversary value. 81 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Allianz High Five L also offers optional Living Guarantees. The Living Guarantees include the Guaranteed Withdrawal Benefit (GWB) and either the Guaranteed Principal Value Benefit (GPV Benefit) or the Guaranteed Account Value Benefit (GAV Benefit). There is no additional fee or charge for the Living Guarantees with the GPV Benefit; however, there is an additional M&E charge for selecting the GAV Benefit. In addition, we monitor the contract value daily and systematically transfer amounts between your selected investment options and the Fixed Period Accounts (FPAs) to support the Living Guarantees. Owners that transfer or withdraw contract value from a FPA may have the value of the withdrawal or transfer adjusted based on a formula called a Market Value Adjustment (MVA). The MVA formula compares the interest rates credited at the time of investment, to interest rates being credited when the withdrawal or transfer is made. The amount of any MVA can be either positive or negative, depending on the rates that are currently being credited on the FPAs. The GPV and GAV Benefits guarantee that beginning on your fifth contract anniversary, and on each subsequent contract anniversary until the contract terminates or you begin receiving annuity payments, your contract value will be at least equal to an amount we call the Guaranteed Principal Value (GPV) or Guaranteed Account Value (GAV) from five years ago, reduced by subsequent withdrawals. The GPV and GAV are initially equal to the purchase payments received within 90 days of contract issue. The GPV is recalculated on each contract anniversary to equal the previous GPV adjusted for subsequent Purchase Payments and partial withdrawals. The GAV is recalculated on each contract anniversary to equal the greater of: a) the previous GAV adjusted for subsequent Purchase Payments and partial withdrawals, or b) the current contract value. The GPV and GAV Benefits do not provide any protection until the fifth and subsequent contract anniversaries, and the GAV does not lock in any investment gains until at least five years after they occur. The GWB guarantees a minimum level of income through partial withdrawals. There is also an older version of the Allianz High Five L Contract that is still available in some states. The Original Contract first became available on April 29, 2005. The primary difference between the May 2007 Contract and the Original Contract is the length of the withdrawal charge period. The Original Contract had a three-year withdrawal charge period and the May 2007 Contract has a four- year withdrawal charge period. M&E charges during the Accumulation Phase
Traditional GMDB Enhanced GMDB No Living Guarantees or Living Guarantees with the GPV Benefit 1.65% 1.85% Living Guarantees with the GAV Benefit 1.75% 1.95%
The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.65%. The M&E charge and administrative charge for Allianz Valuemark II and Allianz Valuemark III can be summarized as follows: Allianz Valuemark II was launched in January 1989 and sales were discontinued in June 1994. Allianz Valuemark III was launched in June 1994 and sales were discontinued in February 1997. The Valuemark II and Valuemark III Contracts automatically provided a death benefit of the contract value less any withdrawal charge or contract maintenance charge, or the greater of: a) total purchase payments less partial withdrawals increased by 5% each year, or b) the highest Contract Value from any sixth Contract Anniversary.
Charges during the Accumulation Phase and during the Annuity Phase if the owner takes variable annuity payments (includes a 0.15% administrative charge) ------------------------------------------------------------------------------------------------------------------ Valuemark 1.40% II and Valuemark III
82 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) The M&E charge and administrative charge for Allianz Valuemark IV can be summarized as follows: The Valuemark IV Original Contract was launched in February of 1997 and was replaced by the May 2003 Contract. For Original Contracts that did not have an Enhanced Death Benefit Endorsement (EDB Endorsement), the death benefit was the contract value. Before July 1999, Original Contracts with an EDB Endorsement included Death Benefit Option 1 (DB Option 1). If owners are age 80 or older, the death benefit under DB Option 1 is based on the greater of contract value or purchase payments less withdrawals. If owners are age 79 or younger, the death benefit under DB Option 1 is based on the contract value or the greater of: a) total purchase payments adjusted for partial withdrawals increased annually by 5%, or b) the highest contract value from any sixth contract anniversary. Beginning in July 1999, the owner could instead select Death Benefit Option 2 (DB Option 2). If owners are age 80 or older, the death benefit under DB Option 2 is based on the greater of contract value or purchase payments less withdrawals. If owners are age 79 or younger, the death benefit under DB Option 2 is based on the contract value or the greater of: a) total purchase payments less partial withdrawals, or b) the highest contract anniversary value. Beginning in November 2001, the owner could select for an additional charge the Earnings Protections Guaranteed Minimum Death Benefit (Earnings Protection GMDB) where the death benefit is the greater of: a) current contract value, b) total purchase payments adjusted for partial withdrawals, or c) contract value plus an additional amount based on the owner's age and the lesser of total purchase payments or contract value. The Original Contract also offered a choice of optional Guaranteed Minimum Income Benefits (GMIBs) for an additional charge. The GMIBs provide guaranteed minimum annuity payments during the annuity phase. GMIB Option 1 provided a GMIB value of the greater of: a) total purchase payments adjusted for partial withdrawals increased annually by 5%, or b) the highest contract value from any sixth contract anniversary. GMIB Option 2 provided a GMIB value of the greater of: a) total purchase payments adjusted for partial withdrawals, or b) the highest contract anniversary value. The May 2003 Contract was launched in May 2003 and sales were discontinued in May 2007. The May 2003 Contract automatically provided a Traditional Guaranteed Minimum Death Benefit (Traditional GMDB) where the death benefit is based on the greater of contract value or total purchase payments adjusted for partial withdrawals. For an additional charge, the owner could instead select either the optional Enhanced Guaranteed Minimum Death Benefit (Enhanced GMDB), or the Earnings Protections Guaranteed Minimum Death Benefit (Earnings Protection GMDB). Under the Enhanced GMDB the death benefit is the current contract value or the greater of: a) the highest contract anniversary value, or b) total purchase payments adjusted for partial withdrawals increased annually by 3%. Under the Earnings Protection, GMDB the death benefit is the current contract value or the greater of: a) total purchase payments adjusted for partial withdrawals, or b) contract value plus an additional amount based on the owner's age and the lesser of total purchase payments or contract value. The May 2003 Contract also offered an optional Traditional GMIB for an additional charge where the GMIB value is total purchase payments adjusted for partial withdrawals.
Charges during the Accumulation Phase (includes a 0.15% Original Original May 2003 Contracts May 2003 Contracts administrative charge Contracts Contracts without the Traditional with the Traditional without a with a GMIB GMIB ------------------------------------------------------------------------------------------------------------------------------------ GMIB GMIB Without the EDB Endorsement, or with DB Option 1 or DB 1.49% 1.79% - - Option 2 Traditional GMDB - - 1.75% 1.90% Enhanced GMDB - - 2.05% 2.15% Earnings Protection GMDB 1.59% 1.89% 2.05% 2.20%
The charges during the Annuity Phase if the owner takes variable annuity payments under the May 2003 Contract are 1.75%, and under the Original Contract the charges are 1.40%. 83 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) The M&E charge and administrative charge for Allianz Valuemark Income Plus can be summarized as follows: Allianz Valuemark Income Plus was launched in July 1994 and sales were discontinued in May 2006. The Valuemark Income Plus was an immediate single payment annuity. Charges if the owner took variable annuity payments (includes a 0.15% administrative charge) ------------------------------------------------- Valuemark Income Plus 1.40% The M&E charge for Allianz Vision can be summarized as follows: The Allianz Vision Base Contract provides a Traditional Death Benefit or the owner can instead select the Quarterly Value Death Benefit for an additional M&E charge, which locks in the highest contract value from any quarterly anniversary. The Contract also allows the owner to select at issue for an additional M&E charge either: a) a Bonus Option that provides a 6% bonus that is subject to a three year vesting schedule and increases the withdrawal charge period from seven years to nine years, b) a Short Withdrawal Charge Option that shortens the withdrawal charge period from seven years to four years, or c) a No Withdrawal Charge Option that eliminates the withdrawal charge. The Contract also offers selection of either the Target Date Retirement Benefit, Lifetime Plus Benefit, Lifetime Plus II Benefit or Lifetime Plus 10 Benefit. However, if the owner selected the No Withdrawal Charge Option, they must also select one of these four benefits. The Target Date Retirement Benefit provides a future guarantee of contract value based on the greater of total purchase payments, adjusted for partial withdrawals or the highest contract anniversary value. All the Lifetime Plus Benefits are designed for those who want lifetime income and continued access to both Contract Value and a death benefit for a period of time, as opposed to Annuity Payments that provide higher periodic lifetime income payments but eliminate both contract value and a death benefit for a period of time. The Lifetime Plus Benefit has potentially lower charges than the other two Lifetime Benefits, the ability to begin payments before age 65, and allows owners to reset the guaranteed value to equal the contract value if that would provide a greater guarantee, but the reset eliminates the previous guaranteed amount. The Lifetime Plus II Benefit is very similar to the Lifetime Plus Benefit, but it offers more potential to increase your initial Lifetime Plus Payment because resets of the guaranteed value are automatic and do not eliminate any previous guarantees. The Lifetime Plus 10 Benefit offers the maximum potential initial payment and automatic resets but the resets, do eliminate the previous guaranteed amount, and payments cannot begin until age 65. 84 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Quarterly Traditional Value Death M&E charges during the Accumulation Phase Death Benefit t Benefit ------------------------------------------- --------------- ---------------- Base Contract 1.40% 1.70% (Base Option (Base Option 2) 1) Contract with the Bonus Option 1.70% 2.00% (Bonus Option (Bonus Option 1) 2) Contract with the Short Withdrawal Charge 1.65% 1.95% Option (L Option 1) (L Option 2) Contract with the Target Date Retirement 1.80% 2.10% Benefit (Base Option (Base Option 11) 12) Contract with the Lifetime Plus Benefit 2.10% 2.40% (single Lifetime Plus Payments) (Base Option (Base Option 4) 3) Contract with the Lifetime Plus Benefit 2.25% 2.55% (joint Lifetime Plus Payments) (Base Option (Base Option 6) 5) Contract with single Lifetime Plus 2.20% 2.50% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Base Option (Base Option 8) 7) Contract with joint Lifetime Plus 2.35% 2.65% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Base Option (Base Option 9) 10) Contract with single Lifetime Plus 2.10% 2.40% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Base Option (Base Option 4) 3) Contract with joint Lifetime Plus 2.25% 2.55% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Base Option (Base Option 6) 5) Contract with the Bonus Option and Target 2.10% 2.40% Date Retirement Benefit (Bonus Option (Bonus Option 11) 12) Contract with the Bonus Option and 2.40% 2.70% Lifetime Plus Benefit (single Lifetime Plus Payments) (Bonus Option (Bonus Option 3) 4) Contract with the Bonus Option and 2.55% 2.85% Lifetime Plus Benefit (joint Lifetime Plus Payments) (Bonus Option (Bonus Option 5) 6) Contract with the Bonus Option and single 2.50% 2.80% Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Bonus Option (Bonus Option 7) 8) Contract with the Bonus Option and joint 2.65% 2.95% Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Bonus Option (Bonus Option 9) 10) Contract with the Bonus Option and single 2.40% 2.70% Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Bonus Option (Bonus Option 3) 4) Contract with the Bonus Option and joint 2.55% 2.85% Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Bonus Option (Bonus Option 5) 6) The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.40% for a Contract without the Bonus Option, and 1.70% for a Contract with the Bonus Option. 85 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Quarterly Traditional Value Death M&E charges during the Accumulation Phase Death Benefit t Benefit ------------------------------------------- --------------- ---------------- Contract with the Short Withdrawal Charge 2.05% 2.35% Option and Target Date Retirement Benefit (L Option 11) (L Option 12) Contract with the Short Withdrawal Charge 2.35% 2.65% Option and Lifetime Plus Benefit (single Lifetime Plus Payments) L Option 3) (L Option 4) Contract with the Short Withdrawal Charge 2.50% 2.80% Option and Lifetime Plus Benefit (joint Lifetime Plus Payments) (L Option 5) (L Option 6) Contract with the Short Withdrawal Charge 2.45% 2.75% Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (L Option 7) (L Option 8) Contract with the Short Withdrawal Charge 2.60% 2.90% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (L Option 9) (L Option 10) Contract with the Short Withdrawal Charge 2.35% 2.65% Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin L Option 3) (L Option 4) Contract with the Short Withdrawal Charge 2.50% 2.80% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (L Option 5) (L Option 6) Contract with the No Withdrawal Charge 2.15% 2.45% Option and Target Date Retirement Benefit (C Option 5) (C Option 6) Contract with the No Withdrawal Charge 2.45% 2.75% Option and Lifetime Plus Benefit (single Lifetime Plus Payments) (C Option 1) (C Option 2) Contract with the No Withdrawal Charge 2.60% 2.90% Option and Lifetime Plus Benefit (joint Lifetime Plus Payments) (C Option 3) (C Option 4) Contract with the No Withdrawal Charge 2.55% 2.85% Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (C Option 5) (C Option 6) Contract with the No Withdrawal Charge 2.70% 3.00% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (C Option 7) (C Option 8) Contract with the No Withdrawal Charge 2.45% 2.75% Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (C Option 1) (C Option 2) Contract with the No Withdrawal Charge 2.60% 2.90% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (C Option 3) (C Option 4) 86 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) The M&E charge for Allianz Connections can be summarized as follows: The Allianz Connections Base Contract provides a Traditional Death Benefit or the owner can instead select the Quarterly Value Death Benefit for an additional M&E charge, which locks in the highest contract value from any quarterly anniversary. The Contract also allows the owner to select at issue for an additional M&E charge either: a) a Short Withdrawal Charge Option that shortens the withdrawal charge period from seven years to four years, or b) a No Withdrawal Charge Option that eliminates the withdrawal charge. The Contract also offers selection of either the Target Date Retirement Benefit, Lifetime Plus II Benefit or Lifetime Plus 10 Benefit. However, if the owner selected the No Withdrawal Charge Option, they must also select one of these three benefits. The Target Date Retirement Benefit provides a future guarantee of contract value based on the greater of total purchase payments adjusted for partial withdrawals or the highest contract anniversary value. All the Lifetime Plus Benefits are designed for those who want lifetime income and continued access to both Contract Value and a death benefit for a period of time, as opposed to Annuity Payments that provide higher periodic lifetime income payments, but eliminate both contract value and a death benefit for a period of time. The Lifetime Plus II Benefit offers a higher payment percentage than the Lifetime Plus 10 Benefit, and offers the ability to begin payments before age 65. The Lifetime Plus 10 Benefit offers the maximum potential initial payment, but payments cannot begin until age 65. Traditional Quarterly Value M&E charges during the Accumulation Phase Death Benefit t Death Benefit ------------------------------------------ ------------------ ------------------ Base Contract 1.15% 1.45% (Option 1) (Option 2) Short Withdrawal Charge Option 1.60% 1.90% (Option 13) (Option 14) Contract with the Target Date Retirement 1.55% 1.85% Benefit (Option 11) (Option 12) Contract with single Lifetime Plus 1.95% 2.25% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Option 3) (Option 4) Contract with joint Lifetime Plus 2.10% 2.40% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Option 5) (Option 6) Contract with single Lifetime Plus 1.85% 2.15% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Option 7) (Option 8) Contract with joint Lifetime Plus 2.00% 2.30% Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Option 9) (Option 10) Contract with the Short Withdrawal 2.40% 2.70% Charge Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Option 15) (Option 16) Contract with the Short Withdrawal 2.55% 2.85% Charge Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Option 17) (Option 18) Contract with the Short Withdrawal 2.30% 2.60% Charge Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Option 19) (Option 20) 87 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Quarterly Traditional Value Death M&E charges during the Accumulation Phase Death Benefit t Benefit ------------------------------------------- --------------- ---------------- Contract with the Short Withdrawal Charge 2.45% 2.75% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Option 21) (Option 22) Contract with the No Withdrawal Charge 2.55% 2.85% Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Option 25) (Option 26) Contract with the No Withdrawal Charge 2.70% 3.00% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, before payments begin (Option 27) (Option 28) Contract with the No Withdrawal Charge 2.45% 2.75% Option and single Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Option 29) (Option 30) Contract with the No Withdrawal Charge 2.60% 2.90% Option and joint Lifetime Plus Payments under either the Lifetime Plus II Benefit or Lifetime Plus 10 Benefit, once payments begin (Option 31) (Option 32) The M&E charges during the Annuity Phase if the owner takes variable annuity payments are 1.15%. A contract maintenance charge is paid by the contract owner annually from each deferred annuity contract by liquidating accumulation units at the end of the contract year and at the time of full surrender. During the annuity phase, we deduct a portion of this charge from each annuity payment. The amount of the charge is $30 each year for Valuemark II, Valuemark III, and Allianz Valuemark IV contracts; $40 for Allianz Alterity, Allianz Charter, Allianz Dimensions, Allianz High Five, Allianz High Five Bonus, Allianz High Five L and Allianz Rewards contracts; and $50 for Allianz Charter II, Allianz Elite, Allianz Connections and Allianz Vision contracts. Contract maintenance charges paid by the owners during the years ended December 31, 2008 and 2007 were $4,734,000 and $5,608,000, respectively. These charges are reflected in the Statements of Changes in Net Assets as contract maintenance charges. A withdrawal charge is deducted at the time of withdrawal for withdrawals taken during the Accumulation Phase on Allianz Alterity, Allianz Charter II, Allianz Dimensions, Allianz Elite, Allianz High Five, Allianz High Five Bonus, Allianz High Five L, Allianz Rewards, Allianz Valuemark II, Allianz Valuemark III, Allianz Valuemark IV, and Allianz Vision deferred annuity contracts. If the withdrawal is a partial withdrawal the charge is deducted from the Contract Value. If the withdrawal is a full withdrawal, the charge is deducted from the amount withdrawn. The amount of the withdrawal charge is shown below. Allianz Alterity and Allianz Dimensions use the number of complete contract years since a purchase payment was received to determine the withdrawal charge percentage; all other products use the number of complete calendar years since a purchase payment was received. In certain states, the withdrawal charge may be different than what is indicated in the following table. 88 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Withdrawal Charge
Complete Years Since Allianz Allianz Allianz Allianz High Five Allianz High Allianz Allianz Payment Alterity[(1)] Connections[(2)] High Five Bonus[(3)] Five L[(4)] Rewards Vision[(5)] ------------------------------------------------------------------------------------------------------------------------------------ 0 7% 8.50% 8% 8.50% 8.5% 8.50% 8.50% 1 6% 8.50% 8% 8.50% 7.5% 8.50% 8.50% 2 5% 7.50% 7% 8.50% 5.5% 8.50% 7.50% 3 4% 6.50% 6% 8% 3% 8.50% 6.50% 4 3% 5% 5% 7% 0% 8% 5% 5 2% 4% 4% 6% 0% 7% 4% 6 0% 3% 3% 5% 0% 6% 3% 7 0% 0% 0% 4% 0% 5% 0% 8 0% 0% 0% 3% 0% 4% 0% 9 0% 0% 0% 0% 0% 3% 0% 10 + 0% 0% 0% 0% 0% 0% 0%
(1)This is the withdrawal charge for the Current Contract and the May 2003 Contract. The withdrawal charge for the Original Contract is six years, and the charge is 7%, 6%, 5%, 4%, 3%, and 0%. (2)This is the withdrawal charge for the Base Contract. The withdrawal charge for the a Contract with the Short Withdrawal Charge Option is 8.5%, 7.5%, 5.5%, 3%, and 0%. There is no withdrawal charge for a Contract with the No Withdrawal Charge Option. (3)This is the withdrawal charge for the Current Contract. The withdrawal charge for the Original Contract and the May 2005 Contract is ten years and the charge is 8.5%, 8.5%, 8.5%, 8.5%, 8%, 7%, 6%, 5%, 4%, 3%, and 0%. (4)This is the withdrawal charge for the May 2007 Contract. The withdrawal charge for the Original Contract is three years, and the charge is 8%, 7%, 5%, and 0%. (5)This is the withdrawal charge for the Base Contract. The withdrawal charge for the a Contract with the Bonus Option is 8.5%, 8.5%, 8.5%, 8%, 7%, 6%, 5%, 4%, 3%, and 0%. The withdrawal charge for the a Contract with the Short Withdrawal Charge Option is 8.5%, 7.5%, 5.5%, 3%, and 0%. There is no withdrawal charge for a Contract with the No Withdrawal Charge Option.
Complete Years Since Allianz Allianz Allianz Allianz Allianz Allianz Allianz Custom Payment Valuemark II Valuemark III Valuemark IV Elite[(6][)] Charter II Dimensions Income ------------------------------------------------------------------------------------------------------------------------------- 0 5% 6% 6% 8.5% 8% 8% 8% 1 5% 5% 6% 8.5% 7% 7% 8% 2 4% 4% 6% 7.5% 0% 7% 7% 3 3% 3% 5% 6.5% 0% 6% 6% 4 1.50% 1.50% 4% 5% 0% 5% 5% 5 0% 0% 3% 4% 0% 4% 4% 6 0% 0% 2% 3% 0% 3% 3% 7 0% 0% 0% 0% 0% 0% 0% 8 0% 0% 0% 0% 0% 0% 0% 9 0% 0% 0% 0% 0% 0% 0% 10 + 0% 0% 0% 0% 0% 0% 0%
(6)This is the withdrawal charge for the Base Contract. The withdrawal charge for the a Contract with the Short Withdrawal Charge Option is 8.5%, 7.5%, 5.5%, 3%, and 0%. Total withdrawal charges paid by owners during the years ended December 31, 2008 and 2007 were $48,313,008 and $34,201,903, respectively. 89 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Allianz Dimensions, Allianz Valuemark IV, Allianz Elite, Allianz Alterity, Allianz High Five, Allianz Vision, and Allianz Connections all include a waiver of withdrawal charge benefit for nursing home confinement and/or diagnosis of a terminal illness. A free withdrawal privilege (or partial withdrawal privilege) is available that allows owners to withdraw a portion of their total purchase payments each year during the Accumulation Phase without incurring a withdrawal charge under the Allianz Valuemark II, Allianz Valuemark III, Allianz Valuemark IV, Allianz Alterity, Allianz Rewards, Allianz High Five Bonus, Allianz High Five, Allianz High Five L, Allianz Dimensions, Allianz Elite, Allianz Vision, Allianz Connections, and Allianz Custom Income contracts that do not include the TIP. The amount that can be withdrawn differs between the contracts. For Allianz Valuemark II, Allianz Valuemark III each year the owner can withdraw 15% of total purchase payments, less any previous withdrawals taken during the year that were not subject to a withdrawal charge. For Allianz Valuemark IV, each year the owner can withdraw 15% of the previous contract anniversaries contract value, less any previous withdrawals taken during the current year that were not subject to a withdrawal charge. For Allianz Dimensions, each year during the first five contract years the owner can withdraw up to 10% of total purchase payments, and the owner can withdraw up to 20% of total purchase payments each year after that. For Allianz Alterity, each year the owner can withdraw 12% of total purchase payments, less any previous withdrawals taken during the year that were not subject to a withdrawal charge. For Allianz Rewards and Allianz High Five Bonus, each year the owner can withdraw 10% of total purchase payments, not including any bonus, less any previous withdrawals taken during the year that were not subject to a withdrawal charge. For Allianz High Five and Allianz Vision, each year the owner can withdraw 12% of total purchase payments, less any amount previously withdrawn under the partial withdrawal privilege in the same year. For Allianz Elite, Allianz Custom Income, Allianz High Five L and Allianz Connections each year the owner can withdraw 10% of total purchase payments, less any amount previously withdrawn under the partial withdrawal privilege in the same year. On Allianz Alterity and Allianz Rewards, under annuity options 2 or 4, partial liquidations of up to 75% of the total liquidation value (less any previously liquidated amounts) are available during the lifetime of the annuitant(s) while the number of variable traditional annuity payments made is less than the guaranteed number of payments selected. On Allianz High Five Original Contracts, Allianz Charter II and Allianz Dimensions, under annuity options 2 or 4, partial liquidations of up to 75% of the total liquidation value (less any previously liquidated amounts) are available once each year beginning five years after the income date during the lifetime of the annuitant(s) while the number of variable traditional annuity payments made is less than the guaranteed number of payments selected. On Allianz Valuemark Income Plus, under annuity options 2 or 4, partial liquidations of up to 75% of the total withdrawal value (less any previously liquidated amounts) are available once each year after the first contract year during the lifetime of the annuitant(s) while the number of variable traditional annuity payments made is less than the guaranteed number of payments selected. On Allianz Valuemark Income Plus under annuity option 6 owners may also take a liquidation once each year after the fist contract year of up to 100% of the total withdrawal value (less any previously liquidated amounts). The total liquidation value (or total withdrawal value) is equal to the present value of the remaining guaranteed variable traditional annuity payments, to the end of the guaranteed period, using the selected assumed investment rate as the interest rate for the present value calculation, less a commutation fee. Commutation fee during the Annuity Phase under annuity option 2, 4 or 6
Complete Years Since Allianz Allianz Allianz High Five Original Allianz Allianz Allianz Valuemark Income Date Alterity Rewards Contracts Charter II Dimensions Income Plus ----------------------------------------------------------------------------------------------------------------------------- 0 5% 7% - - - 5% 1 4% 6% - - - 5% 2 3% 5% - - - 4% 3 2% 4% - - - 3% 4 1% 3% - - - 2% 5 1% 2% 4% 4% 7% 1% 6 1% 1% 3% 3% 6% 1% 7 1% 1% 2% 2% 5% 1% 8 1% 1% 1% 1% 4% 1% 9 1% 1% 1% 1% 3% 1% 10 1% 1% 1% 1% 2% 1% 11+ 1% 1% 1% 1% 1% 1%
On Allianz Alterity and Allianz High Five Original Contracts a withdrawal charge is deducted for liquidations taken during the Annuity Phase under annuity option 6. 100% of the total liquidation value is available annually on Allianz Alterity and Allianz High Five Original Contracts and the withdrawal charge is based on the number of contract years since the payment was received. On Allianz Dimensions a withdrawal charge is deducted for liquidations taken during the Annuity Phase under annuity option 6. 100% of the total liquidation value is available annually beginning on the fifth Contract Anniversary on Allianz Dimensions. 90 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Withdrawal charge during the Annuity Phase under annuity option 6
Complete Years Since Payment/ Allianz Alterity Allianz High Five Allianz Dimensions Issue Date Original Contracts ----------------------------------------------------------------------------------------------------- 0 7% 8% - 1 6% 8% - 2 5% 7% - 3 4% 6% - 4 3% 5% - 5 2% 4% 4% 6 0% 3% 3% 7+ 0% 0% 0%
Currently, twelve free transfers are permitted each contract year. Thereafter, the fee is $25 per transfer for all products (or 2% of the amount transferred, if less, for Allianz Valuemark II, Allianz Valuemark III, Allianz Valuemark IV, and Allianz Charter). If the transfer is made under the dollar cost averaging program, flexible rebalancing program, GAV or GPV Transfers under the Living Guarantees for any of the High Five products, or the allocation and transfer restrictions for the Target Date Retirement Benefit of one of the Lifetime Benefits for the Vision or Connections products, there is no fee for the transfer, and we currently do not count these transfers against any free transfers. Total transfer fees paid by the contract owners during the years ended December 31, 2008 and 2007 were $15,578 and $7,035, respectively. Net transfers (to)/from the Fixed Accounts during the years ended December 31, 2008 and 2007 were $(3,731,722,000) and $(1,282,366,000), respectively. Allianz Dimensions has an optional Increased Annuity Payment Benefit that carries an additional charge per $100 of the basic annuity payment, depending on the annuitant's age and gender; the maximum charge ranges from $0.95 to $9.97. Allianz Dimensions also offers optional Guaranteed Value Protection Benefits (GVPs), which offers either the Guaranteed Principal Protector Benefit or the Guaranteed Performance Accumulator Benefit. During the Accumulation Phase, the GVPs carry an additional charge based on the contract anniversary value that is deducted on the last day of each contract year. If the Dimensional Asset Allocation Model requirements are met, the GVP charge will not be more than 2% for the first ten contract years; otherwise, the GVP charge will not be more than 3% for the first ten contract years. On and after the tenth contract anniversary, we can increase the GVP charge to 5%. 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. A rescission is defined as a contract that is returned to the Company by the contract owner and canceled within the free-look period, which is generally 10 days. CAPITALIZATION Allianz Life may provide seed capital for the establishment of new portfolios as investment options of the Variable Account. The capitalization transactions were as follows during the years ended December 31, 2007.
Portfolio Capitalization Amount Date of Capitalization -------------- ----------------------- ------------------------- AZL S&P 500 Index Fund $ 20,000,000 5/1/2007 AZL Small Cap Stock Index Fund 20,000,000 5/1/2007 AZL NACM International Fund 10,000,000 5/1/2007 AZL Schroder International Small Cap Fund 10,000,000 5/1/2007 AZL TargetPlus Balanced Fund 4,000,000 5/1/2007 AZL TargetPlus Moderate Fund 6,000,000 5/1/2007 AZL TargetPlus Growth Fund 10,000,000 5/1/2007
91 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EXPENSES (CONTINUED) Allianz Life will generally begin to recapture seed capital after the investment option reaches $3,000,000 in market value, excluding seed money. A specific percentage of daily net premium that exceeds the $3,000,000 will be recaptured, so long as the trade activity for the day is in a buy position. The seed capital recapture activity was as follows during the two year period ended December 31, 2008.
Portfolio Seed Capital Recaptured Realized Gain\Loss on Remaining Seed Capital Recapture ------------------------------------------------------------------- AZL S&P 500 Index Fund $ 20,000,000 $ 154,680 $ - AZL Small Cap Stock Index Fund 20,000,000 (1,164,410) - AZL NACM International Fund 10,000,000 (1,097,471) - AZL Schroder International Small Cap Fund 10,000,000 (377,423) - AZL TargetPlus Balanced Fund 4,000,000 16,737 - AZL TargetPlus Moderate Fund 6,000,000 84,889 - AZL TargetPlus Growth Fund 10,000,000 255,346 - ------------------------------------------------------------------- Total $ 80,000,000 $ (2,127,652) $ - -------------------------------------------------------------------
3. FEDERAL INCOME TAXES Operations of the Separate Account form a part of the Company, which is taxed as a life insurance company under the Internal Revenue Code (the Code). Under current law, no federal income taxes are payable with respect to the Separate Account. Under the principles set forth in Internal Revenue Service Ruling 81- 225 and Section 817(h) of the Code and regulations thereunder, the Company understands that it will be treated as owner of the assets invested in the Separate Account for federal income tax purposes, with the result that earnings and gains, if any, derived from those assets will not be included in an annuitant's gross income until amounts are received pursuant to an annuity. 92 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 4. PURCHASES AND SALES OF INVESTMENTS (IN THOUSANDS) The cost of purchases and proceeds from sales of investments for the year ended December 31, 2008 were as follows: Cost of Proceeds from Purchases Sales ------------ -------------- AIM V.I. Capital Appreciation Fund 4 1,119 AIM V.I. Core Equity Fund 69 942 AIM V.I. International Growth Fund 32 356 Alger American Capital Appreciation Portfolio - 548 Alger American LargeCap Growth Portfolio 13 958 Alger American MidCap Growth Portfolio 2,029 1,400 Alger American SmallCap Growth Portfolio 920 1,044 AZL AIM International Equity Fund 104,776 136,042 AZL BlackRock Capital Appreciation Fund 44,400 37,967 AZL Columbia Mid Cap Value Fund 35,932 27,509 AZL Columbia Small Cap Value Fund 37,138 35,404 AZL Columbia Technology Fund 53,184 63,754 AZL Davis NY Venture Fund 232,835 161,067 AZL Dreyfus Founders Equity Growth Fund 54,666 101,179 AZL First Trust Target Double Play Fund 77,853 53,214 AZL Franklin Small Cap Value Fund 90,016 135,826 AZL Fusion Balanced Fund 277,453 222,383 AZL Fusion Growth Fund 381,377 395,786 AZL Fusion Moderate Fund 273,787 372,205 AZL Jennison 20/20 Focus Fund 226,764 138,429 AZL Legg Mason Growth Fund 155,633 110,952 AZL Legg Mason Value Fund 38,712 63,779 AZL LMP Large Cap Growth Fund 27,182 110,479 AZL Money Market Fund 1,150,336 757,622 AZL NACM International Fund 9,077 4,824 AZL OCC Opportunity Fund 47,759 62,119 AZL OCC Value Fund 75,419 261,529 AZL Oppenheimer Global Fund 48,956 78,988 AZL Oppenheimer International Growth Fund 82,202 113,203 AZL Oppenheimer Main Street Fund 38,337 54,039 AZL PIMCO Fundamental IndexPLUS Total Return Fund 14,534 7,750 AZL S&P 500 Index Fund 307,581 75,140 AZL Schroder Emerging Markets Equity Fund CL 1 28,085 944 AZL Schroder Emerging Markets Equity Fund CL 2 186,929 111,133 AZL Schroder International Small Cap Fund 32,978 22,858 AZL Small Cap Stock Index Fund 213,829 47,982 AZL TargetPLUS Balanced Fund 63,879 19,563 AZL TargetPLUS Equity Fund 63,343 44,040 AZL TargetPLUS Growth Fund 87,303 30,174 AZL TargetPLUS Moderate Fund 67,087 22,623 AZL Turner Quantitative Small Cap Growth Fund 22,055 17,797 AZL Van Kampen Comstock Fund 102,662 208,901 AZL Van Kampen Equity and Income Fund 74,589 121,457 AZL Van Kampen Global Franchise Fund 113,146 184,805 AZL Van Kampen Global Real Estate Fund 47,549 42,716 AZL Van Kampen Growth and Income Fund 68,586 123,822 AZL Van Kampen Mid Cap Growth Fund 159,812 199,286 BlackRock Global Allocations V.I. Fund 173,003 28,558 93 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 4. PURCHASES AND SALES OF INVESTMENTS (IN THOUSANDS) (CONTINUED) The cost of purchases and proceeds from sales of investments for the year ended December 31, 2008 were as follows: Cost of Proceeds from Purchases Sales ----------- --------------- Davis VA Financial Portfolio 40,955 44,049 Davis VA Real Estate Portfolio 41 291 Davis VA Value Portfolio 6,427 47,099 Dreyfus IP Small Cap Stock Index Portfolio 37,858 232,740 Dreyfus Stock Index Fund 19,725 306,188 Franklin Global Communications Securities Fund 47,469 107,049 Franklin Growth and Income Securities Fund 50,078 104,006 Franklin High Income Securities Fund 64,311 98,386 Franklin Income Securities Fund 291,097 497,415 Franklin Large Cap Growth Securities Fund 29,632 92,798 Franklin Money Market Fund 63 3,042 Franklin Real Estate Fund 77,366 102,266 Franklin Rising Dividends Securities Fund 28,191 176,280 Franklin Small Cap Value Securities Fund 19,497 55,094 Franklin Small-Mid Cap Growth Securities Fund 32,112 60,676 Franklin Templeton VIP Founding Funds Allocation Fund 170,670 50,600 Franklin U.S. Government Fund 196,414 198,925 Franklin Zero Coupon Fund 2010 80,063 57,441 J.P. Morgan International Opportunities Portfolio 70 142 J.P. Morgan U.S. Large Cap Core Equity Portfolio 6 91 Jennison 20/20 Focus Portfolio 40,519 134,616 Mutual Discovery Securities Fund 192,490 353,595 Mutual Shares Securities Fund 203,783 444,433 OpCap Mid Cap Portfolio 51,341 29,830 Oppenheimer Global Securities Fund/VA 17,578 60,052 Oppenheimer High Income Fund/VA 21,166 22,847 Oppenheimer Main Street Fund/VA 11,789 38,703 PIMCO VIT All Asset Portfolio 116,402 143,776 PIMCO VIT CommodityRealReturn Strategy Portfolio 238,559 171,379 PIMCO VIT Emerging Markets Bond Portfolio 35,484 35,076 PIMCO VIT Global Bond Portfolio 135,950 108,239 PIMCO VIT High Yield Portfolio 62,233 95,581 PIMCO VIT Real Return Portfolio 224,686 230,713 PIMCO VIT StocksPLUS Growth and Income Portfolio 1,584 4,864 PIMCO VIT Total Return Portfolio 263,474 267,510 Seligman Global Technology Portfolio - 271 Seligman Small-Cap Value Portfolio 31,672 33,899 SP Strategic Partners Focused Growth Portfolio 5,713 12,489 SP International Growth Portfolio 17,639 20,540 Templeton Asset Strategy Fund 2,963 2,007 Templeton Developing Markets Securities Fund 74,969 202,338 Templeton Foreign Securities Fund 52,450 108,826 Templeton Global Income Securities Fund 133,626 93,612 Templeton Growth Securities Fund 155,212 304,033 Van Kampen LIT Capital Growth Portfolio 13 998 Van Kampen LIT Enterprise Portfolio 43 24 Van Kampen LIT Growth and Income Portfolio 77 67 94 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
AIM V.I. AIM V.I. Capital AIM V.I. Core International Growth Appreciation Fund Equity Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments - - - - - - Transfers between funds (43) (147) (22) (19) (11) (22) Surrenders and terminations (107) (287) (65) (139) (23) (51) Rescissions - - - - - - Bonus - - - - - - Contract Maintenance Charges (1) (1) - - - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (151) (435) (87) (158) (34) (73) ----------- ---------- ----------- ---------- ----------- ---------- Alger American Alger American Alger American Capital Appreciation LargeCap Growth MidCap Growth Portfolio Portfolio Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments - - - - - - Transfers between funds (11) (11) (31) (50) (41) (71) Surrenders and terminations (41) (51) (77) (158) (65) (123) Rescissions - - - - - - Bonus - - - - - - Contract Maintenance Charges - - - - - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (52) (62) (108) (208) (106) (194) ----------- ---------- ----------- ---------- ----------- ---------- Alger American AZL AIM SmallCap Growth AZL AIM Basic Value International Equity Portfolio Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments - - - 594 2,701 2,846 Transfers between funds (7) (1) - (14,535) (5,054) 1,040 Surrenders and terminations (11) (10) - (843) (954) (1,006) Rescissions - - - (7) (124) (90) Bonus - - - 8 41 54 Contract Maintenance Charges - - - (2) (4) (2) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (18) (11) - (14,785) (3,394) 2,842 ----------- ---------- ----------- ---------- ----------- ----------
95 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
AZL BlackRock Capital Appreciation AZL Columbia Mid AZL Columbia Small Fund Cap Value Fund Cap Value Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 1,761 929 1,970 1,382 871 869 Transfers between funds (784) (81) (422) 856 (898) (1,124) Surrenders and terminations (280) (240) (177) (211) (293) (287) Rescissions (37) (14) (40) (31) (17) (31) Bonus 17 12 20 20 9 13 Contract Maintenance Charges (1) (1) (1) - (1) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 676 605 1,350 2,016 (329) (561) ----------- ---------- ----------- ---------- ----------- ---------- AZL Dreyfus AZL Columbia AZL Davis NY Founders Equity Technology Fund Venture Fund Growth Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 1,980 1,220 5,630 4,237 2,323 2,054 Transfers between funds (3,558) 3,862 9,710 (2,482) (6,789) 13,868 Surrenders and terminations (682) (575) (2,072) (1,866) (2,022) (1,409) Rescissions (57) (43) (203) (86) (67) (38) Bonus 35 27 50 50 21 30 Contract Maintenance Charges (3) (1) (9) (5) (7) (3) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (2,285) 4,490 13,106 (152) (6,541) 14,502 ----------- ---------- ----------- ---------- ----------- ---------- AZL First Trust Target Double Play AZL Franklin Small AZL Fusion Balanced Fund Cap Value Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 5,425 3,911 2,252 3,171 13,394 7,047 Transfers between funds (1,436) 4,523 (4,829) (3,489) (6,273) 1,008 Surrenders and terminations (557) (140) (999) (1,038) (2,907) (1,809) Rescissions (119) (103) (71) (67) (342) (131) Bonus 46 61 29 43 126 91 Contract Maintenance Charges (2) - (4) (3) (7) (4) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 3,357 8,252 (3,622) (1,383) 3,991 6,202 ----------- ---------- ----------- ---------- ----------- ----------
96 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
AZL Fusion Growth AZL Fusion Moderate AZL Jennison 20/20 Fund Fund Focus Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 22,791 24,989 15,937 17,701 4,105 2,831 Transfers between funds (24,031) (5,546) (24,925) (2,080) 2,409 99 Surrenders and terminations (4,587) (4,264) (4,308) (3,439) (948) (662) Rescissions (641) (721) (498) (374) (134) (51) Bonus 315 416 153 179 38 27 Contract Maintenance Charges (26) (13) (17) (10) (4) (2) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (6,179) 14,861 (13,658) 11,977 5,466 2,242 ----------- ---------- ----------- ---------- ----------- ---------- AZL Legg Mason AZL Legg Mason AZL LMP Large Cap Growth Fund Value Fund Growth Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 3,348 2,581 1,557 1,837 553 665 Transfers between funds 9,970 4,394 (4,327) (3,242) (12,586) (1,806) Surrenders and terminations (885) (695) (902) (1,079) (1,037) (1,034) Rescissions (139) (57) (56) (37) (12) (16) Bonus 46 40 17 27 7 10 Contract Maintenance Charges (5) (2) (5) (3) (3) (3) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 12,335 6,261 (3,716) (2,497) (13,078) (2,184) ----------- ---------- ----------- ---------- ----------- ---------- AZL Money Market AZL NACM AZL OCC Opportunity Fund International Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 42,828 31,970 694 300 1,091 1,043 Transfers between funds 11,198 1,287 (12) 391 (2,511) (305) Surrenders and terminations (15,426) (16,087) (55) (29) (661) (671) Rescissions (1,259) (987) (28) (2) (35) (27) Bonus 499 340 6 4 13 19 Contract Maintenance Charges (13) (9) - - (3) (2) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 37,827 16,514 605 664 (2,106) 57 ----------- ---------- ----------- ---------- ----------- ----------
97 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
AZL OCC Renaissance AZL Oppenheimer Fund AZL OCC Value Fund Global Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments - 946 544 950 1,790 2,188 Transfers between funds - (22,730) (28,436) 15,550 (4,346) (2,021) Surrenders and terminations - (1,353) (2,398) (1,618) (711) (657) Rescissions - (30) (33) (22) (71) (76) Bonus - 9 5 12 22 31 Contract Maintenance Charges - (4) (8) (4) (4) (2) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions - (23,162) (30,326) 14,868 (3,320) (537) ----------- ---------- ----------- ---------- ----------- ---------- AZL PIMCO AZL Oppenheimer Fundamental International Growth AZL Oppenheimer IndexPLUS Total Fund Main Street Fund Return Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 2,426 2,523 1,332 1,581 524 226 Transfers between funds (4,418) 1,538 (3,408) (366) 321 20 Surrenders and terminations (687) (667) (596) (522) (51) (37) Rescissions (83) (79) (40) (54) (18) (15) Bonus 42 43 21 28 6 5 Contract Maintenance Charges (3) (2) (3) (2) - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (2,723) 3,356 (2,694) 665 782 199 ----------- ---------- ----------- ---------- ----------- ---------- AZL Schroder AZL Schroder AZL S&P 500 Index Emerging Markets Emerging Markets Fund Equity Fund CL 1 Equity Fund CL 2 ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 4,988 1,323 6 6 3,489 3,181 Transfers between funds 23,517 1,483 4,928 11 8,092 5,561 Surrenders and terminations (756) (41) (17) (1) (720) (407) Rescissions (81) (8) - - (130) (109) Bonus 61 15 - - 48 53 Contract Maintenance Charges (4) - - - (4) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 27,725 2,772 4,917 16 10,775 8,278 ----------- ---------- ----------- ---------- ----------- ----------
98 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
AZL Schroder International Small AZL Small Cap Stock AZL TargetPLUS Cap Fund Index Fund Balanced Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 1,437 701 1,907 773 5,514 671 Transfers between funds - 447 15,759 485 80 402 Surrenders and terminations (80) (9) (388) (9) (108) 1 Rescissions (39) (15) (53) (14) (198) (8) Bonus 18 12 19 11 61 5 Contract Maintenance Charges - - (3) - - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 1,336 1,136 17,241 1,246 5,349 1,071 ----------- ---------- ----------- ---------- ----------- ---------- AZL TargetPLUS AZL TargetPLUS AZL TargetPLUS Equity Fund Growth Fund Moderate Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 4,875 3,597 8,052 3,400 6,412 1,391 Transfers between funds (1,847) 4,688 (660) 486 (356) 917 Surrenders and terminations (427) (203) (215) (35) (303) (42) Rescissions (152) (74) (224) (96) (246) (57) Bonus 60 55 112 55 112 16 Contract Maintenance Charges (2) - (1) - (1) - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 2,507 8,063 7,064 3,810 5,618 2,225 ----------- ---------- ----------- ---------- ----------- ---------- AZL Turner AZL Van Kampen Quantitative Small Aggressive Growth AZL Van Kampen Cap Growth Fund Fund Comstock Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 656 540 - 832 2,254 3,557 Transfers between funds (588) (682) - (11,245) (13,732) 5,006 Surrenders and terminations (131) (138) - (563) (3,785) (3,594) Rescissions (15) (17) - (19) (72) (86) Bonus 7 7 - 15 20 42 Contract Maintenance Charges (1) - - (2) (14) (9) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (72) (290) - (10,982) (15,329) 4,916 ----------- ---------- ----------- ---------- ----------- ----------
99 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
AZL Van Kampen AZL Van Kampen AZL Van Kampen Equity and Income Global Franchise Global Real Estate Fund Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 3,617 4,285 2,768 4,065 2,214 3,551 Transfers between funds (7,195) (1,831) (7,468) (3,241) (1,705) (502) Surrenders and terminations (1,222) (1,088) (1,302) (1,255) (394) (362) Rescissions (119) (96) (91) (116) (90) (96) Bonus 31 48 26 42 26 50 Contract Maintenance Charges (4) (3) (5) (3) (2) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (4,892) 1,315 (6,072) (508) 49 2,640 ----------- ---------- ----------- ---------- ----------- ---------- AZL Van Kampen AZL Van Kampen Growth and Income AZL Van Kampen Mid Strategic Growth Fund Cap Growth Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 2,023 2,622 4,574 3,583 - 1,041 Transfers between funds (5,901) (3,640) (8,589) 9,235 - (20,111) Surrenders and terminations (2,061) (2,107) (1,965) (1,428) - (1,016) Rescissions (84) (64) (212) (91) - (22) Bonus 20 32 58 53 - 15 Contract Maintenance Charges (6) (5) (8) (4) - (3) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (6,009) (3,162) (6,142) 11,348 - (20,096) ----------- ---------- ----------- ---------- ----------- ---------- BlackRock Global Allocations V.I. Davis VA Financial Davis VA Real Fund Portfolio Estate Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 11,279 - 1,290 788 - - Transfers between funds 5,094 - (1,015) (1,634) (5) (3) Surrenders and terminations (236) - (534) (666) (5) (12) Rescissions (272) - (39) (15) - - Bonus 74 - 15 11 - - Contract Maintenance Charges (1) - (2) (2) - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 15,938 - (285) (1,518) (10) (15) ----------- ---------- ----------- ---------- ----------- ----------
100 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
Dreyfus IP Small Davis VA Value Cap Stock Index Dreyfus Stock Index Portfolio Portfolio Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 57 102 114 1,004 166 1,270 Transfers between funds (2,549) (1,211) (15,172) (3,592) (23,394) (5,009) Surrenders and terminations (1,205) (1,467) (828) (1,122) (1,654) (2,312) Rescissions (2) (2) (4) (40) (13) (35) Bonus 1 1 1 10 1 11 Contract Maintenance Charges (3) (3) (3) (3) (5) (6) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (3,701) (2,580) (15,892) (3,743) (24,899) (6,081) ----------- ---------- ----------- ---------- ----------- ---------- Franklin Global Franklin Growth and Franklin High Communications Income Securities Income Securities Securities Fund Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 724 853 89 423 819 1,195 Transfers between funds (2,442) 948 (1,777) (1,116) (2,048) (1,279) Surrenders and terminations (727) (950) (1,188) (1,700) (765) (944) Rescissions (25) (35) (9) (11) (32) (18) Bonus 13 20 1 6 11 16 Contract Maintenance Charges (4) (4) (5) (4) (2) (2) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (2,461) 832 (2,889) (2,402) (2,017) (1,032) ----------- ---------- ----------- ---------- ----------- ---------- Franklin Large Cap Franklin Income Growth Securities Franklin Money Securities Fund Fund Market Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 3,796 5,854 175 537 - - Transfers between funds (7,889) (1,434) (3,499) (1,990) (26) (49) Surrenders and terminations (2,183) (2,258) (1,109) (1,571) (129) (279) Rescissions (135) (139) (19) (14) - - Bonus 29 52 1 6 - - Contract Maintenance Charges (8) (5) (5) (4) (1) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (6,390) 2,070 (4,456) (3,036) (156) (329) ----------- ---------- ----------- ---------- ----------- ----------
101 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
Franklin Rising Franklin Small Cap Franklin Real Dividends Securities Value Securities Estate Fund Fund Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 53 134 94 373 53 121 Transfers between funds (1,578) (1,732) (3,581) (2,570) (2,224) (1,621) Surrenders and terminations (515) (771) (1,448) (1,779) (752) (1,023) Rescissions (3) (4) (6) (8) (9) (4) Bonus 1 1 - 1 1 2 Contract Maintenance Charges (2) (2) (5) (4) (2) (2) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (2,044) (2,374) (4,946) (3,987) (2,933) (2,527) ----------- ---------- ----------- ---------- ----------- ---------- Franklin Small-Mid Franklin Templeton Cap Growth VIP Founding Funds Franklin U.S. Securities Fund Allocation Fund Government Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 73 130 17,286 1,970 1,843 1,040 Transfers between funds (1,565) (949) (1,115) 2,649 57 (802) Surrenders and terminations (903) (1,303) (458) (31) (2,040) (2,279) Rescissions (4) (4) (582) (61) (79) (12) Bonus 2 1 169 19 18 10 Contract Maintenance Charges (4) (3) (2) - (5) (5) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (2,401) (2,128) 15,298 4,546 (206) (2,048) ----------- ---------- ----------- ---------- ----------- ---------- J.P. Morgan International J.P. Morgan U.S. Franklin Zero Opportunities Large Cap Core Coupon Fund 2010 Portfolio Equity Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 387 147 - - - - Transfers between funds 562 7 (11) (2) - (4) Surrenders and terminations (315) (232) (4) (4) (11) (8) Rescissions (21) (5) - - - - Bonus 3 2 - - - - Contract Maintenance Charges (1) (1) - - - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 615 (82) (15) (6) (11) (12) ----------- ---------- ----------- ---------- ----------- ----------
102 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
Jennison 20/20 Mutual Discovery Mutual Shares Focus Portfolio Securities Fund Securities Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 41 101 3,730 4,359 5,542 10,659 Transfers between funds (6,298) (1,105) (9,111) (948) (16,040) (4,695) Surrenders and terminations (395) (524) (2,135) (2,335) (3,744) (4,174) Rescissions (2) (3) (176) (90) (264) (285) Bonus - 2 39 57 50 107 Contract Maintenance Charges (1) (1) (8) (6) (13) (9) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (6,655) (1,530) (7,661) 1,037 (14,469) 1,603 ----------- ---------- ----------- ---------- ----------- ---------- OpCap Mid Cap Oppenheimer Global Oppenheimer High Portfolio Securities Fund/VA Income Fund/VA ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 2,069 1,431 75 139 12 25 Transfers between funds 287 173 (3,073) (1,606) 1,578 (332) Surrenders and terminations (196) (80) (1,343) (1,609) (244) (300) Rescissions (77) (31) (5) (4) - - Bonus 24 21 1 2 - - Contract Maintenance Charges (1) - (4) (3) (1) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions 2,106 1,514 (4,349) (3,081) 1,345 (608) ----------- ---------- ----------- ---------- ----------- ---------- PIMCO VIT Oppenheimer Main PIMCO VIT All Asset CommodityRealReturn Street Fund/VA Portfolio Strategy Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 110 149 2,990 1,220 4,447 1,394 Transfers between funds (2,706) (1,231) (4,833) (2,944) (36) (142) Surrenders and terminations (1,312) (1,666) (1,001) (1,051) (895) (406) Rescissions (12) (3) (69) (43) (155) (35) Bonus 1 2 44 23 60 22 Contract Maintenance Charges (5) (4) (3) (2) (3) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (3,924) (2,753) (2,872) (2,797) 3,418 832 ----------- ---------- ----------- ---------- ----------- ----------
103 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
PIMCO VIT Emerging Markets Bond PIMCO VIT Global PIMCO VIT High Portfolio Bond Portfolio Yield Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 1,225 869 2,732 1,150 1,218 1,175 Transfers between funds (1,318) (90) 220 1,404 (3,281) (2,350) Surrenders and terminations (262) (173) (691) (224) (1,091) (1,161) Rescissions (30) (27) (115) (23) (45) (36) Bonus 16 15 27 21 13 18 Contract Maintenance Charges (1) - (2) - (3) (3) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (370) 594 2,171 2,328 (3,189) (2,357) ----------- ---------- ----------- ---------- ----------- ---------- PIMCO VIT PIMCO VIT Real StocksPLUS Growth PIMCO VIT Total Return Portfolio and Income Portfolio Return Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 4,365 1,634 12 17 5,955 3,769 Transfers between funds (3,787) (2,163) (194) (186) (3,342) (1,614) Surrenders and terminations (1,782) (1,555) (259) (212) (3,978) (3,546) Rescissions (167) (39) (3) - (191) (77) Bonus 60 18 - - 77 62 Contract Maintenance Charges (6) (4) (1) (1) (10) (8) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (1,317) (2,109) (445) (382) (1,489) (1,414) ----------- ---------- ----------- ---------- ----------- ---------- SP Strategic Seligman Global Seligman Small-Cap Partners Focused Technology Portfolio Value Portfolio Growth Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments - - 30 42 39 52 Transfers between funds (12) (28) (888) (718) (1,008) (668) Surrenders and terminations (26) (97) (471) (669) (284) (385) Rescissions - - - (1) - - Bonus - - - 1 1 1 Contract Maintenance Charges - - (2) (1) (1) (1) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (38) (125) (1,331) (1,346) (1,253) (1,001) ----------- ---------- ----------- ---------- ----------- ----------
104 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows:
Templeton SP International Templeton Asset Developing Markets Growth Portfolio Strategy Fund Securities Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 27 29 - - 129 348 Transfers between funds (981) 571 (18) (21) (12,151) (2,727) Surrenders and terminations (214) (202) (30) (121) (817) (1,370) Rescissions (11) - - - (18) (5) Bonus - - - - 1 4 Contract Maintenance Charges (1) (1) - - (3) (3) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (1,180) 397 (48) (142) (12,859) (3,753) ----------- ---------- ----------- ---------- ----------- ---------- Templeton Global Templeton Foreign Income Securities Templeton Growth Securities Fund Fund Securities Fund ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments 108 637 1,509 542 3,480 6,667 Transfers between funds (2,359) (1,247) 196 1,373 (9,449) (3,187) Surrenders and terminations (1,315) (1,826) (325) (147) (2,161) (2,545) Rescissions (4) (24) (44) (11) (142) (154) Bonus 1 6 15 8 31 63 Contract Maintenance Charges (5) (4) (1) - (10) (6) ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (3,574) (2,458) 1,350 1,765 (8,251) 838 ----------- ---------- ----------- ---------- ----------- ---------- Van Kampen LIT Van Kampen LIT Capital Growth Van Kampen LIT Growth and Income Portfolio Enterprise Portfolio Portfolio ---------------------- ---------------------- ---------------------- 2008 2007 2008 2007 2008 2007 ----------- ---------- ----------- ---------- ----------- ---------- Contract Transactions Purchase payments - - - - - - Transfers between funds (48) (93) (2) (3) (1) (1) Surrenders and terminations (87) (130) (2) (4) (3) (4) Rescissions - - - - - - Bonus - - - - - - Contract Maintenance Charges - - - - - - ----------- ---------- ----------- ---------- ----------- ---------- Total Net Contract Transactions (135) (223) (4) (7) (4) (5) ----------- ---------- ----------- ---------- ----------- ----------
105 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 5. CONTRACT TRANSACTIONS - ALL PRODUCTS ACCUMULATION UNIT ACTIVITY (IN THOUSANDS) (CONTINUED) Transactions in units for each subaccount, excluding units for annuitized contracts, for the years ended December 31, 2008 and 2007 were as follows: Total All Funds ------------------------------------------ 2008 2007 --------------------- -------------------- Contract Transactions Purchase payments 270,756 212,059 Transfers between funds (244,097) (70,194) Surrenders and terminations (100,527) (102,581) Rescissions (8,714) (5,475) Bonus 3,065 2,747 Contract Maintenance Charges (334) (222) --------------------- -------------------- Total Net Contract Transactions (79,851) 36,334 --------------------- -------------------- 106 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** AIM V.I. Capital Appreciation Fund 2008 981 $4.31 to $4.89 4,594 0.00% 1.15% to 2.55% -43.94% to -43.15% 2007 1,132 $7.69 to $8.60 9,390 0.00% 1.15% to 2.55% 9.18% to 10.73% 2006 1,568 $7.05 to $7.77 11,798 0.05% 1.15% to 2.55% 3.63% to 5.09% 2005 762 $6.80 to $7.39 5,430 0.05% 1.15% to 2.55% 6.10% to 7.59% 2004 971 $6.41 to $6.87 6,470 0.00% 1.15% to 2.55% 3.93% to 5.40% AIM V.I. Core Equity Fund 2008 364 $7.74 to $8.04 2,884 2.01% 1.15% to 2.55% -31.90% to -30.94% 2007 451 $11.37 to $11.64 5,199 1.02% 1.15% to 2.55% 5.38% to 6.87% 2006 609 $10.85 to $10.95 6,644 1.59% 1.15% to 2.55% 9.03% to 9.56% 2005 1,110 $6.41 to $6.97 7,473 0.79% 1.15% to 2.55% 3.00% to 4.45% 2004 1,334 $6.23 to $6.67 8,648 0.44% 1.15% to 2.55% 3.10% to 4.56% AIM V.I. International Growth Fund 2008 168 $6.85 to $7.62 1,221 0.54% 1.15% to 2.55% -41.88% to -41.06% 2007 202 $11.76 to $12.93 2,493 0.37% 1.15% to 2.55% 11.82% to 13.40% 2006 275 $10.45 to $11.51 3,037 0.98% 1.15% to 2.55% 25.01% to 26.77% 2005 326 $8.28 to $8.99 2,826 0.65% 1.15% to 2.55% 14.97% to 16.58% 2004 365 $7.20 to $7.71 2,731 0.65% 1.15% to 2.55% 20.87% to 22.58% Alger American LargeCap Growth Portfolio 2008 536 $4.74 to $5.38 2,797 0.22% 1.15% to 2.55% -47.51% to -46.77% 2007 644 $9.02 to $10.11 6,352 0.35% 1.15% to 2.55% 16.91% to 18.57% 2006 852 $7.72 to $8.53 7,105 0.13% 1.15% to 2.55% 2.51% to 3.95% 2005 1,088 $7.53 to $8.20 8,756 0.24% 1.15% to 2.35% 9.44% to 10.76% 2004 1,394 $6.96 to $7.41 10,168 0.00% 1.15% to 2.35% 3.04% to 4.29% Alger American Capital Appreciation Portfolio 2008 266 $6.23 to $6.56 1,750 0.00% 1.15% to 2.55% -46.52% to -45.76% 2007 318 $11.58 to $12.11 3,881 0.00% 1.15% to 2.55% 30.15% to 32.00% 2006 380 $8.44 to $9.33 3,523 0.00% 1.15% to 2.55% 16.27% to 17.90% 2005 461 $7.55 to $7.81 3,627 0.00% 1.35% to 1.90% 12.30% to 12.92% 2004 642 $6.51 to $6.92 4,466 0.00% 1.35% to 2.55% 5.46% to 6.73% Alger American MidCap Growth Portfolio 2008 431 $6.34 to $7.18 2,941 0.17% 1.15% to 2.55% -59.41% to -58.83% 2007 537 $15.62 to $17.45 8,955 0.00% 1.15% to 2.55% 28.23% to 30.05% 2006 732 $12.18 to $13.42 9,429 0.00% 1.15% to 2.55% 7.38% to 8.88% 2005 944 $11.34 to $12.32 11,240 0.00% 1.15% to 2.55% 7.07% to 8.57% 2004 1,135 $10.59 to $11.35 12,515 0.00% 1.15% to 2.55% 10.19% to 11.75%
107 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** Alger American SmallCap Growth Portfolio 2008 99 $4.47 to $4.98 479 0.00% 1.15% to 2.55% -47.95% to -47.21% 2007 117 $8.59 to $9.60 1,076 0.00% 1.15% to 2.55% 14.27% to 15.89% 2006 128 $7.52 to $8.28 1,018 0.00% 1.15% to 2.55% 17.00% to 18.65% 2005 164 $6.42 to $6.98 1,108 0.00% 1.15% to 2.55% 13.95% to 15.55% 2004 188 $5.64 to $6.04 1,103 0.00% 1.15% to 2.55% 13.63% to 15.23% AZL AIM International Equity Fund 2008 12,283 $10.31 to $11.63 133,883 0.47% 1.00% to 3.00% -43.24% to -42.09% 2007 15,677 $18.42 to $20.11 300,838 0.53% 1.00% to 2.95% 11.27% to 13.48% 2006 12,836 $16.51 to $17.88 219,438 0.22% 1.00% to 2.70% 13.31% to 23.67% 2005 8,473 $13.35 to $14.13 116,487 0.25% 1.15% to 2.70% 13.27% to 15.04% 2004 4,677 $11.79 to $12.29 56,469 0.00% 1.15% to 2.70% 18.86% to 20.73% AZL BlackRock Capital Appreciation Fund 2008 5,342 $7.76 to $8.30 42,814 0.00% 1.00% to 3.00% -38.26% to -37.01% 2007 4,666 $12.70 to $13.16 60,239 0.00% 1.00% to 2.95% 7.68% to 9.81% 2006 4,061 $11.75 to $12.07 48,235 0.00% 1.00% to 2.60% -1.03% to 9.57% 2005(2) 3,038 $11.87 to $11.97 36,245 0.00% 1.40% to 2.60% 18.74% to 19.68% AZL Columbia Mid Cap Value Fund 2008 5,241 $4.66 to $4.90 25,031 0.56% 1.00% to 3.00% -53.57% to -52.63% 2007 3,891 $10.11 to $10.36 39,787 0.01% 1.00% to 2.95% 0.82% to 2.82% 2006 1,876 $10.00 to $10.10 18,837 0.61% 1.00% to 2.60% 10.18% to 10.79% AZL Columbia Small Cap Value Fund 2008 4,359 $5.77 to $8.43 34,886 0.60% 1.00% to 3.00% -34.10% to -32.77% 2007 4,688 $11.86 to $12.55 57,106 0.25% 1.00% to 2.95% -10.92% to -9.16% 2006 5,250 $13.28 to $13.90 71,186 0.07% 1.00% to 2.70% 10.39% to 12.01% 2005 4,551 $12.03 to $12.29 55,521 0.00% 1.40% to 2.70% 0.64% to 1.96% 2004 2,551 $11.95 to $12.06 30,731 0.20% 1.40% to 2.70% 18.84% to 19.87% AZL Columbia Technology Fund 2008 8,281 $4.35 to $4.96 38,287 0.00% 1.00% to 3.00% -52.10% to -51.13% 2007 10,566 $9.24 to $10.17 101,713 0.00% 1.00% to 2.95% 19.16% to 21.52% 2006 6,075 $7.74 to $8.45 48,532 0.00% 1.00% to 2.70% -0.17% to 11.26% 2005 5,916 $7.77 to $8.27 47,113 0.00% 1.15% to 2.65% -1.92% to -0.45% 2004 5,891 $7.91 to $8.30 47,555 0.00% 1.15% to 2.70% -6.88% to -5.42% AZL Davis NY Venture Fund 2008 43,169 $7.12 to $8.10 326,971 0.94% 1.00% to 3.00% -42.26% to -41.10% 2007 30,063 $12.51 to $13.77 395,443 0.44% 1.00% to 2.95% 1.11% to 3.11% 2006 30,217 $12.34 to $13.47 389,221 0.29% 1.00% to 2.70% 9.24% to 10.88% 2005 23,999 $11.13 to $11.87 276,557 0.13% 1.15% to 2.70% 6.77% to 8.43% 2004 13,974 $10.43 to $10.95 149,818 0.23% 1.15% to 2.70% 7.60% to 9.29%
108 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 --------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** AZL Dreyfus Founders Equity Growth Fund 2008 19,264 $5.92 to $6.75 121,848 0.29% 1.00% to 3.00% -43.36% to -42.21% 2007 25,805 $10.64 to $11.71 287,472 0.06% 1.00% to 2.95% 5.57% to 7.67% 2006 11,304 $10.05 to $10.97 118,436 0.00% 1.00% to 2.70% 9.93% to 10.63% 2005 9,188 $9.14 to $9.75 86,799 0.28% 1.15% to 2.70% 1.78% to 3.37% 2004 8,196 $8.98 to $9.43 75,508 0.00% 1.15% to 2.70% 4.84% to 6.48% AZL First Trust Target Double Play Fund 2008 11,609 $4.70 to $4.87 55,560 0.77% 1.00% to 3.00% -55.03% to -54.12% 2007(4) 8,252 $10.48 to $10.62 87,109 0.00% 1.00% to 2.95% 3.84% to 5.75% AZL Franklin Small Cap Value Fund 2008 12,991 $10.43 to $11.59 142,496 1.14% 1.00% to 3.00% -35.69% to -34.39% 2007 16,613 $16.45 to $17.69 282,993 0.50% 1.00% to 2.95% -7.17% to -5.33% 2006 17,997 $17.68 to $18.82 327,285 0.28% 1.00% to 2.70% 10.54% to 12.35% 2005 14,272 $15.74 to $16.29 229,386 0.54% 1.40% to 2.70% 4.19% to 5.55% 2004 8,311 $15.10 to $15.44 127,319 0.00% 1.40% to 2.70% 19.81% to 21.38% AZL Fusion Balanced Fund 2008 33,864 $8.18 to $8.75 286,477 2.37% 1.00% to 3.00% -29.59% to -28.17% 2007 29,873 $11.74 to $12.20 357,955 1.37% 1.00% to 2.95% 3.98% to 6.04% 2006 23,672 $11.25 to $11.55 269,515 0.33% 1.00% to 2.60% 6.68% to 6.82% 2005(2) 10,884 $10.54 to $10.63 115,359 0.00% 1.40% to 2.60% 5.47% to 6.31% AZL Fusion Growth Fund 2008 81,307 $7.27 to $7.79 610,094 1.49% 1.00% to 3.00% -40.75% to -39.55% 2007 87,486 $12.41 to $12.90 1,103,016 0.48% 1.00% to 2.95% 2.66% to 4.70% 2006 72,625 $12.04 to $12.37 883,579 0.07% 1.00% to 2.60% 9.33% to 10.05% 2005(2) 30,467 $11.02 to $11.11 337,345 0.00% 1.40% to 2.60% 10.18% to 11.06% AZL Fusion Moderate Fund 2008 52,489 $7.75 to $8.30 419,531 2.29% 1.00% to 3.00% -34.92% to -33.60% 2007 66,147 $12.00 to $12.48 809,286 0.95% 1.00% to 2.95% 3.43% to 5.48% 2006 54,177 $11.57 to $11.88 633,894 0.22% 1.00% to 2.60% 7.88% to 8.25% 2005(2) 27,565 $10.72 to $10.81 296,907 0.00% 1.40% to 2.60% 7.24% to 8.09% AZL Jennison 20/20 Focus Fund 2008 18,959 $8.28 to $8.86 162,427 0.12% 1.00% to 3.00% -41.88% to -40.71% 2007 13,493 $14.36 to $14.97 198,067 0.19% 1.00% to 2.95% 7.50% to 9.63% 2006 11,386 $13.35 to $13.71 153,824 0.00% 1.00% to 2.60% 9.90% to 10.78% 2005(2) 6,387 $12.15 to $12.25 77,994 0.24% 1.40% to 2.60% 21.50% to 22.47%
109 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** AZL Legg Mason Growth Fund 2008 26,857 $4.67 to $5.26 132,498 0.00% 1.00% to 3.00% -61.87% to -61.09% 2007 14,522 $12.44 to $13.54 188,913 0.00% 1.00% to 2.95% 11.66% to 13.87% 2006 8,260 $11.08 to $12.00 94,574 0.00% 1.00% to 2.70% -1.98% to 13.92% 2005 6,801 $11.30 to $11.97 78,816 0.00% 1.15% to 2.70% 8.11% to 9.79% 2004 4,610 $10.46 to $10.90 49,005 0.00% 1.15% to 2.70% 5.19% to 6.84% AZL Legg Mason Value Fund 2008 11,652 $4.64 to $5.28 57,418 0.00% 1.00% to 3.00% -56.23% to -55.34% 2007 15,368 $10.76 to $11.84 173,309 0.00% 1.00% to 2.95% -8.93% to -7.13% 2006 17,865 $11.79 to $12.87 220,530 0.00% 1.00% to 2.70% 3.87% to 14.97% 2005 17,146 $11.35 to $12.11 202,687 0.00% 1.15% to 2.70% 3.44% to 5.05% 2004 6,954 $10.97 to $11.52 78,239 0.40% 1.15% to 2.70% 12.08% to 13.83% AZL Money Market Fund 2008 91,349 $9.74 to $11.49 968,860 2.35% 1.00% to 3.00% -0.59% to 1.42% 2007 53,522 $10.04 to $11.35 576,147 4.71% 1.00% to 2.95% 1.74% to 3.75% 2006 37,014 $9.84 to $11.07 387,308 4.42% 1.00% to 2.70% 1.30% to 1.67% 2005 30,862 $9.68 to $10.61 314,957 2.56% 1.15% to 2.70% -0.15% to 1.40% 2004 22,705 $9.69 to $10.46 229,969 0.70% 1.15% to 2.70% -2.01% to -0.48% AZL NACM International Fund 2008 1,270 $5.02 to $5.17 6,463 2.45% 1.00% to 3.00% -46.54% to -45.46% 2007(4) 665 $9.40 to $9.48 6,280 0.41% 1.00% to 2.95% -6.26% to -5.03% AZL OCC Opportunity Fund 2008 8,082 $7.83 to $8.83 66,668 0.00% 1.00% to 3.00% -48.72% to -47.68% 2007 10,188 $15.49 to $16.91 163,914 0.00% 1.00% to 2.95% 5.70% to 7.80% 2006 10,132 $14.61 to $15.82 152,821 0.00% 1.00% to 2.70% 8.71% to 15.05% 2005 9,449 $13.44 to $14.23 130,378 0.00% 1.15% to 2.70% 2.29% to 3.88% 2004 9,047 $13.14 to $13.70 121,339 0.00% 1.15% to 2.70% 4.89% to 6.53% AZL Oppenheimer Global Fund 2008 10,884 $8.22 to $8.96 93,043 0.78% 1.00% to 3.00% -42.80% to -41.64% 2007 14,204 $14.53 to $15.32 211,936 0.50% 1.00% to 2.95% 2.67% to 4.70% 2006 14,742 $14.11 to $14.77 212,236 0.06% 1.00% to 2.70% 12.10% to 13.20% 2005 11,685 $12.47 to $12.74 147,589 0.00% 1.40% to 2.70% 9.63% to 11.06% 2004(1) 6,766 $11.37 to $11.47 77,384 0.00% 1.40% to 2.70% 13.75% to 14.73% AZL Oppenheimer International Growth Fund 2008 9,416 $10.07 to $11.50 100,915 1.05% 1.00% to 3.00% -45.80% to -44.70% 2007 12,139 $18.92 to $20.82 240,548 0.59% 1.00% to 2.95% 9.01% to 11.17% 2006 8,782 $17.32 to $18.90 158,081 0.00% 1.00% to 2.70% 16.85% to 25.56% 2005 4,896 $13.79 to $14.71 69,842 0.00% 1.15% to 2.70% 11.14% to 12.88% 2004 2,956 $12.41 to $13.03 37,771 0.34% 1.15% to 2.70% 11.43% to 13.17%
110 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** AZL Oppenheimer Main Street Fund 2008 7,955 $7.28 to $7.92 60,030 1.00% 1.00% to 3.00% -40.50% to -39.29% 2007 10,649 $12.34 to $13.06 134,696 0.53% 1.00% to 2.95% 0.76% to 2.76% 2006 9,984 $12.21 to $12.78 124,274 0.54% 1.00% to 2.70% 8.92% to 11.55% 2005 8,614 $10.95 to $11.19 95,465 0.00% 1.40% to 2.70% 2.65% to 3.99% 2004(1) 5,977 $10.67 to $10.76 64,069 1.08% 1.40% to 2.70% 6.68% to 7.60% AZL PIMCO Fundamental IndexPLUS Total Return Fund 2008 1,395 $6.52 to $6.82 9,303 0.00% 1.00% to 3.00% -42.61% to -41.45% 2007 613 $11.42 to $11.68 7,075 9.28% 1.00% to 2.95% 3.55% to 5.60% 2006(3) 415 $10.99 to $11.11 4,587 5.34% 1.00% to 2.60% 9.76% to 10.37% AZL S&P 500 Index Fund 2008 30,497 $4.97 to $6.10 183,421 0.00% 1.00% to 3.00% -39.47% to -38.24% 2007(4) 2,772 $8.16 to $9.90 27,330 2.43% 1.00% to 2.95% -2.20% to -0.91% AZL Schroder Emerging Markets Equity Fund CL 1 2008 4,941 $6.40 to $6.49 32,104 0.03% 1.40% to 2.20% -52.87% to -52.49% 2007(4) 24 $13.59 to $13.65 335 0.00% 1.40% to 2.20% 20.41% to 21.05% AZL Schroder Emerging Markets Equity Fund CL 2 2008 23,473 $5.62 to $6.43 146,807 0.16% 1.00% to 3.00% -53.31% to -52.37% 2007 12,698 $12.00 to $13.51 169,313 0.01% 1.00% to 2.95% 15.62% to 29.01% 2006(3) 4,421 $10.39 to $10.50 46,128 0.19% 1.00% to 2.60% 17.97% to 18.63% AZL Schroder International Small Cap Fund 2008 2,472 $4.83 to $4.98 12,122 1.92% 1.00% to 3.00% -47.19% to -46.12% 2007(4) 1,136 $9.17 to $9.26 10,474 0.00% 1.00% to 2.95% -8.52% to -7.32% AZL Small Cap Stock Index Fund 2008 18,486 $6.18 to $6.38 116,150 1.30% 1.00% to 3.00% -32.99% to -31.63% 2007(4) 1,245 $9.25 to $9.34 11,585 1.09% 1.00% to 2.95% -7.67% to -6.45% AZL TargetPLUS Balanced Fund 2008 6,419 $7.34 to $7.57 47,834 0.00% 1.00% to 3.00% -26.64% to -25.16% 2007(4) 1,070 $10.04 to $10.13 10,810 3.32% 1.00% to 2.95% 0.23% to 1.54% AZL TargetPLUS Equity Fund 2008 10,569 $5.18 to $5.37 55,753 0.02% 1.00% to 3.00% -50.05% to -49.04% 2007(4) 8,062 $10.40 to $10.55 84,465 1.03% 1.00% to 2.95% 3.11% to 5.01% AZL TargetPLUS Growth Fund 2008 10,875 $5.78 to $5.97 63,851 0.00% 1.00% to 3.00% -41.17% to -39.98% 2007(4) 3,811 $9.86 to $9.96 37,794 2.12% 1.00% to 2.95% -1.63% to -0.34% AZL TargetPLUS Moderate Fund 2008 7,844 $6.54 to $6.75 52,043 0.00% 1.00% to 3.00% -34.37% to -33.05% 2007(4) 2,226 $10.00 to $10.10 22,400 2.93% 1.00% to 2.95% -0.24% to 1.07%
111 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** AZL Turner Quantitative Small Cap Growth Fund 2008 2,581 $6.74 to $7.20 17,898 0.00% 1.00% to 3.00% -45.03% to -43.91% 2007 2,653 $12.37 to $12.86 33,333 0.00% 1.00% to 2.95% 2.97% to 5.01% 2006 2,943 $11.97 to $12.29 35,591 0.00% 1.00% to 2.60% 8.46% to 13.97% 2005(2) 1,890 $11.04 to $11.12 20,959 0.00% 1.40% to 2.60% 10.38% to 11.26% AZL Van Kampen Comstock Fund 2008 31,962 $6.92 to $7.94 236,303 2.04% 1.00% to 3.00% -38.08% to -36.82% 2007 47,291 $11.36 to $12.59 564,367 1.45% 1.00% to 2.95% -5.08% to -3.20% 2006 42,375 $11.93 to $13.14 528,044 1.04% 1.00% to 2.70% 9.38% to 12.69% 2005 43,085 $10.59 to $11.39 473,191 0.41% 1.15% to 2.70% 1.16% to 2.74% 2004 34,900 $10.47 to $11.08 378,088 0.42% 1.15% to 2.70% 13.99% to 15.77% AZL Van Kampen Equity and Income Fund 2008 14,294 $8.95 to $9.74 133,400 2.66% 1.00% to 3.00% -26.17% to -24.68% 2007 19,186 $12.23 to $12.95 242,363 1.55% 1.00% to 2.95% 0.05% to 2.03% 2006 17,873 $12.20 to $12.76 223,287 1.02% 1.00% to 2.70% 7.23% to 9.53% 2005 14,278 $11.14 to $11.38 161,504 0.00% 1.40% to 2.70% 3.91% to 5.27% 2004(1) 7,557 $10.72 to $10.81 81,460 0.94% 1.40% to 2.70% 7.18% to 8.11% AZL Van Kampen Global Franchise Fund 2008 15,447 $12.45 to $13.83 202,363 2.02% 1.00% to 3.00% -30.68% to -29.28% 2007 21,519 $18.22 to $19.59 406,292 0.00% 1.00% to 2.95% 6.61% to 8.72% 2006 22,029 $17.05 to $18.14 386,210 1.55% 1.00% to 2.70% 7.55% to 18.03% 2005 17,131 $14.44 to $14.95 252,646 0.00% 1.40% to 2.70% 8.68% to 10.10% 2004 9,069 $13.29 to $13.58 122,121 0.00% 1.40% to 2.70% 9.21% to 10.64% AZL Van Kampen Global Real Estate Fund 2008 7,936 $5.55 to $5.84 45,174 1.84% 1.00% to 3.00% -47.44% to -46.37% 2007 7,887 $10.64 to $10.90 84,856 0.49% 1.00% to 2.95% -11.35% to -9.59% 2006(3) 5,248 $11.96 to $12.08 63,019 1.20% 1.00% to 2.60% 18.32% to 18.98% AZL Van Kampen Growth and Income Fund 2008 17,428 $8.37 to $9.65 156,857 2.14% 1.00% to 3.00% -34.85% to -33.53% 2007 23,437 $13.10 to $14.53 323,375 1.23% 1.00% to 2.95% -0.36% to 1.62% 2006 26,601 $13.12 to $14.44 364,766 0.82% 1.00% to 2.70% 9.56% to 12.82% 2005 25,803 $11.63 to $12.50 311,483 0.35% 1.15% to 2.70% 6.33% to 7.99% 2004 20,145 $10.93 to $11.58 227,029 0.35% 1.15% to 2.70% 10.78% to 12.51% AZL Van Kampen Mid Cap Growth Fund 2008 23,754 $7.27 to $8.38 184,718 0.30% 1.00% to 3.00% -50.04% to -49.03% 2007 29,896 $14.85 to $16.47 464,770 0.03% 1.00% to 2.95% 18.62% to 20.97% 2006 18,548 $12.49 to $13.75 241,109 0.00% 1.00% to 2.70% 6.31% to 13.18% 2005 16,140 $11.74 to $12.63 196,210 0.00% 1.15% to 2.70% 14.42% to 16.20% 2004 8,449 $10.26 to $10.87 89,260 0.00% 1.15% to 2.70% 18.00% to 19.84%
112 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** BlackRock Global Allocations V.I. Fund 2008(5) 15,938 $7.83 to $13.67 129,553 5.77% 1.15% to 3.00% -21.81% to -20.83% Davis VA Financial Portfolio 2008 6,185 $7.29 to $8.56 48,716 0.00% 1.00% to 3.00% -47.95% to -46.90% 2007 6,470 $14.28 to $16.15 97,925 0.97% 1.00% to 2.95% -8.79% to -6.99% 2006 7,986 $15.62 to $17.57 131,469 0.66% 1.00% to 2.70% 13.42% to 15.36% 2005 7,369 $13.54 to $14.84 104,401 0.52% 1.15% to 2.70% 5.50% to 7.15% 2004 6,719 $12.83 to $13.85 89,662 0.42% 1.15% to 2.70% 7.37% to 9.05% Davis VA Real Estate Portfolio 2008 45 $14.05 to $15.57 684 1.66% 1.15% to 2.55% -48.25% to -47.52% 2007 55 $27.16 to $29.75 1,605 3.41% 1.15% to 2.55% -17.62% to -16.45% 2006 71 $32.97 to $36.32 2,483 2.95% 1.15% to 2.55% 31.00% to 32.84% 2005 97 $25.17 to $26.94 2,565 3.15% 1.40% to 2.55% 10.29% to 11.56% 2004 120 $22.82 to $24.45 2,851 3.14% 1.15% to 2.55% 29.96% to 31.80% Davis VA Value Portfolio 2008 8,426 $7.47 to $8.58 67,417 0.84% 1.15% to 2.70% -41.92% to -41.01% 2007 12,127 $12.86 to $14.54 166,627 1.04% 1.15% to 2.70% 1.84% to 3.43% 2006 14,707 $12.63 to $14.06 196,912 0.75% 1.15% to 2.70% 11.95% to 13.69% 2005 16,693 $11.28 to $12.37 197,991 0.95% 1.15% to 2.70% 6.54% to 8.20% 2004 18,681 $10.59 to $11.43 206,291 0.84% 1.15% to 2.70% 9.33% to 11.04% Franklin Global Communications Securities Fund 2008 6,757 $12.10 to $17.49 106,966 0.16% 1.00% to 3.00% -47.75% to -46.69% 2007 9,218 $24.56 to $32.86 275,000 0.00% 1.00% to 2.95% 19.62% to 23.00% 2006 8,387 $20.31 to $26.84 209,108 0.31% 1.00% to 2.70% 18.07% to 21.25% 2005 7,872 $16.75 to $21.73 162,884 2.70% 1.15% to 2.70% 12.71% to 14.51% 2004 8,345 $14.86 to $18.98 152,822 1.00% 1.15% to 2.70% 11.13% to 13.06% Franklin Growth and Income Securities Fund 2008 9,292 $18.10 to $24.59 210,956 3.47% 1.00% to 2.70% -36.88% to -35.79% 2007 12,181 $28.67 to $38.36 439,537 2.39% 1.00% to 2.70% -6.29% to -4.67% 2006 14,586 $30.60 to $40.54 555,540 2.51% 1.00% to 2.70% 9.40% to 13.65% 2005 16,366 $26.92 to $34.92 543,927 2.72% 1.15% to 2.70% 0.76% to 2.33% 2004 17,158 $26.72 to $34.12 563,821 2.56% 1.15% to 2.70% 7.66% to 9.36%
113 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 --------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** Franklin High Income Securities Fund 2008 6,104 $14.08 to $20.15 107,397 10.38% 1.00% to 3.00% -25.65% to -24.14% 2007 8,121 $19.89 to $26.61 194,157 6.81% 1.00% to 2.95% -0.19% to 1.69% 2006 9,155 $19.89 to $26.29 217,690 6.24% 1.00% to 2.70% 5.18% to 6.46% 2005 9,108 $18.69 to $24.24 203,114 5.98% 1.15% to 2.70% 0.57% to 2.29% 2004 9,464 $18.58 to $23.73 209,279 5.95% 1.15% to 2.70% 6.94% to 8.61% Franklin Income Securities Fund 2008 20,324 $24.44 to $35.34 633,722 5.67% 1.00% to 3.00% -31.74% to -30.36% 2007 26,714 $37.99 to $50.82 1,236,149 3.51% 1.00% to 2.95% 0.83% to 2.72% 2006 24,645 $37.62 to $49.71 1,124,778 3.48% 1.00% to 2.70% 7.12% to 15.10% 2005 20,445 $32.68 to $42.39 811,292 3.53% 1.15% to 2.70% -1.10% to 0.45% 2004 16,383 $33.05 to $42.20 661,455 3.11% 1.15% to 2.70% 10.81% to 12.55% Franklin Large Cap Growth Securities Fund 2008 9,914 $11.54 to $14.05 128,233 1.42% 1.00% to 2.70% -36.28% to -35.18% 2007 14,370 $18.12 to $21.71 293,997 0.81% 1.00% to 2.70% 3.39% to 5.17% 2006 17,410 $17.52 to $21.01 341,776 0.81% 1.00% to 2.70% 7.95% to 9.49% 2005 19,427 $16.23 to $18.86 350,975 0.64% 1.15% to 2.70% -1.63% to -0.09% 2004 18,002 $16.50 to $18.87 330,333 0.51% 1.15% to 2.70% 5.05% to 6.72% Franklin Money Market Fund 2008 1,419 $16.52 to $17.22 24,004 1.57% 1.15% to 1.49% -0.06% to 0.14% 2007 1,575 $16.51 to $17.19 26,980 4.47% 1.15% to 1.49% 2.85% to 3.06% 2006 1,905 $16.03 to $16.68 31,583 4.29% 1.15% to 1.49% 2.84% to 2.93% 2005 2,450 $15.59 to $16.21 39,365 2.48% 1.15% to 1.49% 1.04% to 1.13% 2004 3,203 $15.43 to $16.03 50,808 0.71% 1.15% to 1.49% -0.76% to -0.67% Franklin Real Estate Fund 2008 4,126 $23.52 to $31.96 114,219 1.18% 1.15% to 2.70% -43.93% to -43.03% 2007 6,170 $41.95 to $56.12 306,481 2.40% 1.15% to 2.70% -22.98% to -21.76% 2006 8,543 $54.47 to $71.74 548,475 1.99% 1.15% to 2.70% 17.38% to 19.21% 2005 9,882 $46.40 to $60.18 537,862 1.44% 1.15% to 2.70% 10.46% to 12.18% 2004 8,516 $42.01 to $53.65 419,936 1.82% 1.15% to 2.70% 28.28% to 30.34% Franklin Rising Dividends Securities Fund 2008 10,583 $21.40 to $27.69 265,219 1.97% 1.15% to 2.70% -29.05% to -27.93% 2007 15,529 $30.16 to $38.42 549,522 2.48% 1.15% to 2.70% -5.29% to -3.78% 2006 19,516 $31.84 to $39.95 722,650 1.12% 1.15% to 2.70% 14.01% to 15.79% 2005 21,765 $27.93 to $34.50 701,663 0.95% 1.15% to 2.70% 0.68% to 2.25% 2004 20,424 $27.74 to $33.74 652,269 0.68% 1.15% to 2.70% 8.03% to 9.73%
114 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** Franklin Small Cap Value Securities Fund 2008 5,689 $10.40 to $12.27 64,002 1.22% 1.15% to 2.70% -34.81% to -33.78% 2007 8,622 $15.95 to $18.53 149,192 0.70% 1.15% to 2.70% -4.99% to -3.50% 2006 11,149 $16.78 to $19.20 201,830 0.65% 1.15% to 2.70% 13.87% to 15.65% 2005 13,411 $14.74 to $16.60 211,689 0.81% 1.15% to 2.70% 5.88% to 7.53% 2004 12,800 $13.92 to $15.44 189,938 0.19% 1.15% to 2.70% 20.44% to 22.36% Franklin Small-Mid Cap Growth Securities Fund 2008 7,460 $12.10 to $14.79 102,678 0.00% 1.15% to 2.70% -44.03% to -43.15% 2007 9,861 $21.62 to $26.02 242,499 0.00% 1.15% to 2.70% 8.26% to 9.96% 2006 11,991 $19.97 to $23.66 269,950 0.00% 1.15% to 2.70% 5.81% to 7.45% 2005 14,051 $18.87 to $22.02 296,641 0.00% 1.15% to 2.70% 2.00% to 3.63% 2004 14,994 $18.50 to $21.26 308,650 0.00% 1.15% to 2.70% 8.50% to 10.20% Franklin Templeton VIP Founding Funds Allocation Fund 2008 19,846 $5.71 to $5.87 114,681 3.51% 1.00% to 3.00% -37.77% to -36.51% 2007(4) 4,548 $9.19 to $9.26 41,977 0.00% 1.00% to 2.95% -8.25% to -7.36% Franklin U.S. Government Fund 2008 17,117 $20.45 to $29.14 438,305 4.83% 1.00% to 3.00% 4.40% to 6.52% 2007 17,323 $20.48 to $27.40 429,720 4.94% 1.00% to 2.95% 2.32% to 5.54% 2006 19,375 $19.74 to $26.07 459,275 4.44% 1.00% to 2.70% 1.25% to 1.85% 2005 21,379 $19.49 to $25.28 497,400 4.33% 1.15% to 2.70% -0.32% to 1.24% 2004 21,258 $19.55 to $24.97 495,079 5.03% 1.15% to 2.70% 0.71% to 2.29% Franklin Zero Coupon Fund 2010 2008 3,066 $30.86 to $44.52 116,167 4.54% 1.00% to 3.00% 4.31% to 6.42% 2007 2,451 $31.32 to $41.90 90,911 4.96% 1.00% to 2.95% 5.45% to 7.54% 2006 2,533 $29.63 to $40.08 88,620 3.96% 1.00% to 2.70% -0.02% to 1.26% 2005 2,783 $29.63 to $38.43 96,876 4.24% 1.15% to 2.70% -1.16% to 0.38% 2004 2,118 $29.98 to $38.29 74,368 4.72% 1.15% to 2.70% 1.92% to 3.52% J.P. Morgan International Opportunities Portfolio 2008 26 $6.78 to $7.09 179 2.00% 1.15% to 2.55% -42.83% to -42.03% 2007 41 $11.78 to $12.26 491 1.00% 1.15% to 2.55% 6.56% to 8.08% 2006 47 $10.50 to $11.57 523 1.18% 1.15% to 2.55% 18.97% to 20.65% 2005 64 $9.17 to $9.45 593 0.86% 1.40% to 1.90% 8.61% to 9.16% 2004 72 $8.44 to $8.66 615 0.53% 1.40% to 1.90% 16.14% to 16.72% J.P. Morgan U.S. Large Cap Core Equity Portfolio 2008 54 $5.86 to $6.27 322 1.29% 1.15% to 2.55% -35.65% to -34.74% 2007 65 $9.05 to $9.60 596 1.08% 1.15% to 2.55% -0.91% to 0.49% 2006 76 $8.67 to $9.56 705 1.02% 1.15% to 2.55% 13.65% to 15.24% 2005 107 $7.93 to $8.29 861 1.26% 1.15% to 1.90% -0.55% to 0.19% 2004 130 $7.98 to $8.28 1,049 0.75% 1.15% to 1.90% 7.42% to 8.23%
115 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 --------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** Mutual Discovery Securities Fund 2008 23,470 $17.32 to $21.69 463,812 2.28% 1.00% to 3.00% -30.57% to -29.17% 2007 31,131 $25.83 to $30.67 893,746 1.50% 1.00% to 2.95% 8.58% to 10.73% 2006 30,097 $23.70 to $24.92 788,452 1.03% 1.00% to 2.70% 9.77% to 19.79% 2005 26,246 $19.81 to $22.76 571,760 1.31% 1.15% to 2.70% 12.89% to 14.66% 2004 20,002 $17.55 to $19.85 385,579 1.08% 1.15% to 2.70% 15.04% to 16.90% Mutual Shares Securities Fund 2008 35,119 $12.33 to $15.46 497,934 3.06% 1.00% to 3.00% -38.97% to -37.74% 2007 49,588 $20.91 to $24.87 1,160,544 1.51% 1.00% to 2.95% 0.45% to 2.44% 2006 47,987 $20.76 to $24.65 1,107,271 1.30% 1.00% to 2.70% 9.03% to 15.23% 2005 39,133 $18.02 to $20.78 781,296 0.94% 1.15% to 2.70% 7.62% to 9.29% 2004 30,814 $16.74 to $19.01 571,473 0.82% 1.15% to 2.70% 9.62% to 11.34% OpCap Mid Cap Portfolio 2008 5,070 $5.83 to $6.13 30,318 0.40% 1.00% to 3.00% -43.40% to -42.26% 2007 2,964 $10.37 to $10.61 31,117 0.15% 1.00% to 2.95% 4.10% to 6.16% 2006 1,451 $9.93 to $10.04 14,483 0.00% 1.00% to 2.60% 10.29% to 10.90% Oppenheimer Global Securities Fund/VA 2008 9,271 $8.25 to $9.47 81,580 1.69% 1.15% to 2.70% -41.79% to -40.87% 2007 13,620 $14.17 to $16.02 205,533 1.40% 1.15% to 2.70% 3.47% to 5.10% 2006 16,707 $13.70 to $15.25 241,736 1.06% 1.15% to 2.70% 14.56% to 16.35% 2005 19,339 $11.95 to $13.10 242,446 1.06% 1.15% to 2.70% 11.27% to 13.00% 2004 21,679 $10.74 to $11.60 242,223 1.22% 1.15% to 2.70% 15.98% to 17.80% Oppenheimer High Income Fund/VA 2008 3,715 $2.43 to $2.79 9,566 7.21% 1.15% to 2.70% -79.24% to -78.92% 2007 2,370 $11.72 to $13.25 29,717 7.52% 1.15% to 2.70% -2.78% to -1.25% 2006 2,977 $12.05 to $13.42 38,259 7.81% 1.15% to 2.70% 6.52% to 8.18% 2005 3,291 $11.32 to $12.40 39,330 6.94% 1.15% to 2.70% -0.40% to 1.15% 2004 4,150 $11.36 to $12.26 49,485 6.60% 1.15% to 2.70% 6.06% to 7.72% Oppenheimer Main Street Fund/VA 2008 9,230 $5.94 to $6.82 58,515 1.63% 1.15% to 2.70% -40.11% to -39.17% 2007 13,154 $9.92 to $11.22 139,064 1.04% 1.15% to 2.70% 1.63% to 3.22% 2006 15,908 $9.76 to $10.87 164,300 1.17% 1.15% to 2.70% 11.97% to 13.71% 2005 18,526 $8.72 to $9.56 169,622 1.39% 1.15% to 2.70% 3.16% to 4.77% 2004 21,503 $8.45 to $9.12 189,299 0.82% 1.15% to 2.70% 6.53% to 8.20% PIMCO VIT All Asset Portfolio 2008 10,475 $9.97 to $11.52 114,617 5.55% 1.00% to 3.00% -18.34% to -16.68% 2007 13,347 $12.67 to $13.84 180,302 7.29% 1.00% to 2.95% 5.27% to 7.24% 2006 16,148 $12.40 to $12.98 205,480 5.38% 1.00% to 2.70% 1.59% to 1.88% 2005 17,865 $12.18 to $12.44 222,032 4.74% 1.40% to 2.70% 3.41% to 4.76%
116 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** PIMCO VIT CommodityRealReturn Strategy Portfolio 2008 12,315 $6.70 to $7.94 85,230 4.50% 1.00% to 3.00% -45.46% to -44.35% 2007 8,897 $12.41 to $12.87 112,433 4.81% 1.00% to 2.95% 19.64% to 22.01% 2006 8,067 $10.34 to $10.62 84,388 4.62% 1.00% to 2.60% -5.58% to -5.58% 2005(2) 4,475 $10.95 to $11.04 49,229 2.57% 1.40% to 2.60% 9.31% to 10.18% PIMCO VIT Emerging Markets Bond Portfolio 2008 3,274 $9.77 to $10.44 33,044 6.48% 1.00% to 3.00% -17.13% to -15.45% 2007 3,644 $11.90 to $12.37 44,213 5.82% 1.00% to 2.95% 2.73% to 4.76% 2006 3,050 $11.54 to $11.85 35,627 5.36% 1.00% to 2.60% 5.08% to 6.48% 2005(2) 2,030 $10.84 to $10.93 22,123 3.65% 1.40% to 2.60% 8.32% to 9.19% PIMCO VIT Global Bond Portfolio 2008 7,579 $9.62 to $14.54 75,572 3.31% 1.00% to 3.00% -3.78% to -1.84% 2007 5,408 $10.11 to $10.51 55,781 3.33% 1.00% to 2.95% 6.54% to 8.65% 2006 3,080 $9.46 to $9.71 29,522 3.33% 1.00% to 2.60% 1.02% to 1.97% 2005(2) 1,350 $9.27 to $9.35 12,591 1.98% 1.40% to 2.60% -7.18% to -6.43% PIMCO VIT High Yield Portfolio 2008 9,789 $9.25 to $11.02 96,790 7.78% 1.00% to 3.00% -25.81% to -24.30% 2007 12,978 $12.43 to $14.58 173,285 7.03% 1.00% to 2.95% 0.59% to 2.48% 2006 15,336 $12.34 to $13.88 201,813 6.93% 1.00% to 2.70% 4.88% to 6.21% 2005 16,429 $11.62 to $13.21 202,567 6.57% 1.15% to 2.70% 1.36% to 2.94% 2004 15,047 $11.46 to $12.84 182,237 6.55% 1.15% to 2.70% 6.64% to 8.31% PIMCO VIT Real Return Portfolio 2008 19,352 $10.31 to $16.01 210,471 3.53% 1.00% to 3.00% -9.81% to -7.98% 2007 20,669 $11.55 to $12.41 249,436 4.72% 1.00% to 2.95% 7.43% to 9.56% 2006 22,779 $10.72 to $11.46 253,317 4.25% 1.00% to 2.70% -1.96% to -1.53% 2005 25,016 $10.94 to $11.37 281,377 2.82% 1.40% to 2.70% -0.61% to 0.68% 2004 18,257 $11.00 to $11.29 204,910 1.07% 1.40% to 2.70% 6.01% to 7.40% PIMCO VIT StocksPLUS Growth and Income Portfolio 2008 1,258 $5.66 to $6.44 7,623 7.11% 1.15% to 2.70% -44.16% to -43.29% 2007 1,703 $10.12 to $11.35 18,349 7.46% 1.15% to 2.70% 4.00% to 5.63% 2006 2,085 $9.66 to $10.75 21,404 4.87% 1.15% to 2.70% 11.85% to 13.59% 2005 2,427 $8.68 to $9.46 22,100 2.25% 1.15% to 2.60% 0.84% to 2.31% 2004 2,975 $8.61 to $9.25 26,672 1.68% 1.15% to 2.60% 7.96% to 9.54%
117 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** PIMCO VIT Total Return Portfolio 2008 34,157 $13.43 to $15.85 492,177 4.47% 1.00% to 3.00% 1.70% to 3.76% 2007 35,646 $13.16 to $15.29 505,831 4.85% 1.00% to 2.95% 5.69% to 7.67% 2006 37,062 $12.44 to $13.99 492,340 4.44% 1.00% to 2.70% 1.09% to 1.62% 2005 36,408 $12.30 to $13.85 474,744 3.44% 1.15% to 2.70% -0.27% to 1.29% 2004 31,550 $12.34 to $13.67 409,277 1.89% 1.15% to 2.70% 2.09% to 3.69% Seligman Global Technology Portfolio 2008 282 $4.30 to $4.58 1,245 0.00% 1.15% to 2.55% -41.76% to -40.93% 2007 320 $7.34 to $7.76 2,408 0.00% 1.15% to 2.55% 12.52% to 14.12% 2006 446 $6.27 to $6.91 2,954 0.00% 1.15% to 2.55% 14.96% to 16.58% 2005 537 $5.52 to $5.86 3,070 0.00% 1.35% to 2.35% 5.63% to 6.69% 2004 735 $5.18 to $5.55 3,959 0.00% 1.15% to 2.55% 1.35% to 2.79% Seligman Small-Cap Value Portfolio 2008 3,341 $15.00 to $17.23 53,475 0.00% 1.15% to 2.70% -41.15% to -40.23% 2007 4,672 $25.49 to $28.82 126,765 0.00% 1.15% to 2.70% 1.35% to 2.95% 2006 6,020 $25.15 to $28.00 159,979 0.00% 1.15% to 2.70% 18.03% to 19.86% 2005 7,502 $21.31 to $23.36 167,646 9.61% 1.15% to 2.70% -6.53% to -5.07% 2004 9,464 $22.80 to $24.60 224,465 0.00% 1.15% to 2.70% 16.75% to 18.58% SP Strategic Partners Focused Growth Portfolio 2008 2,176 $4.45 to $5.02 10,121 0.00% 1.15% to 2.70% -40.18% to -39.25% 2007 3,429 $7.44 to $8.26 26,746 0.00% 1.15% to 2.70% 11.60% to 13.36% 2006 4,431 $6.64 to $7.29 30,769 0.00% 1.15% to 2.70% -3.74% to -2.24% 2005 5,876 $6.90 to $7.46 42,142 0.00% 1.15% to 2.70% 11.77% to 13.52% 2004 4,978 $6.17 to $6.57 31,717 0.00% 1.15% to 2.70% 6.97% to 8.64% SP International Growth Portfolio 2008 1,826 $4.48 to $5.07 8,551 1.45% 1.15% to 2.70% -51.81% to -51.05% 2007 3,006 $9.29 to $10.37 29,477 0.45% 1.15% to 2.70% 15.93% to 17.76% 2006 2,608 $8.02 to $8.80 21,901 1.58% 1.15% to 2.70% 16.98% to 18.80% 2005 2,982 $6.85 to $7.41 21,271 0.24% 1.15% to 2.70% 12.72% to 14.47% 2004 3,563 $6.08 to $6.47 22,395 0.00% 1.15% to 2.70% 13.02% to 14.79% Templeton Asset Strategy Fund 2008 551 $17.17 to $20.79 9,555 10.71% 1.15% to 1.49% -26.10% to -25.96% 2007 599 $23.23 to $28.86 15,017 17.69% 1.15% to 1.49% 8.53% to 8.78% 2006 742 $21.37 to $26.53 16,958 7.31% 1.15% to 1.49% 19.60% to 19.73% 2005 897 $17.87 to $22.16 17,048 3.91% 1.15% to 1.49% 2.17% to 2.41% 2004 1,066 $17.46 to $21.65 19,700 2.98% 1.15% to 1.49% 14.16% to 14.39%
118 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) A summary of units outstanding (thousands), unit values, net assets (thousands), ratios, and total returns for variable annuity contracts for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 is as follows:
At December 31 For the years ended December 31 -------------------------------------- -------------------------------------------------- Units Unit Fair Value Net Investment Expense Ratio Total Return Outstanding Assets Income lowest to lowest to **** lowest to highest **** Ratio* highest** highest*** Templeton Foreign Securities Fund 2008 10,526 $15.19 to $19.75 192,585 2.58% 1.00% to 2.70% -41.97% to -40.97% 2007 14,100 $26.18 to $33.50 443,786 2.13% 1.00% to 2.70% 12.36% to 14.30% 2006 16,562 $23.30 to $30.02 459,162 1.33% 1.00% to 2.70% 10.98% to 18.22% 2005 17,208 $19.71 to $24.44 402,655 1.25% 1.15% to 2.70% 7.24% to 8.94% 2004 16,757 $18.38 to $22.44 365,141 1.14% 1.15% to 2.70% 15.36% to 17.22% Templeton Global Income Securities Fund 2008 4,025 $24.89 to $35.86 124,761 3.84% 1.00% to 3.00% 3.06% to 5.15% 2007 2,675 $26.00 to $34.15 84,083 1.99% 1.00% to 2.95% 7.83% to 9.96% 2006 909 $29.91 to $31.13 27,726 3.17% 1.15% to 1.49% 11.47% to 11.48% 2005 1,092 $26.83 to $27.92 29,837 6.41% 1.15% to 1.49% -4.37% to -4.18% 2004 1,345 $28.05 to $29.14 38,359 11.07% 1.15% to 1.49% 13.19% to 13.49% Templeton Growth Securities Fund 2008 22,126 $13.25 to $17.43 351,451 1.93% 1.00% to 3.00% -44.03% to -42.90% 2007 30,377 $24.71 to $30.58 870,214 1.41% 1.00% to 2.95% -0.64% to 1.32% 2006 29,543 $24.80 to $30.81 844,951 1.34% 1.00% to 2.70% 11.80% to 18.57% 2005 26,041 $20.92 to $25.07 626,812 1.16% 1.15% to 2.70% 5.97% to 7.62% 2004 20,998 $19.74 to $23.29 478,645 1.20% 1.15% to 2.70% 12.93% to 14.70% Van Kampen LIT Capital Growth Portfolio 2007 327 $4.09 to $4.55 1,424 0.19% 1.15% to 2.55% -50.40% to -49.70% 2006 462 $8.24 to $9.04 4,019 0.00% 1.15% to 2.55% 13.69% to 15.30% 2005 685 $7.25 to $7.84 5,196 0.00% 1.15% to 2.55% 0.05% to 1.45% 2004 863 $7.24 to $7.73 6,486 0.01% 1.15% to 2.55% 4.93% to 6.41% 2003 1,047 $6.90 to $7.27 7,455 0.00% 1.15% to 2.55% 4.08% to 5.55% Van Kampen LIT Enterprise Portfolio 2008 16 $4.08 to $4.27 99 0.84% 1.15% to 2.55% -44.39% to -43.60% 2007 20 $7.29 to $7.58 149 0.61% 1.15% to 2.55% 9.83% to 11.39% 2006 28 $6.30 to $6.94 186 0.52% 1.15% to 2.55% 4.39% to 5.86% 2005 35 $6.27 to $6.46 226 0.87% 1.40% to 1.90% 6.12% to 6.65% 2004 45 $5.91 to $6.06 269 0.36% 1.40% to 1.90% 2.09% to 2.60% Van Kampen LIT Growth and Income Portfolio 2008 55 $10.85 to $11.60 632 2.10% 1.15% to 2.55% -33.75% to -32.81% 2007 59 $16.27 to $17.27 975 1.66% 1.15% to 2.55% 0.20% to 1.62% 2006 64 $15.42 to $16.99 1,043 1.29% 1.15% to 2.55% 13.32% to 14.91% 2005 82 $14.15 to $14.79 1,183 1.14% 1.15% to 1.90% 7.92% to 8.73% 2004 99 $13.11 to $13.60 1,313 1.00% 1.15% to 1.90% 12.22% to 13.07%
119 ALLIANZ LIFE VARIABLE ACCOUNT B OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA Notes to the Financial Statements (continued) December 31, 2008 6. FINANCIAL HIGHLIGHTS (CONTINUED) * These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense risk and administrative charges that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. Net Investment income ratios may be calculated by applying applicable expense ratios. ** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense risk and administrative charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying funds are excluded. *** These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect contract expenses of the separate account. The total return does not include any expenses assessed through the redemption of units. Inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. As the total return is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract returns are not within the ranges presented and is not annualized. **** Units Outstanding excludes units for annuitized contracts. Total Net Assets includes the net assets of the annuitized contracts. Total net assets of annuitized contracts at December 31, 2008 and 2007 were $6,649 and $9,641, respectively. 1. Period from May 3, 2004 (fund commencement) to December 31, 2004 2. Period from May 2, 2005 (fund commencement) to December 31, 2005 3. Period from May 2, 2006 (fund commencement) to December 31, 2006 4. Period from May 1, 2007 (fund commencement) to December 31, 2007 5. Period from May 1, 2008 (fund commencement) to December 31, 2008 120 [KPMG Logo] ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Financial Statements and Supplemental Schedules December 31, 2008 and 2007 (With Report of Independent Registered Public Accounting Firm Thereon) [KPMG Logo] KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholder 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 (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive income (loss), stockholder's equity, and cash flows for each of the years in the three-year period ended December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 financial position of Allianz Life Insurance Company of North America and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company has adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements, effective January 1, 2008. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information included in Schedules I, II, and III is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ KPMG LLP Minneapolis, Minnesota March 24, 2009 KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2008 and 2007 (In thousands, except share data) Assets 2008 2007 ------------------- ------------------- Investments: Fixed-maturity securities, at fair value: Fixed-maturity securities, available-for-sale (amortized cost of $35,521,222 and $33,257,432, respectively) $ 36,726,068 $ 34,391,322 Fixed-maturity securities, trading (amortized cost of $5,635,460 and $6,061,923, respectively) 5,162,034 6,027,093 Mortgage loans on real estate, net 4,838,373 4,402,214 Short-term securities 1,496,911 737,039 Derivatives 631,315 379,855 Real estate (net of accumulated depreciation of $39,686 and $30,777, respectively) 322,418 327,967 Loans to affiliates 723,802 725,826 Policy loans 174,599 169,058 Equity securities, at fair value: Equity securities, available-for-sale (cost of $84 and $17,601, respectively) 75 16,719 Equity securities, trading (cost of $13,360 and $25,079, respectively) 9,527 29,325 Other invested assets 3,462 21,063 ------------------- ------------------- Total investments 50,088,584 47,227,481 Cash 73,073 92,177 Accrued investment income 542,323 496,523 Receivables (net of allowance for uncollectible accounts of $4,839 and $4,819, respectively) 168,147 172,251 Reinsurance recoverables and receivables 4,096,285 4,126,276 Deferred acquisition costs 8,253,502 5,575,492 Other assets 2,601,858 1,846,105 ------------------- ------------------- Assets, exclusive of separate account assets 65,823,772 59,536,305 Separate account assets 11,791,728 20,541,717 ------------------- ------------------- Total assets $ 77,615,500 $ 80,078,022 =================== =================== See accompanying notes to consolidated financial statements.
2
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2008 and 2007 (In thousands, except share data) Liabilities and Stockholder's Equity 2008 2007 ------------------- ------------------- Policyholder liabilities: Policy and contract account balances $ 56,585,189 $ 50,806,811 Future policy benefit reserves 4,154,491 3,047,274 Policy and contract claims 300,221 318,105 Unearned premiums 271,756 217,407 Other policyholder funds 203,355 214,548 ------------------- ------------------- Total policyholder liabilities 61,515,012 54,604,145 Derivative liability 535,481 229,351 Mortgage notes payable 129,075 134,123 Other liabilities 580,734 718,199 ------------------- ------------------- Liabilities, exclusive of separate account liabilities 62,760,302 55,685,818 Separate account liabilities 11,791,728 20,541,717 ------------------- ------------------- Total liabilities 74,552,030 76,227,535 ------------------- ------------------- Stockholder's equity: Common stock, $1 par value, 40,000,000 shares authorized; 20,000,001 shares issued and outstanding at December 31, 2008 and 2007 20,000 20,000 Class A, Series A preferred stock, $1 par value, 8,909,195 shares authorized, issued, and outstanding; liquidation preference of $189,366 and $189,366 at December 31, 2008 and 2007, respectively 8,909 8,909 Class A, Series B preferred stock, $1 par value, 10,000,000 shares authorized; 9,994,289 shares issued and outstanding; liquidation preference of $199,167 and $199,167 at December 31, 2008 and 2007, respectively 9,994 9,994 Loan to affiliate (205,731) (250,000) Additional paid-in capital 2,553,371 2,273,371 Retained earnings 344,690 1,439,086 Accumulated other comprehensive income, net of tax 332,237 349,127 ------------------- ------------------- Total stockholder's equity 3,063,470 3,850,487 ------------------- ------------------- ------------------- ------------------- Total liabilities and stockholder's equity $ 77,615,500 $ 80,078,022 =================== =================== See accompanying notes to consolidated financial statements.
3
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 2008, 2007, and 2006 (In thousands) 2008 2007 2006 ------------------- ------------------- --------------- Revenue: Premiums $ 300,014 $ 368,306 $ 597,903 Policy fees 1,016,656 766,367 582,285 Premiums and annuity considerations, ceded (190,033) (255,816) (320,950) ------------------- ------------------- --------------- Net premiums and considerations 1,126,637 878,857 859,238 Interest and similar income, net 2,908,894 2,565,331 2,142,843 Derivative (loss) income (1,004,023) (251,392) 643,231 Realized investment losses, net (3,918,259) (710,978) (557,413) Fee and commission revenue 164,335 199,356 160,294 Other (loss) revenue (13,846) 133,575 104,644 ------------------- ------------------- --------------- Total (loss) revenue (736,262) 2,814,749 3,352,837 ------------------- ------------------- --------------- Benefits and expenses: Policyholder benefits 818,681 495,082 711,725 Change in fair value of annuity embedded derivatives 696,809 622,509 1,344,949 Benefit recoveries (329,106) (429,631) (403,765) Net interest credited to policyholder account values 1,098,143 1,031,830 725,296 ------------------- ------------------- --------------- Net benefits 2,284,527 1,719,790 2,378,205 Commissions and other agent compensation 807,565 913,444 1,035,765 General and administrative expenses 657,096 772,992 625,188 Change in deferred acquisition costs, net (2,784,064) (650,735) (1,049,646) ------------------- ------------------- --------------- Total benefits and expenses 965,124 2,755,491 2,989,512 ------------------- ------------------- --------------- (Loss) income from operations before income tax (1,701,386) 59,258 363,325 ------------------- ------------------- --------------- Income tax (benefit) expense: Current 47,043 64,245 80,922 Deferred (654,033) (60,259) 27,879 ------------------- ------------------- --------------- Total income tax (benefit) expense (606,990) 3,986 108,801 ------------------- ------------------- --------------- ------------------- ------------------- --------------- Net (loss) income $ (1,094,396)$ 55,272 $ 254,524 =================== =================== =============== See accompanying notes to consolidated financial statements.
4
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Years ended December 31, 2008, 2007, and 2006 (In thousands) 2008 2007 2006 ------------- -------------- -------------- Net (loss) income $ (1,094,396)$ 55,272 $ 254,524 Foreign currency translation adjustments, net of tax (7,922) 6,520 130 Unrealized losses on post-retirement obligation: Unrealized net actuarial (losses) gains arising during the period, net of tax benefit of $966, $0, and $0 in 2008, 2007, and 2006, respectively (1,794) 78 - Decrease (increase) in unrealized prior service cost arising during the period, net of tax (expense) benefit of $(280), $606, and $0 in 2008, 2007, and 2006, respectively 521 (1,190) - ------------- -------------- -------------- Total unrealized post-retirement obligation losses (1,273) (1,112) - Unrealized (losses) gains on fixed-maturity and equity securities: Unrealized holding losses arising during the period, net of effect of shadow adjustments of $(107,983), $(361,836), and $(90,188) in 2008, 2007, and 2006, respectively, and net of tax benefit of $1,375,544 $137,044, and $194,881 in 2008, 2007, and 2006, respectively (2,554,563) (253,995) (362,437) Decrease in unrealized holding losses due to reclassification adjustment for realized losses included in net (loss) income, net of tax (expense) of $(1,371,391), $(248,842) and $(195,095), in 2008, 2,546,868 462,135 362,318 2007, and 2006, respectively ------------- -------------- -------------- Total unrealized holding (losses) gains (7,695) 208,140 (119) ------------- -------------- -------------- ------------- -------------- -------------- Total other comprehensive (loss) income (16,890) 213,548 11 ------------- -------------- -------------- ------------- -------------- -------------- Total comprehensive (loss) income $ (1,111,286)$ 268,820 $ 254,535 ============= ============== ============== See accompanying notes to consolidated financial statements.
5
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Statements of Stockholder's Equity Years ended December 31, 2008, 2007, and 2006 (In thousands) Accumulated Additional other Total Common Preferred Loan to paid-in Retained comprehensive stockholder's stock stock affiliate capital earnings income equity -------- -------- ---------- ---------- ----------- ----------------- --------- 2006: Balance, beginning of year $ 20,000 $ 18,903 $ (250,000) $2,123,371 $ 1,259,705 $ 133,146 $ 3,305,125 Comprehensive income: Net income - - - - 254,524 - 254,524 Net unrealized loss on investments, net of shadow adjustments and deferred taxes - - - - - (119) (119) Net unrealized gain on foreign currency translation, net of deferred taxes - - - - - 130 130 ------------- Total comprehensive income 254,535 Adjustment to initially apply SFAS No. 158, net of tax - - - - - 2,422 2,422 Dividends paid - - - - (130,000) - (130,000) -------- -------- ---------- ---------- ----------- ----------- ------------- Balance, end of year $ 20,000 $ 18,903 $ (250,000) $2,123,371 $ 1,384,229 $ 135,579 $ 3,432,082 ======== ======== ========== ========== =========== =========== ============= 2007: Balance, beginning of year $ 20,000 $ 18,903 $ (250,000) $2,123,371 $ 1,384,229 $ 135,579 $ 3,432,082 Comprehensive income: Net income - - - - 55,272 - 55,272 Net unrealized gain on investments, net of shadow adjustments and deferred taxes - - - - - 208,140 208,140 Net unrealized loss on post-retirement obligation, net of deferred taxes - - - - - (1,112) (1,112) Net unrealized gain on foreign currency translation, net of deferred taxes - - - - - 6,520 6,520 ------------- Total comprehensive income 268,820 Adjustment to initially apply EITF 06-5 net of tax - - - - (415) - (415) Capital contribution - - - 150,000 - - 150,000 -------- -------- ---------- ---------- ----------- ----------- ------------- Balance, end of year $ 20,000 $ 18,903 $ (250,000) $2,273,371 $ 1,439,086 $ 349,127 $ 3,850,487 ======== ======== ========== ========== =========== =========== ============= 2008: Balance, beginning of year $ 20,000 $ 18,903 $ (250,000) $2,273,371 $ 1,439,086 $ 349,127 $ 3,850,487 Comprehensive loss: Net loss - - - - (1,094,396) - (1,094,396) Net unrealized loss on investments, net of shadow adjustments and deferred taxes - - - - - (7,695) (7,695) Net unrealized loss on post-retirement obligation, net of deferred taxes - - - - - (1,273) (1,273) Net unrealized loss on foreign currency translation, net of deferred taxes - - - - - (7,922) (7,922) ------------- Total comprehensive loss (1,111,286) Capital contribution - - - 280,000 - - 280,000 Payment received on loan - - 44,269 - - - 44,269 -------- -------- ---------- ---------- ----------- ----------- ------------- Balance, end of year $ 20,000 $ 18,903 $ (205,731) $2,553,371 $ 344,690 $ 332,237 $ 3,063,470 ======== ======== ========== ========== =========== =========== ============= See accompanying notes to consolidated financial statements.
6
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2008, 2007, and 2006 (In thousands) 2008 2007 2006 ------------------- ------------------- -------------- Cash flows provided by (used in) operating activities: Net (loss) income $ (1,094,396)$ 55,272 $ 254,524 ------------------- ------------------- -------------- Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Realized investment losses 3,918,259 711,088 555,195 Purchases of trading securities (840,996) (2,196,297) (1,345,475) Sale and other redemptions of trading securities 1,277,531 558,380 198,668 Unrealized loss on annuity-related options and gross reserves (9,261) 347,575 912,662 Deferred income tax (benefit) expense (654,033) (60,259) 27,879 Charges to policy account balances (94,450) (73,808) (69,941) Gross interest credited to policy account balances 1,228,477 1,041,726 730,546 Amortization of (discount) premium, net (71,591) (4,942) 111,697 Impairment of goodwill 1,175 - - Change in: Accrued investment income (45,800) (57,254) (72,326) Receivables 4,104 103,102 (106,654) Reinsurance recoverable 29,991 59,201 (84,138) Deferred acquisition costs (2,784,064) (650,735) (1,049,646) Future policy benefit reserves 1,107,217 183,321 139,631 Policy and contract claims (17,884) (86,869) 8,944 Other policyholder funds (11,193) 21,034 (66,312) Unearned premiums 47,933 (15,566) 20,243 Other assets and liabilities (236,367) (130,342) 32,512 Other, net 11,618 (83,644) (24,779) ------------------- ------------------- -------------- Total adjustments 2,860,666 (334,289) (81,294) ------------------- ------------------- -------------- Net cash provided by (used in) operating activities $ 1,766,270 $ (279,017)$ 173,230 ------------------- ------------------- --------------
7
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2008, 2007, and 2006 (In thousands) 2008 2007 2006 ------------------- ------------------- ------------------- Cash flows provided by (used in) operating activities $ 1,766,270 $ (279,017) $ 173,230 ------------------- ------------------- ------------------- Cash flows used in investing activities: Purchase of available-for-sale fixed-maturity securities (8,247,931) (5,081,265) (10,363,440) Purchase of available-for-sale equity securities - (80,172) (34,641) Purchase of derivative securities (2,350,592) (990,171) (847,025) Purchase of real estate (3,360) (6,667) (152,003) Funding of mortgage loans on real estate (570,887) (1,296,133) (1,434,435) Sale and other redemptions of available-for-sale fixed-maturity securities 2,399,795 2,092,453 6,748,812 Matured fixed-maturity securities 217,406 434,999 517,786 Sale of equity securities, tax-free exchanges, and spin-offs 14,906 68,230 510,179 Sale of derivative securities 1,368,782 407,686 452,654 Sale of real estate - 157,179 57,912 Change in securities held under agreements to repurchase - - (559,615) Repayment of mortgage loans on real estate 130,544 255,996 178,323 Net change in short-term securities (760,154) 246,611 (839,436) Purchase of home office property and equipment (2,324) (6,638) (75,775) Purchase of interest in equity method investees (3,079) (12,847) (75,026) Sale of interest in equity method investee - - 23,588 Purchase of subsidiary, net of cash acquired - (11,655) - Change in loan to affiliate 11,600 (507,273) 11,447 Options written 958,790 603,961 699,877 Other, net 12,961 2,545 (14,964) ------------------- ------------------- ------------------- Net cash used in investing activities (6,823,543) (3,723,161) (5,195,782) ------------------- ------------------- ------------------- Cash flows provided by financing activities: Policyholders' deposits to account balances 5,503,872 5,858,335 7,201,051 Policyholders' withdrawals from account balances (4,493,703) (3,309,471) (2,563,981) Policyholders' net transfers between account balances 3,741,384 1,278,775 363,919 Change in amounts drawn in excess of bank balances (32,605) 73,617 (23,476) Capital contribution from parent company 280,000 150,000 - Payment received on loan to affiliate classified in equity 44,269 - - Change in mortgage notes payable (5,048) (12,777) 40,236 ------------------- ------------------- ------------------- Net cash provided by financing activities 5,038,169 4,038,479 5,017,749 ------------------- ------------------- ------------------- Net change in cash (19,104) 36,301 (4,803) Cash at beginning of year 92,177 55,876 60,679 ------------------- ------------------- ------------------- Cash at end of year $ 73,073 $ 92,177 $ 55,876 =================== =================== =================== Supplemental data: Noncash investing and financing activity: Dividend to parent company $ - $ - $ (130,000) See accompanying notes to consolidated financial statements.
8 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (1) ORGANIZATION Allianz Life Insurance Company of North America is a wholly owned subsidiary of Allianz of America, Inc. (AZOA), which is a wholly owned subsidiary of Allianz Societas Europaea (Allianz SE), a European company incorporated in Germany. Allianz Life Insurance Company of North America and its wholly owned subsidiaries are referred to as the Company. The Company is a life insurance company licensed to sell annuity, group accident and health, and group and individual life policies in the United States, Canada, and several U.S. territories. Based on 2008 statutory net premium written, 96%, 2%, and 2% of the Company's business is annuity, life insurance, and accident and health, respectively. The annuity business is comprised of fixed-indexed, variable, five-year deferred, and one-year deferred annuities representing 51%, 37%, 7%, and 5% of 2008 statutory net premium written, respectively. Life business is comprised of both traditional and group life. Life business includes products with guaranteed premiums and benefits and consists principally of term insurance policies, universal life policies, limited payment contracts, and certain annuity products with life contingencies. Accident and health business is comprised primarily of long-term care (LTC) insurance. The Company exited most other health insurance business in 2006 (see note 14). The Company's primary distribution channels are through independent agents, broker/dealers, banks, and third-party marketing organizations. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PRESENTATION The Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), which vary in certain respects from accounting practices prescribed or permitted by state insurance regulatory authorities. The accounts of the Company's primary subsidiary, Allianz 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. (b) USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect reported amounts of 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. Future events, including changes in mortality, morbidity, interest rates, capital markets, and asset valuations could cause actual results to differ from the estimates used in the Consolidated Financial Statements. Such changes in estimates are recorded in the period they are determined. (c) INVESTMENT PRODUCTS AND UNIVERSAL LIFE BUSINESS Investment products consist primarily of fixed-indexed, variable, and deferred annuity products. Premium receipts are reported as deposits to the contractholders' accounts. Policy fees on the Consolidated Statements of Operations represent asset fees, cost of insurance charges, administrative fees, charges for guarantees on investment products, and surrender charges for investment products and universal life insurance. These fees have been earned and assessed against contractholders on a daily or monthly basis throughout the contract period and are recognized as revenue when assessed and earned. Amounts assessed that represent compensation to the Company for services to be provided in future periods are not earned in the period assessed. Such amounts are reported as unearned premiums, which include unearned revenue reserves (URR), and recognized in operations over the period benefited using the same assumptions and factors used to amortize capitalized acquisition costs. Surrender charges are recognized upon surrender of a contract in 9 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) accordance with contractual terms. The change in fair value of embedded derivatives in fixed-indexed and variable products is included in change in fair value of annuity embedded derivatives on the Consolidated Statements of Operations. Benefits consist of interest credited to contractholders' accounts and claims incurred in excess of the contractholders' account balance and are included in net interest credited to policyholder account values and policyholder benefits, respectively, on the Consolidated Statements of Operations. (d) LIFE AND ACCIDENT AND HEALTH INSURANCE Premiums on traditional life products are recognized as earned when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contracts. This association is accomplished by establishing provisions for future policy benefits and deferring and amortizing related acquisition costs. Accident and health premiums are recognized as earned on a pro-rata basis over the risk coverage periods. Benefits and expenses are recognized as incurred. (e) GOODWILL Goodwill is the excess of the amount paid to acquire a company over the fair value of its tangible net assets, value of business acquired (VOBA), other identifiable intangible assets, and valuation adjustments (such as impairments), if any. Goodwill is reported in other assets on the Consolidated Balance Sheets. Goodwill is evaluated annually for impairment at the reporting unit level. Goodwill of a reporting unit is also tested for impairment on an interim basis if an event occurs or circumstances change. The goodwill impairment test follows a two step process as defined in Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142). In the first step, the fair value of a reporting unit is compared to its carrying value. This process requires judgments and assumptions to be made to determine the fair value of the reporting units, including the method used to determine fair value; discount rates; expected levels of cash flows; and expected revenues and earnings. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed for purposes of measuring the impairment. In the second step, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit to determine an implied goodwill value. If the carrying amount of the reporting unit goodwill exceeds the implied goodwill value, an impairment loss would be recognized in an amount equal to that excess. The carrying value will be reduced to its fair value with a corresponding charge to operations. (f) VALUE OF BUSINESS ACQUIRED AND OTHER INTANGIBLE ASSETS The value of insurance in-force purchased is recorded as the VOBA. VOBA is reported in other assets on the Consolidated Balance Sheets. The initial value was determined by an actuarial study using the present value of future profits in calculating the value of the insurance purchased. An accrual of interest is added to the unamortized balance using the rates credited to the policyholder accounts. The balance is amortized in relation to the present value of expected future gross profits in the same manner as deferred acquisition costs (DAC). The amortization period is expected to be approximately 20 years from the date the business was acquired; however, the Company continually monitors this assumption. If estimated gross profits differ from expectations, the amortization of VOBA is adjusted on a retrospective or prospective basis, as appropriate. Adjustments to VOBA are made to reflect the estimated corresponding impact on the present value of expected future gross profits from unrealized gains and losses on available-for-sale investments used to support 10 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) policyholder liabilities (commonly known as shadow VOBA). These adjustments are included in accumulated other comprehensive income and are explained further in the Investments section of this note. The recoverability of VOBA is evaluated annually, or earlier if factors warrant, based on estimates of future earnings related to the insurance in-force purchased. If the existing insurance liabilities, together with the present value of future net cash flows from the blocks of business acquired, are not sufficient to recover VOBA, the difference, if any, is charged to expense through accelerated VOBA amortization. Intangible assets are identified by the Company in accordance with SFAS 142, which requires an identifiable intangible asset to be recognized apart from goodwill when it arises from contractual or legal rights or it is capable of being separated and valued then sold, transferred, licensed, rented, or exchanged. The Company determines the useful life and amortization period for each intangible asset identified at acquisition, and continually monitors these assumptions. An intangible asset with a determinable life is amortized over that period, while an intangible asset with an indefinite useful life is not amortized. The Company's intangible assets include trademarks, agent lists, and noncompete agreements that were acquired as a result of the Company's ownership in field marketing organizations. Intangible assets are reported in other assets on the Consolidated Balance Sheets. These intangible assets were assigned values using the present value of projected future cash flows as a base and are generally amortized over five years using the straight-line method. Also included in the Company's intangible assets is the trade name and service mark of a broker-dealer acquired during 2005, and state insurance licenses acquired in 2007. The trade name, service mark, and state insurance licenses were valued using the present value of future cash flows and were determined to have an indefinite useful life. Recoverability of the value of the amortizing intangible assets is assessed under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which states that long-lived assets shall be tested for recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Recoverability of the value of the nonamortizing intangible assets is assessed under SFAS 142, which states that nonamortizing intangible assets shall be tested for recoverability annually or earlier if events or changes in circumstances indicate the carrying amount may not be recoverable. (g) DEFERRED ACQUISITION COSTS Acquisition costs, consisting of commissions and other costs that vary with and are primarily related to production of new business, are deferred to the extent recoverable from future policy revenues and gross profits. For interest-sensitive products and variable annuity contracts, acquisition costs are amortized in relation to the present value of expected future gross profits from investment margins and mortality, morbidity, and expense charges. Acquisition costs for accident and health insurance policies are deferred and amortized over the lives of the policies in the same manner as premiums are earned. For traditional life and group life products, such costs are amortized over the projected earnings pattern of the related policies using the same actuarial assumptions used in computing future policy benefit reserves. Deferred acquisition costs (DAC) is reviewed for recoverability, at least annually, and adjusted when necessary. Recoverability is evaluated separately for fixed-indexed annuities, variable annuities, and life insurance products. Recoverability is a two-step process where current policy year issues are evaluated, and then in-force policies are evaluated. Before assessing recoverability, DAC is capped such that the balance can not exceed the original capitalized costs plus interest. 11 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Adjustments to DAC are made to reflect the corresponding impact on the present value of expected future gross profits from unrealized gains and losses on available-for-sale investments used to support policyholder liabilities (commonly known as shadow DAC). These adjustments are included in accumulated other comprehensive income and are explained further in the Investments section of this note. Changes in assumptions can have an impact on the amount of DAC reported for annuity and life insurance products and their related amortization patterns. In the event experience differs from assumptions or assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense (DAC unlocking). In general, increases in the estimated investment spreads and fees result in increased expected future profitability and may lower the rate of DAC amortization, while increases in costs of product guarantees, and lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization. The Company formally evaluates the appropriateness of the best-estimate assumptions on an annual basis. If the economic environment or policyholder behavior changes quickly and substantially, assumptions will be reviewed more frequently to affirm best estimates. Any resulting DAC unlocking is reflected prospectively on the Consolidated Statements of Operations. Adjustments may also be made to the estimated gross profits related to DAC that correspond with deferred annuities and universal life products for investment activity, such as bond defaults on fixed-maturity securities, write-downs on other-than-temporarily impaired fixed-maturity securities, and trading gains and losses. Management action may include assumption changes in the DAC models, such as adjustments to expected future gross profits used, as well as inforce management action such as crediting rate changes or index rate cap adjustments. This approach applies to fixed-maturity securities purchased at investment grade only and not noninvestment grade items that were purchased with other yield considerations. See further discussion of DAC unlocking in note 9. The Company assesses internal replacements on insurance contracts to determine whether such modifications significantly change the contract terms. An internal replacement represents a modification in product benefits, features, rights, or coverages that occurs by the exchange of an insurance contract for a new insurance contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. If the modification substantially changes the contract, the remaining DAC on the original contract are immediately expensed and any new DAC on the replacement contract are deferred. If the contract modification does not substantially change the contract, DAC amortization on the original contract continues and any new acquisition costs associated with the modification are immediately expensed. (h) DEFERRED SALES INDUCEMENTS Sales inducements are product features that enhance the investment yield to the contractholder on the contract. The Company offers two types of sales inducements on certain universal life and annuity contracts. The first type, an immediate bonus, increases the account value at inception, and the second type, a persistency bonus, increases the account value at the end of a specified period. Annuity sales inducements are deferred as paid or credited to contractholders and life sales inducements are deferred and recognized as part of the liability for policy benefits. Deferred sales inducements (DSI) are reported in other assets in the Consolidated Balance Sheets. They are amortized over the expected life of the contract in a manner similar to DAC and are reviewed annually for recoverability. Amortization is recorded in policyholder benefits on the Consolidated Statements of Operations. DSI capitalization related to a persistency 12 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) and immediate bonus on non-indexed annuities are recorded in policyholder benefits on the Consolidated Statements of Operations at policy issuance. DSI capitalization related to an immediate bonus on fixed-indexed annuities is recorded in policy fees on the Consolidated Statements of Operations at policy issuance. Adjustments to DSI are made to reflect the estimated corresponding impact on the present value of expected future gross profits from unrealized gains and losses on available-for-sale investments used to support policyholder liabilities (commonly known as shadow DSI). These adjustments are included in accumulated other comprehensive income and are explained further in the Investments section of this note. Adjustments may also be made to DSI related to deferred annuities for investment activity, such as defaults on fixed-maturity securities, write-downs on other-than-temporarily impaired fixed-maturity securities, and trading gains and losses. Management action may include assumption changes in the DSI models, such as adjustments to expected future gross profits used, as well as policyholder changes, such as credited rate changes. This approach applies to fixed-maturity securities purchased at investment grade only and not noninvestment grade items that were purchased with other yield considerations. (i) 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 2.5% to 6.0%. (j) POLICY AND CONTRACT ACCOUNT BALANCES Policy and contract account balances for interest-sensitive products, which include universal life and fixed deferred annuities, are generally carried at accumulated contract values. For fixed-indexed annuity products, the policyholder obligation is divided into two parts - one part representing the value of the underlying base contract (host contract) and the second part representing the fair value of the expected index benefit over the life of the contract. The host contract is valued using principles consistent with similar deferred annuity contracts without an index benefit. The index benefit is valued at fair value using current capital market assumptions, such as index and volatility, to estimate future index levels. The index benefit valuation is also dependent upon estimates of future policyholder behavior. The Company must include provisions for the Company's own credit risk and for risk that the Company's assumptions about policyholder activity could differ from actual experience. The fair value determination of the index benefit is sensitive to the economic market and interest rate environment, as it is discounted at current market interest rates. There is volatility in this liability due to these external market sensitivities. Certain two-tier fixed annuity products provide for benefits payable upon annuitization such as period-certain and life-contingent payout options. An additional annuitization reserve is established using assumptions consistent with those used in estimating gross profits for purposes of amortizing DAC. Policy and contract account balances for variable annuity products are carried at accumulated contract values. Additional reserves for any death and income benefits that may exceed the accumulated contract values are established using a range of economic scenarios and are accrued for using assumptions consistent with those used in estimating gross profits for purposes of amortizing DAC. Additional reserves for accumulation and withdrawal benefits that may exceed account values are established using capital market assumptions, such as 13 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) index and volatility, along with estimates of future policyholder behavior. These additional reserves are reflected in future policy benefit reserves on the Consolidated Balance Sheets. (k) POLICY AND CONTRACT CLAIMS Policy and contract claims include the liability for claims reported but not yet paid, claims incurred but not yet reported (IBNR), and claim settlement expenses as of December 31 on the Company's accident and health business. Development methods are generally used in the determination of IBNR liabilities. In cases of limited experience or lack of credible claims data, loss ratios are used to determine an appropriate IBNR liability. Claim and IBNR liabilities of a short-term nature are not discounted, but those claim liabilities resulting from disability income or long-term care benefits include interest and mortality discounting. (l) REINSURANCE The Company assumes and cedes business with other insurers. Reinsurance premium and benefits paid or provided are accounted for in a manner consistent with the basis used in accounting for original policies issued and the terms of the reinsurance contracts. Insurance liabilities are reported before the effects of reinsurance. Future policy benefit reserves, policy and contract account balances, and policy and contract claims covered under reinsurance contracts are recorded as a reinsurance recoverable. Amounts paid or deemed to have been paid for claims covered by reinsurance contracts are recorded as a reinsurance receivable. Reinsurance recoverables are recognized in a manner consistent with the liabilities related to the underlying reinsured contracts. Amounts due to other insurers on assumed business are recorded as a reinsurance payable, and are included in other liabilities on the Consolidated Balance Sheets. A gain recognized when the Company enters into a coinsurance agreement with a third-party reinsurer is deferred and recorded in other liabilities on the Consolidated Balance Sheets. Such gains are amortized into operations over either the revenue-producing period or the claims run-off period, as appropriate, of the related reinsured policies. These amortized gains are recorded in other (loss) revenue on the Consolidated Statements of Operations. (m) INVESTMENTS The Company classifies certain fixed-maturity and equity securities as "available-for-sale." Accordingly, the securities are carried at fair value, and related unrealized gains and losses are credited or charged directly to accumulated other comprehensive income in stockholder's equity, net of tax and related adjustments to DAC, DSI, VOBA, and reserves (commonly referred to as shadow adjustments). The adjustments to DAC, DSI, and VOBA represent the change in amortization that would have been required as a charge or credit to operations had such unrealized amounts been realized. The adjustment to reserves represents the increase or decrease in the reserve balance that would have been required as a charge or credit to operations had such unrealized amounts been realized. The Company has portfolios of certain fixed-maturity and equity securities classified as "trading," and accordingly, the securities are carried at fair value, and related unrealized gains and losses are reflected as realized investment gains and losses within the Consolidated Statements of Operations. The primary trading portfolio is used to attempt to match the change in value associated with embedded derivative liabilities related to fixed-indexed annuities. This match is not effective to the extent there are credit related factors impacting the value of the securities in this trading portfolio. The Company also has other trading portfolios that are actively managed. In accordance with the investment policy, the Company invests primarily in high-grade marketable securities. Dividends are accrued on the date they are declared. Interest is accrued as earned. 14 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) In 2007, the Company began to utilize derivatives within certain actively managed investment portfolios. Within these portfolios, derivatives can be used for hedging, replication, and income generation only. The financial instruments are valued and carried at fair value and the unrealized gains and losses on the derivatives are reflected in derivative (loss) income within the Consolidated Statements of Operations as they do not meet the requirements for an accounting hedge. In 2008, the Company purchased a $694,950 notional value of fixed- maturity securities held as available-for-sale with variable interest rates. The Company entered into interest rate swaps with notional amounts equal to the par value of the fixed-maturity securities and maturity dates, in order to attempt to hedge changes in cash flows of the hedged items due to interest rate risk. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated changes in fair value or cash flow of the hedged item. At hedge inception, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction. The documentation process includes linking derivatives that are designated as cash flow hedges to specific assets or liabilities on the Consolidated Balance Sheets and defining the effectiveness and ineffectiveness testing methods to be used. The Company also formally assesses both at the hedge's inception and ongoing on a quarterly basis, whether the derivatives that are used in hedging transactions have been and are expected to continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge effectiveness is assessed using qualitative and quantitative methods. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include analysis of changes in fair value or cash flows associated with the hedge relationship. Hedge effectiveness is measured using the dollar offset method. The dollar offset method compares changes in cash flows of the hedging instrument with changes in the cash flows of the hedged item attributable to the hedged risk. Random changes in interest rate movements are assumed. Related changes in the cash flows of the hedging instrument are expected to offset the changes in the cash flows of the hedged item as the notional/par amounts, reset dates, interest rate indices, and business day conventions are the same for both the bond and the swap. The cumulative amount of unrealized gains and losses of the hedging instrument is recognized in accumulated other comprehensive income on the Consolidated Balance Sheets. The ineffective portion of the change in the fair value of the hedging instrument is recognized in realized investment losses in the Consolidated Statements of Operations. Forward commitments are also carried at fair value. Mortgage-backed securities and structured securities are amortized using anticipated prepayments. Prepayment assumptions for loan-backed securities are obtained from various external sources or internal estimates. The Company believes these assumptions are consistent with those a market participant would use. Premiums or discounts on fixed-maturity securities are amortized using the constant yield method. Short-term securities, which include certificates of deposit, are carried at amortized cost. Policy loans are reflected at unpaid principal balances. For mortgage-backed securities and structured securities, the Company recognizes income using a constant effective yield method based on prepayment assumptions and the estimated economic life of the securities. When estimated prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments using the retrospective method. Any resulting adjustment is included in interest and similar income, net on the Consolidated Statements of Operations. 15 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Mortgage loans on real estate are reflected at unpaid principal balances adjusted for an allowance for uncollectible balances. Interest on mortgage loans is accrued on a monthly basis and recorded in interest and similar income, net on the Consolidated Statements of Operations. The Company analyzes loan impairment at least annually when assessing the adequacy of the allowance for uncollectible balances. The Company evaluates the mortgage loan reserve to ensure that the estimate is based on the most recent available industry default and loss studies and historical default rates for the Company as compared with default rates for the industry group. The Company does not accrue interest on impaired loans and accounts for interest income on such loans on a cash basis. The Company's intent is to hold mortgage loans until paid in full. Loans to affiliates are carried at cost. Interest on the loans is accrued monthly, with payments received semi-annually. Real estate is carried at cost less accumulated depreciation and amortized over 39 years at acquisition, and improvements and additions are depreciated using the straight-line method over the remaining life of the real estate. At December 31, 2008, partnerships are accounted for at cost on the Consolidated Balance Sheets. The partnerships are accounted for at cost as the Company did not have a significant ownership percentage to require equity basis accounting. At December 31, 2007, partnerships were recorded at the contracted sale value, which represents fair value of the partnerships. The partnerships were recorded at the contracted sale value as the Company was actively selling the partnerships. Partnerships are recorded in other assets on the Consolidated Balance Sheets. Changes in carrying value are included in interest and similar income, net on the Consolidated Statements of Operations. The fair value of fixed-maturity securities and equity securities is obtained from third-party pricing sources whenever possible, except for short-term securities that are priced at amortized cost. Prices obtained from third-party pricing sources are analytically reviewed by AZOA portfolio managers for reasonableness. In certain cases, including private assets as well as certain difficult-to-price securities, internal pricing models may be used that are based on market proxies. The internal pricing models use yield spreads versus U.S. Treasury Bonds to estimate a market price. Also, the models use market yields of corporate securities with credit and maturity characteristics similar to the security being priced to derive a spread to treasuries. All prices that are not supplied by pricing vendors are reviewed and approved by the AZOA Head of Fixed Income and further reviewed and approved by the AZOA Chief Operating Officer or AZOA Compliance Officer. The fair value of mortgage loans on real estate has been calculated using discounted cash flows using market interest rates as of year-end representative of those that a market participant would use. Credit risk was considered in this calculation implicitly within the discount rate used. The fair value of the options is derived internally, by calculating their expected discounted cash flows, using a set of calibrated, risk-neutral stochastic scenarios, including a market data monitor, a market data model generator, a stochastic scenario calibrator, and the actual asset pricing calculator. Fair value of loans to affiliates is calculated by management using the market price of a financial instrument with similar characteristics. Short-term securities, which include certificates of deposit, are carried at amortized cost, which approximates fair value. Policy loan balances, which are supported by the underlying cash value of the policies, approximate fair value. Realized gains and losses are computed based on the sale lots with the highest cost basis on the trade date. Those lots are sold first. The Company adjusts DAC, DSI, and VOBA for unrealized gains and losses on available-for-sale investments that support policyholder liabilities. Changes in the fair value of available-for-sale investments are reflected as a direct charge or credit to accumulated other comprehensive income in stockholder's equity, net of related adjustments for DAC, DSI, VOBA, and deferred taxes that would have been recorded if these investments had been sold as of the balance sheet date. Changes in the fair value of trading investments are recorded as realized investment losses on the Consolidated Statements of Operations. 16 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The Company reviews the entire available-for-sale investment portfolio each quarter to determine whether or not declines in fair value are other-than-temporary. For the year ended December 31, 2006, the Company adopted Financial Accounting Standards Board (FASB), FASB Staff Position (FSP) FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1). The Company continues to evaluate factors in addition to average cost and fair value, including credit quality, the extent and duration of the decline, market analysis, current events, recent price declines, likelihood of recovery in a reasonable period of time, and management's judgment, to determine whether fixed-income securities are considered other-than-temporarily impaired. In addition, FSP FAS 115-1 requires that the Company evaluate other-than-temporary impairments on available-for-sale fixed-maturity securities based on additional factors. Specifically, declines in value resulting from changes in risk-free interest rates must also be considered. If a fixed-maturity security's fair market value is less than its amortized cost value, an impairment loss must be recorded unless management can assert its ability and intent to hold until recovery. The Company's absence of control over the investment manager's decision to sell (or hold) renders the Company unable to assert ability to hold to recovery and will therefore require the Company to classify all impairments as other-than-temporary and recognize an impairment loss in the period of the decline. For other-than-temporarily impaired securities where the Company is unable to assert intent and ability to hold, but otherwise expects the security to recover, in periods subsequent to the recognition of an other-than-temporary impairment loss, these impaired fixed-maturity securities are accounted for as if they had been purchased on the date of the impairment. That is, the discount or reduced premium recorded from the fixed-maturity securities would be accreted over their remaining life in a prospective manner. For securities that are impaired due to issuer default or due to the Company otherwise not expecting the security to recover, there is no accretion of the impaired amounts. The Company views equity securities that have a fair value of at least 20% below average cost at the end of a quarter or are in an unrealized loss position for nine consecutive months as other-than-temporarily impaired. However, other factors, including market analysis, current events, recent price declines, and management's judgment, are also used to determine whether equity securities are considered other-than-temporarily impaired and may result in an equity security being impaired. All previously impaired equity securities will incur additional impairments should the fair value fall below the book value. Impairments in the value of securities held by the Company, considered to be other-than-temporary, are recorded as a reduction of the cost of the security, and a corresponding realized loss is recognized on the Consolidated Statements of Operations. The Company adjusts DAC, DSI, and VOBA for impairments on fixed-maturity securities, as discussed in their respective sections of this note. (n) INVESTMENTS RECORDED USING THE EQUITY METHOD The Company uses the equity method of accounting for organizations in which the Company holds a minority interest. The Company's proportionate share of gains or losses is reflected in other (loss) revenue on the Consolidated Statements of Operations. (o) ACCOUNTING FOR OPTION AND FUTURES CONTRACTS The Company provides additional benefits through certain life and annuity products, which are linked to the growth in the Standard and Poor's (S&P) 500 index, the NASDAQ 100 index, the Financial Times Stock Exchange (FTSE) 100, and an index comprised of a blend of the Dow Jones Industrial Average, FTSE 100, Barclays Capital US Aggregate, and the Russell 2000. In addition, certain variable annuity contracts provide minimum guaranteed benefits. The Company has analyzed the characteristics of these benefits and has entered 17 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) into over-the-counter (OTC) option contracts and exchange-traded futures contracts tied to an appropriate underlying index with similar characteristics with the objective to economically hedge these risks. The Company uses exchange-traded futures contracts with the objective to increase the effectiveness of the economic hedge. Management monitors in-force amounts and option and futures contract values to ensure satisfactory matching and to identify unsatisfactory mismatches. If persistency assumptions were to deviate significantly from anticipated rates, management would purchase or sell option and futures contracts as deemed appropriate or take other actions. The OTC option contracts are reported at fair value as derivatives on the Consolidated Balance Sheets. The fair value of the options is derived internally and deemed by management to be reasonable. The process of deriving internal derivative prices requires the Company to calibrate Monte Carlo scenarios to actual market information. The calibrated scenarios are applied to derivative cash flow models to calculate fair value prices for the derivatives. The liability for the benefits is reported in policy and contract account balances on the Consolidated Balance Sheets. Changes in unrealized gains and losses on the option contracts are recorded net of changes in the related policyholder balances for benefits and are included in derivative (loss) income on the Consolidated Statements of Operations. Incremental gains and losses from expiring options are included in derivative (loss) income on the Consolidated Statements of Operations. Futures contracts do not require an initial cash outlay and the Company has agreed to daily net settlement based on movements of the representative index. Therefore, no asset or liability is recorded on the Consolidated Balance Sheets. Gains and/or losses on futures contracts are included in derivative (loss) income on the Consolidated Statements of Operations. (p) SECURITIES LENDING The Company accounts for its securities lending transactions as secured borrowings, in which the collateral received and the related obligation to return the collateral are recorded on the Consolidated Balance Sheets as securities held as collateral and securities lending collateral, respectively. Securities on loan remain on the Company's Consolidated Balance Sheets and interest and dividend income earned by the Company on loaned securities is recognized in interest and similar income, net on the Consolidated Statements of Operations. There were no securities lending transactions outstanding at December 31, 2008 or 2007. The Company participates in restricted securities lending arrangements whereby specific securities are loaned to other institutions for short periods of time. U.S. Treasury Note securities were lent under a triparty agreement between the Company, broker-dealers (Goldman Sachs, Morgan Stanley), and the Bank of New York. The collateral is defined by the agreement to be at least equal to U.S. government, U.S. government agency, or U.S. government agency mortgage-backed securities. The Company began participating in unrestricted arrangements whereby the Company may use collateral for general purposes. However, the Company suspended securities lending activity in 2008. See note 16 for further discussion of this affiliated securities lending with Dresdner Klienwort Wasserstein. (q) RECEIVABLES Receivable balances (contractual amount less allowance for doubtful accounts) approximate estimated fair values. This is based on pertinent information available to management as of year-end, including the financial condition and creditworthiness of the parties underlying the receivables. Receivable balances are monitored and allowances for doubtful accounts are maintained based on the nature of the receivable, and the Company's 18 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) assessment of collectibility. The allowance is estimated by aging the balances of the parties and setting up an allowance for any balances that are more than 90 days old. (r) HOME OFFICE PROPERTY AND EQUIPMENT Property and equipment consist of furniture, office equipment, leasehold improvements, and computer hardware. Property and equipment are reported in other assets on the Consolidated Balance Sheets. Major upgrades and improvements are capitalized, while maintenance and repairs are expensed when incurred. Depreciation is computed over the estimated useful lives (3 - 7 years, depending on the asset) of depreciable assets using the straight-line method. The cost and accumulated depreciation for home office property and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and resulting gains or losses are reflected in general and administrative expenses on the Consolidated Statements of Operations. The Company's accumulated depreciation was $81,986 and $70,030 as of December 31, 2008, and 2007, respectively. Pre-operating and start-up costs incurred in connection with the construction of the Company's headquarters were capitalized until the facility became operational. Interest was also capitalized in connection with the construction and recorded as part of the asset. These costs are being amortized, using the straight-line method, over a 39-year period. The amount of capitalized costs amortized, including interest, during 2008, 2007, and 2006 was $2,275, $2,274, and $2,268, respectively. An addition to the Company's headquarters was put into operation on November 1, 2006. Total amortization related to this addition was $2,104, $2,016, and $351 for the years ended December 31, 2008, 2007, and 2006, respectively. (s) INCOME TAXES The Company and its subsidiaries, with the exception of Allianz Life and Annuity Company (ALAC), file 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 certain tax allocation elections under the Internal Revenue Code and its related regulations and then reimbursement will be in accordance with an intercompany tax reimbursement arrangement. The Company, each of its insurance subsidiaries except ALAC, and Questar Capital Corporation 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 tax liability. The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to significantly change the provision for federal income taxes recorded on the Consolidated Balance Sheets. Any such change could significantly affect the amounts reported on the Consolidated Statements of Operations. Management uses best estimates to establish reserves based on current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Quarterly, management evaluates the appropriateness of such reserves based on any new developments specific to their fact patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums, and other rulings issued by the Internal Revenue Service (IRS) or the tax courts. The Company utilizes the asset and liability method of accounting for income tax. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial 19 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) 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 operations in the period that includes the enactment date. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax asset will not be fully realized or that the related temporary differences, such as other-than-temporary impairments, will not reverse over time (see further discussion in note 15). (t) STOCKHOLDER'S EQUITY, LOAN TO AFFILIATE The Company entered into an agreement during 2002 to lend AZOA $250,000 (see further discussion in note 16). This agreement was executed in close proximity to a capital contribution from AZOA of $650,000 in the form of preferred stock of an affiliate. The unamortized loan balance is recorded as contra-equity in accordance with the FASB Emerging Issues Task Force (EITF) Issue No. 85-1, Classifying Notes Received for Capital Stock. (u) STOCKHOLDER'S EQUITY, ACCUMULATED UNREALIZED FOREIGN CURRENCY Foreign currency translation adjustments are related to the conversion of foreign currency upon the consolidation of a foreign subsidiary (see further discussion in note 21). 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 net of tax reported as a separate component of comprehensive income on the Consolidated Statements of Comprehensive Income (Loss). (v) SEPARATE ACCOUNTS AND ANNUITY PRODUCT GUARANTEES The Company issues variable annuity and life contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company recognizes gains or losses on transfers from the general account to the separate accounts at fair value to the extent of contractholder interests in separate accounts, which are offset by changes in contractholder liabilities. The Company also issues variable annuity and life contracts through its separate accounts where the Company provides certain contractual guarantees to the contractholder. These guarantees are in the form of a guaranteed minimum death benefit (GMDB), a guaranteed minimum income benefit (GMIB), a guaranteed minimum accumulation benefit (GMAB), and a guaranteed minimum withdrawal benefit (GMWB). These guarantees provide for benefits that are payable to the contractholder in the event of death, annuitization, or at specified dates during the accumulation period. Separate account assets supporting variable annuity contracts represent funds for which investment income and investment gains and losses accrue directly to contractholders. Each fund 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 that arise out of any other business of the Company. Separate account assets and liabilities are reported as summary totals on the Consolidated Balance Sheets. Amounts charged to the contractholders for mortality and contract maintenance are included in policy fees on the Consolidated Statements of Operations. Administrative and other services are included in fee and commission revenue on the Consolidated Statements of Operations. These fees have been earned and assessed against contractholders on a daily or monthly basis throughout the contract period and are recognized as revenue when assessed and earned. Changes in GMDB and GMIB are calculated in accordance with Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts, 20 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (SOPO3-1) and are included in policyholder benefits on the Consolidated Statements of Operations. GMAB and GMWB are considered to be embedded derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and the changes in these embedded derivatives are included in change in fair value of annuity embedded derivatives on the Consolidated Statements of Operations. The GMDB net amount at risk is defined as the guaranteed amount that would be paid upon death, less the current accumulated policyholder account value. The GMIB net amount at risk is defined as the current amount that would be needed to fund expected future guaranteed payments less the current policyholder account value, assuming that all benefit selections occur as of the valuation date. The GMAB net amount at risk is defined as the current amount that would be added to the contracts less the current policyholder account value. The GMWB net amount at risk is defined as the current accumulated benefit base amount less the current policyholder account value. The GMDB provides a specified minimum return upon death. The survivor has the option to terminate the contract or continue it and have the death benefit paid into the contract. The Company's GMDB options have the following features: o Return of Premium - Provides the greater of account value or total deposits made to the contract, less any partial withdrawals and assessments. o Reset - Provides the greater of a return of premium death benefit or the most recent five-year anniversary (prior to age 81) account value adjusted for withdrawals. o Ratchet - Provides the greater of a return of premium death benefit or the highest specified "anniversary" account value (prior to age 81), adjusted for withdrawals. Currently, there are three versions of ratchet, with the difference based on the definition of anniversary: quarterly - evaluated quarterly, annual - evaluated annually, and six-year - evaluated every sixth year. o Rollup - Provides the greater of a return of premium death benefit or premiums adjusted for withdrawals accumulated with a compound interest rate. There are two variations of rollup interest rates: 5% with no cap and 3% with a cap of 150% of premium. This GMDB locks in at age 81. o Earnings Protection Rider - Provides a death benefit equal to the contract value plus a specified percentage of the earnings on the contract at the date of death. The GMIB is a living benefit that provides the contractholder with a guaranteed annuitization value. The GMIB features are: o Return of Premium - Provides the greater of account value or total deposits made to the contract less any partial withdrawals and assessments. o Ratchet - Provides an annuitization value equal to the greater of account value, net premiums, or the highest one-year anniversary account value (prior to age 81), adjusted for withdrawals. o Rollup - Provides an annuitization value equal to the greater of account value and premiums adjusted for withdrawals accumulated with a compound interest rate. The GMDB and GMIB liabilities are determined each period by estimating the expected future claims in excess of the associated account balances. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to policyholder benefits on the Consolidated 21 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Statements of Operations, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions were used to determine the GMDB and GMIB liabilities as of December 31, 2008 and 2007: o 100 stochastically generated investment performance scenarios. o Mean investment performance assumption was 7.96%. o Volatility assumption was 13.69%. o Mortality is assumed to be 50% and 60% of the 1994 MGDB Mortality Table as of December 31, 2008 and 2007, respectively. o Lapse rates vary by contract type and duration. As of December 31, 2008, spike rates could approach 40%, with an ultimate rate around 15%. As of December 31, 2007, spike rates could approach 45%, with an ultimate rate around 20%. o GMIB contracts have dynamic lapse and benefit utilization assumptions. For example, if the contract is projected to have a large additional benefit, then it becomes more likely to elect the GMIB benefit and less likely to lapse. o Discount rates vary by contract type and are equal to an assumed long-term investment return (8.6%) less the applicable mortality and expense rate. The GMAB is a living benefit that provides the contractholder with a guaranteed value that was established at least five years prior at each contract anniversary. This benefit is first available at the fifth contract anniversary. Depending on the contractholder's selection at issue, this value may be either a return of premium or may reflect market gains, adjusted at least proportionately for withdrawals. The contractholder also has the option to reset this benefit. The GMWB is a living benefit that provides the contractholder with a guaranteed amount of income in the form of partial withdrawals. The benefit is payable provided the covered person is between the ages of 50 and 90. The benefit is a fixed rate (depending on the age of the covered person) multiplied by the benefit base in the first year the benefit is taken and contract value in following years. The benefit does not decrease if the contract value decreases due to market losses. The benefit can decrease if the contract value is reduced by withdrawals. The benefit base used to calculate the initial benefit is the maximum of the contract value, the quarterly anniversary value, or the 5% annual increase of purchase payments (capped at twice the total purchase payments). The GMAB and GMWB liabilities are determined each period as the difference between expected future claims and the expected future profits. One result of this calculation is that these liabilities can be negative (contra-liability). The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to change in fair value of annuity embedded derivatives on the Consolidated Statements of Operations, if actual experience or other evidence suggests that earlier assumptions should be revised. Products featuring GMWB benefits were first issued in 2007. In the calendar year that a product launches, the reserves are set to zero, until the policy's first anniversary date. 22 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The following assumptions were used to determine the GMAB and GMWB liabilities as of December 31, 2008 and 2007: o 200 stochastically generated investment performance scenarios. o Market volatility assumption of 23.3% applied to an aggregate separate account funds beta of 58.0%. o Mortality is assumed to be 50% and 60% of the 1994 MGDB Mortality Table as of December 31, 2008 and 2007, respectively. o Lapse rates vary by contract type and duration. As of December 31, 2008, spike rates could approach 40%, with an ultimate rate around 15%. As of December 31, 2007, spike rates could approach 45%, with an ultimate rate around 20%. o Discount rates vary by contract type and are equal to an assumed long-term investment return (8.6%) less the applicable mortality and expense rate. Beginning in 2008, the Company also issued fixed-indexed annuities with a GMWB as an optional rider. The GMWB has a roll-up feature. The net amount at risk is partially limited because the policyholder account value has an annual credit that is floored at zero. Since the account value can not decrease, in contrast to a variable annuity, the difference between the withdrawal value and the account value will not diverge to the degree that is possible in a variable annuity. (w) 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. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (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 currently does not have any permitted practices. (x) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - ADOPTED In January 2009, the FASB issued FSP EITF No. 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1). The FSP amends the impairment guidance of EITF No. 99-20, Recognition of Interest Income and Impairment of Purchased Beneficial Interest and Beneficial Interest that Continue to Be Held by a Transferor in Securitized Financial Assets, by removing the exclusive reliance upon market participant assumptions about future cash flows when evaluating impairment of securities within its scope. FSP EITF 99-20-1 requires companies to follow the impairment guidance in SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), which permits the use of reasonable management judgment of the probability that the holder will be unable to collect all amounts due. The FSP is effective prospectively for interim and annual reporting periods ending after December 15, 2008. The Company adopted the FSP on December 31, 2008 and the adoption did not have a material impact on the Company's Consolidated Financial Statements. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). For financial statement elements currently required to be measured at fair value, this statement defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. 23 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The Company adopted this Statement as of January 1, 2008. Adopting SFAS 157 required changes to the methods for valuing liabilities for equity- indexed and guaranteed benefits provided in the Company's fixed-indexed and variable annuity products, which are currently accounted for under SFAS 133. As required by SFAS 157, the fair valuation models for these financial liabilities reflect components relating to the Company's own credit standing and risk margin. The consideration of these additional elements resulted in a decrease in future policy benefit reserves on the Company's Consolidated Balance Sheets of $96,106 as of January 1, 2008. The pre-tax income impact of this change, net of the related adjustments to amortization of DAC and DSI was $40,427. In February 2008, the FASB issued FSP SFAS No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP FAS 157-1). FSP FAS 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases (SFAS 13), and other accounting pronouncements that address fair value measurements under SFAS 13. The Company adopted this FSP as of January 1, 2008. The adoption did not impact the Company's Consolidated Financial Statements. In February 2008, the FASB issued FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2 delays the effective date of SFAS 157 to fiscal years beginning after December 15, 2008 for certain nonfinancial assets and nonfinancial liabilities within the scope of the FSP. As a result of the issuance of FSP FAS 157-2, the Company did not apply the provisions of FAS 157 to the nonfinancial assets and liabilities within the scope of FAS 157-2. In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This FSP clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP states that the objective of a fair value measurement is to estimate the price that would be received to sell an asset currently (an exit price) in an orderly transaction that is not a forced liquidation or a distress sale, even if there is little or no market activity for the asset at the measurement date. Further, when relevant observable market information is not available, an approach that incorporates management's judgments about the assumptions that market participants would use in pricing the asset in a current sale transaction would be acceptable. The FSP was effective when issued. Adoption of this FSP did not have a material impact on the Company's Consolidated Financial Statements. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Consolidated Statements of Operations. This statement was effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Company adopted this statement as of January 1, 2008. The Company did not elect to apply the fair value option to any financial assets or financial liabilities upon adoption. In September 2008, the FASB issued FSP SFAS No. 133-1 and FASB Interpretation (FIN) No. 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP FAS 133-1). This FSP amends SFAS 133 to require disclosures by sellers of credit derivatives, including credit 24 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) derivatives embedded in a hybrid instrument. This Statement was effective for fiscal years ending after November 15, 2008. The Company adopted this FSP as of December 31, 2008. In September 2006, the FASB issued EITF Issue No. 06-5, Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance With FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance (EITF 06-5). EITF 06-5 requires that the Company consider contractual terms in determining the amount that can be realized under a corporate-owned life insurance policy. In addition, a policyholder should determine the amount that could be realized under the insurance contract assuming the surrender certificate by certificate in a group policy. EITF 06-5 was effective for fiscal years beginning after December 15, 2006. The Company adopted EITF 06-5 on January 1, 2007. Adoption of EITF 06-5 resulted in a cumulative effect adjustment of $415 (net of income tax of $223) to retained earnings as of January 1, 2007. In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS 109). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and additional disclosure. Upon adoption, the cumulative effect of applying FIN 48 is reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the balance sheet). This pronouncement was adopted January 1, 2007 and did not have a material impact on the Consolidated Financial Statements. In May 2007, the FASB issued FSP FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). The FSP addresses whether it is appropriate for a company to recognize a previously unrecognized tax benefit when the only factor that has changed, since determining that a benefit should not be recognized, was the completion of an examination or audit by a taxing authority. The FSP is effective January 1, 2007, the date of the Company's initial adoption of FIN 48. The adoption of this interpretation did not have a material impact on the Consolidated Financial Statements. In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment to SFAS No. 140 (SFAS 156). SFAS 156 requires that servicing assets or liabilities be initially measured at fair value, with subsequent changes in value reported based on either a fair value or amortized cost approach for each class of servicing asset or liability. Under previous guidance, such servicing assets or liabilities were initially measured at historical cost and the amortized cost method was required for subsequent reporting. The Company adopted this guidance effective January 1, 2007. The adoption of this interpretation did not have a material impact on the Consolidated Financial Statements. In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends FASB Statements No. 133 and No. 140. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Recognition and Measurement of Derivatives: Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company adopted this guidance effective January 1, 2007. The adoption of this interpretation did not have a material impact on the Consolidated Financial Statements. 25 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) In September 2005, the AcSEC issued SOP No. 05-1, Deferred Acquisition Costs (DAC) on Internal Replacements (SOP 05-1), which expands the definition of internal replacements and changes the accounting for DAC on replacements in connection with modifications or exchanges of insurance contracts. An internal replacement, as defined in the guidance, is a policy revision that changes the nature of the investment rights or insurance risk between the Company and the contractholder. If an internal replacement substantially changes a contract, then DAC is written off immediately through income. This Statement was effective for fiscal years beginning after December 15, 2006. The Company adopted SOP 05-1 on January 1, 2007 and the adoption did not have a material impact on the Consolidated Financial Statements. In September 2006, the Securities and Exchange Commission (SEC) published Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. This Bulletin addresses quantifying the financial statement effects of misstatements, specifically, how the effects of prior year uncorrected errors must be considered in quantifying misstatements in the current year financial statements. This Bulletin is effective for fiscal years ending after November 15, 2006. The adoption of this SAB did not have a material impact on the Consolidated Financial Statements. In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158), which improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. This was effective for public companies with fiscal years ending after December 15, 2006. The Company did have an impact from the adoption as disclosed in note 17. The Statement also requires that an employer measure the funded status of a plan as of the date of its year-end. This is effective for fiscal years ending after December 15, 2008. The Company adopted this guidance on December 31, 2008. Changing from a September 30 measurement date to a December 31 measurement date did not have a material impact on the Company's Consolidated Financial Statements. In November 2005, the FASB issued FSP FAS 115-1, The Meaning of Other Than temporary Impairments and its Application to Certain Investments, effective for reporting periods beginning after December 15, 2005. The FSP provides guidance on when an investment is considered impaired, whether that impairment is other-than-temporary, subsequent recognition of other-than-temporary impairment, and disclosures about unrealized losses. The Company adopted the FSP effective December 31, 2006, which resulted in realizing $612,635 of additional losses from interest-related impairments on investments managed by a third party where the investment manager has the discretion to sell securities in a loss position. The realized investment losses impact the current and estimated future gross profits and assessments used in determining the amortization of DAC, DSI, VOBA, URR, and the AAR. The investment losses were offset by increases of $322,676 in DAC, $34,424 in DSI, $7,472 in VOBA, $39,323 in URR, and a reduction of $19,715 in the AAR. 26 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 and SFAS No. 3. This statement was effective for fiscal years beginning after December 15, 2005 and applies to voluntary accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. It also applies to changes required by new accounting pronouncements if the pronouncement does not include specific transition provisions. The statement requires retrospective application of changes in accounting principle, unless it is impracticable to determine either the period-specific effect of an accounting change or the cumulative effect of the change. Adoption of this Statement did not have a material impact on the Consolidated Financial Statements. (y) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - TO BE ADOPTED In December 2008, the FASB issued FSP FAS No. 132(R)-1, Employers' Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)- 1). This FSP amends SFAS No. 132(R), Employers' Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by FSP FAS 132(R)-1 will be provided for fiscal years ending after December 15, 2009. The FSP will not have a financial impact on the Company's Consolidated Financial Statements. In November 2008, the FASB issued EITF Issue No. 08-6, Equity Method Investment Accounting Considerations (EITF 08-6). The EITF applies to all investments accounted for under the equity method. The EITF addresses certain questions that have been raised about the application of the equity method in light of changes in accounting for business combinations and noncontrolling interests under SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB 51 (SFAS 160). Other-than-temporary impairment testing need only be performed at the overall investment level rather than the individual asset level. When an equity method investee issues new shares, the investor will recognize a gain or loss associated with its corresponding change in ownership interest. The EITF is effective on a prospective basis in fiscal years beginning on or after December 15, 2008. The Company does not expect EITF 08-6 to have a material impact upon adoption. In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). The FSP applies to all recognized intangible assets and provides guidance on estimating the useful life of recognized intangible assets. The FSP requires that an entity should consider its own historical experience with similar arrangements when developing assumptions about renewal or extension. In the absence of historical experience, an entity should consider the assumptions that market participants would use. The assumptions should be adjusted for entity specific factors such as the entity's expected use of the asset. The FSP also adds new disclosures relating to the renewal or extension of recognized intangible assets. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not expect FSP FAS 142-3 to have a material impact upon adoption. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities - An amendment of FASB Statement No. 133. This Statement requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The Company plans to adopt this guidance effective January 1, 2009. This Statement will not have a financial impact on the Consolidated Financial Statements. 27 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) In December 2007, the FASB issued SFAS 141(R). This Statement creates greater consistency in the accounting and financial reporting of business combinations. SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. This Statement is to be applied prospectively to business combinations for which the acquisition date is on or after the first annual period beginning after December 15, 2008. The Company will apply SFAS 141(R) to business combinations with acquisition dates on or after January 1, 2009. In December 2007, the FASB issued SFAS 160. This Statement provides requirements for accounting for noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. SFAS 160 also requires that accounting for transactions between an entity and noncontrolling interests be treated as equity transactions. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. This Statement is to be applied prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively for all periods presented. The Company does not expect SFAS 160 to have a material financial impact upon adoption. (z) RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to the current year presentation. During 2008, the Company changed its method of presentation for the market value liability option (MVLO) reserve releases by reclassifying portions of this activity to premiums and benefits on the Consolidated Statements of Operations (Adjustment 1). This change was made to better match surrenders, annuitizations, and death payments with the related reserve release, and isolated the change in fair value of the MVLO embedded derivative, resulting in more meaningful and representative benefit margins and other disclosures. The second reclassification (Adjustment 2) splits net investment income, as reported in prior years, into three separate report lines: interest and similar income, derivative income, and change in fair value of annuity embedded derivatives. The change in fair value of annuity embedded derivatives now includes the change in fair value of the MVLO and the change in fair value of GMWB and GMAB. The third reclassification (Adjustment 3) is to reclassify changes in GMWB and GMAB from policyholder benefits into the change in fair value of annuity embedded derivatives. The fourth reclassification (Adjustment 4) is to move the presentation of equity earnings amounts to be above the income from operations before income taxes line as the amounts are not material for separate line disclosure. This reclassification caused a change in deferred income tax expense (benefit) which is also presented on the Consolidated Statements of Cash Flows within net cash (used in) provided by operating activities. 28 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The reclassifications resulted in adjustments to the Consolidated Statements of Operations as presented in the following tables:
For the year ended December 31, 2007 -------------------------------------------------------------------------------- As originally Adjustment Adjustment Adjustment Adjustment reported 1 2 3 4 As adjusted ----------- ------------ ------------ ------------ ------------ ----------- Revenue: Premiums $ 368,306 $ - $ - $ - $ - $ 368,306 Policy fees 342,347 424,020 - - - 766,367 Premiums and annuity considerations, ceded (255,394) (422) - - - (255,816) ----------- ------------ ------------ ------------ ------------ ----------- Net premiums and considerations 455,259 423,598 - - - 878,857 Net investment income 2,161,560 (473,652) (1,687,908) - - - Interest and similar income, net - - 2,565,331 - - 2,565,331 Derivative loss - - (251,392) - - (251,392) Realized investment losses, net (710,978) - - - - (710,978) Fee and commission revenue 199,356 - - - - 199,356 Other (loss) revenue 133,686 - - - (111) 133,575 ----------- ------------ ------------ ------------ ------------ ----------- Total revenue 2,238,883 (50,054) 626,031 - (111) 2,814,749 ----------- ------------ ------------ ------------ ------------ ----------- Benefits and expenses: Policyholder benefits 541,638 (50,078) - 3,522 - 495,082 Change in fair value of annuity embedded derivatives - - 626,031 (3,522) - 622,509 Benefit recoveries (429,655) 24 - - - (429,631) Net interest credited to policyholder account values 1,031,830 - - - - 1,031,830 ----------- ------------ ------------ ------------ ------------ ----------- Net benefits 1,143,813 (50,054) 626,031 - - 1,719,790 Commissions and other agent compensation 913,444 - - - - 913,444 General and administrative expen772,992 - - - - 772,992 Change in deferred acquisition costs, net (650,735) - - - - (650,735) ------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ----------- Total benefits and expenses2,179,514 (50,054) 626,031 - - 2,755,491 Income from operations before income taxes 59,369 - - - (111) 59,258 ----------- ------------ ------------ ------------ ------------ ----------- Income tax expense (benefit): Current 64,494 - - - (249) 64,245 Deferred (60,705) - - - 446 (60,259) ----------- ------------ ------------ ------------ ------------ ----------- Total income tax expense 3,789 - - - 197 3,986 ----------- ------------ ------------ ------------ ------------ ----------- Income before equity earnings 55,580 - - - (308) 55,272 Equity in earnings of equity method investees, net of tax (308) - - - 308 - ----------- ------------ ------------ ------------ ------------ ----------- Net income $ 55,272 $ - $ - $ - $ - $ 55,272 =========== ============ ============ ============ ============ ===========
29 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities)
For the year ended December 31, 2006 ----------------------------------------------------------------------------------- As originally Adjustment Adjustment Adjustment Adjustment reported 1 2 3 4 As adjusted ------------- ------------ ------------ ------------ ----------- ------------- Revenue: Premiums $ 597,903 $ - $ - $ - $ - $ 597,903 Policy fees 358,630 223,655 - - - 582,285 Premiums and annuity considerations, ceded (320,596) (354) - - - (320,950) ------------- ------------ ------------ ------------ ----------- ------------- Net premiums and 635,937 223,301 - - - 859,238 considerations Net investment income 1,689,688 (256,689) (1,432,999) - - - Interest and similar income, net - - 2,142,843 - - 2,142,843 Derivative income - - 643,231 - - 643,231 Realized investment losses, net (557,413) - - - - (557,413) Fee and commission revenue 160,294 - - - - 160,294 Other (loss) revenue 102,731 - - - 1,913 104,644 ------------- ------------ ------------ ------------ ----------- ------------- Total revenue 2,031,237 (33,388) 1,353,075 - 1,913 3,352,837 ------------- ------------ ------------ ------------ ----------- ------------- Benefits and expenses: Policyholder benefits 737,001 (33,402) - 8,126 - 711,725 Change in fair value of annuity embedded derivatives - - 1,353,075 (8,126) - 1,344,949 Benefit recoveries (403,779) 14 - - - (403,765) Net interest credited to policyholder account values 725,296 - - - - 725,296 ------------- ------------ ------------ ------------ ----------- ------------- Net benefits 1,058,518 (33,388) 1,353,075 - - 2,378,205 Commissions and other agent compensation 1,035,765 - - - - 1,035,765 General and administrative expens625,188 - - - - 625,188 Change in deferred acquisition costs, net (1,049,646) - - - - (1,049,646) ------------- ------------ ------------ ------------ ----------- ------------- Total benefits and expenses 1,669,825 (33,388) 1,353,075 - - 2,989,512 Income from operations before income taxes 361,412 - - - 1,913 363,325 ------------- ------------ ------------ ------------ ----------- ------------- Income tax expense (benefit): Current 81,510 - - - (588) 80,922 Deferred 28,558 - - - (679) 27,879 ------------- ------------ ------------ ------------ ----------- ------------- Total income tax expense 110,068 - - - (1,267) 108,801 ------------- ------------ ------------ ------------ ----------- ------------- ------------- ------------ ------------ ------------ ----------- ------------- Income before equity earnings 251,344 - - - 3,180 254,524 Equity in earnings of equity method investees, net of tax 3,180 - - - (3,180) - ------------- ------------ ------------ ------------ ----------- ------------- Net income $ 254,524 $ - $ - $ - $ - $ 254,524 ============= ============ ============ ============ =========== =============
30 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The reclassifications resulted in adjustments to the Consolidated Statements of Cash Flows as presented in the following tables:
For the year ended December 31, 2007 ----------------------------------------------------------------------------------------- As originally Adjustment Adjustment Adjustment Adjustment reported 1 2 3 4 As adjusted ------------ ------------- ------------- ------------ ------------- ------------- Cash flows provided by (used in) operating activities: Net (loss) income $ 55,272 $ - $ - $ - $ - $ 55,272 ------------ ------------- ------------- ------------ ------------- ------------- Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Realized investment losses 711,088 - - - - 711,088 Purchases of trading securities (2,196,297) - - - - (2,196,297) Sale and other redemptions of trading securities 558,380 - - - - 558,380 Unrealized loss on annuity-related options and gross reserves 347,575 - - - - 347,575 Deferred income tax (benefit) expense (60,705) - - - 446 (60,259) Charges to policy account balances (73,808) - - - - (73,808) Gross interest credited to policy account balances 1,041,726 - - - - 1,041,726 Amortization of (discount) premium, net (4,942) - - - - (4,942) Equity in earnings of equity method investees 111 - - - (111) - Change in: Accrued investment income (57,254) - - - - (57,254) Receivables 103,102 - - - - 103,102 Reinsurance recoverable 59,201 - - - - 59,201 Deferred acquisition costs (650,735) - - - - (650,735) Future policy benefit reserves 183,321 - - - - 183,321 Policy and contract claims (86,869) - - - - (86,869) Other policyholder funds 21,034 - - - - 21,034 Unearned premiums (15,566) - - - - (15,566) Other assets and liabilities (130,342) - - - - (130,342) Other, net (83,309) - - - (335) (83,644) ------------ ------------- ------------- ------------ ------------- ------------- Total adjustments (334,289) - - - - (334,289) ------------ ------------- ------------- ------------ ------------- ------------- Net cash provided by (used in) operating activities $ (279,017)$ - $ - $ - $ - $ (279,017) ============ ============= ============= ============ ============= =============
31 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities)
----------------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 2006 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- As originally Adjustment Adjustment Adjustment Adjustment As ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- reported 1 2 3 4 Adjusted ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Cash flows provided by (used in) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- operating activities: ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Net (loss) income $ 254,524 $ - $ - $ - $ - $ 254,524 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net (loss) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- income to net cash provided by ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- (used in) operating activities: ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Realized investment losses 555,195 - - - - 555,195 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Purchases of trading securities (1,345,475) - - - - (1,345,475) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Sale and other redemptions of ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- trading securities 198,668 - - - - 198,668 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Unrealized loss on annuity-related ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- options and gross reserves 912,662 - - - - 912,662 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Deferred income tax (benefit) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- expense 28,558 - - - (679) 27,879 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Charges to policy account balances (69,941) - - - - (69,941) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Gross interest credited to policy ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- account balances 730,546 - - - - 730,546 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Amortization of (discount) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- premium, net 111,697 - - - - 111,697 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Equity in earnings of equity ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- method investees (1,913) - - - 1,913 - ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Change in: ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Accrued investment income (72,326) - - - - (72,326) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Receivables (106,654) - - - - (106,654) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Reinsurance recoverable (84,138) - - - - (84,138) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Deferred acquisition costs (1,049,646) - - - - (1,049,646) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Future policy benefit reserves 139,631 - - - - 139,631 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Policy and contract claims 8,944 - - - - 8,944 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Other policyholder funds (66,312) - - - - (66,312) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Unearned premiums 20,243 - - - - 20,243 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Other assets and liabilities 32,512 - - - - 32,512 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Other, net (23,545) - - - (1,234) (24,779) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Total adjustments (81,294) - - - - (81,294) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- operating activities $173,230 $ - $ - $ - $ - $ 173,230 --------------------- ----------------==============--============--=============--============--============--=============-------
32 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (3) RISK DISCLOSURES The following is a description of the significant risks facing the Company and how it attempts to mitigate those risks: (a) CREDIT RISK The risk that issuers of fixed rate and variable rate income securities, mortgages on commercial real estate, or transactions with other parties, such as reinsurers and derivative counterparties, default on their contractual obligations. This risk has significantly increased in 2008 caused by the overall decline in U.S. economic conditions resulting in higher security credit spreads and related declines in investment value. The Company is at risk of economically realizing these losses if it is required to sell investments to meet its cash flow needs. The Company attempts to mitigate this risk by adhering to investment policies that provide portfolio diversification on an asset class, creditor, and industry basis, and by complying with investment limitations governed by state insurance laws and regulations, as applicable. The Company considers all relevant objective information available in estimating the cash flows related to structured securities. The Company actively monitors and manages exposures, and determines whether any securities are impaired. The aggregate credit risk taken in the investment portfolio is influenced by management's risk/return preferences, the economic and credit environment, and the relationship of credit risk in the asset portfolio to liabilities. The Company also has an asset-liability management strategy to align cash flows and duration of the investment portfolio with policyholder liability cash flows and duration. For derivative counterparties, the Company attempts to minimize credit risk by establishing relationships with counterparties rated A- and higher. The Company has executed Credit Support Annexes (CSA) with all active counterparties and requires a CSA from all new counterparties added to the counterparty pool. The CSA agreement further limits credit risk by requiring counterparties to post collateral to a trust account based on their current credit rating. The Company reviews the credit rating of the counterparties at least monthly. (b) CREDIT CONCENTRATION RISK The risk of increased exposure to major asset defaults (of a single security issuer or class of security issuers); economic conditions (if business is concentrated in a certain industry sector or geographic area); or adverse regulatory or court decisions (if concentrated in a single jurisdiction) affecting credit. This risk has increased in 2008 and early 2009 due to the merger of financial institutions for which the Company holds related investments. The Company's Asset Liability Management Committee (ALCO) recommends an investment policy to both the Allianz of America Finance Committee (AZOA FiCo), and subsequently the Board of Directors for Allianz Life Insurance Company of North America (Allianz Life BOD). The investment policy and accompanying investment mandates specify asset allocation among major asset classes and the degree of asset manager flexibility for each asset class. The investment policy complies, at a minimum, with state statutes. Compliance with the policy is monitored by ALCO who is responsible for implementing internal controls and procedures. Deviations from the policy are monitored and addressed. AZOA FiCo and subsequently the Allianz Life BOD review the policy and mandates at least annually. 33 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Mitigation controls include a monthly report from the asset manager that shows the fixed income risk profile, including sector allocation, credit rating distribution, and other credit statistics. The Company performs a quarterly calculation to ensure compliance with the State of Minnesota basket clause. (c) LIQUIDITY RISK The risk that unexpected timing or amounts of cash needed will require liquidation of assets in a market that will result in loss of realized value or an inability to sell certain classes of assets such that an insurer will be unable to meet its obligations and contractual guarantees. Market or Company conditions may preclude access to, or cause disruption of, outside sources of liquidity (e.g., through borrowing, affiliate advances, reinsurance, or securitization) upon which an insurance company typically relies in the normal course of business. Additionally, the Company may not be able to sell large blocks of assets at current market prices, especially in the current investment environment. Liquidity risk also arises from uncertain or unusual cash demands from catastrophic events. The Company attempts to manage liquidity within three specific domains: monitoring product development, product management, business operations, and the investment portfolio; setting asset/liability management (ALM) strategies; and managing the daily ALM and cash requirements. (d) INTEREST RATE RISK The risk that interest rates will change and cause a decrease in the value of an insurer's investments relative to the value of its liabilities and/or an unfavorable change in prepayment activity, resulting in compressed interest margins. This is also the risk that interest rates will change and cause an increase in the value of variable annuity guarantees, including GMWB, GMAB, GMIB, and GMDB. The Company attempts to mitigate this risk by offering products that transfer interest rate risk to the policyholder and by attempting to approximately match the maturity schedule of its assets with the expected payouts of its liabilities, both at inception and on an ongoing basis. The transfer of interest rate risk exposure to policyholders is based on risk free rates versus changes in effective yield of the investment portfolio. Asset and liability matching models are used by the Company to mitigate interest rate risk due to the close relationship between its interest rate sensitive assets and liabilities. The Company considers both the maturity and duration of the asset portfolio as compared with the expected duration of the liability reserves. The Company also attempts to mitigate interest rate risk through asset/liability risk controls, including product development and pricing, product management, and investment asset management. The Company attempts to limit interest rate risk on variable annuity guarantees through product development and pricing and product management. In certain situations, the Company accepts some interest rate risk in exchange for a higher yield on the investment. (e) EQUITY MARKET RISK The risk that movements in the equity markets will result in losses to assets held by the Company or that product features tied to equity markets will increase in value by more than held assets. Fixed-indexed annuity products increase the policy value based on the growth of market indexes. The Company attempts to hedge this exposure with a combination of OTC and exchange-traded derivatives. 34 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) An additional risk is that variable annuity products have guarantees, GMWB, GMIB, and GMDB, which provide a guaranteed level of payments irrespective of market movements. The risk here is of a market downturn or an increase in hedging costs due to greater market volatility, both of which were realized in 2008. The Company has adopted an economic hedging program using derivative instruments to attempt to manage the delta (equity market) risk and provide for these excess guarantee payments in those situations when the separate account assets are not sufficient to provide for them. The Company does not have a vega (market volatility) hedge but attempts to manage risk prospectively through product development and pricing. Equity market risk is also partially mitigated by separate account fund allocation restrictions. For products with GMAB, policyholder contracts allow the Company to employ an automatic investment allocation process to move policyholder funds into fixed accounts during a market downturn to help mitigate this risk. The Company also implemented a delta hedge on the GMAB benefit in November 2008. (f) LEGAL/REGULATORY RISK The risk that changes in the legal or regulatory environment in which the Company operates may result in reduced demand for its products or additional expenses not assumed in product pricing. Additionally, the Company is exposed to risk related to how the Company conducts itself in the market and the suitability of its product sales to contractholders. The Company attempts to mitigate this risk by offering a broad range of annuity products and by operating throughout the U.S. The Company actively monitors all market-related exposure and has members that participate in national and international discussions relating to legal, regulatory, and accounting changes that may impact the business. The Company also has defined suitability standards that are at least as rigorous as, and usually exceeding, the requirements of regulators. (g) RATINGS RISK The risk that rating agencies change their outlook or rating of the Company or a subsidiary of the Company. The rating agencies generally utilize proprietary capital adequacy models in the process of establishing ratings for the Company. The Company is at risk of changes in these models and the impact that changes in the underlying business that it is engaged in can have on such models. In an attempt to mitigate this risk, the Company maintains regular communications with the rating agencies and evaluates the impact of significant transactions on such capital adequacy models and considers the same in the design of transactions to minimize the adverse impact of this risk. Stress tests are performed at least quarterly to assess how rating agency capital adequacy models would be impacted by severe economic events. (h) MORTALITY RISK The risk that life expectancy assumptions used by the Company to price its life insurance business are too aggressive (i.e. insureds live shorter than expected lives). The Company mitigates this risk primarily through reinsurance. Approximately 90% of the Company's mortality risk on its life business is reinsured to third parties. The Company also reviews its mortality assumptions at least annually, reviews mortality experience periodically, and uses conservative underwriting methods relative to the industry. (i) REINSURANCE RISK The risk that reinsurance companies default on their obligation where the Company has ceded a portion of its insurance risk. The Company uses reinsurance to limit its risk exposure in its life and long-term care business and to divest of blocks of business no longer considered core to the Company. The Company has established controls to mitigate reinsurance risk. Counterparty ratings must meet certain thresholds or a trust is required to 35 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) be established. All arrangements are regularly monitored to determine if trusts or letters of credit are sufficient to support the ceded liabilities. The Company also diversifies its exposure across a minimum of three reinsurers for a single life product. Also, the Company reviews the financial standings and ratings of its reinsurance counterparties at least quarterly. (4) ACQUISITION OF BUSINESS On April 1, 2007, the Company purchased 100% of all issued and outstanding shares of common stock of Templeton Funds Annuity Company (TFAC) from Franklin Agency, Inc., a wholly owned subsidiary of Franklin Resources, Inc. (FRI). TFAC was subsequently renamed Allianz Life and Annuity Company (ALAC). The results of operations and financial condition of ALAC, which are not material, have been included in the Consolidated Financial Statements since April 1, 2007. ALAC is a life insurance company licensed in forty-five states and the District of Columbia. It has existing variable annuity insurance contracts and is not actively selling or marketing any of the existing products. The primary reason for this acquisition was to obtain the variable annuity licenses. The Company acquired ALAC for a purchase price of $14,542. The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company has assigned $11,276 to tangible net assets, and $2,050 to identifiable intangible assets consisting of insurance licenses. These intangible assets have indefinite lives and are not amortized but are instead subject to impairment tests. The excess of the purchase price over the estimated fair values of net assets acquired was recorded as goodwill in the amount of $1,216. The goodwill and intangible assets are nondeductible for tax purposes. This acquisition was accounted for using the purchase method. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of April 1, 2007: Cash $ 2887 Other current assets 9700 Intangible assets 2050 Goodwill 1216 Separate account assets 9338 ------- Total assets acquired 25191 ------- Current liabilities 1311 Separate account liabilities 9338 ------- Total liabilities assumed 10649 ------- Net assets acquired $ 14542 ------- 36 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (5) INVESTMENTS At December 31, 2008 and 2007, the amortized cost or cost, gross unrealized gains, gross unrealized losses, and estimated fair values of available-for-sale securities are as shown in the following table:
Amortized Gross Gross Estimated cost unrealized unrealized fair or cost gains losses value ---------------- ---------------- ---------------- ---------------- 2008: Fixed-maturity securities: U.S. government $ 697,066 $ 189,040 $ - $ 886,106 Agencies not backed by the full faith and credit of the U.S. government 119,797 11,743 - 131,540 States and political subdivisions 301,441 8,335 - 309,776 Foreign government 203,776 22,354 - 226,130 Public utilities 1,727,221 55,899 - 1,783,120 Corporate securities 20,220,773 425,890 - 20,646,663 Mortgage-backed securities 12,210,356 486,660 - 12,697,016 Collateralized mortgage obligations 40,792 4,925 - 45,717 ---------------- ---------------- ---------------- ---------------- Total fixed-maturity securities 35,521,222 1,204,846 - 36,726,068 Equity securities 84 - 9 75 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total available-for-sale securities $ 35,521,306 $ 1,204,846 $ 9 $ 36,726,143 ================ ================ ================ ================ 2007: Fixed-maturity securities: U.S. government $ 1,929,269 $ 168,500 $ - $ 2,097,769 Agencies not backed by the full faith and credit of the U.S. government 33,726 2,404 - 36,130 States and political subdivisions 289,978 17,711 - 307,689 Foreign government 215,739 13,756 - 229,495 Public utilities 1,451,535 38,805 - 1,490,340 Corporate securities 19,015,811 547,864 - 19,563,675 Mortgage-backed securities 10,276,194 342,603 - 10,618,797 Collateralized mortgage obligations 45,180 2,247 - 47,427 ---------------- ---------------- ---------------- ---------------- Total fixed-maturity securities 33,257,432 1,133,890 - 34,391,322 Equity securities 17,601 222 1,104 16,719 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total available-for-sale securities $ 33,275,033 $ 1,134,112 $ 1,104 $ 34,408,041 ================ ================ ================ ================
37 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The net unrealized gains (losses) on available-for-sale securities and cash flow hedges consist of the following at December 31:
2008 2007 2006 ------------------ ------------------ ------------------ Available-for-sale: Fixed maturities $ 1,204,846 $ 1,133,890 $ 450,887 Equities (9) (882) 347 Cash flow hedges 24,306 - - Adjustments for: DAC (705,203) (599,149) (258,680) VOBA (21,239) (23,332) (9,013) DSI (58,587) (60,981) (24,405) URR 56,976 63,392 33,862 Deferred taxes (175,376) (179,529) (67,729) ------------------ ------------------ ------------------ Net unrealized gains $ 325,714 $ 333,409 $ 125,269 ================== ================== ==================
The changes in net unrealized gains on available-for-sale fixed-maturity securities before adjustments for deferred taxes, DAC, VOBA, DSI, and URR were $70,956, $683,003, and $185,451 for the years ended December 31, 2008, 2007, and 2006, respectively. The changes in net unrealized gains (losses) on available-for-sale equity securities, before adjustments for deferred taxes, were $873, $(1,229), and $(95,167) for the years ended December 31, 2008, 2007, and 2006, respectively. The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at December 31, 2008, by contractual maturity, are shown below.
Amortized Estimated cost fair value ------------------- ------------------- Available-for-sale: Due in one year or less $ 200,915 $ 203,943 Due after one year through five years 3,280,962 3,316,346 Due after five years through ten years 10,653,615 10,849,689 Due after ten years 9,134,582 9,613,357 Mortgage-backed securities and collateralized mortgage obligations 12,251,148 12,742,733 ------------------- ------------------- ------------------- ------------------- Total available-for-sale fixed-maturity securities$ 35,521,222 $ 36,726,068 =================== ===================
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. The amortized cost of fixed-maturity securities with rights to call or prepay without penalty is $14,117,682 as of December 31, 2008. 38 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Unrealized losses on available-for-sale securities and the related fair value for the respective years ended December 31 are shown below:
12 months or less Greater than 12 months Total ----------------------- ----------------------- ----------------------- Unrealized Unrealized Unrealized Fair value losses Fair value losses Fair value losses ----------- ----------- ---------- ----------- ---------- ---------- 2008: Equity securities $ 75 $ 9 $ - $ - $ 75 $ 9 ----------- ----------- ---------- ----------- ---------- ---------- Total temporarily impaired available-for-sale securities 75 9 $ - $ - $ 75 $ 9 =========== =========== ========== =========== ========== ========== 2007: Equity securities $ 16,174 $ 1,104 $ - $ - $ 16,174 $ 1,104 ----------- ----------- ---------- ----------- ---------- ---------- Total temporarily impaired available-for-sale securities 16,174 1,104 $ - $ - $ 16,174 $ 1,104 =========== =========== ========== =========== ========== ==========
As of December 31, 2008 and 2007, there were no available-for-sale investment holdings that were in an unrealized loss position for fixed-maturity securities; for equity securities, there were 23 and 3, respectively. Proceeds from sales of available-for-sale and trading investments are presented in the following table:
---------------------------------------------------------------------------------------------------------------------- Years ended December 31, ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 ---------------------------------------------------------------------------------------------------------------------- Available-for-sale: ---------------------------------------------------------------------------------------------------------------------- Fixed-maturity securities ---------------------------------------------------------------------------------------------------------------------- Proceeds from sales $ 1,413,235 $ 1,118,979 $ 5,636,908 ---------------------------------------------------------------------------------------------------------------------- Proceeds from tax-free and taxable exchanges - - 1,160 ---------------------------------------------------------------------------------------------------------------------- Equity securities ---------------------------------------------------------------------------------------------------------------------- Proceeds from sales 14,906 68,229 506,311 ---------------------------------------------------------------------------------------------------------------------- Proceeds from tax-free exchanges, ---------------------------------------------------------------------------------------------------------------------- redemptions and spin-offs - - 3,868 ---------------------------------------------------------------------------------------------------------------------- Trading: ---------------------------------------------------------------------------------------------------------------------- Fixed-maturity securities ---------------------------------------------------------------------------------------------------------------------- Proceeds from sales 1,244,445 556,061 172,653 ---------------------------------------------------------------------------------------------------------------------- Proceeds from tax-free and taxable exchanges - - 5,240 ---------------------------------------------------------------------------------------------------------------------- Equity securities ---------------------------------------------------------------------------------------------------------------------- Proceeds from sales 17,540 3,560 5,894 ----------------------------------------------------------------------------------------------------------------------
Trading forward commitments of $10,943, $0, and $0 were purchased and $10,943, $0, and $0 were sold by the Company during 2008, 2007 and 2006, respectively. There were no gains or losses realized in 2008, 2007, or 2006 from these securities. Available-for-sale forward commitments of $943,124, $0, and $0 were purchased and $943,124, $0, and $0 were sold by the Company during 2008, 2007 and 2006, respectively. There were no gains or losses realized in 2008, 2007, or 2006 from these securities. As of December 31, 2008 and 2007, investments with a carrying value of $85,741 and $91,063, respectively, were held on deposit with various insurance departments and in other trusts as required by statutory regulations. 39 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) As of December 31, 2008 and 2007, the Company held options purchased (asset) and options sold (liability) with the following amortized cost, fair value, and notional amounts: 2008 2007 --------------- ---------------- Options Purchased (asset) Amortized cost $ 484,060 $ 482,639 Fair value 524,827 379,855 Notional 11,427,185 21,245,193 Sold (liability) Basis $ 316,248 $ 304,351 Fair value 518,778 218,108 Notional 7,708,902 18,497,585 The Company utilizes option contracts with the objective to economically hedge certain fixed-indexed annuity and life products tied to the S&P 500 index or NASDAQ 100 index as well as the objective to economically hedge certain variable annuity guaranteed benefits. The Company also utilizes futures to economically hedge fixed-indexed annuity and life and variable annuity guarantees. The following table presents the net realized gains (losses), gains (losses) on exercise of options, and corresponding changes in the policy and contract account balance being hedged.
Years ended December 31, 2008 2007 2006 Options to economically hedge certain fixed-indexed annuity and life products: Net realized (losses) gains $ (143,402) $ (211,217)$ 127,367 Gains on exercise of options 417,573 10,743 80,182 Decrease (increase) in policy and contract account balance 107,202 (152,379) (1,096,386) Options to economically hedge certain variable annuity guaranteed benefits: Net realized gains (losses) $ - $ 15,502 $ (2,976) Losses on exercise of options - (24,484) (20,388) Increase in future policy benefit reserves (1,082,368) (62,135) (5,116) Futures to economically hedge fixed-indexed annuity and life and variable annuity guarantees: Net realized (losses) gains $ (1,305,738)$ (46,340)$ 459,046
Increase in future policy benefit reserves of ($489,054) for the year ended December 31, 2008 in the table above is related to certain GMAB guarantees that were hedged primarily with an automatic investment allocation process as described in note 3. As of December 31, 2008 and 2007, the Company held futures contracts, which do not require an initial investment; therefore, no asset or liability is recorded. The Company is required to settle cash daily based on movements of the 40 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) representative index. The Company is also required to post collateral for futures contracts by the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), and London International Financial Futures Exchange (LIFFE). The Company retains ownership of the collateral, but the collateral resides in an account designated by the exchange. The collateral is subject to specific exchange rules regarding rehypothecation. Collateral posted at December 31, 2008 and 2007 had a fair value of $435,024 and $889,043, respectively, and is included in fixed-maturity securities on the Consolidated Balance Sheets. As of December 31, 2008, the derivatives used to hedge the fixed-maturity securities with variable interest rates were deemed 100% effective, with $24,306 of unrealized gains reported on the Consolidated Balance Sheets. The following is a summary of net unrealized gains related to cash flow hedging activity, net of tax:
YEARS ENDED DECEMBER 31, 2008 2007 2006 Net unrealized derivatives gains at January 1 $ - $ - $ - Holding gains, net of tax of $8,507, $0, and $0, respectively 15,799 - - Reclassification of realized (gains) losses, net of tax of $0, $0, and $0, respectively - - - Net unrealized derivatives gains at December 31 $ 15,799 $ - $ -
At December 31, 2008, the Company does not expect to reclassify any pre-tax gains or losses on cash flow hedges into earnings during the next 12 months. In the event that cash flow hedge accounting is no longer applied because the derivative is dedesignated as a hedge or the hedge is not considered to be highly effective, the reclassification from accumulated other comprehensive income into earnings may be accelerated. The Company also enters into contracts with Allianz SE with the objective to economically hedge risk associated with Allianz SE's stock based compensation plan. The contracts are recorded at fair value on the Consolidated Balance Sheets with the change in fair value recorded in derivative income on the Consolidated Statements of Operations. The (decreases) increases in fair value of these contracts were $(7,202), $(9,746), and $8,788 for the years ended December 31, 2008, 2007, and 2006, respectively. As of December 31, 2008 and 2007, the Company owned 110,177 and 113,830 contracts with a cost of $8,981 and $9,019, respectively, and a fair value of $3,920 and $11,161, respectively. See further discussion of the stock based compensation plan in note 17. The Company will only enter into option contracts with counterparties rated A- or better and the option contracts are not used for speculative or income generating purposes. At December 31, 2008, there were six counterparties with a net receivable exposure to the Company of $161,997. At December 31, 2008, $26,187 of that exposure was not covered by collateral held. At December 31, 2007, there were 11 counterparties with a net receivable exposure to the Company of $193,936. At December 31, 2007, $128,548 of that exposure was not covered by collateral held. At December 31, 2008 and 2007, respectively, the Company also had net liability positions to certain counterparties of $114,374 and $32,647 that was not covered by collateral posted to counterparties. This resulted in a total net (liability) receivable of ($106,669) and $95,901 as of December 31, 2008 and 2007, respectively. Dresdner Bank Aktiengesellschaft (Dresdner Bank), a related party, accounted for 0% and 1.1% of contractual net exposure held at December 31, 2008 and 2007, respectively. During 2008, the Company established an allowance of $1,500 due to the bankruptcy of a derivative counterparty. The related receivable balance was $7,139 at December 31, 2008. Management believes that no significant credit risk exists. 41 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) In 2007, the Company began to utilize derivatives within certain actively managed investment portfolios that were a net asset of $1,216 at December 31, 2008 and a net liability of $11,806 at December 31, 2007. Within these portfolios, derivatives can be used for hedging, replication, and income generation only. The Company enters into credit default swaps that assume credit risk from a single entity or referenced index for the purpose of synthetically replicating investment transactions. The Company will only need to pay on the contract if a credit event occurs. Credit events include bankruptcy of the reference and failure to pay by the reference. The notional amount is equal to the maximum potential future loss amount. The table below presents the notional amount, fair value, weighted average years to maturity, underlying referenced credit obligation type, and average credit ratings for the credit derivatives in which the Company is assuming credit risk as of December 31, 2008:
Weighted Average Years Credit Derivative Type by to Derivative Risk Exposure Notionale Amount Fair Value Maturity AveragetCredit Rating ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Single name credit default swaps: ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Investment grade risk: ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Emerging markets sovereign credit $ 6,100 $ (1,658) 8 A- ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- U.S. corporate credit 1,860 (10) 5 AAA ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Below investment grade risk: ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Emerging markets sovereign credit 2,600 (1,366) 9 B+ ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- European Union corporate credit 200 (74) 4 B+ ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- U.S. corporate credit 100 (12) 2 CAA+ ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Basket credit default swaps: ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Investment grade risk: ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- U.S. corporate credit 8,177 (154) 5 BAA+ ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- U.S. asset-backed securities 1,000 (945) 29 AA ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Below investment grade risk: ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Emerging markets sovereign credit 16,800 (2,534) 5 BA+ ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- European Union corporate credit 2,300 (677) 3 B+ ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- U.S. corporate credit 14,570 (2,421) 4 B- ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Total $ 53,707 $ (9,852) -------------------------------------------------------------------------------------------------------------------------
The Company has posted $11,700 of collateral in the form of cash related to the liabilities above. 42 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Gross and net realized investment gains (losses) for the years ended December 31, 2008, 2007, and 2006 are summarized as follows:
----------------------------------------------------------------------------------------------------------------- Years ended December 31, 2008 2007 2006 ----------------------------------------------------------------------------------------------------------------- Available-for-sale: Fixed-maturity securities: Gross gains on sales and exchanges $ 113,791 $ 43,633 $ 44,105 Gross losses on sales and exchanges (350) (42,273) (55,714) Total 113,441 1,360 (11,609) Other-than-temporary impairments (3,580,665) (773,279) (612,766) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net losses on fixed-maturity securities (3,467,224) (771,919) (624,375) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Equity securities: ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross gains on sales and exchanges - 1,410 102,652 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross losses on sales and exchanges (2,611) (617) (6,875) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Other-than-temporary impairments - (76) (29) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net (losses) gains on equity securities (2,611) 717 95,748 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net losses on available-for-sale securities (3,469,835) (771,202) (528,627) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Trading: ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Fixed-maturity securities: ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross gains on sales and exchanges 36,472 4,039 4 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross losses on sales and exchanges (29,872) (7,243) (1,326) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net gains (losses) on fixed-maturity securities 6,600 (3,204) (1,322) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Equity securities: ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross gains on sales and exchanges 890 223 6 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross losses on sales and exchanges (1,081) (3) (248) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net (losses) gains on equity securities (191) 220 (242) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Fixed-maturity and equity securities: ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross gains due to market appreciation 122,841 53,246 17,319 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gross losses due to market depreciation (568,774) (5,820) (74,512) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net (losses) gains due to market appreciation (445,933) 47,426 (57,193) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net (losses) gains on trading securities (439,524) 44,442 (58,757) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Provision for mortgage loans on real estate (4,183) (9,884) (11,935) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gain on real estate sales - 33,320 21,451 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Gain on sale of Life Sales - - 22,451 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Other (4,717) (7,654) (1,996) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net realized investment losses $ (3,918,259) $ (710,978) $ (557,413) ----------------------------------------------------------------==============----============----============--- ----------------------------------------------------------------==============----============----============--- -----------------------------------------------------------------------------------------------------------------
In 2006, the Company sold its interest in Life Sales, a third-party marketing organization. This resulted in a pre-tax gain of $22,451, which is included in the realized investment losses, net on the Consolidated Statements of Operations. 43 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The OTTI listed above are limited due to the recognition of OTTI on the securities in prior periods. The increase in other-than-temporary impairments in 2008 is related to the general U.S. economic downturn and related credit issues and increasing credit spreads on fixed-maturity securities. Major categories of interest and similar income, net and derivative income for the respective years ended December 31 are shown below. Interest and similar income related to securities held under repurchase agreements is shown with fixed-maturity securities, and was $0, $0, and $5,512 in 2008, 2007, and 2006, respectively.
2008 2007 2006 ---------------- -------------- --------------- Interest and similar income, net: Available-for-sale fixed-maturity securities $ 2,218,194 $ 1,912,421 $ 1,657,920 Investment income on trading securities 328,900 298,908 188,468 Mortgage loans on real estate 281,586 239,081 176,235 Interest on loans to affiliates 47,038 27,871 35,030 Short-term securities 27,123 44,910 76,047 Rental income on real estate 24,407 34,116 36,780 Policy loans 11,978 11,384 9,182 Other invested assets 5,879 42,530 20,227 Interest on assets held by reinsurers 3,609 3,817 4,054 Dividends from available-for-sale common stock - 173 335 ---------------- -------------- --------------- Total 2,948,714 2,615,211 2,204,278 Less: Investment expenses 39,820 49,880 61,435 ---------------- -------------- --------------- ---------------- -------------- --------------- Total interest and similar income, net $ 2,908,894 $ 2,565,331 $ 2,142,843 ================ ============== =============== Derivative (loss) income: Change in fair value of equity-indexed annuity and guaranteed benefit-related options $ (143,403)$ (195,715) $ 124,391 Gain (loss) on exercise of equity-indexed annuity and guaranteed benefit-related options 417,573 (13,741) 59,794 (Loss) gain on exercise of equity-indexed annuity and guaranteed benefit-related futures (1,305,738) (43,820) 459,046 Change in fair value and gain (loss) on exercise of other derivatives 27,545 1,884 - ---------------- -------------- --------------- Total derivative (loss) income $ (1,004,023)$ (251,392) $ 643,231 ================ ============== ===============
44 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The Company's investment in mortgage loans on real estate at December 31, 2008 and 2007 is summarized as follows:
2008 2007 ------------------ ------------------ Mortgage loans on real estate: Commerical $ 4,883,265 $ 4,442,855 Residential 1,505 1,573 Valuation allowances (46,397) (42,214) ------------------ ------------------ Total mortgage loans on real estate $ 4,838,373 $ 4,402,214 ================== ==================
At December 31, 2008, mortgage loans on real estate in CA and TX exceeded the 10% concentration level by state with concentrations of 42.3% or $2,068,676, and 10.1% or $493,416, respectively. At December 31, 2007, mortgage loans on real estate in CA and TX exceeded the 10% concentration level by state with concentrations of 41.0% or $1,823,506, and 11.8% or $523,516, respectively. Interest rates on investments in new mortgage loans ranged from a minimum of 5.74% to a maximum of 6.72%. The maximum percentage of the loan to the value of the related real estate of any one loan was 80%. The valuation allowances on mortgage loans on real estate at December 31, 2008, 2007, and 2006 and the changes in the allowance for the years then ended are summarized as follows:
2008 2007 2006 ------------------- ------------------- ------------------- Balance, beginning of year $ 42,214 $ 32,330 $ 20,395 Charged to operations 4,183 9,884 11,935 ------------------- ------------------- ------------------- Balance, end of year $ 46,397 $ 42,214 $ 32,330 =================== =================== ===================
The Company's investment portfolio includes mortgage-backed securities and collateralized mortgage obligations. Due to the high quality of these investments and the lack of sub-prime loans within the securities, the Company does not have a material exposure to sub-prime mortgages. (6) FAIR VALUE MEASUREMENTS The following financial instruments are carried at fair value on a recurring basis in the Company's Consolidated Financial Statements: fixed-maturity securities, freestanding and embedded derivatives, equity securities, corporate-owned life insurance, and separate accounts assets. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used in the valuation techniques to measure fair value. Level 1 - Unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 2 - Valuations derived from techniques that utilize observable inputs, other than quoted prices included in Level 1, which are observable for the asset or liability either directly or indirectly, such as: (a)Quoted prices for similar assets or liabilities in active markets. (b)Quoted prices for identical or similar assets or liabilities in markets that are not active. 45 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (c)Inputs other than quoted prices that are observable. (d)Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 - Valuations derived from techniques in which the significant inputs are unobservable. Level 3 fair values reflect the Company's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). The Company has analyzed the valuation techniques and related inputs, evaluated its assets and liabilities reported at fair value, and determined an appropriate SFAS 157 fair value hierarchy level based upon trading activity and the observability of market inputs. Based on the results of this evaluation and investment class analysis, each valuation was classified into Level 1, 2, or 3. The following table presents the assets and liabilities measured at fair value on a recurring basis and their corresponding level in the fair value hierarchy at December 31, 2008:
Total Level 1 Level 2 Level 3 --------------- ---------------- ---------------- --------------- --------------- ---------------- ---------------- --------------- Assets accounted for at fair value: Fixed-maturity securities (1) $ 41,887,964 $ 1,609,382 $ 38,250,019 $ 2,028,563 Derivative investments (2) 621,784 14,961 568,239 38,584 Equity securities 9,602 9,602 - - Corporate owned life insurance (3) 86,388 - 86,388 - Separate account assets (4) 11,791,728 11,791,728 - - --------------- ---------------- ---------------- --------------- --------------- ---------------- ---------------- --------------- Total assets accounted for at fair value $ 54,397,466 $ 13,425,673 $ 38,904,646 $ 2,067,147 =============== ================ ================ =============== =============== ================ ================ =============== Liabilities accounted for at fair value: Derivative liabilities $ 535,481 $ 2,059 $ 533,422 $ - Annuity embedded derivative liabilities (5) 7,058,370 - - 7,058,370 --------------- ---------------- ---------------- --------------- --------------- ---------------- ---------------- --------------- Total liabilities accounted for at fair value $ 7,593,851 $ 2,0$9 533,422 $ 7,058,370 =============== ================ ================ =============== =============== ================ ================ =============== (1)Fixed-maturity securities differ from amount reported on the Consolidated Balance Sheets due to $138 of held-to-maturity securities that are carried at amortized cost and not included here. (2)Derivative investments are net of a $9,531 embedded derivative liability reported within loans to affiliates on the Consolidated Balance Sheets. (3)Corporate owned life insurance is reported in other invested assets on the Consolidated Balance Sheets. (4)In accordance with SOP 03-1, the value of separate account liabilities is set to equal the fair value of separate account assets. (5)Annuity embedded derivative liabilities are reported in future policy benefit reserves and policy and contract account balances on the Consolidated Balance Sheets.
The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above table. These fair values represent an exit price (i.e., what a buyer in the market place would pay for an asset in a current sale or charge to transfer a liability). 46 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) VALUATION OF FIXED-MATURITY SECURITIES AND EQUITY SECURITIES The fair value of fixed-maturity securities and equity securities is based on quoted market prices in active markets when available. Based on the market data, the securities are categorized into asset class, and based on the asset class of the security, appropriate pricing applications, models, and related methodology and standard inputs are utilized to determine what a buyer in the marketplace would pay for the security in a current sale. When quoted prices are not readily available or in an inactive market, standard inputs used in the valuation models, listed in approximate order of priority, include, but are not limited to, benchmark yields, reported trades, municipal securities rulemaking board (MSRB) reported trades, nationally recognized municipal securities information repository (NRMSIR) material event notices, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In certain cases including private placement securities as well as certain difficult-to-price securities, internal pricing models may be used that are based on market proxies. Generally, treasury securities and exchange traded stocks are included in Level 1. Most bonds for which prices are provided by third-party pricing sources are included in Level 2 because the inputs used are market observable. Bonds for which prices were obtained from broker quotes and private placement securities that are internally priced are included in Level 3. At December 31, 2008, private placement securities of $1,493,372 were included in Level 3. Internal pricing models based on market proxy securities are used to value these holdings. AZOA portfolio managers monitor the proxies used on a monthly basis for reasonableness. This includes ensuring there are no significant credit events impacting the proxy security and that the spreads used are still reasonable under the circumstances. VALUATION OF DERIVATIVES The fair value of option assets and liabilities are derived internally, by calculating their expected discounted cash flows, using a set of calibrated, risk-neutral stochastic scenarios, including a market data monitor, a market data model generator, a stochastic scenario calibrator, and the actual asset pricing calculator. The fair value of forwards and swaps are based on quoted market prices. Exchange traded options and futures are generally included in Level 1. Options that are internally priced are included in Level 2 because they use market observable inputs. VALUATION OF CORPORATE OWNED LIFE INSURANCE (COLI) The policy value of COLI is recorded at fair value on the Consolidated Balance Sheets. Its fair value is tied to the S&P 500 market index at the measurement date. COLI is included in Level 2 because although its fair value is tied to its underlying assets and is market observable, the exit markets are different. VALUATION OF SEPARATE ACCOUNT ASSETS Separate account assets are carried at fair value and reported as a summarized total on the Consolidated Balance Sheets. The fair value of the separate account assets is based on the fair value of the underlying assets. Funds in the separate accounts are primarily invested in mutual funds with the following investment types - bond, domestic equity, international equity, or specialty. The separate account funds also hold certain money market funds. Mutual fund investments are generally included in Level 1. The remaining investments are categorized similar to the 47 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) investments held by the Company in the general account (e.g., if the separate account invested in corporate bonds or other fixed-maturity securities, that portion could be considered a Level 2 or Level 3). EMBEDDED DERIVATIVES Embedded derivatives principally include the equity-indexed features contained in fixed-indexed annuity products and certain variable annuity riders. Embedded derivatives are recorded in the Consolidated Financial Statements at fair value with changes in fair value adjusted through net (loss) income. Fair values of the embedded derivative liabilities are calculated based on internally developed models because active, observable markets do not exist for these liabilities. Fair value is derived from techniques in which one or more significant inputs are unobservable and are included in Level 3. These fair values represent the Company's best estimate of an amount that could be realized in a current market exchange absent actual market exchanges. The fair value of the embedded derivative contained in the fixed-indexed annuity products is the sum of the current year's option value projected stochastically, the projection of future index growth at the option budget, and the historical interest/equity-indexed credits. A separate amount is reserved for the GMWB rider on some fixed-indexed annuity products. Effective January 1, 2008 upon adoption of SFAS 157, the valuation of the embedded derivative now includes an adjustment for the Company's own credit standing and a risk margin for non-capital market inputs. The Company's own credit adjustment is determined by taking into consideration publicly available information on industry default risk with considerations for the Company's own credit profile. Risk margin is incorporated into the valuation model to capture the non-capital market risks of the instrument, which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of certain actuarial assumptions including surrenders, annuitization, and future equity index caps or participation rates. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility, changes in the Company's own credit standing, and variations in actuarial assumptions regarding policyholder behavior and risk margin related to non-capital market inputs may result in significant fluctuations in the fair value of these embedded derivatives that could materially affect net (loss) income. The Company issues certain variable annuity products with guaranteed minimum benefit riders. These include GMWB and GMAB riders. GMWB and GMAB riders are embedded derivatives, which are measured at fair value separately from the host variable annuity contract, with changes in fair value reported in change in fair value of annuity embedded derivatives on the Consolidated Statements of Operations. These embedded derivatives are classified within future policy benefit reserves on the Consolidated Balance Sheets. The fair value for these riders is estimated using the present value of future benefits minus the present value of future fees using actuarial and capital market assumptions related to the projected cash flows over the expected lives of the contracts. A risk neutral valuation methodology is used under which the cash flows from the riders are projected under multiple capital market scenarios using observable risk free rates. Effective January 1, 2008, upon adoption of SFAS 157, the valuation of these riders now includes an adjustment for the Company's own credit standing and a risk margin for non-capital market inputs. The Company's own credit adjustment is determined taking into consideration publicly available information relating to the Company's claims paying ability. Risk margin is established to capture the non-capital market risks of the instrument, which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of certain actuarial assumptions including surrenders, annuitization, and premium persistency. The establishment of the risk margin requires the use of significant management judgment. These riders may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility, changes in the Company's own credit standing, and variations in actuarial assumptions regarding policyholder 48 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) behavior and risk margins related to non-capital market inputs may result in significant fluctuations in the fair value of the riders that could materially affect net (loss) income. The Company issues equity-indexed universal life policies, which contain an embedded derivative similar to the fixed-indexed annuity products. The embedded derivative was not significant in the prior year. An estimate of $3,794 was recorded as a reduction of reserves at December 31, 2008 and the Company will continue to refine this calculation in 2009. This amount is not included in the total for Level 3 liabilities in the tables within this note. The Company also has an embedded derivative asset related to a modified coinsurance agreement with Transamerica. This agreement results in a credit derivative based on the difference between the LIBOR and Corporate A- spread as of an average portfolio purchase date. This derivative is on a closed block of business and is not significant to the ongoing results of the Company. The following table provides a reconciliation of the beginning and ending balances for the Company's Level 3 assets and liabilities measured at fair value on a recurring basis.
Fixed-maturity Derivative Embedded Derivative Securities Assets Liabilities ------------------------------------------------------------------- Balance January 1, 2008 $ 2,690,291 $46 (6,247,943) Total realized/unrealized (losses) gains included in: Net (loss) income (323,508) 38,538 (117,160) Other comprehensive loss (19,128) - - Purchases, sales, issuances, and settlements 1,010,536 - (693,267) Transfer in and/or out of Level 3, net (1,329,628) - - ------------------- ------------- ------------------------- Balance December 31, 2008 $ 2,028,563 $38,584 $ (7,058,370) =================== ============= ========================= Realized (losses) gains included in net (loss) income related to financial instruments still held at December 31, 2008 $ (327,646 $38,538 $ (697,508) =================== ============= =========================
TRANSFERS The Company reviews its fair value hierarchy classifications annually. This review could reveal that previously observable inputs for specific assets or liabilities are no longer available or reliable. For example, the market for a Level 1 asset becomes inactive. In this case, the Company may need to adopt a valuation technique that relies on unobservable components causing the asset to be transferred to Level 2 or Level 3. Alternatively, if the market for a Level 3 asset or liability becomes active, the Company will report a transfer out of Level 3. Transfers in and/or out of Level 3 are reported as of the beginning of the period in which the change occurs. The net transfers out of Level 3 for the year ended December 31, 2008 are a result of observable inputs becoming available for certain fixed maturity securities. 49 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) NON-RECURRING FAIR VALUE MEASUREMENTS Occasionally, certain assets and liabilities are measured at fair value on a non-recurring basis (e.g., impaired assets). At December 31, 2008, there were no assets or liabilities reported at fair value on a nonrecurring basis required to be disclosed under SFAS 157. 50 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The following table presents the carrying amounts and fair values of financial assets and liabilities at December 31, 2008 and 2007.
----------------------------------------------------------------------------------------------------------------- 2008 2007 ----------------------------- ----------------------------- Carrying Fair Carrying Fair amount value amount value ------------- ------------- ------------- ------------- Financial assets: Available for sale: Fixed-maturity securities: U.S. government $ 886,106 $ 886,106 $ 2,097,769 $ 2,097,769 Agencies not backed by the full faith and credit of the U.S. government 131,540 131,540 36,130 36,130 States and political subdivisions 309,776 309,776 307,689 307,689 Foreign governments 226,130 226,130 229,495 229,495 Public utilities 1,783,120 1,783,120 1,490,340 1,490,340 Corporate securities 20,646,663 20,646,663 19,563,675 19,563,675 Mortgage-backed securities 12,697,016 12,697,016 10,618,797 10,618,797 Collateralized mortgage obligations 45,717 45,717 47,427 47,427 Equity securities 75 75 16,719 16,719 Trading: Fixed-maturity securities: U.S. government 723,276 723,276 1,208,702 1,208,702 Agencies not backed by the full faith and credit of the U.S. government 23,944 23,944 21,169 21,169 States and political subdivisions 57,974 57,974 57,363 57,363 Foreign governments 47,671 47,671 41,508 41,508 Public utilities 305,806 305,806 299,256 299,256 Corporate securities 3,237,355 3,237,355 3,460,176 3,460,176 Mortgage-backed securities 758,357 758,357 897,377 897,377 Collateralized mortgage obligations 7,651 7,651 41,542 41,542 Equity securities 9,527 9,527 29,325 29,325 Mortgage loans on real estate 4,838,373 4,701,641 4,402,214 4,384,442 Short-term securities 1,496,911 1,496,911 737,039 737,039 Derivatives 631,315 631,315 379,855 379,855 Loans to affiliates 723,802 725,464 725,826 731,283 Policy loans 174,599 174,599 169,058 169,058 Cash 73,073 73,073 92,177 92,177 Separate account assets 11,791,728 11,791,728 20,541,717 20,541,717 Financial liabilities: Investment contracts $ 56,171,396 $ 44,717,497 $ 43,751,194 $ 35,154,322 Derivative liability 535,481 535,481 229,351 229,351 Mortgage notes payable 129,075 114,143 134,123 141,958 Separate account liabilities 11,791,728 11,791,728 20,541,717 11,791,728
51 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The fair value of mortgage loans on real estate has been calculated using discounted cash flows using market interest rates as of year-end representative of those that a market participant would use. Credit risk was considered in this valuation implicitly within the discount rate used. The fair value of loans to affiliates is calculated by management using the market price of a financial instrument with similar characteristics. Investment contracts include certain reserves related to deferred annuity products. These reserves are included in the future policy benefit reserves and the policy and contract claims balances on the Consolidated Balance Sheets. Fair values of investment contracts, which include deferred annuities and other annuities without significant mortality risk, are determined by testing amounts payable on demand against discounted cash flows using market interest rates commensurate with the risks involved, including consideration of the Company's own credit standing and a risk margin for non-capital market inputs. Fair value of mortgage notes payable is the present value of future payment amounts, calculated using market interest rates as of year- end representative of those a market participant would use. Fair values of separate account liabilities are equal to the fair value of the separate account assets that support them. Changes in market conditions subsequent to year-end may cause fair values calculated subsequent to year-end to differ from the amounts presented herein. (7) GOODWILL Goodwill at December 31, 2008, 2007, and 2006, and the changes in the balance for the years then ended are as follows:
2008 2007 2006 ------------------- ------------------- ------------------- Balance, beginning of year $ 502,640 $ 495,243 $ 428,323 Increased ownership in partially owned field marketing organizations - 6,181 66,920 Purchase of assets 1,879 - - Acquisition of TFAC - 1,216 - Release of tax reserve of ALAC (41) - - Impairment of goodwill on ALAC (1,175) - - ------------------- ------------------- ------------------- Balance, end of year $ 503,303 $ 502,640 $ 495,243 =================== =================== ===================
The increase in goodwill for 2008 is the result of an asset purchase including intangible assets of a field marketing organization of $2,000. The purchase price was allocated as follows: tangible assets received $30; intangible asset for non-compete agreement $140; deferred tax liability ($49); and goodwill $1,879. Increase in goodwill in 2007 and 2006 is the result of the exercise of put options by minority-owned field marketing organizations requiring the Company to purchase part or all of the stock or member interests of the organizations. In addition, part of the 2007 increase in goodwill was related to the acquisition of TFAC. See notes 4 and 19 for further information. The release of the tax reserve of ALAC was the result of state tax statutes expiring. At the time of acquisition, the seller had recorded a tax contingency reserve. SFAS 109 dictates that releases of tax contingency reserves that are on the books at time of acquisition be credited against goodwill as they reverse. 52 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The value of goodwill for ALAC was based on estimated future profits from issuing new insurance products. An impairment evaluation of goodwill was based on the Company's evaluation of a change in likelihood of issuing new insurance products. Since acquisition, ALAC has not issued any products and has no immediate plan to do so in the near future. As a result, the Company determined that goodwill has no value and it was impaired to reflect this decision. The impairment is included in general and administrative expenses on the 2008 Consolidated Statement of Operations. There were no goodwill impairments in 2007 or 2006. (8) VALUE OF BUSINESS ACQUIRED AND OTHER INTANGIBLE ASSETS VOBA at December 31, 2008, 2007, and 2006, and the changes in the balance for the years then ended are as follows:
2008 2007 2006 ------------------ ------------------ ------------------- Balance, beginning of year $ 28,312 $ 53,844 $ 66,373 Interest 1,169 1,137 1,313 Amortization (2,379) (12,350) (9,338) Change in shadow VOBA 2,093 (14,319) (4,504) ------------------ ------------------ ------------------- Balance, end of year $ 29,195 $ 28,312 $ 53,844 ================== ================== ===================
The net amortization of the VOBA in each of the next five years is expected to be: 2009 $ 6397 2010 5459 2011 4382 2012 4096 2013 3563 Intangible assets at December 31, 2008, 2007, and 2006 and the changes in the balance for the years then ended are as follows:
2008 2007 2006 ------------------- ------------------- ------------------ Balance, beginning of year $ 10,302 $ 10,489 $ 39,519 Addition 140 2,482 5,390 Amortization (2,615) (2,669) (4,770) Impairment - - (29,650) ------------------- ------------------- ------------------ Balance, end of year $ 7,827 $ 10,302 $ 10,489 =================== =================== ==================
53 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Amortization of intangible assets in each of the next five years is expected to be: 2009 $ 2352 2010 1587 2011 630 2012 43 2013 0 During 2006, an impairment of the contractual right intangible asset totaling $29,650 was recorded associated with the anticipated sale of a subsidiary that served as the administrator of the Company's variable annuity business. The impairment was determined based on the offers received from potential buyers for the subsidiary, although the subsidiary was never sold. The impairment is included in general and administrative expenses on the 2006 Consolidated Statement of Operations. During 2008 and 2007, there were no other events or changes in circumstances, other than as described above, that warranted recoverability testing for intangible assets. Accumulated amortization of VOBA and other intangible assets was $215,115 and $210,121 as of December 31, 2008, and 2007, respectively. (9) DEFERRED ACQUISITION COSTS DAC at December 31, 2008, 2007, and 2006 and the changes in the balance for the years then ended are as follows:
2008 2007 2006 ------------------- ------------------- ------------------- Balance, beginning of year $ 5,575,492 $ 5,265,226 $ 4,326,771 Capitalization 865,521 919,445 1,166,321 Interest 186,410 177,153 161,169 Amortization 1,732,133 (445,863) (277,844) Change in shadow DAC (106,054) (340,469) (111,191) ------------------- ------------------- ------------------- Balance, end of year $ 8,253,502 $ 5,575,492 $ 5,265,226 =================== =================== ===================
The negative DAC amortization in 2008 is due primarily to a significant increase in other-than-temporary impairments, an increase in variable annuity guarantee reserves, and losses on investment portfolios classified as trading. These significant losses caused estimated gross profits to increase, which caused amortization to be negative. The Company reviews its best estimate assumptions each year and records "unlocking" as appropriate. During 2008, the Company completed a comprehensive study of assumptions underlying estimated gross profits, resulting in an "unlocking". This study was based on recent changes in the organization and businesses of the Company and actual and expected performance of in-force policies. The study included all assumptions, including mortality, lapses, expenses, and separate account returns. The revised best estimate assumptions were applied to the current in-force policies to project future gross profits. 54 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The pre-tax impact on the Company's assets and liabilities as a result of the unlocking during 2008 and 2007 was as follows:
2008 2007 ------------------- ------------------- Assets: DAC $ (117,331)$ (185,748) DSI 3,368 (20,290) ------------------- ------------------- Total asset decrease (113,963) (206,038) ------------------- ------------------- Liabilities: Policy and contract account balances (166,800) (478,733) Future policy benefit reserves (18,886) (7,810) ------------------- ------------------- Total liabilities decrease (185,686) (486,543) ------------------- ------------------- Net increase 71,723 280,505 Deferred income tax expense 25,103 98,177 ------------------- ------------------- Net increase $ 46,620 $ 182,328 =================== ===================
The 2006 unlocking was immaterial to the Consolidated Financial Statements. (10) DEFERRED SALES INDUCEMENTS DSI at December 31, 2008, 2007, and 2006 and the changes in the balance for years then ended are as follows:
2008 2007 2006 ------------------ ------------------ ------------------ Balance, beginning of year $ 767,916 $ 721,322 $ 590,537 Capitalization 128,056 118,863 152,416 Amortization 169,359 (64,013) (36,343) Interest 30,081 28,320 23,067 Change in shadow DSI 2,394 (36,576) (8,355) ------------------ ------------------ ------------------ Balance, end of year $ 1,097,806 $ 767,916 $ 721,322 ================== ================== ==================
The negative DSI amortization in 2008 is due primarily to a significant increase in other-than-temporary impairments, an increase in variable annuity guarantee reserves, and losses on investment portfolios classified as trading. These significant losses caused estimated gross profits to increase, which caused amortization to be negative. 55 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (11)SEPARATE ACCOUNTS AND ANNUITY PRODUCT GUARANTEES Guaranteed minimums for the respective years ended December 31 are summarized as follows (note that the amounts listed are not mutually exclusive, as many products contain multiple guarantees):
December 31, 2008 December 31, 2007 ----------------------------------- ------------------------------------ Account Net amount Weighted Account Net amount Weighted value at risk age (years) value at risk age (years) ----------- ----------- --------- ----------- ----------- ---------- Guaranteed Minimum Death Benefits (GMDB): ----------------------------------- Return of premium $ 9,775,969 $ 1,301,530 62.7 $ 10,990,304 $ 9,710 62.0 Ratchet and return of premium 3,231,730 689,316 64.4 3,384,951 45,106 63.6 Ratchet and rollup 4,624,497 2,087,297 66.1 7,654,982 239,775 65.3 Ratchet and earnings protection rider 4,872 4,702 73.8 7,594 3,709 70.9 Reset 117,766 25,980 72.4 - - n/a Earnings protection rider 291,895 69,780 62.7 473,903 37,050 61.8 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total $ 18,046,729 $ 4,178,605 $ 22,511,734 $ 335,350 =========== =========== =========== =========== Guaranteed Minimum Income Benefits (GMIB): ----------------------------------- Return of premium $ 188,077 $ 14,806 62.7 $ 3,473,115 $ 215 62.6 Ratchet and return of premium 5,704,906 468,852 64.1 143,597 1,402 63.2 Ratchet and rollup 5,596,569 2,334,522 64.0 10,901,098 18,625 64.7 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total $ 11,489,552 $ 2,818,180 $ 14,517,810 $ 20,242 =========== =========== =========== =========== Guaranteed Minimum Accumulation Benefits (GMAB): ----------------------------------- Five years $ 7,603,356 $ 803,248 63.3 $ 8,930,675 $ 73,131 n/a Ten years 5,831 533 71.5 9,030 1 n/a ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total $ 7,609,187 $ 803,781 $ 8,939,705 $ 73,132 =========== =========== =========== =========== Guaranteed Minimum Withdrawal Benefits (GMWB): ----------------------------------- No living benefit $ 292,313 $ 27,854 60.1 $ 32,212 $ - n/a Life benefit with optional reset 737,999 349,615 67.3 545,563 - n/a Life benefit with automatic reset 660,914 203,764 60.1 66,839 - n/a Life benefit with 8% rollup 6,396 2,004 65.6 - - n/a Life benefit with 10% rollup 183,973 2,787 60.4 - - n/a ----------- ----------- ----------- ----------- ----------- ----------- Total $ 1,881,595 $ 586,024 $ 644,614 $ - =========== =========== =========== ===========
The net amount at risk has increased in 2008 due to the current economic environment. Account values have dropped due to the underperformance of the markets, which causes the guarantee reserves to significantly increase. 56 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) At December 31, 2008 and 2007, variable annuity account balances were invested in separate account funds with the following investment objectives. Balances are presented at fair value:
Investment type 2008 2007 -------------------------------------------- ------------------ ------------------ Mutual funds: Bond $ 1,638,747 $ 1,828,328 Domestic equity 3,950,854 8,408,134 International equity 1,688,463 3,694,314 Specialty 3,361,889 5,797,564 ------------------ ------------------ Total mutual funds 10,639,953 19,728,340 Money market funds 1,050,780 627,393 Other 100,995 185,984 ------------------ ------------------ Total $ 11,791,728 $ 20,541,717 ================== ==================
The following table summarizes the liabilities for variable contract guarantees that are reflected in the general account and shown in future policy benefit reserves on the Consolidated Balance Sheets:
GMDB GMIB GMAB GMWB Totals ------------- ------------- ------------- ------------- ------------ Balance as of December 31, 2006 $ 35,306 $ 28,280 $ 9,315 $ - $ 72,901 Incurred guaranteed benefits 7,481 12,893 (3,522) - 16,852 Paid guaranteed benefits (4,802) - - - (4,802) ------------- ------------- ------------- ------------- ------------ Balance as of December 31, 2007 37,985 41,173 5,793 - 84,951 Incurred guaranteed benefits 107,231 216,386 491,482 312,590 1,127,689 Paid guaranteed benefits (20,414) - (10) - (20,424) ------------- ------------- ------------- ------------- ------------ Balance as of December 31, 2008 $ 124,802 $ 257,559 $ 497,265 $ 312,590 $ 1,192,216 ============= ============= ============= ============= ============
(12)MORTGAGE NOTES PAYABLE In April 2005, the Company entered into a loan agreement with Wells Fargo National Bank (Wells Fargo), not to exceed $95,000, as short-term financing for the construction of an addition to the Company's headquarters. In June 2006, the loan was paid in full. In July 2004, the Company obtained an $80,000 mortgage loan from Northwestern Mutual Life Insurance Company (Northwestern) for the Company's headquarters. In 2005, the Company agreed to enter into a separate loan agreement with Northwestern in conjunction with the construction of an addition to the Company's headquarters of $65,000. This loan was funded in June 2006 and combined with the existing mortgage. As of December 31, 2008 and 2007, the combined loan had a balance of $129,075 and $134,123, respectively. This 20-year, fully amortizing loan has an interest rate of 5.52%, with a maturity date of August 1, 2024. The level principal and interest payments are made monthly. The loan allows for prepayment; however, it is accompanied by a make-whole provision. The proceeds of 57 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) this mortgage were used to pay off a floating rate construction loan from Wells Fargo that the Company used to finance the acquisition of property for, and construction of, the Company's headquarters. The Company had long-term debt in the form of a mortgage on an investment in real estate. This loan was paid in full in August 2007. Interest expense for all loans was $7,258, $7,942, and $5,352 in 2008, 2007, and 2006, respectively, and is presented in general and administrative expenses on the Consolidated Statements of Operations. The future principal payments required under the Northwestern loan are as follows: 2009 $ 5334 2010 5636 2011 5955 2012 6292 2013 and beyond 105858 Total $ 129075 (13)ACCIDENT AND HEALTH CLAIM RESERVES Accident and health claim reserves are based on estimates that 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, 2008 are appropriate, 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 the Company's future reported earnings. 58 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Activity in the accident and health claim reserves is summarized as follows:
2008 2007 2006 ------------------ ----------------- ----------------- Balance at January 1, net of reinsurance recoverables of $234,740, $329,398, and $215,327, respectively $ 63,413 $ 60,189 $ 155,552 Adjustment primarily related to commutation and assumption reinsurance on blocks of business (2,710) (98) (18,564) Incurred related to: Current year 13,763 10,998 80,336 Prior years 2,179 3,925 (3,962) ------------------ ----------------- ----------------- Total incurred 15,942 14,923 76,374 ------------------ ----------------- ----------------- Paid related to: Current year 1,748 1,690 33,308 Prior years 16,039 9,911 119,865 ------------------ ----------------- ----------------- Total paid 17,787 11,601 153,173 ------------------ ----------------- ----------------- ------------------ ----------------- ----------------- Balance at December 31, net of reinsurance recoverables of $221,620, $234,740, and $329,398, respectively $ 58,858 $ 63,413 $ 60,189 ================== ================= =================
Prior year incurreds for 2008 reflect unanticipated claim development with the LTC business partially offset by commutation activity on the reinsurance assumed business. Prior year incurreds for 2007 reflect unanticipated claim development with reinsurance assumed and LTC business. Prior year incurreds in 2006 reflect the commutation activity on the reinsurance assumed business and the release of the health claim handling reserve. The significant decrease in total incurred and total paid claims from 2006 to 2007 is a result of the exiting of the Health Products business on October 1, 2006 as discussed in note 14. (14)REINSURANCE The Company primarily enters into reinsurance agreements to manage risk resulting from its life and accident and health businesses, as well as businesses the Company has chosen to exit. 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 yearly renewal term (YRT) coverage and first dollar quota share coinsurance and YRT contracts. The Company retains a maximum of $10,000 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. A contingent liability exists to the extent that the Company's reinsurers are unable to meet their contractual obligations under reinsurance contracts. Management is of the opinion that no liability will accrue to the Company with respect to this contingency. Included in reinsurance recoverables at December 31, 2008 are $1,580,404, $955,742, $429,912, $357,988, and $280,702 of claim-related recoverables from five insurers who, as of December 31, 2008, were rated A- or higher by A.M. Best's Insurance Reports. The Company attempts to mitigate risk by arranging trust accounts or letters of credit 59 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) with certain insurers. Insurers with ratings lower than A-, and without a trust account or letter of credit account for less than 5% of the total reinsurance recoverable as of December 31, 2008. The Company has reinsurance recoverables and receivables with affiliates. Total affiliated reinsurance recoverables and receivables were $640 and $765 as of December 31, 2008, and 2007, respectively, and are included in reinsurance recoverables and receivables on the Consolidated Balance Sheets. Of the amounts ceded to others, the Company ceded accident and health premiums earned to the Company's ultimate parent, Allianz SE, of $0, $37, and $387 in 2008, 2007, and 2006, respectively. Effective June 30, 2006, the Company recaptured certain health business previously ceded to R.W. Morey. Related to this transaction, the Company paid a ceding commission of $14,800 for the recapture of $37,873 in reserves. During 2006, the Company made the decision to exit the health products business. On October 1, 2006, the Company entered into a 100% quota share agreement with an unrelated insurance company, Houston Casualty Company (HCC), to reinsure the health block of business. Related to this transaction, the Company received a ceding commission of $140,000 for the recapture of $151,507 in reserves. In addition, the Company recorded a deferred gain of $136,803, which is being amortized into operations through 2009. The Company amortized $7,593, $84,039, and $44,857 for 2008, 2007, and 2006, respectively, which are included in other (loss) revenue on the Consolidated Statements of Operations. The remaining deferred gain was $313 and $7,906 as of December 31, 2008 and 2007, respectively. Offsetting the deferred gain, total incremental expenses of $24,859 were incurred in 2006 including $14,898 for commutation of certain reinsurance agreements in contemplation of the agreement with HCC, $7,565 for employee-related termination benefits, and $2,396 for write-off of capitalized software costs. The commutation of reinsurance agreements expense is included in benefit recoveries and the other incremental expenses are included in general and administrative expenses on the Consolidated Statements of Operations. As of December 31, 2008, all of these incremental costs were paid. Throughout 2008, 2007, and 2006, the Company entered into reinsurance arrangements with unrelated insurance companies to reinsure additional accident and health business, as well as group life and accident and health business that the Company decided to exit. In connection with these agreements, the Company had ceded premiums of $5,701, $71,549, and $75,981 in 2008, 2007, and 2006, respectively, and received expense allowances of $1,006, $3,505, and $3,539 in 2008, 2007, and 2006, respectively. Prior to 2000, the Company entered into various 100% coinsurance agreements with unrelated insurance companies to coinsure certain blocks of life and annuity business. Deferred gain on reinsurance resulting from these transactions is being amortized over the projected earnings patterns of the related reinsured policies. During 2008, 2007, and 2006, $9,876, $11,652, and $12,659, respectively, were amortized and included in other (loss) revenue on the Consolidated Statements of Operations. Deferred gain on reinsurance remaining as of December 31, 2008 and 2007 was $44,150 and $54,026, respectively, and was included in other liabilities on the Consolidated Balance Sheets. During 1999, the Company acquired all of the outstanding stock of LifeUSA Holding, Inc. (LifeUSA). As a result of the merger, the Company became party to reinsurance agreements entered into to limit exposure to loss and preserve surplus in a high-growth environment. Reinsurance recoverables of $2,354,444 and $2,346,440 were recorded as of December 31, 2008 and 2007, respectively, in connection with these agreements. During 2003, the Company exited the traditional life reinsurance business via a 100% coinsurance agreement with an unrelated insurance company, Reinsurance Group of America, Inc. (RGA). In 2004, the majority of the in-force business that was coinsured with RGA was novated. At December 31, 2008 and 2007, the remaining deferred gain 60 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) after the novation was $5,466 and $6,841, respectively, and was included in other liabilities on the Consolidated Balance Sheets. Deferred gain amortization was $1,375, $1,689, and $1,890 during 2008, 2007, and 2006, respectively, and was included in other (loss) revenue on the Consolidated Statements of Operations. (15)INCOME TAXES (a) Income Tax (Benefit) Expense Total income tax (benefit) expense for the years ended December 31 is as follows:
2008 2007 2006 --------------- -------------- -------------- Income tax (benefit) expense attributable to operations: Current tax expense $ 47,043 $ 64,245 $ 80,922 Deferred tax (benefit) expense (654,033) (60,259) 27,879 --------------- -------------- -------------- Total income tax (benefit) expense attributable to net (loss) income (606,990) 3,986 108,801 Income tax effect on equity: Income tax (benefit) expense allocated to stockholder's equity: Attributable to unrealized (losses) and gains on investments (4,153) 111,800 213 Attributable to unrealized (losses) and gains on post-retirement obligation (686) (564) 1,304 Attributable to unrealized (losses) gains and on foreign exchange (4,265) 3,512 68 --------------- -------------- -------------- --------------- -------------- -------------- Total income tax effect on equity $ (616,094)$ 118,734 $ 110,386 =============== ============== ==============
(b) COMPONENTS OF INCOME TAX (BENEFIT) EXPENSE Income tax (benefit) expense computed at the statutory rate of 35% varies from income tax (benefit) expense reported on the Consolidated Statements of Operations for the respective years ended December 31 as follows:
2008 2007 2006 ------------ ------------ ------------ Income tax (benefit) expense computed at the statutory rate $ (595,485)$ 20,779 $ 126,494 Dividends-received deductions and tax-exempt interest (29,999) (18,259) (19,798) Accrual (release) of tax contingency reserve 1,048 (2,361) 4,400 Foreign tax, net (1,414) 688 389 Corporate owned life insurance 17,965 (2,450) (6,123) Other 895 5,589 3,439 ------------ ------------ ------------ Income tax (benefit) expense as reported $ (606,990)$ 3,986 $ 108,801 ============ ============ ============
61 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (c) COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES ON THE CONSOLIDATED BALANCE SHEETS Tax effects of temporary differences giving rise to the significant components of the net deferred tax asset (liability), which is included in other assets and liabilities, respectively, on the Consolidated Balance Sheets, at December 31 are as follows:
2008 2007 ------------------- ------------------- Deferred tax assets: Policy reserves $ 2,033,475 $ 1,710,145 Coinsurance deferred income 20,187 28,424 Expense accruals 73,551 84,972 Other-than-temporarily impaired assets 1,574,293 466,525 Investment income 90,727 - Provision for post-retirement benefits 10,164 2,442 Other 509 154 ------------------- ------------------- Total deferred tax assets 3,802,906 2,292,662 ------------------- ------------------- Deferred tax liabilities: Deferred acquisition costs (2,712,318) (1,778,976) Investment income - (103,761) Depreciation/amortization (16,354) (24,276) Value of business acquired (10,218) (9,924) Deferred intercompany gain (7,858) (7,858) Net unrealized gain on investments and foreign exchange (433,688) (404,312) Other (527) (4,599) ------------------- ------------------- Total deferred tax liabilities (3,180,963) (2,333,706) ------------------- ------------------- ------------------- ------------------- Net deferred tax asset (liability) $ 621,943 $ (41,044) =================== ===================
Although realization is not assured, the Company believes it is not necessary to establish a valuation allowance for ordinary deferred tax assets, as it is more likely than not the deferred tax assets will be realized principally through future reversals of existing ordinary taxable temporary differences and future ordinary taxable income. For deferred tax assets that are capital in nature, considering all objective evidence and the available tax planning strategy, it is more likely than not the deferred tax assets that are capital in nature will be realized and no valuation allowance is required. The amount of the ordinary and capital deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future reversals of existing taxable temporary differences and future ordinary and capital taxable income are reduced. Income taxes (received) paid by the Company were $(125,812), $143,000, and $83,896 in 2008, 2007, and 2006, respectively. At December 31, 2008 and 2007, respectively, the Company had a tax payable (receivable) from AZOA of $70,639 and $(103,550), reported in other assets on the Consolidated Balance Sheets. At December 31, 2008 and 2007, the Company had a tax (receivable) payable separate from the agreement with AZOA in the amount of $(2,568) and $236, respectively. These amounts are for foreign taxes and taxes on a majority owned subsidiary. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002. The IRS has surveyed 2003 through 2005 and has 62 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) informed the Company that they do not intend to do any further review of those years. During 2008, the IRS reviewed the credit taken for the Telephone Excise Tax on AZOA and Subsidiaries' 2006 consolidated return. The IRS had no issues while on site and informed the Company that final closure on the issue should be forthcoming during the first quarter of 2009. At this time, the Company is not aware of any adjustments that may be proposed by the IRS. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $21,578 increase in the liability for unrecognized tax benefits, which was accounted for as an increased current tax liability and an increased deferred tax asset as of January 1, 2007. It is reasonably expected that the amount of unrecognized tax benefits will increase in 2009 by approximately the same amount as it did in year 2008. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2008 2007 ----------------- ----------------- Balance at January 1 $ 22,961 $ 21,578 Additions based on tax positions related to the current year 5,198 1,383 ----------------- ----------------- Balance at December 31 $ 28,159 $ 22,961 ================= =================
Included in the balance at December 31, 2008 are $28,159 of tax positions for which the deductibility is more likely than not; however, there is uncertainty with respect to the timing of the deduction. Because of the impact of deferred tax accounting, other than interest and penalty, the disallowance would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in federal income tax expense. During the years ended December 31, 2008, 2007, and 2006, the Company recognized expense (benefits) of $1,037, $(2,361), and $4,400, respectively, in interest and penalties. The Company had $3,076 and $2,039, for the payment of interest and penalties accrued at December 31, 2008 and 2007, respectively. (16)RELATED-PARTY TRANSACTIONS (a) LOANS TO AFFILIATES The Company held related-party invested assets of $723,802 and $725,826 at December 31, 2008 and 2007, respectively, representing 1.4% and 1.5% of total invested assets and 23.6% and 18.7% of capital for the respective years. The Company does not foresee a credit risk with these investments given the financial strength of Allianz SE, which currently has an A.M. Best rating of A+ and a Standard & Poor's rating of AA. In December 2003, the Company entered into an agreement to lend Allianz SE $350,000. On November 30, 2004, the Company transferred, in the form of a dividend, a portion of the loan to AZOA with a carrying value of $90,000. On December 27, 2006, the Company transferred, in the form of a dividend, an additional portion of the loan to AZOA with a carrying amount of $130,000. The remaining loan balance was $130,000 at December 31, 2008 and 2007, and will be repaid, plus interest over ten years; semi-annual interest payments for the first five years and amortized semi-annual payments of principal and accrued interest over the last five years. The interest rate is 5.18%. Interest of $6,734, $6,734, and $13,056 was earned during 2008, 2007, and 63 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) 2006, respectively, and is included in interest and similar income, net on the Consolidated Statements of Operations. The loan was collateralized by a *100,000 Buoni Poliennali Del Tes Government Bond with a fair value of $145,460 at December 31, 2008. Effective January 26, 2001, the Company entered into an agreement to lend AZOA $100,000. The remaining loan balance was $63,089 and $76,270 as of December 31, 2008 and 2007, respectively. The loan plus interest will be repaid over twelve years, semi-annual interest payments for the first five years, and level semi-annual payments of principal and accrued interest over the last seven years. Repayment of this loan started in 2006 with year-to-date principal payments received through December 31, 2008 and 2007, in the amount of $13,181 and $12,283, respectively. The interest rate is a fixed rate of 7.18%. AZOA pledged as collateral a security interest in shares of the common stock outstanding of Allianz Global Risks US Insurance Company (AGR), which had a statutory book value as of the date of the loan equal to 125% of the loan. Interest of $5,238, $6,137, and $6,974 was earned during 2008, 2007, and 2006, respectively, and is included in interest and similar income, net on the Consolidated Statements of Operations. In January 2007, the Company, in an effort to optimize investment returns, entered into an agreement with Dresdner Kleinwort Pfandbriefe Investments (DKPII), a wholly owned subsidiary of Allianz SE, to manage a portfolio of German Pfandbriefe (PFs) or other European covered bonds with a credit rating of at least "AA" by S&P or Moody's. AZL PF Investments, Inc. (AZLPF), a wholly owned subsidiary of the Company, entered into a $500,000 prepaid forward agreement to purchase common stock of DKPII in five years from a wholly owned subsidiary of Dresdner Bank, Dresdner Bank Luxembourg. The effect of the agreement is a Reference Portfolio whereby DKPII designates a portfolio of assets in accordance with pre-established investment guidelines. The value of this forward agreement was $540,244 and $519,510 at December 31, 2008 and 2007, respectively, and is included in loans to affiliates on the Consolidated Balance Sheets. The interest earned in 2008 and 2007 was $20,734 and $19,510, respectively, and is included in interest and similar income, net on the Consolidated Statements of Operations. There is an embedded credit derivative in this agreement relating to the PFs' values with a balance of $(9,531) and $46 at December, 31, 2008 and 2007, respectively, and is reported in loans to affiliates. (Loss) income on the embedded credit derivative in 2008 and 2007 was $(9,577) and $46, respectively, and is included in derivative (loss) income on the Consolidated Statements of Operations. AZLPF is contractually protected from counterparty exposure to Dresdner Bank. Dresdner Bank pledges high-quality fixed income securities as collateral, based on 101% of the current market value of the AZLPF position in the investment. Refer to note 22 for discussion of the subsequent sale of Dresdner Bank and its subsidiaries. (b) LOAN TO AFFILIATE - STOCKHOLDER'S EQUITY In December 2002, the Company entered into an agreement to lend AZOA $250,000. The loan plus interest will be repaid over ten years, semi-annual interest payments for the first five years and level semi-annual payments of principal and accrued interest over the last five years. The interest rate is a fixed rate of 6%. The loan is not collateralized. Repayment of this loan started in 2008 with year-to- date principal payments received through December 31, 2008 in the amount of $44,269. The fair value of the loan was $210,300 and $256,950 at December 31, 2008 and 2007, respectively. The outstanding loan balance is included as a component of stockholder's equity on the Consolidated Balance Sheets. Interest of $14,332, $15,000, and $15,000 was earned during 2008, 2007, and 2006 and is included in interest and similar income, net on the Consolidated Statements of Operations. 64 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) (c) SECURITIES LENDING Beginning in 2005, the Company began participating in securities lending arrangements whereby specific securities are loaned to other institutions for short periods of time. The agent for the Company is an affiliate, Dresdner Klienwort Wasserstein. The Company had $0 and $177 in fair value of loaned securities outstanding as of December 31, 2008 and 2007, respectively. The fair value of collateral accepted that can be sold or repledged amounted to $0 and $199, of which none was sold or repledged as of December 31, 2008 or 2007, respectively. The Company earned fee revenue of $5,552, $5,190, and $4,451 for the years ended December 31, 2008, 2007, and 2006, respectively, in connection with these arrangements, which is reported in interest and similar income, net on the Consolidated Statements of Operations. (d) OPTIONS The Company purchases and writes option contracts with Dresdner Bank as part of a derivative hedging strategy (see further discussion in note 5). At December 31, 2008 and 2007, options purchased were $0 and $1,772, respectively. (e) REAL ESTATE The Company has real estate investment properties leased to affiliates. The Company reported $1,073, $4,064, and $3,993 in 2008, 2007, and 2006, respectively, for rental income which is included in interest and similar income, net on the Consolidated Statements of Operations. The Company has an agreement to sublease office space to a related party, Fireman's Fund Insurance Company (FFIC), a sister company wholly owned by the same parent company, AZOA. The Company received rental income of $811, $86, and $24 in 2008, 2007, and 2006, respectively. In addition, the Company leases office space from FFIC pursuant to a sublease agreement. In connection with this subleasing arrangement, the Company has incurred rent expense of $190, $157, and $150 in 2008, 2007, and 2006, respectively, which is included in general and administrative expenses on the Consolidated Statements of Operations. (f) SERVICE FEES The Company incurred fees for services provided by affiliated companies. The Company incurred fees of $39,980, $50,929, and $19,779 in 2008, 2007, and 2006, respectively. The Company's liability for these expenses was $1,576 and $11,906 at December 31, 2008 and 2007, respectively, and is included in other liabilities on the Consolidated Balance Sheets. On a quarterly basis, the Company pays the amount due through cash settlement. The Company provides various services to affiliated companies. The Company earned $7,157, $5,330, and $1,779 in 2008, 2007, and 2006, respectively, for related administrative expenses incurred. The receivable for these expenses was $18 and $1,261 for 2008 and 2007, respectively. On a quarterly basis, the Company receives payment through cash settlement. The Company has agreements with its affiliates Pacific Investment Management Company (PIMCO), Oppenheimer Capital LLC (OpCap), Allianz Global Distributors LLC (AGID), and Nicholas Applegate Capital, and with certain other related parties whereby (1) specific investment options managed by PIMCO and OpCap are made available through the Company's separate accounts to holders of the Company's variable annuity products, (2) the Company receives compensation for providing administrative and recordkeeping services relating to the investment options managed by PIMCO and OpCap, and (3) the Company compensates AGID for providing services in connection with the distribution of variable products that offer investment 65 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) options managed by PIMCO. Income recognized by the Company from these affiliates for distribution and in-force related costs as a result of providing investment options to the policyholders was $1,499, $3,874, and $2,699 during 2008, 2007, and 2006, respectively, which is included in other (loss) revenue on the Consolidated Statements of Operations. At December 31, 2008 and 2007, $(147) and $669, respectively, were included for these fees in receivables on the Consolidated Balance Sheets. Expenses incurred to these affiliates for management of sub-advised investment options were $3,027, $4,097, and $3,347 during 2008, 2007, and 2006, respectively, which are included in general and administrative expenses on the Consolidated Statements of Operations. The related payable to these affiliates was $108 and $315 at December 31, 2008 and 2007, respectively, which is included in other liabilities on the Consolidated Balance Sheets. (g) FINANCIAL GUARANTEE On October 6, 2008, Allianz SE invested $2,500,000 in The Hartford Financial Services Group, Inc. (Hartford) using funds from their subsidiaries. The Company had a $130,000 invested portion of the transaction. In connection with the Company's investment, Allianz SE has issued a financial guarantee of the notional amount in 10% fixed- to-floating rate junior subordinated notes of Hartford. The Company records the guarantee as the difference between par value and the market value of the bond. If at any time during the fixed rate period of the notes (ending October 15, 2018), the rating attributed by any one of S&P or Moody's falls below investment grade, or Hartford is subject to an event of default with its obligations under the notes, the Company has the right to sell the notes to Allianz SE. The consideration to be delivered by Allianz SE will be equal to the notional amount of the notes. At the option of Allianz SE, such consideration will be paid either in cash or senior notes of Allianz SE or one of its financial subsidiaries. See note 22 for more details. (h) CAPITAL CONTRIBUTIONS The Company received capital contributions in 2008 and 2007 from AZOA of $280,000 and $150,000, respectively. (i) MEMBERSHIP INTEREST TRANSFER Allianz Individual Insurance Group, LLC (AZIIG), a wholly owned subsidiary of the Company, sold its 50% membership interest in Life Sales on February 1, 2006 for $23,587. AZIIG transferred its interest in Life Sales to FFIC. As a result of this sale, the Company recognized a gain on the sale net of tax of $14,593. (17)EMPLOYEE BENEFIT PLANS The Company participates in the Allianz Asset Accumulation Plan (AAAP), a defined contribution plan sponsored by AZOA. Eligible employees are immediately enrolled in the AAAP upon their first day of employment. The AAAP will accept participants' pre-tax or after-tax contributions up to 80% of the participants' eligible compensation, although contributions remain subject to annual limitations set by the Employee Retirement Income Security Act (ERISA). Under the eligible employees' provisions, the Company will match 100% of contributions up to a maximum of 6%. Participants are 100% vested in the Company's matching contribution after three years of service. The Company may decide to declare a profit-sharing contribution under the AAAP based on the discretion of Company management. Although the Company has recorded an accrual, management has not yet determined if there will be a profit-sharing contribution under the AAAP for the plan year ended December 31, 2008. The Company declared a profit-sharing contribution of 1.5% of employees' salaries for the plan years ended December 31, 2007 and 2006, reported in general and administrative expenses on the accompanying Consolidated Statements of 66 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Operations and funded in 2008 and 2007, respectively. Employees are not required to participate in the AAAP to be eligible for the profit-sharing contribution. The expenses of administration of the AAAP and the trust fund, including all fees of the trustee, investment manager, and auditors, are payable from the trust fund but may, at the Company's discretion, be paid by the Company. Any counsel fees are not paid from the trust fund, but are instead paid by the Company. It is the Company's policy to fund the AAAP costs as incurred. The Company has expensed $8,271, $9,960, and $12,679 in 2008, 2007, and 2006, respectively, toward the AAAP matching contributions and administration expenses. A defined group of highly compensated employees are eligible to participate in the AZOA Deferred Compensation Plan adopted January 1, 2008, which replaced the Allianz Life Deferred Compensation Plan. The purpose of the plan is to provide tax planning opportunities, as well as supplemental funds upon retirement. The plan is unfunded, meaning no assets of the Company have been segregated or defined to represent the liability for accrued assets under the plan. Employees are 100% vested upon enrollment in the plan for funds they have deferred. Employees' funds are invested on a pay period basis and are immediately invested. Participants and the Company share the administrative fee. The accrued liability of $8,405 and $14,776 as of December 31, 2008 and 2007, respectively, is recorded in other liabilities on the Consolidated Balance Sheets. The Company sponsors a nonqualified deferred compensation plan for a defined group of agents. The Company may decide to make discretionary contributions to the plan in the form and manner the Company determines. Discretionary contributions are currently determined based on production. The accrued liability of $6,733 and $11,067 as of December 31, 2008 and 2007, respectively, is recorded in other liabilities on the Consolidated Balance Sheets. The Company participates in a stock-based compensation plan sponsored by Allianz SE, which awards certain employees Stock Appreciation Rights (SARs) and Restricted Stock Units (RSUs) that are tied to Allianz SE stock. Allianz SE determines the number of SARs and RSUs granted to each participant. The Company records expense equal to the change in fair value of the units during the reporting period. A change in value of $(2,324), $4,326, and $10,980 was recorded in 2008, 2007, and 2006, respectively, and is included in general and administrative expenses on the Consolidated Statements of Operations. The related liability of $2,360 and $6,192 as of December 31, 2008 and 2007, respectively, is recorded in other liabilities on the Consolidated Balance Sheets. The Company is participating in an Employee Stock Purchase Plan sponsored by AZOA that is designed to provide eligible employees with an opportunity to purchase American Depository Shares of Allianz SE at a discounted price. An aggregate amount of 250,000 American Depository Shares are reserved for this plan. Allianz SE determines the purchase price of the share based on the closing price of an Ordinary Share of Allianz SE on the Frankfurt stock exchange on the date of each purchase. Employees are given the opportunity to purchase these shares quarterly on predetermined dates set by Allianz SE. Employees are not allowed to sell or transfer the shares for a one-year period following the purchase date. The difference between the market price and the discount price, or the discount, is paid by the Company and amounted to $215, $457, and $281 in 2008, 2007, and 2006, respectively. In 2005, the Company started an Employee Severance Pay Plan for the benefit of eligible employees. The plan may provide severance benefits on account of an employee's termination of employment from the Company. To become a participant in the plan, an employee must be involuntarily terminated. In addition, the Company must determine that it wishes to provide the employee with a severance payment and must issue a written Severance Pay Award. The plan is unfunded, meaning no assets of the Company have been segregated or defined to represent the liability for payments under the plan. Effective June 1, 2008, the Company adopted the AZOA Severance Allowance Plan, which replaced the Employee Severance Pay Plan. Under the AZOA Severance Allowance Plan, all employees who are 67 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) involuntarily terminated due to job elimination or reduction in force are eligible to receive benefits. The Company expensed $8,247, $5,712, and $5,135 in 2008, 2007, and 2006, respectively, toward severance payments. The Company offers certain benefits to eligible employees, including a comprehensive medical, dental, and vision plan and a flexible spending plan. Associated with these plans, the Company provides certain post-retirement 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. Employees of the Company hired or rehired after December 31, 1988 or who became employees of the Company as a result of a merger or acquisition after January 1, 1989 are not eligible for retiree medical or life insurance coverage. The Company's plan obligation at December 31, 2008 and 2007 was $7,905 and $6,978, respectively. This liability is included in other liabilities on the Consolidated Balance Sheets. The Company began pre-funding its post-retirement liability in 2005 and plans to continue pre-funding in the future. The Company's plan assets at December 31, 2008 and 2007 were $16,720 and $14,503, respectively. In 2006, the Company adopted SFAS 158 and the amounts recognized in accumulated other comprehensive income, net of tax consist of:
2008 2007 2006 ------------------ ------------------ ------------------ Net actuarial gain (loss) $ 521 $ 78 $ (2,763) Prior service (cost) credit (1,794) (1,190) 5,185 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total $ (1,273) $ (1,112) $ 2,422 ================== ================== ==================
Over the next fiscal year, the estimated actuarial loss and estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost are $306 and $(898), respectively. No plan assets are expected to be returned to the Company during the next 12-month period. (18)STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS Statutory accounting practices prescribed or permitted by the Company's state of domicile are directed toward insurer solvency and protection of policyholders. Accordingly, certain items recorded in financial statements prepared under GAAP are excluded or vary in calculation in determining statutory policyholders' surplus and gain from operations. Currently, these items include, among others, DAC, furniture and fixtures, deferred taxes, and accident and health premiums receivable which are more than 90 days past due, reinsurance, certain investments, and undeclared dividends to policyholders. Additionally, future policy benefit reserves and policy and contract account balances calculated for statutory reporting do not include provisions for withdrawals. The statutory capital and surplus of the Company reported in the statutory annual statement filed with the State of Minnesota as of December 31, 2008 and 2007 was $2,009,309 and $2,441,338, respectively. Refer to note 22 for discussion of a capital contribution received from AZOA subsequent to December 31, 2008. The Company is required to meet minimum statutory capital and surplus requirements. The Company's statutory capital and surplus as of December 31, 2008 and 2007 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. In accordance with Minnesota Statutes, the Company may declare and 68 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) pay from its surplus cash dividends of not more than the greater of 10% of its beginning-of-the-year statutory surplus, or the net gain from operations of the insurer, not including realized gains, for the 12-month period ending the 31st day of the next preceding year. Ordinary dividends of $244,134 can be paid in 2008 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 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. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. This ratio for the Company was 411% and 555% as of December 31, 2008 and 2007, respectively. Regulatory action against a company may begin when this ratio falls below 200%. (19)COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are involved in various pending or threatened legal proceedings, including putative and certified class action proceedings, arising from the conduct of their business. The Company also owns a registered retail broker-dealer that is subject to a putative class action proceeding and individual arbitration proceedings. For each of the above mentioned lawsuits, the company cannot predict the potential outcome at this state of the proceedings. In November 2007, the Company settled one of the pending class action lawsuits. Individuals claims agreed to under the settlement are still being processed, so uncertainty remains on the Company's ultimate obligation. The Company recognizes legal costs for defending itself as incurred. 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. The financial services industry, including mutual fund, variable and fixed annuity, life insurance, and distribution companies, has been the subject of increasing scrutiny by regulators, legislators, and the media over the past few years. Federal and state regulators are investigating various selling practices in the annuity industry, including suitability reviews, product exchanges, and sales to seniors. In certain instances, these investigations have led to regulatory enforcement proceedings. Included in these proceedings are several lawsuits brought by the Minnesota Attorney General's Office against insurance companies that offer annuities. One of these lawsuits was filed against the Company in January 2007 alleging unsuitable sales of fixed annuities to seniors. That lawsuit was settled in October 2007. While the Company expressly denied the allegations, the Company agreed to adopt certain modifications to the Company's suitability review process and to offer a review process to Minnesota seniors who had purchased deferred fixed annuities since 2001. The Company is also subject to ongoing market conduct examinations and investigations by several state insurance regulators. In some instances, these examinations may lead to enforcement proceedings, which could result in modifications to the Company's business processes, remediation, and/or penalties. In February 2008, the Company agreed to a settlement with the California Department of Insurance arising out of a market conduct examination report and related enforcement proceeding issued in 2006. While denying the Department's allegations, the Company agreed to adopt additional modifications to the Company's suitability review process, to certain enhancements to the Company's existing processes and to payment of certain 69 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) penalties, contributions, and costs. The impact of these settlements was not material to the Consolidated Financial Statements. In December 2008, the SEC adopted a rule having the effect of categorizing most fixed-indexed annuity products as securities. This rule, when effective, will subject issuers of fixed-indexed annuity products to SEC jurisdiction for purposes of registration and disclosure, advertising and marketing, suitability, and requirements as to the distribution of products through registered broker-dealers. The rule will also have the effect of subjecting distribution and advertising of fixed-indexed annuity products to the jurisdiction of the Financial Industry Regulatory Authority. The rule, which was published in the Federal Register on January 8, 2009, is expected to be effective in January of 2011. Several insurance companies issuing fixed-indexed annuity products have filed a lawsuit challenging the validity of the rule. As a result, there is not complete certainty as to whether, when, or in what form the rule will finally become effective. It can be expected that annuity sales practices will be an ongoing source of litigation and rulemaking. Similarly, private litigation regarding sales practices is ongoing against a number of insurance companies. This could result in legal precedents and new industry-wide legislation, rules, and regulations that could significantly affect the financial services industry, including life insurance and annuity companies. It is unclear at this time whether any such litigation or regulatory actions will have a material adverse effect on the Company in the future. The Company has acquired minority equity interests in certain field marketing organizations. Certain provisions within stockholders' agreements, member agreements, and first refusal and put agreements require the Company to purchase part or all of the stock or member interests in the entities to which these agreements pertain, if and when principals of the field marketing organizations choose to exercise certain available options. The exercise period for the various put options ranges from one to eight years, the latest of which expires in 2016. If all put options were exercised, requiring the Company to purchase all of the stock or member interests in the entities, the total purchase price that would be paid by the Company based on current calculations would be $24,755. The Company has limited partnership investments that do not require a commitment of capital. The Company had capital commitments of $0 and $68,818, of which $0 and $53,394 has been funded, at December 31, 2008 and 2007, respectively. The Company has private placement investments that do not require a commitment of capital. The Company had capital commitments of $0 and $33,000 at December 31, 2008 and 2007, respectively. 70 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The Company has commercial mortgage loan investments that require commitments of capital within the next year. The Company had capital commitments of $118,900 and $182,360 at December 31, 2008 and 2007, respectively. These commercial mortgage loan commitments were funded in January and February 2009. The Company leases office space and certain furniture and equipment pursuant to operating leases. Expense for all operating leases was $4,980, $5,454, and $9,739 in 2008, 2007, and 2006, respectively. A partial buyout of an operating lease during 2006 and the subsequent refinancing as a capital lease reduced future minimum lease payments required under these leases. The future minimum lease payments required under operating leases are as follows: 2009 $ 3,649 2010 2,425 2011 1,605 2012 1,222 2013 and beyond 2,298 ------------------- Total $ 11,199 =================== During 2006, the Company entered into capital leases to finance furniture and equipment for the addition to the Company's headquarters. Expense for all capital leases was $2,717, $3,120, and $64 in 2008, 2007, and 2006, respectively. The future minimum lease payments and present value of the net minimum lease payments are as follows: 2009 $ 2,731 2010 886 2011 886 2012 886 2013 and beyond 831 ------------ Total minimum lease payments 6,220 Less executory costs (estimated) 390 ------------ Net minimum lease payments 5,830 Less imputed interest 339 ------------ ------------ Present value of net minimum lease payments $ 5,491 ============ 71 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) The Company owns numerous commercial and real estate investment properties leased to various tenants. The typical lease period is five to ten years, with some leases containing renewal options. Under net leases, in addition to their base rent, the tenants are directly responsible for the payment of property taxes, insurance, and maintenance costs relating to the leased property. Under gross leases, the tenants pay a rent amount grossed up to include the cost of taxes, insurance, and maintenance. Future minimum lease receipts under noncancelable leasing arrangements as of December 31, 2008 are as follows: 2009 $ 19,792 2010 15,658 2011 14,629 2012 13,027 2013 and beyond 23,201 ------------------- Total $ 86,307 =================== (20)CAPITAL STRUCTURE The Company is authorized to issue three types of capital stock, as outlined in the table below:
Authorized, Voluntary or issued, and Par value, involuntary outstanding per share Redemption rights liquidation rights ---------------- --------------- -------------------------- -------------------------- Common stock 40,000,000 $ 1.00 None None 20,000,001 20,000,001 Preferred stock: Class A 200,000,000 $ 1.00 Designated by Board Designated by Board 18,903,484 for each series issued for each series issued 18,903,484 Class A, Series A 8,909,195 $ 1.00 $35.02 per share plus $35.02 per share plus 8,909,195 an amount to yield a an amount to yield a 8,909,195 compounded annual compounded annual return of 6%, after return of 6%, after actual dividends paid actual dividends paid Class A, Series B 10,000,000 $ 1.00 $35.02 per share plus $35.02 per share plus 9,994,289 an amount to yield a an amount to yield a 9,994,289 compounded annual compounded annual return of 6%, after return of 6%, after actual dividends paid actual dividends paid Class B 400,000,000 $ 1.00 Designated by Board Designated by Board - for each series issued for each series issued -
72 (Continued) ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2008, 2007, and 2006 (In thousands, except share data and security holdings quantities) Holders of Class A preferred stock and of common stock are entitled to one vote per share with respect to all matters presented to or subject to the vote of shareholders. Holders of Class B preferred stock have no voting rights. All issued and outstanding shares are owned by AZOA. See note 1 for further discussion. Each share of Class A preferred stock is convertible into one share of the Company's common stock. The Company may redeem any or all of the Class A preferred stock at any time. Dividends will be paid to each class of stock only when declared by the Board of Directors. In the event a dividend is declared, dividends must be paid to holders of Class A preferred stock, Class B preferred stock, and common stock, each in that order. As discussed in notes 2 and 16 to these Consolidated Financial Statements, the Company carried out various capital transactions with related parties during 2008, 2007, and 2006. (21)FOREIGN CURRENCY TRANSLATION An analysis of foreign currency translation, net of tax, (as described in note 2) for the respective years ended December 31 follows:
2008 2007 2006 ------------------ ------------------ ------------------ Beginning amount of cumulative translation adjustments $ 14,409 $ 7,889 $ 7,759 Aggregate adjustment for the period resulting from translation adjustments (12,187) 10,032 198 Amount of income tax benefit (expense) for the period related to aggregate adjustment 4,265 (3,512) (68) ------------------ ------------------ ------------------ Net aggregate translation included in equity (7,922) 6,520 130 ------------------ ------------------ ------------------ Ending amount of cumulative translation adjustments $ 6,487 $ 14,409 $ 7,889 ================== ================== ================== Canadian foreign exchange rate at end of year 0.81004 1.01322 0.85933
(22)SUBSEQUENT EVENTS On January 12, 2009, Allianz SE closed the sale of 100% of the outstanding stock of Dresdner Bank, including its subsidiaries discussed in note 16, to Commerzbank AG. The effect of the sale is that Dresdner bank is no longer an affiliate of the Company. The sale did not have an impact on the Company's Consolidated Financial Statements and is not expected to have an impact in the future. The Hartford Notes referenced in note 16 were downgraded by Standard & Poor's on March 3, 2009 from BBB- to BB+, which is below investment grade. This gives the Company the right to sell the bonds to Allianz SE at par value. The Company has chosen not to exercise the right at this time. The Company received a capital contribution on February 25, 2009 from AZOA for $300,000. On a Statutory basis, the Company was granted approval from the Minnesota Department of Commerce to record this as a receivable and capital contribution as of December 31, 2008. See note 18 for information about the Company's statutory capital and surplus. On March 23, 2009, the Company announced suspension of sales of the living benefit riders on its primary variable annuity product family, effective March 31, 2009. 73
Schedule I ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Summary of Investments - Other Than Investments in Related Parties December 31, 2008 Amount at which shown in the Consolidated Type of investment Cost (1) Fair value Balance Sheet ------------------------------------------------------------- ------------------- ------------------- ------------------- Fixed-maturity securities: Available-for-sale fixed-maturity securities: U.S. government $ 697,066 $ 886,106 $ 886,106 Agencies not backed by the full faith and credit of the U.S. government 119,797 131,540 131,540 States and political subdivisions 301,441 309,776 309,776 Foreign government 203,776 226,130 226,130 Public utilities 1,727,221 1,783,120 1,783,120 Corporate securities 20,220,773 20,646,663 20,646,663 Mortgage-backed securities 12,210,356 12,697,016 12,697,016 Collateralized mortgage obligations 40,792 45,717 45,717 ------------------- ------------------- ------------------- Total available-for-sale fixed-maturity securities 35,521,222 36,726,068 36,726,068 ------------------- ------------------- ------------------- Trading fixed-maturity securities: U.S. government 579,993 723,276 723,276 Agencies not backed by the full faith and credit of the U.S. government 20,602 23,944 23,944 States and political subdivisions 59,963 57,974 57,974 Foreign government 45,516 47,671 47,671 Public utilities 319,609 305,806 305,806 Corporate securities 3,653,831 3,237,355 3,237,355 Mortgage-backed securities 945,816 758,357 758,357 Collateralized mortgage obligations 10,130 7,651 7,651 ------------------- ------------------- ------------------- Total trading fixed-maturity securities 5,635,460 5,162,034 5,162,034 ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- Total fixed-maturity securities 41,156,682 41,888,102 41,888,102 ------------------- ------------------- ------------------- Equity securities: Available-for-sale equity securities: Common stocks: Industrial and miscellaneous 84 75 75 Trading equity securities: Common stocks: Industrial and miscellaneous 13,360 9,527 9,527 ------------------- ------------------- ------------------- Total equity securities 13,444 $ 9,602 9,602 ------------------- =================== ------------------- Other investments: Mortgage loans on real estate 4,838,373 4,838,373 Short-term securities 1,496,911 1,496,911 Derivatives 631,315 631,315 Real estate 322,418 322,418 Loans to affiliates 723,802 723,802 Policy loans 174,599 174,599 Partnerships 2,437 2,437 Investment in equity method investees 1,025 1,025 ------------------- ------------------- Total other investments 8,190,880 8,190,880 ------------------- ------------------- ------------------- ------------------- Total investments $ 49,361,006 $ 50,088,584 =================== =================== (1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual discounts. See accompanying report of independent registered public accounting firm.
74
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Supplementary Insurance Information Schedule II December 31, Year ended December 31, --------------------------------------------------------------- ------------------------------------------------------------------ Future benefit reserves Net premium and policy Policy revenue Interest Net change Net change Deferred Deferred and contract and and other and in deferred in policy Other Acquisition sales account Unearned contract contract similar Net sales acquisition operating costs inducements balances premiums claims considerations income,net benefits inducements* costs** expenses ------------------------------------------------------------------------------------------------------------------------------------ 2008 Life $ 238,049 $ (636) $ 2,133,880 $ 5,670 $ 19,593 $ 86,037 $ 45,538 $ 53,206 $ 108 $(52,701)$ 113,165 ------------------------------------------------------------------------------------------------------------------------------------ Annuities 7,912,800 1,098,442 57,349,485 197,912 150 916,525 2,837,141 2,471,795 (327,604) (2,731,925) 1,312,587 ------------------------------------------------------------------------------------------------------------------------------------ Accident and health 102,653 - 1,256,315 68,174 280,478 124,075 25,593 87,022 - 562 38,909 ------------------------------------------------------------------------------------------------------------------------------------ $8,253,502 $1,097,806 $60,739,680 $271,756 $300,221 $1,126,637 $2,908,272 $2,612,023 $(327,496) $(2,784,064)$1,464,661 -------------===========-=========--===========--========-==========-==========-==================================================-- ------------------------------------------------------------------------------------------------------------------------------------ 2007 Life $ 188,301 $ (264) $ 2,055,549 $ 186 $ 19,952 $ 70,955 $ 43,857 $ 61,244 $ 8,046 $ (23,490)$ 83,638 ------------------------------------------------------------------------------------------------------------------------------------ Annuities 5,283,977 768,180 50,737,462 149,998 - 679,317 2,503,764 1,658,779 (91,216) (609,862) 1,532,096 ------------------------------------------------------------------------------------------------------------------------------------ Accident and health 103,214 - 1,061,074 67,223 298,153 128,585 19,866 82,937 - (17,383) 70,702 ------------------------------------------------------------------------------------------------------------------------------------ $5,575,492 $ 767,916 $53,854,085 $217,407 $318,105 $ 878,857 $2,567,487 $1,802,960 $ (83,170) $(650,735) $1,686,436 -------------===========-=========--===========--========-==========-==========-==================================================-- ------------------------------------------------------------------------------------------------------------------------------------ 2006 Life $ 170,869 $ 8,393 $ 1,934,148 $ 190 $ 15,215 $ 61,008 $ 38,414 $ 46,474 $ (5,930) $(24,179) $ 72,942 ------------------------------------------------------------------------------------------------------------------------------------ Annuities 5,008,526 712,929 45,909,869 201,549 - 504,556 2,087,182 2,224,837 (133,209) (998,281) 1,467,394 ------------------------------------------------------------------------------------------------------------------------------------ Accident and health 85,831 - 879,263 60,765 389,587 293,674 17,247 246,033 - (27,186) 120,617 ------------------------------------------------------------------------------------------------------------------------------------ $5,265,226 $ 721,322 $48,723,280 $262,504 $404,802 $ 859,238 $2,142,843 $2,517,344 $ (139,139) $(1,049,646) $1,660,953 -------------===========-=========--===========--========-==========-==========-==================================================--
* See note 10 for aggregate gross amortization of deferred sales inducements. **See note 9 for aggregate gross amortization of deferred acquisition costs. See accompanying report of independent registered public accounting firm 75 ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Reinsurance
Schedule III ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA AND SUBSIDIARIES Reinsurance Percentage Ceded Assumed of amount Direct to other from other Net assumed Years ended amount companies companies amount to net --------------------------------- ------------------ --------------- ------------------- ------------ ---------------- December 31, 2008: Life insurance in force $ 23,565,296 $ 23,343,902 $ 8,722,528 $ 8,943,922 97.5% ------------------ --------------- ------------------- ------------ ---------------- Premiums: Life $ 128,994 $ 66,024 $ 22,941 $ 85,911 26.7% Annuities 919,284 2,004 (754) 916,526 (0.1) Accident and health 227,905 122,005 18,300 124,200 14.7 ------------------ --------------- ------------------- ------------ ---------------- Total premiums $ 1,276,183 $ 190,033 $ 40,487 $ 1,126,637 3.6% ================== =============== =================== ============ ================ December 31, 2007: Life insurance in force $ 21,558,390 $ 21,380,158 $ 9,487,390 $ 9,665,622 98.2% ------------------ --------------- ------------------- ------------ ---------------- Premiums: Life $ 121,600 $ 75,160 $ 24,515 $ 70,955 34.6% Annuities 677,832 (2,258) (774) 679,316 (0.1) Accident and health 259,045 182,914 52,455 128,586 40.8 ------------------ --------------- ------------------- ------------ ---------------- Total premiums $ 1,058,477 $ 255,816 $ 76,196 $ 878,857 8.7% ================== =============== =================== ============ ================ December 31, 2006: Life insurance in force $ 19,670,790 $ 21,512,211 $ 10,097,563 $ 8,256,142 122.3% ------------------ --------------- ------------------- ------------ ---------------- Premiums: Life $ 110,030 $ 71,272 $ 22,250 $ 61,008 36.5% Annuities 504,051 (1,663) (1,158) 504,556 (0.2) Accident and health 404,556 251,341 140,459 293,674 47.8 ------------------ --------------- ------------------- ------------ ---------------- Total premiums $ 1,018,637 $ 320,950 $ 161,551 $ 859,238 18.8% ================== =============== =================== ============ ================ See accompanying report of independent registered public accounting firm.
76 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. Report of Independent Registered Public Accounting Firm. 2. Consolidated Balance Sheets as of December 31, 2008 and 2007. 3. Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006. 4. Consolidated Statements of Comprehensive Income for the years ended December 31, 2008, 2007 and 2006. 5. Consolidated Statements of Stockholder's Equity for the years ended December 31, 2008, 2007 and 2006. 6. Consolidated Statements of Cash Flows for the years ended December 31,2008, 2007 and 2006. 7. Notes to Consolidated Financial Statements - December 31, 2008, 2007 and 2006. 8. Supplemental Schedules: - Schedule I - Summary of Investments - Other Than Investments in Related Parties. - Schedule III - Supplemental Insurance Information. - Schedule IV - Reinsurance The following financial statements of the Variable Account are included in Part B hereof: 1. Report of Independent Registered Public Accounting Firm. 2. Statements of Assets and Liabilities as of December 31, 2008. 3. Statements of Operations for the year or period ended December 31, 2008. 4. Statements of Changes in Net Assets for the years or periods ended December 31, 2008 and 2007. 5. Notes to Financial Statements - December 31, 2008. b. Exhibits 1. Resolution of Board of Directors of the Company authorizing the establishment of the Separate Account, dated May 31, 1985(1) incorporated by reference as exhibit EX-99.B1. 2. Not Applicable 3.a. Principal Underwriter Agreement by and between North American Life and Casualty Company on behalf of NALAC Financial Plans, Inc. dated September 14, 1988.(2) incorporated by reference as exhibit EX-99.B3.a. (North American Life and Casualty Company is the predecessor to Allianz Life Insurance Company of North America. NALAC Financial Plans, Inc., is the predecessor to USAllianz Investor Services, LLC, which is the predecessor to Allianz Life Financial Services, LLC.) b. Copy of Broker-Dealer Agreement between North American Life and Casualty Company and NALAC Financial Plans, Inc. dated November 19, 1987; Amendment #1 dated April 12, 2000; Amendment #2 dated September 30, 2002; Amendment #3 dated October 1, 2003.(13) incorporated by reference as exhibit EX-99.B3.b. (North American Life and Casualty Company is the predecessor to Allianz Life Insurance Company of North America. NALAC Financial Plans, Inc, is the predecessor to USAllianz Investor Services, LLC, which is the predecessor to Allianz Life Financial Services, LLC.) c. Form of General Agency Agreement with Allianz Life Financial Services, LLC. (11) incorporated by reference as exhibit EX-99.B3.b. 4.a. Individual Variable Annuity Original Contract and Schedule Page - L30800(4) incorporated by reference as exhibit EX-99.B4.a. b. Individual Variable Annuity-May 2003 Contract - L30800(5/03)(7) incorporated by reference as exhibit EX-99.B4.b. c. Contract Schedule Page-May 2003 - S40010(5-03)(7) incorporated by reference as exhibit EX-99.B4.c. d. Contract Schedule Page-PRIME Plus - S40010(1-06)(10) incorporated by reference as exhibit EX-99.B4.d. e. Contract Schedule Addendum-add, reset-PRIME Plus - S40729-A-R(10) incorporated by reference as exhibit EX-99.B4.e. f. Contract Schedule Addendum-drop-PRIME Plus - S40729-D(10) incorporated by reference as exhibit EX-99.B4.f. g. Asset Allocation Rider-PRIME Plus - S40721-ALT(10) incorporated by reference as exhibit EX-99.B4.g. h. PRIME Plus Benefit Rider-PRIME Plus - S40722(10) incorporated by reference as exhibit EX-99.B4.h. i. Annuity Option 6 Amendment Endorsement - S40397(7) incorporated by reference as exhibit EX-99.B4.d. j. Waiver of CDSC Endorsement - S30074(3) incorporated by reference as exhibit EX-99.B4.a. k. Traditional GMDB Endorsement - S40020(4) incorporated by reference as exhibit EX-99.B4.b. l. Traditional GMDB Rider II-PRIME Plus - S40727(10) incorporated by reference as exhibit EX-99.B4.l. m. Enhanced Death Benefit Endorsement - S40052(4) incorporated by reference as exhibit EX-99.B4.c. n. Enhanced GMDB Endorsement-May 2003 Contracts - S40390(7) incorporated by reference as exhibit EX-99.B4.h. o. Enhanced GMDB Rider II-PRIME Plus - S40726(10) incorporated by reference as exhibit EX-99.B4.o. p. Traditional GMIB Endorsement - S40021(4) incorporated by reference as exhibit EX-99.B4.d. q. Enhanced GMIB Endorsement - S40094(4) incorporated by reference as exhibit EX-99.B4.e. r. Enhanced GMIB Endorsement (3% & MAV)-May 2003 Contracts - S40391(7) incorporated by reference as exhibit EX-99.B4.k. s. Charitable Remainder Trust Endorsement(3) incorporated by reference as exhibit EX-99.B4.t. t. IRA Endorsement - S40014(4) incorporated by reference as exhibit EX-99.B4.g. u. Unisex Endorsement - S20146(4) incorporated by reference as exhibit EX-99.B4.h. v. Pension Plan and Profit Sharing Plan Endorsement - S20205(4) incorporated by reference as exhibit EX-99.B4.i. w. Group Pension Plan Death Benefit Endorsement - S30072(4-99)(3) incorporated by reference as exhibit EX-99.B4.g. x. 403(b) Annuity Endorsement - S30072(4-99)(4) incorporated by reference as exhibit EX-99.B4.k. y. Earnings Protection GMDB Endorsement-Original Contracts - S20219(03-01)(7) incorporated by reference as exhibit EX-99.B4.r. z. Earnings Protection GMDB Endorsement-May 2003 Contracts - S40379(7) incorporated by reference as exhibit EX-99.B4.s. aa. Earnings Protection GMDB Rider II-PRIME Plus - S40725(10) incorporated by reference as exhibit EX-99.B4.aa. ab. Traditional GPWB Endorsement - S40392(7) incorporated by reference as exhibit EX-99.B4.t. ac. Enhanced GPWB Endorsement - S40393(7) incorporated by reference as exhibit EX-99.B4.u. ad. Inherited IRA/Roth IRA Endorsement(10) incorporated by reference as exhibit EX-99.B4.ad. 5.a. Application for Ind. Var. Annuity-Original Contracts(3) incorporated by reference as exhibit EX-99.B5. b. Application for Ind. Var. Annuity-May 2003 Contracts - F40269(05-03)(7) incorporated by reference as exhibit EX-99.B5.b. c. Application for Ind. Var. Annuity-PRIME Plus Contracts - F40269(1-06)(10) incorporated by reference as exhibit EX-99.B5.c. 6.(i)Copy of Certificate of the Amendment of Charter of the Company dated October 5, 1988 and the Declaration of Intention and Charter dated August 26, 1996(11) incorporated by reference as exhibit EX-99.B6.(i). (ii) Copy of the Restated Bylaws of the Company (as amended October 2, 1996)(11) incorporated by reference as exhibit EX-99.B6.(ii). 7. Not Applicable 8.a. 22c-2 Agreements(14)incorporated by reference as exhibit EX-99.B8.a. b. 22c-2 Agreement-BlackRock Distributors, Inc.(15)incorporated by reference as exhibit EX-99.B8.b. c. Copy of Participation Agreement between BlackRock Series Fund, Inc., BlackRock Distributors, Inc., Allianz Life Insurance Co. of North America, and Allianz Life Financial Services, LLC, dated May 1, 2008(15)incorporated by reference as exhibit EX-99.B8.c. d. Copy of Adminstrative Services Agreement between BlackRock Advisors, LLC and Allianz Life, dated May 1, 2008(15)incorporated by reference as exhibit EX-99.B8.d. e. Copy of Participation Agreement between Davis Variable Account Fund, Inc., Davis Distributors, LLC and Allianz Life Insurance Company of North America, dated 11/1/1999(4) incorporated by reference as exhibit EX-99.B8.e. f. Copy of Amendment to Participation Agreement between Davis Variable Account Fund, Inc., Davis Distributors, LLC and Allianz Life Insurance Company of North America dated 5/1/08.(15)incorporated by reference as exhibit EX-99.B8.f. g. Copy of Administrative Services Agreement between The Dreyfus Corporation and Allianz Life Insurance Company of North America, dated 5/1/2002(13) incorporated by reference as exhibit EX-99.B8.f. h. Copy of Amendments to Administrative Services Agreement between The Dreyfus Corporation and Allianz Life Insurance Company of North America, dated 8/7/02, 10/16/06(13) incorporated by reference as exhibit EX-99.B8.g. i. Copy of Disribution/12 b-1 Letter Agreement between Dreyfus Service Corporation and USAllianz Investor Services, LLC (predecessor to Allianz Life Financial Services, LLC.), dated 5/1/2002(13) incorporated by reference as exhibit EX-99.B8.h. j. Copy of Fund Participation Agreement between Allianz Life Insurance Company of North America, Dreyfus Investment Portfolios and The Dreyfus Life and Annuity Index Fund, dated 5/1/2002(6) incorporated by reference as exhibit EX-99.B8.h. k. Copy of Amendment to Fund Participation Agreement between Allianz Life Insurance Company of North America, Dreyfus Investment Portfolios and the Dreyfus Stock Index Fund, Inc., dated 5/1/2007.(14) incorporated by reference as exhibit EX-99.B8.j. l. Copy of Administrative Services Agreement between Franklin Templeton Services LLC and Allianz Life Insurance Company of North America, dated 10/1/2003(9) incorporated by reference as exhibit EX-99.B8.ac. m. Copy of Amendment to Administrative Services Agreement between Franklin Templeton Services LLC and Allianz Life Insurance Company of North America, dated 8/08/2008.(15)incorporated by reference as exhibit EX-99.B8.h. n. Copy of Participation Agreement between Franklin Templeton Variable Insurance Products Trust, Franklin/Templeton Distributors, Inc., Allianz Life Insurance Company of North America and USAllianz Investor Services, LLC (the predecessor to Allianz Life Financial Services, LLC.), and dated 10/1/2003(9) incorporated by reference as exhibit EX-99.B8.h. o. Copy of Amendment to Participation Agreement between Franklin Templeton Variable Insurance Products Trust, Franklin/Templeton Distributors, Inc., Allianz Life Insurance Company of North America and USAllianz Investor Services, LLC (the predecessor to Allianz Life Financial Services, LLC.), dated 5/1/08.(15)incorporated by reference as exhibit EX-99.B8.j. p. Copy of Participation Agreement between Premier VIT, Allianz Life Insurance Company of North America and Allianz Global Investors Distributors LLC, dated 5/1/2006(12) incorporated by reference as exhibit EX-99.B8.ai. q. Copy of Administrative Service Agreement between OpCap Advisors LLC and Allianz Life Insurance Company of North America, dated 5/1/2006(12) incorporated by reference as exhibit EX-99.B8.aj. r. Copy of Administrative Support Service Agreement between OppenheimerFunds, Inc. and Allianz Life Insurance Company of North America, dated 12/1/1999(8) incorporated by reference as exhibit EX-99.B8.u. s. Copy of Amendment to Administrative Support Service Agreement between OppenheimerFunds, Inc. and Allianz Life Insurance Company of North America, dated 2/1/00(13) incorporated by reference as exhibit EX-99.B8.r. t. Copy of Participation Agreement between Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Allianz Life Insurance Company of North America, dated 12/1/1999(4) incorporated by reference as exhibit EX-99.B8.h. u. Copy of Amendments to Participation Agreement between Oppenheimer Variable Account Funds, OppenheimerFunds, Inc. and Allianz Life Insurance Company of North America, dated 2/1/00, 5/1/02, 4/30/04, 4/29/05, 5/1/06(13) incorporated by reference as exhibit EX-99.B8.t. v. Copy of Amended and Restated Services Agreement between Pacific Investment Management Company LLC and Allianz Life Insurance Company of North America, dated 01/01/2007(13) incorporated by reference as exhibit EX-99.B8.u. w. Copy of Participation Agreement between Allianz Life Insurance Company of North America, PIMCO Variable Insurance Trust, and PIMCO Funds Distributors LLC, dated 12/1/1999(4) incorporated by reference as exhibit EX-99.B8.i. x. Copy of Amendments to Participation Agreement between Allianz Life Insurance Company of North America, PIMCO Variable Insurance Trust, and PIMCO Funds Distributors LLC, dated 4/1/00, 11/5/01, 5/1/02, 5/1/03, 4/30/04, 4/29/05(13) incorporated by reference as exhibit EX-99.B8.w. y. Copy of Distribution Services Agreement between Allianz Life Insurance Company of North America and Allianz Global Investors Distributors, LLC, dated 01/01/2007(13) incorporated by reference as exhibit EX-99.B8.x. z. Copy of Services Agreement between Prudential Investment Management Services LLC and Allianz Life Insurance Company of North America, dated 12/15/2000(8) incorporated by reference as exhibit EX-99.B8.w. aa. Copy of Amendment to Services Agreement between Prudential Investment Management Services LLC and Allianz Life Insurance Company of North America, dated 9/9/2002(13) incorporated by reference as exhibit EX-99.B8.z. ab. Copy of Fund Participation Agreement between Allianz Life Insurance Company of North America, The Prudential Series Fund, Inc., Prudential Investments Fund Management LLC, and Prudential Investment Management Services, LLC, dated 12/15/2000(5) incorporated by reference as exhibit EX-99.B8.k. ac. Copy of Service Agreement between J.&W. Seligman & Co. Incorporated and Allianz Life Insurance Company of North America, dated 12/16/1999(8) incorporated by reference as exhibit EX-99.B8.x. ad. Copy of Fund Participation Agreement between Seligman Portfolios, Inc. and Allianz Life Insurance Company of North America, dated 12/1/1999(4) incorporated by reference as exhibit EX-99.B8.j. ae. Copy of Amendments to Participation Agreement between Seligman Portfolios, Inc. and Allianz Life Insurance Company of North America, dated 2/1/00, 5/1/02, 5/1/03, 4/30/04, 5/1/06(13) incorporated by reference as exhibit EX-99.B8.ad. 9. Opinion and Consent of Counsel* 10. Consent of Independent Registered Public Accounting Firm* 11. Not Applicable 12. Not Applicable 13. Power of Attorney(15)incorporated by reference as exhibit EX-99.B13. * Filed herewith (1) Incorporated by reference from Registrant's Form N-4 (File Nos. 333-06709 and 811-05618) electronically filed on June 25, 1996. (2) Incorporated by reference from Pre-Effective Amendment No.1 to Registrant's Form N-4 (File Nos. 333-06709 and 811-05618) electronically filed on December 13, 1996. (3) Incorporated by reference from Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on July 6, 1999. (4) Incorporated by reference from Pre-Effective Amendment No.1 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on December 30, 1999. (5) Incorporated by reference from Post-Effective Amendment No. 2 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on December 15, 2000. (6) Incorporated by reference from Post-Effective Amendment No. 3 to Allianz Life's Variable Account A's Form N-6 (File Nos. 333-60206 and 811-04965) electronically filed on January 6, 2003. (7) Incorporated by reference from Post-Effective Amendment No. 8 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on April 24, 2003. (8) Incorporated by reference from Post-Effective Amendment No. 12 to Registrant's Form N-4 (File Nos. 333-95729 and 811-05618) electronically filed on April 26, 2004. (9)Incorporated by reference from Pre-Effective Amendment No.2 to Registrant's Form N-4 (File Nos. 333-120181 and 811-05618) electronically filed on March 30, 2005. (10)Incorporated by reference from Post-Effective Amendment No. 16 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on April 27, 2006. (11)Incorporated by reference from the Initial Registration Statement to Registrant's Form N-4 (file Nos. 333-134267 and 811-05618 electronically filed on May 19, 2006. (12)Incorporated by reference from Pre-Effective Amendment No.1 to Registrant's Form N-4 (File Nos. 333-134267 and 811-05618) electronically filed on September 25, 2006. (13)Incorporated by reference from Post-Effective Amendment No. 18 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on April 23, 2007. (14)Incorporated by reference from Post-Effective Amendment No. 20 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on April 24, 2008. (15)Incorporated by reference from Post-Effective Amendment No. 14 to Registrant's Form N-4 (File Nos. 333-139701 and 811-05618) electronically filed on April 3, 2009.
ITEM 25. OFFICERS AND DIRECTORS OF ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA. Unless noted otherwise, all officers and directors have the following principal business address: 5701 Golden Hills Drive Minneapolis, MN 55416-1297
The following are the Officers and Directors of the Company: -------------------------------------------------- ------------------------------------------------------ NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR -------------------------------------------------- ------------------------------------------------------ Charles M. Kavitsky Director -------------------------------------------------- ------------------------------------------------------ Giulio Terzariol Director, Vice President, Chief Financial Officer and Treasurer -------------------------------------------------- ------------------------------------------------------ Gary C. Bhojwani Director, President and Chief Executive Officer -------------------------------------------------- ------------------------------------------------------ Neil H. McKay Senior Vice President and Chief Actuary -------------------------------------------------- ------------------------------------------------------ Axel Zehren Senior Vice President, Chief Investment Officer -------------------------------------------------- ------------------------------------------------------ Thomas P. Burns Senior Vice President, Chief Distribution Officer -------------------------------------------------- ------------------------------------------------------ Maureen Phillips Senior Vice President, General Counsel and Secretary -------------------------------------------------- ------------------------------------------------------ Stewart Gregg Vice President, Chief Legal Officer of Separate Accounts and Assistant Secretary -------------------------------------------------- ------------------------------------------------------ Stephen Simon Chief Compliance Officer of Separate Accounts -------------------------------------------------- ------------------------------------------------------ Dr. Helmut Perlet Director Allianz AG (Holding) Koniginstr 28 80802 Munchen Germany -------------------------------------------------- ------------------------------------------------------ Jay Ralph Director and Chairman of the Board Allianz SE Koniginstr 28 80802 Munchen Germany -------------------------------------------------- ------------------------------------------------------ Clement Booth Director Koniginstr 28 80802 Munchen Germany -------------------------------------------------- ------------------------------------------------------ Brigitte Bovermann Director Koniginstr 28 80802 Munchen Germany -------------------------------------------------- ------------------------------------------------------ Peter Huehne Director Fireman's Fund Insurance Co. 777 San Marin Drive Novato, CA 94998 -------------------------------------------------- ------------------------------------------------------ Michael E. LaRocco Director Fireman's Fund Insurance Co. 777 San Marin Drive Novato, CA 94998 -------------------------------------------------- ------------------------------------------------------ Jill Paterson Director Fireman's Fund Insurance Co. 777 San Marin Drive Novato, CA 94998 -------------------------------------------------- ------------------------------------------------------
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT The Insurance Company organizational chart is incorporated by reference from Post-Effective Amendment No. 20 to Registrant's Form N-4 (File Nos. 333-82329 and 811-05618) electronically filed on April 24, 2008. . ITEM 27. NUMBER OF CONTRACT OWNERS As of March 31, 2009 there were 36,011 qualified Contract Owners and 20,604 non-qualified Contract Owners with Contracts in the separate account. ITEM 28. INDEMNIFICATION The Bylaws of the Insurance Company provide: ARTICLE XI. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES SECTION 1. RIGHT TO INDEMNIFICATION: (a)Subject to the conditions of this Article and any conditions or limitations imposed by applicable law, the Corporation shall indemnify any employee, director or officer of the Corporation (an "Indemnified Person") who was, is, or in the sole opinion of the Corporation, may reasonably become a party to or otherwise involved in any Proceeding by reason of the fact that such Indemnified Person is or was: (i) a director of the Corporation; or (ii) acting in the course and scope of his or her duties as an officer or employee of the Corporation; or (iii) rendering Professional Services at the request of and for the benefit of the Corporation; or (iv) serving at the request of the Corporation as an officer, director, fiduciary or member of another corporation, association, committee, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Outside Organization"). (b)Notwithstanding the foregoing, no officer, director or employee shall be indemnified pursuant to these bylaws under the following circumstances: (i) in connection with a Proceeding initiated by such person, in his or her own personal capacity, unless such initiation was authorized by the Board of Directors; (ii) if a court of competent jurisdiction finally determines that any indemnification hereunder is unlawful; (iii) for acts or omissions involving intentional misconduct or knowing and culpable violation of law; (iv) for acts or omissions that the Indemnified Person believes to be contrary to the best interests of the Corporation or its shareholders or that involve the absence of good faith on the part of the Indemnified Person; (v) for any transaction for which the Indemnified Person derived an improper personal benefit; (vi) for acts or omissions that show a reckless disregard for the Indemnified Person's duty to the Corporation or its shareholders in circumstances in which the Indemnified Person was aware or should have been aware, in the ordinary course of performing the Indemnified Person's duties, of the risk of serious injury to the Corporation or its shareholders; (vii) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the Indemnified Person's duties to the Corporation or its shareholders; (viii) in circumstances where indemnification is prohibited by applicable law; (ix) in the case of service as an officer, director, fiduciary or member of an Outside Organization, where the Indemnified Person was aware or should have been aware that the conduct in question was outside the scope of the assignment as contemplated by the Corporation. SECTION 2. SCOPE OF INDEMNIFICATION: (a)Indemnification provided pursuant to Section 1(a)(iv) shall be secondary and subordinate to indemnification or insurance provided to an Indemnified Person by an Outside Organization or other source, if any. (b)Indemnification shall apply to all reasonable expenses, liability and losses, actually incurred or suffered by an Indemnified Person in connection with a Proceeding, including without limitation, attorneys' fees and any expenses of establishing a right to indemnification or advancement under this article, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and all interest, assessments and other charges paid or payable in connection with or in respect of such expense, liability and loss. (c)Such indemnification shall continue as to any Indemnified Person who has ceased to be an employee, director or officer of the Corporation and shall inure to the benefit of his or her heirs, estate, executors and administrators. SECTION 3. DEFINITIONS: (a)"Corporation" for the purpose of Article XI shall mean Allianz Life Insurance Company of North America and all of its subsidiaries. (b)"Proceeding" shall mean any threatened, pending, or completed action, suit or proceeding whether civil, criminal, administrative, investigative or otherwise, including actions by or in the right of the Corporation to procure a judgment in its favor. (c)"Professional Services" shall mean services rendered pursuant to (i) a professional actuarial designation, (ii) a license to engage in the practice of law issued by a State Bar Institution or (iii) a Certified Public Accountant designation issued by the American Institute of Certified Public Accountants. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted for directors and officers or controlling persons of the Insurance Company pursuant to the foregoing, or otherwise, the Insurance Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Insurance Company of expenses incurred or paid by a director, officer or controlling person of the Insurance Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 29. PRINCIPAL UNDERWRITERS a. Allianz Life Financial Services, LLC (previously USAllianz Investor Services, LLC) is the principal underwriter for the Contracts. It also is the principal underwriter for: Allianz Life Variable Account A Allianz Life of NY Variable Account C b. The following are the officers (managers) and directors (Board of Governors) of Allianz Life Financial Services, LLC. All officers and directors have the following principal business address: 5701 Golden Hills Drive Minneapolis, MN 55416-1297
Name Positions and Offices with Underwriter ---------------------- ----------------------------------------------------------------------- Robert DeChellis Chief Executive Officer, President and Governor Thomas Burns Governor Angela Forsman Chief Financial Officer and Vice President Catherine Q. Farley Senior Vice President Jeffrey W. Kletti Senior Vice President Michael Brennan Chief Compliance Officer Stewart D. Gregg Vice President and Secretary Carol Dunn Assistant Secretary
c. For the period 1-1-2008 to 12-31-2008: ------------------------------------ --------------------- --------------------- --------------------- --------------------- NAME OF PRINCIPAL UNDERWRITER NET UNDERWRITING COMPENSATION ON BROKERAGE COMPENSATION DISCOUNTS AND COMMISSIONS REDEMPTION COMMISSIONS ------------------------------------ --------------------- --------------------- --------------------- --------------------- ------------------------------------ --------------------- --------------------- --------------------- --------------------- Allianz Life Financial Services, LLC $198,319,091.42 $0 $0 $0 ------------------------------------ --------------------- --------------------- --------------------- ---------------------
The $198,319,091.42 that Allianz Life Financial Services, LLC received from Allianz Life as commissions on the sale of Contracts issued under Allianz Life Variable Account B was subsequently paid entirely to the third party broker/dealers that perform the retail distribution of the Contracts and, therefore, no commission or compensation was retained by Allianz Life Financial Services, LLC. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS 5701 Golden Hills Drive, Minneapolis, Minnesota 55416 and Delaware Valley Financial Services, Allianz Service Center, 300 Berwyn Park, Berwyn, Pennsylvania 19312, maintain 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. REPRESENTATIONS Allianz Life Insurance Company of North America ("Company") hereby represents that the fees and charges deducted under the Contract, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred and the risks assumed by the Company. The Company hereby represents that it is relying upon a No Action Letter issued to the American Council of Life Insurance, dated November 28, 1988 (Commission ref. IP-6-88), and that the following provisions have been complied with: 1. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the contract; 2. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any sales literature used in connection with the offer of the contract; 3. Instruct sales representatives who solicit participants to purchase the contract specifically to bring the redemption restrictions imposed by Section 403(b)(11) to the attention of the potential participants; 4. Obtain from each plan participant who purchases a Section 403(b) annuity contract, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding of (1) the restrictions on redemption imposed by Section 403(b)(11), and (2) other investment alternatives available under the employer's Section 403(b) arrangement to which the participant may elect to transfer his contract value. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Allianz Life Insurance Company of North America on behalf of the Registrant certifies that it meets the requirements of the Securities Act Rule 485(b) for effectiveness of this Registration Statement and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized in the City of Minneapolis and State of Minnesota, on this 16th day of April, 2009. ALLIANZ LIFE VARIABLE ACCOUNT B (Registrant) By: ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA (Depositor) By: /S/ STEWART D. GREGG -------------------------------- Stewart D. Gregg Senior Securities Counsel ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA (Depositor) By: GARY C. BHOJWANI* ------------------------------ Gary C. Bhojwani President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on this 16th day of April, 2009. Signature and Title Gary C. Bhojwani* Director, President and Chief Executive Officer Gary C. Bhojwani Giulio Terzariol* Director, Vice President, Giulio Terzariol Chief Financial Officer and Treasurer Peter Huehne* Director Peter Huehne Charles Kavitsky* Director Charles Kavitsky Michael LaRocco* Director Michael LaRocco Jill Paterson* Director Jill Paterson *By Power of Attorney filed as Exhibit 13 to this Registration Statement By: /S/ STEWART D. GREGG -------------------- Stewart D. Gregg Senior Securities Counsel EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 21 TO FORM N-4 (FILE NOS. 333-82329 AND 811-05618) ALLIANZ LIFE VARIABLE ACCOUNT B ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA INDEX TO EXHIBITS
EX-99.B9 Opinion and Consent of Counsel EX-99.B10 Consent of Independent Registered Public Accounting Firm