Allianz Life Insurance Co Of North America S-1/A IPO registration (amended)

As filed with the Securities and Exchange Commission on April 28, 2014

Registration No. 333-195462

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

PRE-EFFECTIVE AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Allianz Life Insurance Company of North America

(Exact name of Registrant as specified in its charter)

Minnesota	6311	41-1366075
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

5701 Golden Hills Drive

Minneapolis, MN 55416

(800) 950-5872

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Stewart D. Gregg, Esq.

Allianz Life Insurance Company of North America

5701 Golden Hills Drive

Minneapolis, MN 55416

(763) 765-2913

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	��

Calculation of Registration Fee

Title of each class of securities to be registered	Amount to be registered pursant to this Registration Statement	Proposed maximum offering price per unit	Proposed maximum aggregate offering price including previously registered securities	Amount of aggregate registration fee, including fee paid for previously registered securities
Individual Flexible Purchase Payment Index-Linked Deferred Annuity Contract	$1,800,000,000(1)	NA(2)	$2,100,000,000(3)	$ 272,760(3)

(1) This amount is in addition to the $300,000,000 of securities previously registered on May 10, 2013 by the Registrant under the Registration Statement on Form S-1 (File No. 333-185864) initially declared effective on May 10, 2013 (the “Prior Registration Statement”). Pursuant to Rule 457(p) under the Securities Act of 1933, as amended (the “Securities Act”), all unsold securities from the Prior Registration Statement will be added to this Registration Statement and the offering of securities under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. As of April 22, 2014, there were $224,636,119.39 of unsold securities registered pursuant to the Prior Registration Statement. The registration fee paid to register these unsold shares was $ 30,640.37.

(2) The proposed maximum offering price per unit is not applicable since these securities are not issued in predetermined amounts or units.

(3) The Registrant previously paid a registration fee in the amount of $40,920.00 with respect to the securities registered pursuant to the Prior Registration Statement. Securities registered pursuant to the Prior Registration Statement that are unsold as of the effective date of this Registration Statement will be included in this Registration Statement pursuant to Rule 457(p) as of the effective date. The previously paid fee will continue to be applied to such unsold shares, which the Registrant may continue to offer and sell. A filing fee of $231,840 was paid with the Registrant’s initial Registration Statement on Form S-1 (File No. 333-195462), filed on April 24, 2014 in connection with the new amount registered.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

This Registration Statement is filed solely to add new shares. Pursuant to Rule 429, the prospectus filed herewith is combined with the prospectus from the Prior Registration Statement (File No. 333-185864).

PART I—PROSPECTUS

ALLIANZ INDEX ADVANTAGE^SMVARIABLE ANNUITY CONTRACT

Issued by Allianz Life^® Variable Account B and Allianz Life Insurance Company of North America (Allianz Life^®, we, us, our)

Prospectus Dated: May 1, 2014

This prospectus describes an individual flexible purchase payment variable and index-linked deferred annuity contract (Contract). The Contract offers both variable investment allocation options (Variable Options) and index-linked investment allocation options (Index Options). (The Variable Options and the Index Options together are referred to as Allocation Options.) You can allocate your money (Purchase Payments) to any or all of the Variable Options or Index Options. The Contract also offers various standard annuity features, including multiple fixed annuitization options (Annuity Options), a free withdrawal privilege, and a guaranteed death benefit (Traditional Death Benefit). The Contract has a six-year withdrawal charge period.

If you allocate Purchase Payments to the Variable Options, the value of your investment (Variable Account Value) increases and decreases based on your selected Variable Options’ performance.The Variable Options do not provide any protection against loss of principal. You can lose money you allocate to the Variable Options.These are the Variable Options we currently offer:

AZL^® MVP Growth Index Strategy Fund AZL^® MVP Balanced Index Strategy Fund AZL^® Money Market Fund

If you allocate Purchase Payments to the Index Options, you receive annual returns (Credits) based on the performance of one or more securities indices (Index or Indices). Unlike the Variable Options, the Index Options do not involve an indirect investment by you in any underlying fund. Instead, the Credits are an obligation of Allianz Life, and are subject to the claims paying ability of Allianz Life. These Credits are calculated by us based on annual changes in the Index’s value.

If you allocate Purchase Payments to an Index Option, you must select a Credit calculation method (Crediting Method). We currently offer two Crediting Methods. Both Crediting Methods provide a combination of a level of protection against negative Index performance, and also a limitation on participation in positive Index performance. These are the Indices and Crediting Methods we currently offer:

S&P 500® Index	available with	Index Protection Strategy and Index Performance Strategy
Russell 2000® Index and Nasdaq-100® Index	available with	Index Performance Strategy

TheIndex Protection Strategy provides a Declared Protection Strategy Credit if the change in Index value from one year to the next is greater than or equal to zero. If the change in value is negative you do not receive a Credit, but you also do not receive a negative Credit. Withdrawals from the Index Protection Strategy Index Option before the Index Anniversary do not receive a Credit. An Index Anniversary is a twelve-month anniversary of the Index start date (Index Effective Date). We can change the amount of the Declared Protection Strategy Credit at the beginning of each year. TheIndex Performance Strategy provides a different form of Credit calculation. You receive a positive Performance Credit based on positive Index Return (annual changes in Index value) subject to an upper limit called the Cap. If the Index Return is negative, you may receive a negative Performance Credit if the loss is greater than a specified percentage called the Buffer.A negative Performance Credit means that you can lose money.We can change the Caps at the beginning of each year, but we establish the Buffers at the beginning of the first year and we cannot change them. The Caps and Buffers can be different for different Indices.You can lose money that you allocate to the Index Performance Strategy as a result of Index fluctuations. The Index Performance Strategy includes a risk of potential loss of principal for negative performance in excess of the Buffer and the loss could be substantial. If money is withdrawn or removed from an Index Performance Strategy Index Option before the Index Anniversary, you could lose principal even if the Index Return is positive on the date of withdrawal due to the application of the Daily Adjustment.

The values allocated to an Index Option may fluctuate between Index Anniversaries based on the Alternate Minimum Value and/or Daily Adjustment. The Alternate Minimum Value is the guaranteed minimum on each Index Option Value if you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit. The Daily Adjustment reflects the change in each Index Performance Strategy Index Option Value due to Index performance; it approximates the Index Option Value on the next anniversary, as adjusted for gains subject to the Cap and losses in excess of the Buffer.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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All guarantees under the Contract are the obligations of Allianz Life and are subject to the claims paying ability of Allianz Life.

The Contract involves certain risks, as described in section 1, Risk Factors on page 18 of this prospectus.

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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 give you different information.

Allianz Life Variable Account B is the Separate Account that holds the assets allocated to the Variable Options. 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, or on the EDGAR database on the SEC’s website (www.sec.gov). 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 on Form N-4 and is available without charge by contacting us at the telephone number or address listed at the back of this prospectus. The SAI’s table of contents appears after the Privacy and Security Statement in this prospectus. The prospectus, SAI and other Contract information are also available on the EDGAR database.

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 and index-linked annuity contracts are complex insurance and investment vehicles. Before you invest, be sure to ask your Financial Professional about the Contract’s features, benefits, risks, and fees, and whether the Contract is appropriate for you based upon your financial situation and objectives.

TABLE OF CONTENTS

Glossary	6
Summary	13
Who Should Consider Purchasing the Contract?	13
What Are the Contract’s Charges?	14
What Are the Contract’s Benefits?	15
How Can I Allocate My Purchase Payments?	19
What Are the Different Values Within the Contract?	20
How Do We Apply Credits to the Index Options?	21
How Do the Caps and Buffers Affect My Contract’s Potential Growth?	21
Can My Contract Lose Value Because of Negative Changes in an Index’s Value?	21
Can I Transfer Index Option Value Between the Allocation Options?	21
How Can I Take Money Out of My Contract?	22
What Are My Annuity Options?	23
Does the Contract Provide a Death Benefit?	23
What If I Need Customer Service?	23
Fee Tables	24
Owner Transaction Expenses	24
Owner Periodic Expenses	24
Annual Operating Expenses of the Variable Options	25
Examples	26
Condensed Financial Information	26

1.     Risk Factors	27
Liquidity Risk	27
Risk of Investing in Securities	27
Risk of Negative Returns	27
Calculation of Credits	28
Substitution of an Index	28
Changes to Caps, Declared Protection Strategy Credit, and Notice of Buffers	29
Variable Option Risk	30
Our Financial Strength and Claims-Paying Ability	30
Regulatory Protections	31
2.     The Variable Annuity Contract	32
State Specific Contract Restrictions	33
When The Contract Ends	34
3.     Ownership, Annuitants, Determining Life, Beneficiaries, and Payees	34
Owner	34
Joint Owner	34
Annuitant	34
Determining Life (Lives)	36
Beneficiary	36
Payee	37
Assignments, Changes of Ownership and Other Transfers of Contract Rights	37

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4.      Purchasing the Contract	38
Purchase Requirements	38
Applications Sent Electronically	40
Allocation of Purchase Payments and Transfers  Between the Allocation Options	40
Automatic Investment Plan (AIP)	42
Free Look/Right-to-Examine Period	43
5.      Variable Options	45
Substitution of Variable Options and Limitation on Further Investments	46
Transfers Between Variable Options	46
Electronic Transfer and Allocation Instructions	47
Excessive Trading and Market Timing	47
Financial Adviser Fees	49
Voting Privileges	49
6.      Valuing Your Contract	50
Accumulation Units	50
Computing Variable Account Value	50
7.      Index Options	51
Determining the Index Protection Strategy Index Option Value	52
Determining the Index Performance Strategy Index Option Values	53
The Alternate Minimum Value	58
Optional Rebalancing Program	59
8.      Expenses	60
Product Fee	60
Contract Maintenance Charge	61
Withdrawal Charge	61
Transfer Fee	63
Premium Tax	63
Income Tax	63
Variable Option Expenses	63
9.      Access to Your Money	64
Free Withdrawal Privilege	65
Systematic Withdrawal Program	65
Minimum Distribution Program and Required Minimum Distribution (RMD) Payments	65
Waiver of Withdrawal Charge Benefit	65
Suspension of Payments or Transfers	66
10.    The Annuity Phase	66
Calculating Your Annuity Payments	66
Annuity Payment Options	66
When Annuity Payments Begin	67

11.    Death Benefit	68
Death of the Owner and/or Annuitant	69
Death Benefit Payment Options During the Accumulation Phase	69

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12.    Taxes	70
Qualified and Non-Qualified Contracts	70
Taxation of Annuity Contracts	70
Tax-Free Section 1035 Exchanges	71
13.    Other Information	71
The Registered Separate Account	71
Our General Account	72
Our Unregistered Separate Account	72
Distribution	72
Additional Credits for Certain Groups	75
Administration/Allianz Service Center	76
Legal Proceedings	76
Status Pursuant to Securities Exchange Act of 1934	76
14.    Information on Allianz Life	77
Directors, Executive Officers and Corporate Governance	77
Executive Compensation	85
Security Ownership of Certain Beneficial Owners and  Management	105
Transactions with Related Persons, Promoters and  Certain Control Persons	105
Risks Associated with the Financial Services Industry	105

15.    Selected Financial Data	119
Management’s Discussion and Analysis of Financial Condition and Results of Operations (For the 12 month period ending December 31, 2013)	119
16.    Financial Statements	151
17.    Privacy and Security Statement	152
18.    Table of Contents of the Statement of Additional Information (SAI)	154
Appendix A – Available Indices	155
Standard & Poor’s 500® Index	155
Russell 2000® Index	156
Nasdaq-100® Index	156
Appendix B – Daily Adjustment	157
Appendix C – Financial Statements	159
For Service or More Information	244
Our Service Center	244

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GLOSSARY

This prospectus is written in plain English. However, there are some technical words or terms that are capitalized and are used as defined terms throughout the prospectus. For your convenience, we included this glossary to define these terms.

Accumulated Alternate Interest – the sum of alternate interest earned for the entire time you own your Contract. The alternate interest for each Index Year is equal to the Alternate Minimum Base multiplied by the alternate interest rate. The alternate interest rate is stated in your Contract and does not change for the entire time you own your Contract. We use the Accumulated Alternate Interest to calculate the Alternate Minimum Value.

Accumulation Phase – the initial phase of your Contract before you apply your Contract Value to Annuity Payments. The Accumulation Phase begins on the Issue Date.

Allocation Options – the Variable Options and Index Options available to you under the Contract.

Alternate Minimum Base – the Index Option Value at the beginning of an Index Year multiplied by the AMB Factor. We use the Alternate Minimum Base to determine the amount of interest earned on the Alternate Minimum Value.

Alternate Minimum Value – the guaranteed minimum Index Option Value we provide for each Crediting Method if you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit.

AMB Factor – the percentage of the Index Option Base that determines the Alternate Minimum Base on the Index Effective Date and each Index Anniversary. The AMB Factor is stated in your Contract and does not change for the entire time you own your Contract. We use the AMB Factor to calculate the Alternate Minimum Value.

AMV Factor – the percentage of the Index Option Base that determines the Alternate Minimum Value on the Index Effective Date and each Index Anniversary. The AMV Factor is stated in your Contract and does not change for the entire time you own your Contract.

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. There are restrictions on who can become an Annuitant.

Annuity Date – the date we begin making Annuity Payments to the Payee from the Contract.

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Annuity Options – the annuity income options available to you under the Contract.

Annuity Payments – payments made by us to the Payee pursuant to the chosen Annuity Option.

Annuity Phase – the phase the Contract is in once Annuity Payments begin.

Beneficiary –the person(s) the Owner designates to receive any death benefit, unless otherwise required by the Contract or applicable law.

Buffer – under the Index Performance Strategy, this is the negative Index Return that Allianz Life absorbs before applying a negative Performance Credit on an Index Anniversary. We declare Buffers for each Index Performance Strategy Index Option on the Issue Date. Buffers do not change after the Issue Date.

Business Day – each day on which the New York Stock Exchange is open for trading, except, with regard to a specific Variable Option, when that Variable 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.

Cap – under the Index Performance Strategy, this is the maximum amount of positive Index Return that you can receive as a positive Performance Credit on an Index Anniversary. We declare Caps for each Index Performance Strategy Index Option on the Index Effective Date and each Index Anniversary. The Caps are shown on the Index Options Statement.

Charge Base – the Contract Value on the preceding Quarterly Contract Anniversary (or the initial Purchase Payment received on the Issue Date if this is before the first Quarterly Contract Anniversary), adjusted for subsequent Purchase Payments and withdrawals. We use the Charge Base to determine the next product fee we deduct.

Contract – the deferred annuity contract described by this prospectus.

Contract Anniversary – a twelve-month anniversary of the Issue Date or any subsequent Contract Anniversary.

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Contract Value – on any Business Day, the sum of your Index Option Value(s) and Variable Account Value. The Contract Value does not include any currently applicable withdrawal charge, final product fee, or final contract maintenance charge. The Variable Account Value component of the Contract Value fluctuates each Business Day. The Index Option Value component of the Contract Value is adjusted on each Index Anniversary to reflect Index Credits, which can be negative with the Index Performance Strategy.A negative Performance Credit means that you can lose money. The Index Performance Strategy Index Option Values also reflect the Daily Adjustment on every Business Day other than the Index Anniversary.

Contract Year – any period of twelve months beginning on the Issue Date or a subsequent Contract Anniversary.

Credit – the annual return you may receive when you allocate money to an Index Option. Credits may be positive, zero, or, in some instances, if you select the Index Performance Strategy negative.A negative Credit means that you can lose money.

Crediting Method – a method we use to calculate annual Credits if you allocate money to an Index Option.

Daily Adjustment – the change in the market value of an Index Option under the Index Performance Strategy as discussed in section 7, Index Options and Appendix B. Each Index Performance Strategy Index Option has a Daily Adjustment. We use the Daily Adjustment to calculate each Index Performance Strategy Index Option Value on each Business Day during the Index Year other than the Index Effective Date or Index Anniversary. The Daily Adjustment can affect the values available for withdrawals, annuitizations, death benefits, and the Contract Value used to determine the Charge Base and contract maintenance charge.

Declared Protection Strategy Credit – the positive Credit we apply on the Index Anniversary under the Index Protection Strategy if the change in Index value from one Index Anniversary to the next is greater than or equal to zero. We set the Declared Protection Strategy Credit for each Index Protection Strategy Index Option on the Index Effective Date and each Index Anniversary. The Declared Protection Strategy Credit is shown on the Index Options Statement.

Determining Life (Lives) – the person(s) designated at Contract issue and named in the Contract on whose life we base the guaranteed Traditional Death Benefit.

Financial Professional – the person who advises you regarding the Contract.

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Good Order – a request is in “Good Order” if it contains all of the information we require to process the request. If we require information to be provided in writing, “Good Order” also includes providing information on the correct form, with any required certifications, guarantees and/or signatures, and received at the Service Center after delivery to the correct mailing, email, or website address, which are all listed at the back of this prospectus. If you have questions about the information we require, or whether you can submit certain information by fax, email or over the web, please contact the Service Center. If you send information by email or upload it to our website, we send you a confirmation number that includes the date and time we received your information.

Index (Indices) – one (or more) of the securities indexes available to you under the Contract. Some Indices are only available under certain Crediting Methods.

Index Anniversary – a twelve-month anniversary of the Index Effective Date or any subsequent Index Anniversary. If an Index Anniversary does not occur on a Business Day, we consider it to occur on the next Business Day for the purposes of declaring Caps, determining Index values and Index Returns, and applying Credits.

Index Effective Date – the date shown on the Index Options Statement that starts the first Index Year. When you purchase this Contract you select the Index Effective Date as discussed in section 4, Purchasing the Contract – Allocation of Purchase Payments and Transfers Between the Allocation Options.

Index Option – the combination of an Index and a Crediting Method to which you can allocate money.

Index Option Base – an amount we use to calculate Credits, and if you select the Index Performance Strategy, the Daily Adjustment. The Index Option Base is equal to the amounts you allocate to an Index Option adjusted for withdrawals, Contract expenses, transfers into or out of the Index Option, and the application of any Credits.

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Index Option Value – on any Business Day it is equal to the value in an Index Option. We establish an Index Option Value for each Index Option you select. Each Index Option Value includes any Credits from previous Index Anniversaries and the deduction of any previously assessed contract maintenance charge, product fee, and withdrawal charge. On each Business Day during the Index Year other than the Index Effective Date or an Index Anniversary, each Index Option Value under the Index Performance Strategy also includes the Daily Adjustment. If you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit each Index Option Value for each Crediting Method also includes any increase from the Alternate Minimum Value.

Index Options Statement – an account statement we mail to you on the Index Effective Date and each Index Anniversary thereafter. On the Index Effective Date, the statement shows the Index values, and the Caps and the Declared Protection Strategy Credit that are initially declared on the Index Effective Date. On each Index Anniversary, the statement shows the new Index values, and the Caps and Declared Protection Strategy Credit that are effective for the next year.

Index Performance Strategy – one of the Crediting Methods available to you under the Contract. The Index Performance Strategy calculates Performance Credits based on Index Returns subject to a Cap and Buffer. You can receive negative Performance Credits under this Crediting Method,which means you can lose principal.

Index Protection Strategy – one of the Crediting Methods available to you under the Contract. Under the Index Protection Strategy you receive the Declared Protection Strategy Credit if the change in Index value from one Index Anniversary to the next is zero or more. You cannot receive a negative Credit under this Crediting Method.

Index Return – a calculation we use to determine the Performance Credits on each Index Anniversary. The Index Return is an Index’s current value, minus its value on the last Index Anniversary (or the Index Effective Date if this is the first Index Anniversary), divided by the Index’s value on the last Index Anniversary (or the Index Effective Date if this is the first Index Anniversary).

Index Year – any period of twelve months beginning on the Index Effective Date or a subsequent Index Anniversary.

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. We must receive your initial Purchase Payment and all necessary information before we issue the Contract.

Joint Owners – two Owners who own a Contract.

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Lock Date – under the Index Performance Strategy the Business Day we process your request to lock in an Index Option Value (a Performance Lock) before the Index Anniversary.

Non-Qualified Contract – a Contract that is not purchased under a pension or retirement plan qualified for special tax treatment under sections of the Internal Revenue Code.

Owner – “you,” “your” and “yours.” The person(s) or entity designated at Contract issue and named in the Contract who may exercise all rights granted by the Contract.

Payee – the person or entity who receives Annuity Payments during the Annuity Phase.

Performance Lock – a feature under the Index Performance Strategy that allows you to lock in each of your current Index Option Values before the Index Anniversary. A Performance Lock applies to the total Index Option Value in an Index Option, and not just a portion of that Index Option Value. After the Lock Date Daily Adjustments do not apply for the remainder of the Index Year and the Index Option Value will not receive a Performance Credit on the next Index Anniversary.

Performance Credit – the Credit we apply on the Index Anniversary under the Index Performance Strategy. We base Performance Credits on Index Returns adjusted by the Cap or Buffer. Performance Credits can be negative,which means that you can lose money.

Proxy Investment – an investment tracking mechanism we establish that is structured as a hypothetical set of call and put options designed to provide the same returns as the Performance Credits under the Index Performance Strategy on an Index Anniversary. We use the Proxy Investment to calculate the Daily Adjustment between Index Anniversaries. For more information, see Appendix B.

Proxy Value – the value of the Proxy Investment for an Index Performance Strategy Index Option used to calculate the Daily Adjustment as discussed in Appendix B.

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Purchase Payment – the money you put into the Contract.

Qualified Contract – a Contract purchased under a pension or retirement plan qualified for special tax treatment under sections of the Internal Revenue Code (for example, 401(a) and 401(k) plans), Individual Retirement Annuities (IRAs), or Tax-Sheltered Annuities (referred to as TSA or 403(b) contracts). Currently, we issue Qualified Contracts that may include, but are not limited to Roth IRAs, Traditional IRAs and Simplified Employee Pension (SEP) IRAs.

Quarterly Contract Anniversary – the day that occurs three calendar months after the Issue Date or any subsequent Quarterly Contract Anniversary.

Separate Account – Allianz Life Variable Account B is the Separate Account that issues the variable investment portion of your Contract. It is a separate investment account of Allianz Life. The Separate Account holds the Variable Options that underlie the Contracts. The Separate Account is divided into subaccounts, each of which invests exclusively in a single Variable Option. The Separate Account is registered with the SEC as a unit investment trust, and may be referred to as the Registered Separate Account.

Service Center – the area of our company that issues Contracts and provides Contract maintenance and routine customer service. Our Service Center address and telephone number are listed at the back of this prospectus. The address for mailing applications and/or checks for Purchase Payments may be different and is also listed at the back of this prospectus.

Traditional Death Benefit– the death benefit provided by the Contract that is equal to the greater of Contract Value (after deduction of the final product fee), or total Purchase Payments adjusted for withdrawals.

Valid Claim – the documents we require to be received in Good Order at our Service Center before we pay any death claim. This includes the death benefit payment option, due proof of death, and any required governmental forms. Due proof of death includes a certified copy of the death certificate, a decree of court of competent jurisdiction as to the finding of death, or any other proof satisfactory to us.

Variable Account Value – on any Business Day, the sum of the values in your selected Variable Options. The Variable Account Value includes the deduction of the Variable Option operating expenses, and any previously assessed transfer fee, contract maintenance charge, product fee, and withdrawal charge.

Variable Options – the variable investments available to you under the Contract. Variable Option performance is based on the securities in which they invest.

Withdrawal Charge Basis – the total amount under your Contract that is subject to a withdrawal charge as discussed in section 8, Expenses – Withdrawal Charge.

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SUMMARY

The Allianz Index Advantage Variable Annuity is a variable and index-linked annuity product. When you purchase a Contract, you tell us how to allocate your money. You can select any or all of the available Variable Options and Index Options. If an Index is available under either Crediting Method, you can allocate money to each of the available methods. Your allocations must be in whole percentages and we only allow allocations to the Index Options once each Index Year. An Index Year is a twelve month-period beginning on the Index Effective Date and each subsequent Index Anniversary. You can only reallocate money from the Index Options to the Variable Options on every sixth Index Anniversary. If you allocate money to the Variable Options offered through the Contract, the value of your investment (Variable Account Value) increases and decreases based on your selected Variable Options performance.

If you allocate money to an Index Option, we calculate an annual return or Credit, on each Index Anniversary. The Credit is based on the change in value of one or more nationally recognized securities Indices. Credits may be positive, zero, or, in some instances, negative, depending on the Index Option you select. Under the Index Performance Strategy there is a Cap on positive Credits, there is also a Buffer on negative Credits, but there is no protection for negative Credits beyond the Buffer. Once we issue your Contract we can change the Caps annually. We establish the Buffers on the date we issue the Contract (Issue Date) and we cannot change them. We publish Buffers for newly issued Contracts and any changes to the Caps seven calendar days before they take effect on our website at www.allianzlife.com/indexrates.

You can lose money that you allocate to the Index Performance Strategy as a result of Index fluctuations, but not money that you allocate to the Index Protection Strategy. The Index Performance Strategy includes a risk of potential loss of principal for negative performance in excess of the Buffer and the loss could be substantial. If money is withdrawn or removed from an Index Performance Strategy Index Option before the Index Anniversary, you could lose principal even if the Index Return is positive on the date of withdrawal.

During the Index Year, the Index Protection Strategy Index Option Values do not change for Index performance. On each Business Day during the Index Year other than the Index Effective Date or Index Anniversary, the Index Performance Strategy Index Option Values change for Index performance through the Daily Adjustment. A Business Day is any day the New York Stock Exchange is open, except, with regard to a specific Variable Option, when that Variable Option does not value its shares. The Daily Adjustment is meant to approximate the Index Option Value on the next Index Anniversary, as adjusted for gains during the Index Year subject to the Cap and losses in excess of the Buffer.Even if the current Index Return during the Index Year is within the Buffer or positive, the Daily Adjustment may be negative until the Index Anniversary. This means you may receive reduced principal even if the Index Return is positive on that day.

The Contract has two phases: the Accumulation Phase and the Annuity Phase. During the Accumulation Phase your Contract Value (the total of your Variable Account Value and all Index Option Values) fluctuates based on the returns of your selected Variable Options and Index Options. During the Accumulation Phase you can add Purchase Payments to your Contract, take withdrawals, and we pay a death benefit if you die.

The Accumulation Phase of your Contract ends and the Annuity Phase starts once you begin Annuity Payments. You can take Annuity Payments based on your Contract Value as discussed in section 10, The Annuity Phase.

Who Should Consider Purchasing the Contract?

We designed the Contract for people who are looking for a level of protection for their principal while providing potentially higher returns than are available on traditional fixed annuities. This Contract is not intended for someone who is seeking complete protection from downside risk.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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What Are the Contract’s Charges?

The Contract includes a product fee, contract maintenance charge, transfer fee, and contingent withdrawal charge. These fees and charges are discussed in more detail in section 8, Expenses.

We assess a 1.25% annualized product fee. The fee is deducted quarterly during the Accumulation Phase while your Contract Value is positive. We calculate and accrue the fee on a daily basis as a percentage of the Charge Base. The Charge Base is the Contract Value on the preceding Quarterly Contract Anniversary (or the initial Purchase Payment received on the Issue Date if this is before the first Quarterly Contract Anniversary), adjusted for subsequent Purchase Payments and withdrawals. A Quarterly Contract Anniversary is the day that occurs three calendar months after the Issue Date or any subsequent Quarterly Anniversary.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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We assess a $50 contract maintenance charge annually, but we waive this charge if your Contract Value is at least $100,000.

We assess a $25 transfer fee for each transfer between the Variable Options after 12 taken in a Contract Year. A Contract Year is any period of twelve months beginning on the Issue Date or a subsequent Contract Anniversary (a twelve-month anniversary of the Issue Date).

The withdrawal charge is calculated based upon Purchase Payments. The withdrawal charge period applies separately to each Purchase Payment. The withdrawal charge starts at 8.5% and decreases to zero after we have had a Purchase Payment for six complete years. During the period that the withdrawal charge applies, if you withdraw more than is allowed under the free withdrawal privilege, we may deduct a withdrawal charge. (See section 9, Access to Your Money – Free Withdrawal Privilege.)

Contract charges and pro-rata fees are assessed on any full or partial withdrawal from either the Variable Options or the Index Options as discussed in more detail in section 8, Expenses.

What Are the Contract’s Benefits?

The Contract offers a variety of variable and index-linked Allocation Options, each with different return and risk characteristics.

The Contract offers two Crediting Methods:

TheIndex Protection Strategy provides a Declared Protection Strategy Credit on an Index Anniversary if your selected Index’s current value is equal to or greater than the Index value on the last Index Anniversary (or the Index Effective Date if this is the first Index Anniversary). If an Index Anniversary does not occur on a Business Day, we use the next Business Day’s Index value.

We set the amount of the Declared Protection Strategy Credit at the beginning of each Index Year (the Index Effective Date and subsequent Index Anniversaries) and we pay this Credit if the change in Index value is zero or more regardless of the amount of the actual change in Index value. If the change in Index value is negative you do not receive the Declared Protection Strategy Credit, but you also do not receive a negative Credit. We can change the Declared Protection Strategy Credit annually. Here are the initial Declared Protection Strategy Credits that we offered to newly issued Contracts between September 16, 2013, the date the Contracts were first issued, and March 31, 2014.

Index Effective Date	Initial Declared Protection Strategy Credit
9/16/2013 through 9/30/2013		4.00	%
10/1/2013 through 11/4/2013		4.50	%
11/5/2013 through 12/2/2013		4.50	%
12/3/2013 through 1/6/2014		4.00	%
1/7/2014 through 2/3/2014		4.00	%
2/4/2014 through 3/3/2014		4.00	%
3/4/2014 through 3/31/2014		4.00	%

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This information regarding the initial Declared Protection Strategy Credits is for historical purposes only; it is not a representation as to future Credits. The Credit amounts may change frequently, and may vary substantially based on market conditions.

For information on the Declared Protection Strategy Credit we currently offer for newly issued Contracts, see our website at www.allianzlife.com/indexrates. This value may change before your Index Effective Date. We publish any change to the Declared Protection Strategy Credit for newly issued Contracts on our website seven calendar days before it takes effect. For an inforce Contract reaching an Index Anniversary, this website will have a link to your Contract information which includes any change to the Declared Protection Strategy Credit seven calendar days before it takes effect. The minimum Declared Protection Strategy Credit is 1.5% for the entire time you own your Contract. We will inform you of the Declared Protection Strategy Credit applicable to your Contract in your annual Index Options Statement. The Index Options Statement also includes the Index value on the Index Effective Date and each subsequent Index Anniversary. We use the Index value to determine if you receive the Declared Protection Strategy Credit.

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If Index performance is positive, theIndex Performance Strategy can provide a positive Performance Credit equal to the Index Return adjusted by an upper limit called the Cap. The Index Return is an Index’s value on the current Index Anniversary, minus its value on the last Index Anniversary (or the Index Effective Date if this is the first Index Anniversary), divided by the Index’s value on the last Index Anniversary (or the Index Effective Date if this is the first Index Anniversary). If Index Return is negative, you may receive a negative Performance Credit if the loss is greater than a specified percentage called the Buffer.A negative Performance Credit means that you can lose money. If the Index Return is negative, but less than or equal to the Buffer, your Performance Credit is zero. We can change the Caps annually, but we establish the Buffers on the Issue Date and we cannot change them. The Caps and Buffers can be different for different Indices. Here are the initial Caps that we offered to newly issued Contracts between September 16, 2013, the date the Contracts were first issued, and March 31, 2014.

Index Effective Date	Initial Caps
	S&P 500® Index			Russell 2000® Index			Nasdaq-100® Index
9/16/2013 through 9/30/2103		13.00	%		14.00	%		11.00	%
10/1/2013 through 11/4/2103		14.00	%		16.00	%		13.00	%
11/5/2013 through 12/2/2103		14.00	%		16.00	%		13.00	%
12/3/2013 through 1/6/2014		13.00	%		14.00	%		12.50	%
1/7/2014 through 2/3/2014		13.00	%		14.00	%		12.50	%
2/4/2014 through 3/3/2014		12.75	%		13.50	%		12.25	%
3/4/2014 through 3/31/2014		12.75	%		13.50	%		12.25	%

During this period, the Buffer was 10.00% for all Indices on all newly issued Contracts. This information regarding the Buffers and initial Caps is for historical purposes only; it is not a representation as to future Buffers or Caps. The Cap amounts may change frequently, and may vary substantially based on market conditions.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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For information on the Index Performance Strategy Caps and Buffers we currently offer for newly issued Contracts, see our website at www.allianzlife.com/indexrates. These values may change before we issue your Contract. We publish the Buffers for newly issued Contracts and any changes to the Caps for newly issued Contracts on our website seven calendar days before they take effect. For an inforce Contract reaching an Index Anniversary, this website will have a link to your Contract information which includes any changes to the Caps seven calendar days before they take effect. The minimum Index Performance Strategy Buffer is 1%. Your actual Buffers are stated in your Contract. The minimum and actual Buffers do not change for the entire time you own your Contract. The minimum Index Performance Strategy Cap is 1.5% for the entire time you own your Contract. We will inform you of the Index Performance Strategy Caps for your Contract in the Index Options Statement, which we will mail to you on the Index Effective Date. Thereafter, we will inform you of the Index Performance Strategy Caps applicable to your Contract for the current Index Year in your annual Index Options Statement, which is the account statement we mail to you at the beginning of each Index Year. The Index Options Statement also includes the Index value on the Index Effective Date and each subsequent Index Anniversary. We use the Index value to determine the Index Return and Performance Credits.

NOTE:

• Because of the hedging strategies that we use to support the Credits, Declared Protection Strategy Credits and Cap rates may be different for newly issued Contracts and for Contracts that we previously issued (“inforce Contracts”), even if the Contracts have Index Effective Dates with the same month and day. The initial Declared Protection Strategy Credit and Caps for newly issued Contracts may be higher or lower than the Credit and Caps for inforce Contracts. However, all inforce Contracts with Index Effective Dates in the same date range will receive the same Declared Protection Strategy Credit and Caps.

For example, on January 1, 2015 we declare Cap rates for the S&P^® 500 Index for Contracts with Index Effective Dates of January 7 to February 3 as follows: 13% for newly issued Contracts, 14% for inforce Contracts issued in 2014, and 12% for inforce Contracts issued in 2013.

• As inforce Contracts have been available for less than a full year and, therefore, have not yet reached their first Index Anniversary, we have not yet published any rates for the Declared Protection Strategy Credit or Caps for inforce Contracts.

• If your Contract is still within its Free Look/Right to Examine period you may be able to take advantage of any increase in rates to the initial Declared Protection Strategy Credit or initial Index Performance Strategy Caps for newly issued Contracts by cancelling your existing Contract and purchasing a new Contract.

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The rates for the Declared Protection Strategy Credit and the Index Performance Strategy Caps can be adjusted each year, in our discretion. We will send you a letter at least 30 days before your Index Anniversary notifying you of your upcoming anniversary. This notice advises you that your current Declared Protection Strategy Credit and Caps are expiring on the upcoming Index Anniversary, and that new rates for the Declared Protection Strategy Credit and Caps for the next Index Year will be available for your review in your account on our website at least seven calendar days before the upcoming Index Anniversary. This notice also reminds you of your opportunity to transfer Contract Value from the Variable Options to the Index Options, or rebalance your Index Option Value, on the upcoming Index Anniversary. We must receive your transfer instructions in Good Order at our Service Center by the end of the last Business Day before your Index Anniversary. If we do not receive transfer instructions from you, your Index Option Value will remain allocated to your existing Index Options at the new rates for the Declared Protection Strategy Credit and Caps.

Rates for the Declared Protection Strategy Credit and Caps will vary depending upon a variety of factors, including your Index Effective Date, and the level of interest rates on your Index Effective Date and on Index Anniversaries. Rates for the Credit and Caps may be different for new Contracts and for inforce Contracts that have reached an Index Anniversary and are receiving a current renewal rate, and may also be different for Contracts with the same Index Anniversaries that were issued in different years.

While initial and renewal rates for the Declared Protection Strategy Credit and Caps may be affected by a variety of factors including, for example, a change in the current level of interest rates, the effect of a change in interest rates or other market conditions on these rates may not be direct or immediate. There may be a lag in changes to the rates for the Declared Protection Strategy Credit and Caps. Changes to the Declared Protection Strategy Credit and Caps may also be affected by other factors, such as the level of interest rates on the Index Effective Date.

(For more information see section 7, Index Options.)

The two Crediting Methods cannot be eliminated or modified; however, the amount of the Declared Protection Strategy Credit and the Caps can be adjusted each Index Year. An Index can be replaced as described in section 1, Risk Factors – Substitution of an Index. We can add new Crediting Methods to your Contract in the future, and you can select these Crediting Methods if they are made available to you.

The Contract has a free withdrawal privilege that allows you to withdraw up to 10% of your total Purchase Payments from your Contract each Contract Year during the Accumulation Phase without incurring a withdrawal charge. The Contract includes a waiver of withdrawal charge benefit in most states that allows you to take money out of the Contract without incurring a withdrawal charge if you are confined to a nursing home for a period of time. Keep in mind that if you withdraw money from an Index Performance Strategy Index Option on any day other than an Index Anniversary, we apply the Daily Adjustment when calculating your Index Option Value for the withdrawal, even if the withdrawal is not subject to a withdrawal charge. The Contract has several Annuity Options which can provide guaranteed income for life, or life and term certain. (For more information see section 9, Access to Your Money and section 10, The Annuity Phase.)

The Contract includes an Alternate Minimum Value that provides a guaranteed minimum on each of your Index Option Values if you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit.

How Can I Allocate My Purchase Payments?

You can allocate your Purchase Payments to any or all of the available Allocation Options in whole percentages. We only allow allocations to the Index Options on the Index Effective Date and on subsequent Index Anniversaries. The Index Effective Date starts the first Index Year and is shown on the Index Options Statement. An Index Anniversary is a twelve-month anniversary of the Index Effective Date, or any subsequent Index Anniversary. An Index Year is any period of twelve months beginning on the Index Effective Date or a subsequent Index Anniversary. You can only reallocate money from the Index Options to the Variable Options on every sixth Index Anniversary.

NOTE: If you allocate an additional Purchase Payment to the Index Options, we place that allocation in the AZL Money Market Fund until the next Index Anniversary, when we transfer the allocations from the AZL Money Market Fund to the Index Options. Additional Purchase Payments that we receive after the Index Effective Date that you allocate to an Index Option are not eligible to receive Credits until the second Index Anniversary after we receive them because they are not applied to the Index Option until the next Index Anniversary.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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What Are the Different Values Within the Contract?

The Contract provides the following values.

• The Contract Value is the sum of your Variable Account Value and total Index Option Values. Contract Value does not include any currently applicable withdrawal charge, final product fee, or final contract maintenance charge that we assess on a full withdrawal or when you request Annuity Payments.

• The Variable Account Value is the sum of the values in your selected Variable Options. It includes the deduction of Variable Option operating expenses, and any previously assessed transfer fee, contract maintenance charge, product fee, and withdrawal charge. Your Variable Account Value changes daily based on the performance of your selected Variable Options.

• The total Index Option Value is the sum of the values in each of your selected Index Options. Each Index Option Value includes any Credits from previous Index Anniversaries and the deduction of any previously assessed contract maintenance charge, product fee, and withdrawal charge. On each Business Day during the Index Year other than the Index Effective Date or an Index Anniversary, we calculate the current Index Option Value for each Index Performance Strategy Index Option by applying a Daily Adjustment to the Index Option Base (equals the amounts you allocate to an Index Option adjusted for withdrawals, Contract expenses, transfers into or out of the Index Option, and the application of any Credits). We calculate the Daily Adjustment before we process any partial withdrawal or deduct any Contract expenses, and the adjustment can be positive or negative. Any amounts removed from an Index Performance Strategy Index Option during the Index Yeardo not receive a Performance Credit on the next Index Anniversary, but the amount remaining does receive a Performance Credit subject to the Cap and Buffer. If you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit each Index Option Value for each Crediting Method also includes any increase from the Alternate Minimum Value, if higher. If we are determining the Alternate Minimum Value for an Index Performance Strategy Index Option Value on any day other than an Index Anniversary, we first calculate the Index Option Value and apply the Daily Adjustment, then compare this value to its associated Alternate Minimum Value and we pay the greater of these two amounts. If we are paying a partial withdrawal, we compare the percentage of Index Option Value with an equivalent percentage of its Alternate Minimum Value. We expect that an Alternate Minimum Value generally will not be greater than its Index Option Value.

During the Index Year the Index Protection Strategy Index Option Values do not change for Index performance. On each Business Day during the Index Year other than the Index Effective Date or Index Anniversary, the Index Performance Strategy Index Option Values change for Index performance through the Daily Adjustment. The Daily Adjustment is meant to approximate the Index Option Value on the next Index Anniversary, as adjusted for gains during the Index Year subject to the Cap and losses in excess of the Buffer. The application of the Daily Adjustment is based on your agreement to be exposed to Index Anniversary gains in Index value subject to the Cap and losses in Index value in excess of the Buffer. The Daily Adjustment does this by tracking the hypothetical value of a Proxy Investment (called the Proxy Value) each Business Day other than an Index Anniversary using the formula in Appendix B. The Proxy Investment is designed to return the same amount as the Index Option on an Index Anniversary (an amount equal to the Performance Credit as determined using the applicable Cap and Buffer). Between Index Anniversaries, the Proxy Investment provides a current estimate of what the Index value gain or loss would be if the investment were held until the Index Anniversary. The actual value of the relevant Index is not used in the Daily Adjustment calculation. The Daily Adjustment does not give you the actual Index return on the day of the calculation.

When the Daily Adjustment is positive, your Index Option Value has increased since the beginning of the year; when it is negative, your Index Option Value has decreased (excluding the effect of any partial withdrawal or the deduction of Contract expenses). The Daily Adjustment is generally negatively affected by increases in the expected volatility of index prices, interest rate decreases, and by poor market performance. All other factors being equal, even if the current Index Return during the Index Year is greater than the Cap, the Daily Adjustment will be lower than the Cap during the Index Year and will not be equal to the Cap until the next Index Anniversary.

For more information see section 6, Valuing Your Contract, section 7, Index Options, and Appendix B. The specific details of the Daily Adjustment formula are described in Appendix B and in Exhibit 99(b) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This information is incorporated by reference into this prospectus. You can obtain a copy of Exhibit 99(b) by calling (800) 624-0197.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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How Do We Apply Credits to the Index Options?

We generally calculate and apply Credits on the Index Anniversary based on either the change in the Index’s value (Index Protection Strategy), or the Index Returns (Index Performance Strategy). Positive Credits are not guaranteed. Credits can be zero or, under the Index Performance Strategy, negative after application of the Buffer.

Under the Index Performance Strategy you can lock in the current Index Option Value on any Business Day during the Index Year by requesting a Performance Lock. You can request a lock once each Index Year for each of your selected Index Performance Strategy Index Options. A Performance Lock applies to the total Index Option Value (including any Daily Adjustment) in an Index Option, and not just a portion of that Index Option Value. After the Business Day we process your request to lock in an Index Option Value (Lock Date), Daily Adjustments do not apply for the remainder of the Index Year and the Index Option Value will not receive a Performance Credit on the next Index Anniversary.

NOTE REGARDING WITHDRAWALS DURING THE INDEX YEAR:

• Amounts removed from the Index Options during the Index Year for partial withdrawals and Contract expenses do not receive a Credit on the next Index Anniversary. However, the remaining amount is eligible for a Credit, subject to the Cap and Buffer for the Index Performance Strategy Index Options. Contract expenses include the product fee, the contract maintenance charge and any applicable withdrawal charge.

• If you take a partial withdrawal from an Index Performance Strategy Index Option on any day other than an Index Anniversary, we first calculate the Index Option Value and apply the Daily Adjustment, then compare the percentage of Index Option Value withdrawn to an equivalent percentage of its Alternate Minimum Value and pay you the greater of these two amounts.

How Do the Caps and Buffers Affect My Contract’s Potential Growth?

The Index Performance Strategy involves both a Cap and a Buffer. The Cap limits your ability to receive positive index-linked returns, and the Buffer limits the impact of negative returns. We set the Buffers on the Issue Date and the initial Caps on the Index Effective Date. We declare new Caps on each Index Anniversary. The Caps do not change during the Index Year. The Buffers do not change after the Issue Date. The Index Performance Strategy Buffers cannot be less than 1% and the Caps cannot be less than 1.5% for the entire time you own your Contract. We publish the Buffers for newly issued Contracts and any changes to the Caps on our website at www.allianzlife.com/indexrates seven calendar days before they take effect.

Can My Contract Lose Value Because of Negative Changes in an Index’s Value?

If you select the Index Performance Strategy your Contract can lose value due to negative Index Returns. However, allocations to the Index Protection Strategy cannot lose value due to a negative change in Index value.

Can I Transfer Index Option Value Between the Allocation Options?

On each Index Anniversary you can transfer Variable Account Value to the available Index Options and you can reallocate your Index Option Values. On every sixth Index Anniversary you can transfer Index Option Value to the Variable Options. We do not require a minimum transfer amount from the Index Options to the Variable Options. At the end of the six-year term, we allow you to transfer all of the money in the Index Options to the Variable Options, even if a portion of that money was added after the start of the six-year term, and has been allocated to the Index Options for less than six years.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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How Can I Take Money Out of My Contract?

You can take money out of your Contract by taking withdrawals, required minimum distributions or Annuity Payments. You can withdraw money from either the Variable Options or the Index Options. Amounts withdrawn from an Index Performance Strategy Index Option on any day other than an Index Anniversary do not receive a Performance Credit, but they do receive the Daily Adjustment on the day of the withdrawal. Amounts withdrawn from an Index Protection Strategy Index Option will not receive a Declared Protection Strategy Credit.

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A withdrawal before an Index Anniversary from an Index Performance Strategy Index Option may not receive the full benefit of the Buffer or the Cap. This occurs because the Daily Adjustment calculation takes into account what may potentially happen between the withdrawal date and the next Index Anniversary. As a result, even though a negative Index Return may be within the amount of the Buffer, the Owner (person(s) designated at Contract issue who may exercise all rights granted by the Contract – “you,” “your,” and “yours”) still may receive a negative Credit (i.e., lose money) because there is a possibility that the Index Return could decrease before the end of the Index Year. Similarly, even if the Index Return is above the Cap, the Daily Adjustment may not reflect an Index Credit up to the Cap, because there is a possibility that the Index Return could decrease before the end of the Index Year.

If you withdraw more than is allowed by the free withdrawal privilege we may assess a withdrawal charge. Under the waiver of withdrawal charge benefit you can take a one-time withdrawal from your Contract after the first Contract Anniversary without incurring a withdrawal charge if you are confined to a nursing home for a period of time. If you take required minimum distributions from a Contract that qualifies for special tax treatment under sections of the Internal Revenue Code (Qualified Contract) to pay required minimum distribution amounts owing with regard to the Contract, these distributions are not subject to a withdrawal charge. However, required minimum distributions reduce the amount available under the free withdrawal privilege.

When we process a withdrawal from an Index Performance Strategy Index Option on a day other than an Index Anniversary we determine the proper amount to deduct by calculating the Index Option Value using the Daily Adjustment. For more information see section 9, Access to Your Money.

What Are My Annuity Options?

The Contract includes several Annuity Options that can provide fixed life, or fixed life and term certain Annuity Payments. The designated individual(s) upon whose life we base Annuity Payments are the Annuitant(s). For more information see section 10, The Annuity Phase.

Does the Contract Provide a Death Benefit?

The Contract provides a guaranteed Traditional Death Benefit based on the greater of Contract Value or total Purchase Payments adjusted for withdrawals. The Traditional Death Benefit is a first-to-die death benefit based on the life of the person(s) designated at Contract issue (Determining Life). The Determining Life (or Lives) is either the Owner(s) or the Annuitant if the Owner is a non-individual. We establish the Determining Lives at Contract issue and they generally do not change unless there is a divorce or you establish a Trust. If you change Owners or the Annuitant after the Issue Date, upon death of the Owner, the person(s) designated to receive the death benefit (Beneficiary(s)) may only receive the Contract Value. For more information see section 3, Ownership, Annuitants, Determining Life, Beneficiaries, and Payees and section 11, Death Benefit.

What If I Need Customer Service?

If you need customer service (for Contract changes, information on Contract Values, requesting a withdrawal or transfer, changing your allocation instructions, etc.) please contact our Service Center at (800) 624-0197. You can also contact us by mail at Allianz Life Insurance Company of North America, P.O. Box 561, Minneapolis, MN 55440-0561.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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FEE TABLES

These tables describe the fees and expenses you pay when purchasing, owning and taking a withdrawal from the Contract, or transferring Contract Value between Allocation Options. For more information, see section 8, Expenses.

OWNER TRANSACTION EXPENSES

Withdrawal Charge During Your Contract’s Initial Phase, the Accumulation Phase⁽¹⁾

(as a percentage of each Purchase Payment withdrawn)⁽²⁾

Number of Complete         Years Since Purchase Payment	Withdrawal Charge Amount(3)
0		8.5	%
1		8	%
2		7	%
3		6	%
4		5	%
5		4	%
6 years or more		0	%

Transfer Fee(4)	$	25
(for each transfer between Variable Options after twelve in a Contract Year)
Premium Tax(5)		3.5	%
(as a percentage of each Purchase Payment)

OWNER PERIODIC EXPENSES

Contract Maintenance Charge(6)	$	50
(per Contract per year)

(1) The Contract provides a free withdrawal privilege that allows you to withdraw 10% of your total Purchase Payments annually without incurring a withdrawal charge, as discussed in section 9, Access to Your Money – Free Withdrawal Privilege.

(2) The Withdrawal Charge Basis is the amount subject to a withdrawal charge, as discussed in section 8, Expenses – Withdrawal Charge.

(3) In Florida, the total withdrawal charge on a partial or full withdrawal cannot be greater than 10% of the Contract Value withdrawn. In Iowa and Pennsylvania the withdrawal charge is 8.25%, 8%, 7%, 6%, 5%, 4% and 0% for the time periods referenced. In Mississippi the withdrawal charge is 8.5%, 7.5%, 6.5%, 5.5%, 5%, 4% and 0% for the time periods referenced.

(4) We count all transfers made in the same Business Day as one transfer, as discussed in section 8, Expenses – Transfer Fee. The transfer fee does not apply to transfers to or from the Index Options and these transfers do not count against your free transfers. Transfers are subject to the market timing policies discussed in section 5, Variable Options – Excessive Trading and Market Timing.

(5) Not currently deducted, but we reserve the right to do so in the future. This is the maximum charge we could deduct if we exercise this right, as discussed in section 8, Expenses – Premium Tax.

(6) Waived if the Contract Value is at least $100,000, as discussed in section 8, Expenses – Contract Maintenance Charge.

CONTRACT ANNUAL EXPENSES

Product Fee(7)	1.25	%
(as a percentage of the Charge Base)

(7) We do not assess the product fee during the Annuity Phase. See section 8, Expenses – Product Fee.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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ANNUAL OPERATING EXPENSES OF THE VARIABLE OPTIONS

Following are the minimum and maximum total annual operating expenses charged by any of the Variable Options for the period ended December 31, 2013, before the effect of any contractual expense reimbursement or fee waiver. We show the expenses as a percentage of a Variable Option’s average daily net assets.The Index Options do not assess any separate operating expenses, and are not included in the following chart.

	Minimum			Maximum
Total annual Variable Option operating expenses (including management fees, distribution or12b-1 fees, and other expenses) before fee waivers and expense reimbursements		0.65	%		0.76	%

The table below describes, in detail, the annual expenses of the Variable Options before fee waivers and/or expense reimbursements. We show the expenses as a percentage of a Variable Option’s average daily net assets for the most recent calendar year. Expenses may vary in current and future years. The investment advisers for the Variable Options provided the fee and expense information and we did not independently verify it. See the Variable Options’ prospectuses for further information regarding the expenses you may expect to pay. Some of the Variable Options or their affiliates may also pay service fees to us or our affiliates. If these fees are deducted from Variable Option assets, they are reflected in the table below.

Variable Option	Management fees		Rule 12b-1 fees		Other expenses		Acquired fund fees and expenses		Total annual fund operating expenses before fee waivers and/or expense reimbursements
BLACKROCK
AZL Money Market Fund		.35		.25		.05		—		.65
ALLIANZ FUND OF FUNDS
AZL MVP Balanced Index Strategy Fund(1)		.10		—		.07		.59		.76
AZL MVP Growth Index Strategy Fund(1)		.10		—		.03		.57		.70

(1) The underlying funds may pay12b-1 fees to the distributor of the Contracts for distribution and/or administrative services. The underlying funds do not pay service fees or12b-1 fees to the Allianz Fund of Funds and the Allianz Fund of Funds do not pay service fees or12b-1 fees. The underlying funds of the Allianz 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.

Allianz Index Advantage^SM Prospectus – May 1, 2014

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EXAMPLES

These examples are intended to help you compare the cost of investing in this Contract’s Variable Options with the costs of other variable annuity contracts. These examples assume you make a $10,000 investment and your Variable Options earn a 5% annual return. They are not a representation of past or future expenses. Your Contract expenses may be more or less than the examples below, depending on the Variable Options you select and whether and when you take withdrawals.

We deduct the $50 contract maintenance charge in the examples on each Contract Anniversary during the Accumulation Phase (or the next Business Day if the Contract Anniversary is not a Business Day), and we deduct it from each Annuity Payment during the Annuity Phase. We may waive this charge under certain circumstances, as described in section 8, Expenses – Contract Maintenance Charge. We deduct the annual product fee (maximum charge of 1.25%) in the examples on each Quarterly Contract Anniversary during the Accumulation Phase, as described in section 8, Expenses – Product Fee. A transfer fee may apply, but is not reflected in these examples (see section 8, Expenses – Transfer Fee).

1) If you surrender your Contract (take a full withdrawal) at the end of each time period.

	1 Year		3 Years		5 Years		10 Years
Total annual Variable Option operating expenses before any fee waivers or expense reimbursements of:
0.76% (the maximum Variable Option operating expense)	$	1,103	$	1,475	$	1,818	$	2,777
0.65% (the minimum Variable Option operating expense)	$	1,092	$	1,442	$	1,763	$	2,665

2) If you annuitize your Contract and begin Annuity Payments at the end of each time period. The earliest available Annuity Date (the date Annuity Payments begin) is one year after the Issue Date (the date we issue the Contract).

	1 Year		3 Years		5 Years		10 Years
Total annual Variable Option operating expenses before any fee waivers or expense reimbursements of:
0.76% (the maximum Variable Option operating expense)		—	$	775	$	1,318	$	2,777
0.65% (the minimum Variable Option operating expense)		—	$	742	$	1,263	$	2,665

3) If you do not surrender your Contract.

	1 Year		3 Years		5 Years		10 Years
Total annual Variable Option operating expenses before any fee waivers or expense reimbursements of:
0.76% (the maximum Variable Option operating expense)	$	253	$	775	$	1,318	$	2,777
0.65% (the minimum Variable Option operating expense)	$	242	$	742	$	1,263	$	2,665

CONDENSED FINANCIAL INFORMATION

The consolidated financial statements of Allianz Life Insurance Company of North America are included in Appendix C of this prospectus, and the financial statements of Allianz Life Variable Account B are included in Part C of the Form N-4 Registration Statement.

Accumulation unit value (AUV) information corresponding to the product fee for the Contract offered by this prospectus, as of the end of December 31, 2013, is listed in the table below. This information should be read in conjunction with the financial statements and related notes of the Separate Account included in Part C of the Registration Statement.

(Number of Accumulation Units in thousands)

Product Fee 1.25%
Period or Year Ended	AUV at Beginning of Period		AUV at End of Period		Number of Accumulation Units Outstanding at End of Period
AZL Money Market Fund
12/31/2013		NA		12.754		346
AZL MVP Balanced Index Strategy Fund
12/31/2013		NA		12.212		10
AZL MVP Growth Index Strategy Fund
12/31/2013		NA		13.412		7

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1. RISK FACTORS

The Contract involves certain risks that you should understand before purchasing. You should carefully consider your income needs and risk tolerance to determine whether the Contract is appropriate for you. The level of risk you bear and your potential investment performance will differ depending on the Allocation Options you choose.

LIQUIDITY RISK

We designed the Contract to be a long-term investment that you can use to help build and provide income for retirement. The Contract is not suitable for short-term investment. If you need to take money from your Contract during the withdrawal charge period, we deduct a withdrawal charge unless the withdrawal is specifically not subject to this charge (for example, the amount allowed under the free withdrawal privilege). We calculate the withdrawal charge as a percentage of your Purchase Payments, not Contract Value. Consequently, if the Contract Value has declined since you made a Purchase Payment it is possible the percentage of Contract Value withdrawn to cover the withdrawal charge would be greater than the withdrawal charge percentage. For example, assume you buy the Contract with a single Purchase Payment of $1,000. If your Contract Value in the 5th year is $800 and you take a full withdrawal a 5% withdrawal charge applies. The total withdrawal charge would be $50 (5% of $1,000). This is a 6.25% reduction in your Contract Value, which results in you receiving $750.

Deduction of the withdrawal charge, product fee, and contract maintenance charge may result in loss of principal and Credits. We only apply Credits once each Index Year on the Index Anniversary, rather than on a daily basis. In the interim, we calculate Index Performance Strategy Index Option Values based on the Daily Adjustment, which may result in you not receiving the full benefit of the Index Returns, Caps and Buffers if, before the Index Anniversary, you take a withdrawal or annuitize the Contract, or if we pay a death benefit. We do not do an interim calculation for the Index Protection Strategy Index Option Value. While the free withdrawal privilege and required minimum distributions provide liquidity, they permit limited withdrawals and are designed to be used over a number of years. If you need to withdraw most or all of your Contract Value in a short period, this will exceed the charge-free amounts available to you and result in a withdrawal charge. Amounts withdrawn from this Contract may also be subject to a 10% additional federal tax if taken before age 59 ¹⁄₂.

You may transfer Contract Value from an Index Option to a Variable Option only on every sixth Index Anniversary. At other times, you may only withdraw money from an Index Option by taking partial withdrawals or surrendering the Contract. This may limit your ability to react to changes in market conditions. Amounts withdrawn from an Index Performance Strategy Index Option before the Index Anniversary may not receive the full benefit of the Buffer. You should consider whether investing in an Index Option is consistent with your financial needs.

RISKOF INVESTING IN SECURITIES

Returns on securities and securities Indexes can vary substantially, which may result in investment losses. The historical performance of the available Allocation Options does not guarantee future results. It is impossible to predict whether underlying investment values will fall or rise. Trading prices of the securities underlying the Allocation Options are influenced by economic, financial, regulatory, geographic, judicial, political and other complex and interrelated factors. These factors can affect capital markets generally and markets on which the underlying securities are traded and these factors can influence the performance of the underlying securities.

RISK OF NEGATIVE RETURNS

If you allocate money to the Variable Options, returns will fluctuate and may be negative. You can lose money.

If you allocate money to the Index Performance Strategy, Performance Credits may be negative after application of the Buffer. In addition, positive Performance Credits paid on the Index Performance Strategy are limited by the Cap.You can lose money that you allocate to the Index Performance Strategy as a result of Index fluctuations. The Index Performance Strategy includes a risk of potential loss of principal for negative performance in excess of the Buffer and the loss could be substantial. If money is withdrawn or removed from an Index Performance Strategy Index Option before the Index Anniversary, you could lose principal even if the Index Return is positive on the date of withdrawal.

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If you select the Index Performance Strategy we calculate each of your Index Performance Strategy Index Option Values daily during the Index Year by applying the Daily Adjustment. The Daily Adjustment affects the calculation of Index Performance Strategy Index Option Values we use to calculate Contract Value between Index Anniversaries, and it affects the Contract Value available for withdrawal, annuitization, death benefits, and the Contract Value used to determine the Charge Base and contract maintenance charge. The Daily Adjustment may result in a loss even if Index performance has been positive since the beginning of the Index Year, or if it’s positive by the end of the Index Year. This amount may also be less than you would receive as a Performance Credit on the next Index Anniversary. The Daily Adjustment is generally negatively affected by increases in the expected volatility of Index prices, interest rate decreases, and by poor market performance. All other factors being equal, even if the current Index Return during the Index Year is greater than the Cap, the Daily Adjustment will be lower than the Cap during the Index Year and will not be equal to the Cap until the next Index Anniversary.Even if the current Index Return during the Index Year is within the Buffer or positive, the Daily Adjustment may be negative until the Index Anniversary. This means you may receive reduced principal even if the Index Return is positive on that day.

The Alternate Minimum Value may, in limited instances, mitigate negative return risk associated with the Index Performance Strategy Index Options.

CALCULATION OF CREDITS

The Index Options do not directly participate in the returns of the underlying securities, and do not receive any dividends payable on these securities.

If you allocate money to the Index Protection Strategy, positive returns are limited by the amount of the annual Declared Protection Strategy Credit. You are not subject, however, to potential negative Credits.

The Caps on the Index Performance Strategy and the annual Declared Protection Strategy Credit on the Index Protection Strategy could cause your returns to be lower than they would otherwise be if you invested in a mutual fund or exchange traded fund designed to track the performance of the applicable Index, or if you allocated to the Variable Options.

The Crediting Methods only capture Index values on one day each year, so you will bear the risk that the Index value might be abnormally low on these days.

SUBSTITUTION OF AN INDEX

There is no guarantee that the Indices will be available during the entire time that you own your Contract. If we substitute a new Index for an existing Index, the performance of the new Index may be different and this may affect your ability to receive positive Credits. We may substitute a new Index for an existing Index if:

• the Index is discontinued,

• we are unable to use the Index because, for example, changes to an Index make it impractical or expensive to purchase derivative securities to hedge the Index, or we are not licensed to use the Index, or

• the method of calculation of the Index values changes substantially, resulting in significantly different values and performance results. This could occur, for example, if an Index altered the types of securities tracked, or the weighting of different categories of securities.

If we add or substitute an Index, unless the Index has been discontinued, we first seek regulatory approval (from each applicable state insurance regulator) and then provide you with written notice. Substitutions of an Index may occur during an Index Year. If we substitute an Index, this does not cause a change in the current Buffers, current Declared Protection Strategy Credit, Charge Base, or current Caps. Changes occur at the next regularly scheduled date. Instead we treat the new Index as if it were effective at the beginning of the Index Year. Depending on the constitution of the substituted Index, the volatility of its investments, and our ability to hedge the Index’s performance, we may determine for the next Index Year, in our discretion, that a higher or lower Cap or Declared Protection Strategy Credit may be appropriate. However, we would not implement any change to reflect this difference until the next Index Anniversary after the substitution. Under the Index Performance Strategy this may result in an abnormally large change in the Daily Adjustment on the day we substitute the Index.

The selection of a substitution Index is in our discretion; however, it is anticipated that any substitute Index will be substantially similar to the Index it is replacing and we will replace any equity Index with a broad-based equity index.

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CHANGES TO CAPS, DECLARED PROTECTION STRATEGY CREDIT, AND NOTICE OF BUFFERS

We determine the initial rates for the Declared Protection Strategy Credit and Index Performance Strategy Caps on the Index Effective Date, and the initial rates for the Index Performance Strategy Buffers on the Issue Date. We publish the rates for the Credit, Caps and Buffers for newly issued Contracts on our website at www.allianzlife.com/indexrates seven calendar days before they take effect.

We can change the renewal rates for the Credit and Caps as frequently as annually and they are set on Index Anniversaries. The rates may be adjusted up or down, or may stay the same. The Buffers you receive are stated in your Contract and do not change after the Issue Date. Renewal rates for the Credit and Caps are available for your review in your account on our website at least seven calendar days before each Index Anniversary. We send you a letter at least 30 days in advance of each Index Anniversary notifying you of your upcoming anniversary. When the renewal rates for the Credit and Caps are set on the Index Anniversary you have the option of staying in your current Index Option or moving to another permitted Allocation Option, subject to the limitations on transferring from an Index Option to a Variable Option.

If you do not review information regarding renewal rates for the Credit and Caps when they are published, or take no action to move to another permitted Allocation Option, you stay in your current Index Options and automatically become subject to any new Credit and Caps. You will be subject to these renewal rates for the Credit and Caps until the next Index Anniversary. If you selected the Index Performance Strategy, you will also be subject to the Daily Adjustment until the next Index Anniversary. To avoid the application of the Daily Adjustment to the Index Option Value, you should not take withdrawals from an Index Performance Strategy Index Option other than on an Index Anniversary.

You risk the possibility that the renewal rates for the Credit and Caps you receive may be less than you would find acceptable. If you do not find the renewal rates for the Credit and Caps acceptable, you must give us notice no later than the last Business Day before the Index Anniversary and request to move your money on the Index Anniversary or you will be subject to these renewal rates for the next Index Year until you can move money on the next Index Anniversary. We will inform you of the Declared Protection Strategy Credit and Index Performance Strategy Caps applicable to your Contract in your annual Index Options Statement.

We manage our obligation to provide Credits in part by trading call and put options on the available Indices. The costs of the call and put options vary based on market conditions, and we may adjust future renewal rates for the Declared Protection Strategy Credit and Caps to reflect these cost changes. In some instances we may need to reduce the rates for the Credit and Caps, or we may need to replace an Index from the Contract. You bear the risk that we may reduce the rates for the Credit and/or Caps, which reduces your opportunity to receive positive Credits. You also bear the risk that the Buffers we declare on the Issue Date are very low, which increases the risk you may receive negative Performance Credits under the Index Performance Strategy.

For more information about how we set rates for the Credit, Caps, and Buffers, see the “What are the Contract’s Benefits?” discussion in the Summary section of this prospectus.

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VARIABLE OPTION RISK

The Variable Options do not provide any protection against loss of principal. You can lose some or all of the money you allocate to the Variable Options.

OUR FINANCIAL STRENGTH AND CLAIMS-PAYING ABILITY

We make Annuity Payments and apply Credits from our general account. Our general account assets are subject to claims by our creditors, and any payment we make from our general account is subject to our financial strength and claims-paying ability. You can obtain information on our financial condition by reviewing our financial statements in this prospectus.

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REGULATORY PROTECTIONS

Allianz Life is not an investment company and therefore we are not registered as an investment company under the Investment Company Act of 1940, as amended, and the protections provided by this Act are not applicable to the guarantees we provide. The Separate Account is, however, registered as an investment company. Any allocations you make to an Index Option are not part of the Separate Account. Allianz Life is not an investment adviser and does not provide investment advice to you in connection with your Contract.

Your Contract is registered in accordance with the Securities Act of 1933 and the offering of the Contract must be conducted in accordance with the requirements of this Act. In addition, the offer and sale of the Contracts is subject to the provisions of the Securities Exchange Act of 1934.

The Contract is filed with and approved by each state in which the Contract is offered. State insurance laws provide a variety of regulatory protections.

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2. THE VARIABLE ANNUITY CONTRACT

An annuity is a contract between you as the Owner, and an insurance company (in this case Allianz Life), where you make payments to us and the money is invested in Allocation Options available through the Contract. Depending on market conditions, your Contract may gain or lose value based on the returns of your selected Allocation Options and the Crediting Method you select (if any). When you are ready to take money out, we make payments to you according to your instructions and any restrictions associated with the payout option you select that is described in this prospectus. We do not make any changes to your Contract without your permission except as may be required by law.

The Contract has an Accumulation Phase and an Annuity Phase.

TheAccumulation Phase is the first phase of your Contract, and it begins on the Issue Date. During the Accumulation Phase, your money is invested in the Allocation Options you select on a tax-deferred basis. Tax deferral means you are not taxed on any earnings or appreciation on the assets in your Contract until you take money out of your Contract. (For more information, see section 12, Taxes.)

During the Accumulation Phase you can take withdrawals (subject to any withdrawal charge) and you can make additional Purchase Payments subject to the restrictions set out in section 4, Purchasing the Contract – Purchase Requirements.

The Accumulation Phase ends upon the earliest of the following.

• The Business Day before the Annuity Date.

• The Business Day we process your request for a full withdrawal.

• Upon the death of any Owner (or the Annuitant if the Contract is owned by a non-individual), the Business Day we first receive the documents we require before we pay any death claim (Valid Claim) from any one Beneficiary, unless the surviving spouse continues the Contract. If there are multiple Beneficiaries, the remaining Contract Value continues to fluctuate with the performance of the Allocation Options until the complete distribution of the death benefit.

If you request Annuity Payments, your Contract enters theAnnuity Phase. During the Annuity Phase we make regular fixed periodic payments (Annuity Payments) based on the life of a person you choose (the Annuitant), or life and term certain. We send Annuity Payments to you (the Payee). You can choose when Annuity Payments begin (the Annuity Date), subject to certain restrictions. We base Annuity Payments on your Contract Value and the payout rates for the Annuity Option you select. Your Annuity Payments do not change unless an Annuitant dies. The Annuity Phase ends when we make the last Annuity Payment under your selected Annuity Option. For more information, see section 10, The Annuity Phase.

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STATE SPECIFIC CONTRACT RESTRICTIONS

If you purchase a Contract, it is subject to the law of the state in which it is issued. Some of the features of your Contract may differ from the features of a Contract issued in another state because of state-specific legal requirements. Features for which there may be state-specific Contract provisions may include the following.

• The withdrawal charge schedule.

• Availability of Allocation Options, Annuity Options, endorsements, and/or riders.

• Caps, Buffers, and Declared Protection Strategy Credits under the Index Options.

• Free look rights.

• Selection of certain Annuity Dates.

• Restrictions on your ability to make additional Purchase Payments.

• Our ability to restrict transfer rights.

All material state variations in the Contract are disclosed in this prospectus. If you would like more information regarding state-specific Contract provisions, you should contact your Financial Professional or contact our Service Center at the toll-free telephone number listed at the back of this prospectus.

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WHEN THE CONTRACT ENDS

The Contract ends when:

• all applicable phases of the Contract (Accumulation Phase and/or Annuity Phase) have ended, and/or

• all applicable death benefit payments have been made.

For example, if you purchase a Contract and later take a full withdrawal of the total Contract Value, both the Accumulation Phase and the Contract end even though the Annuity Phase never began and we did not make any death benefit payments.

3. OWNERSHIP, ANNUITANTS, DETERMINING LIFE, BENEFICIARIES, AND PAYEES

OWNER

You, as the Owner, have all the rights under the Contract. The Owner is designated at Contract issue. The Owner may be a non-individual, which is anything other than an individual person, and could be a trust, qualified plan, or corporation. Qualified Contracts can only have one Owner.

JOINT OWNER

A Contract that is not qualified pursuant to a specialized provision of the Internal Revenue Code (Non-Qualified Contract) can be owned by up to two Owners (Joint Owners). We generally require the signature of both Joint Owners on any forms that are submitted to our Service Center.

ANNUITANT

The Annuitant is the individual on whose life we base Annuity Payments. Subject to our approval, you designate an Annuitant when you purchase a Contract. For Qualified Contracts, before the Annuity Date the Owner must be the Annuitant unless the Contract is owned by a qualified plan or is part of a custodial arrangement. You can change the Annuitant on an individually owned Non-Qualified Contract at any time before the Annuity Date, but you cannot change the Annuitant if the Owner is a non-individual (for example, a qualified plan or trust). Subject to our approval, you can add a joint Annuitant on the Annuity Date. For Qualified Contracts, the ability to add a joint Annuitant is subject to any plan requirements associated with the Contract. For jointly owned Contracts, if an Annuitant who is not also an Owner dies before the Annuity Date, the younger Owner automatically becomes the new Annuitant, but the Owner can subsequently name another Annuitant.

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Designating different persons as Owner(s) and Annuitant(s) can have important impacts on whether a death benefit is paid, and on who receives it as indicated below.For more examples, please see the Appendix to the SAI.Use care when designating Owners and Annuitants, and consult your Financial Professional if you have questions.

UPON THE DEATH OF A SOLE OWNER

Action if the Contract is in the Accumulation Phase	Action if the Contract is in the Annuity Phase
•     We pay a death benefit to the person you designate (the Beneficiary) unless the Beneficiary is the surviving spouse and continues the Contract.	•     The Beneficiary becomes the Payee.
	•     If the deceased was not an Annuitant, Annuity Payments to the Payee continue. No death benefit is payable.
•     If the deceased Owner was the Determining Life and the surviving spouse Beneficiary continues the Contract, we increase the Contract Value to equal total Purchase Payments adjusted for withdrawals (if greater), the Traditional Death Benefit ends, the surviving spouse becomes the new Owner, and the Accumulation Phase continues. If the deceased Owner was not the Determining Life the Traditional Death Benefit is not available. •     Upon the surviving spouse’s death, his or her Beneficiary(s) receives the Contract Value.	•     If the deceased was the only surviving Annuitant, Annuity Payments end or continue as follows. •     Annuity Option 1 or 3, payments end. •     Annuity Option 2 or 4, payments end when the guarantee period ends. •     Annuity Option 5, payments end and the Payee may receive a lump sum refund.
	•     If the deceased was an Annuitant and there is a surviving joint Annuitant, Annuity Payments to the Payee continue during the lifetime of the surviving joint Annuitant. No death benefit is payable.

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DETERMINING LIFE (LIVES)

The Determining Life (Lives) are the individuals on whose life we base the guaranteed Traditional Death Benefit. We establish the Determining Life (Lives) at Contract issue and they generally do not change. For an individually owned Contract the Determining Life (Lives) are the Owner(s). For a non-individually owned Contract the Determining Life is the Annuitant. After the Issue Date the Determining Life (Lives) only change if:

• you remove a Joint Owner due to divorce we also remove that person as a Determining Life, or

• you establish a jointly owned Non-Qualified Contract and change ownership to a Trust, we remove the prior Owner who is not the Annuitant as a Determining Life.

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 a Beneficiary dies before you, or you and a Beneficiary die simultaneously as defined by applicable state law or regulation, that Beneficiary’s interest in this Contract ends unless your Beneficiary designation specifies otherwise. If there are no primary Beneficiaries, we pay the death benefit to the contingent Beneficiaries who survive you. If the interests of all Beneficiaries have ended or if there is no named Beneficiary, we pay the death benefit to your estate, or the Owner if the Owner is a non-individual.

NOTE FOR JOINTLY OWNED CONTRACTS: The sole primary Beneficiary is the surviving Joint Owner regardless of any other named Beneficiaries. Spousal Joint Owners may also appoint contingent Beneficiaries. However, Joint Owners who are not spouses may not appoint contingent Beneficiaries. If both Joint Owners who were never spouses die before we pay the death benefit, we pay the death benefit to the estate of the Joint Owner who died last.

If both spousal Joint Owners die before we pay the death benefit, we pay the death benefit to the named contingent Beneficiaries, or to the estate of the spousal Joint Owner who died last if there are no named contingent Beneficiaries. If both spousal Joint Owners die simultaneously, state law may dictate who receives the death benefit. However, if spousal Joint Owners divorce and do not notify us before death, we look to state law regarding divorce and inheritance to determine if the surviving Joint Owner can remain as a Beneficiary. If state law requires that an ex-spouse be removed as a Beneficiary, then we pay any applicable death benefit to the contingent Beneficiaries or the estate of the deceased if there are no named contingent Beneficiaries.

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PAYEE

The Payee is the person or entity who receives Annuity Payments during the Annuity Phase. The Owner receives tax reporting on those payments. Generally we require the Payee to be an Owner. However, we may allow you to name a charitable trust, financial institution, qualified plan, or an individual specified in a court order as a Payee subject to our approval. For Qualified Contracts owned by a qualified plan, the qualified plan must be the Payee.

ASSIGNMENTS, CHANGES OF OWNERSHIP AND OTHER TRANSFERS OF CONTRACT RIGHTS

You can assign your rights under this Contract to someone else during the Accumulation Phase. An assignment may be absolute or limited, and includes changes of ownership, collateral assignments, or any other transfer of specific Contract rights. After an assignment, you may need the consent of the assignee of record to exercise certain Contract rights depending on the type of assignment and the rights assigned.

You must submit your request to assign the Contract in writing to our Service Center and we must approve it in writing. To the extent permitted by state law, we reserve the right to refuse to consent to any assignment at any time on a nondiscriminatory basis. We will not consent if the assignment would violate or result in noncompliance with any applicable state or federal law or regulation.

Upon our consent, we record the assignment. We are not responsible for the validity or effect of the assignment. We are not liable for any actions we take or payments we make before we receive your request in Good Order and record it. A request is in “Good Order” when it contains all the information we require to process it. Assigning the Contract does not change, revoke or replace the originally named Annuitant or Beneficiary; if you also want to change the Annuitant or Beneficiary you must make a separate request.

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An assignment may be a taxable event. In addition, there are other restrictions on changing the ownership of a Qualified Contract and Qualified Contracts generally cannot be assigned absolutely or on a limited basis.You should consult with your tax adviser before assigning this Contract.

NOTE:

• An assignment does not change the Determining Life (Lives).

• We cannot restrict assignments for Contracts issued in California, Florida, New Jersey, Ohio, and Wisconsin.For Contracts issued in Connecticut, we can only restrict assignments to settlement companies and institutional investors as described in your Contract. The Traditional Death Benefit is only available on the death of a Determining Life. If you assign the Contract and the Determining Life (Lives) are no longer an Owner (or Annuitant if the Owner is a non-individual) the Traditional Death Benefit may not be available.

4. PURCHASING THE CONTRACT

PURCHASE REQUIREMENTS

To purchase this Contract, all Owners and the Annuitant must be age 80 or younger on the Issue Date.

The Purchase Payment requirements for this Contract are as follows.

• The minimum initial Purchase Payment due on the Issue Date is $10,000.

• You can make additional Purchase Payments of $50 or more during the Accumulation Phase.

• We do not accept additional Purchase Payments on or after the Annuity Date.

• The maximum total Purchase Payments we accept without our prior approval is $1 million including amounts already invested in other Allianz Life variable annuities.

We may, at our sole discretion, waive the minimum Purchase Payment requirements.

Once we receive your initial Purchase Payment and all necessary information, we issue the Contract within two Business Days and allocate your payment to your selected Allocation Options. If you do not give us all of the information we need, we contact you or your Financial Professional. If for some reason we are unable to complete this process within five Business Days, we 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 add this money to your Contract on the Business Day we receive it in Good Order. Our Business Day closes when regular trading on the New York Stock Exchange closes.

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If you submit a Purchase Payment and/or application to your Financial Professional, we do not begin processing the payment and/or application until we receive it. A Purchase Payment is “received” when it arrives at the address for mailing checks listed at the back of this prospectus regardless of how or when you submitted them. We forward Purchase Payments we receive at the wrong address to the last address listed at the back of this prospectus, which may delay processing.

We may terminate your ability to make additional Purchase Payments because we reserve the right to decline any or all Purchase Payments at any time on a non-discriminatory basis. This applies to Contracts issued in all states except those listed in the following Note. If mandated under applicable law, we may be required to reject a Purchase Payment.If we exercise our right to no longer allow additional Purchase Payments this may limit your ability to fund your Contract’s guaranteed benefits such as the Traditional Death Benefit.

NOTE:

• For Contracts issued in Florida, New Jersey, and Maryland: We can only decline a Purchase Payment if it would cause total Purchase Payments to be more than $1 million, or if it would otherwise violate the Purchase Payment restrictions of your Contract (for example, we do not allow additional Purchase Payments on or after the Annuity Date).

• For Contracts issued in Utah: We do not accept additional Purchase Payments on or after the first Contract Anniversary.

• For Contracts issued in Mississippi: We do not accept additional Purchase Payments on or after the first Contract Anniversary. During the first Contract Year, we only accept additional Purchase Payments on or after the first Quarterly Contract Anniversary and before the first Contract Anniversary up to the initial amount. Your initial amount is all Purchase Payments received before the first Quarterly Contract Anniversary of the first Contract Year.

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APPLICATIONS SENT ELECTRONICALLY

We accept manually signed applications that are in Good Order and are sent by fax, or email, or uploaded to our website. It is important to verify receipt of any faxed application, or to receive a confirmation number when using email or the web. We are not liable for applications that we do not receive. A manually signed application sent by fax, email or over the web is considered the same as an application delivered by mail. Our electronic systems (fax, email or website) may not always be available; any electronic system can experience outages or slowdowns which may delay application processing. Although we have taken precautions to help our system handle heavy use, we cannot promise complete reliability. If you experience problems, please submit your written application by mail to our Service Center. We reserve the right to discontinue or modify our electronic application policy at any time and for any reason.

ALLOCATION OF PURCHASE PAYMENTS AND TRANSFERS BETWEEN THE ALLOCATION OPTIONS

You can allocate your Purchase Payments to the available Allocation Options. At issue we collect Index Effective Date allocation instructions. You must allocate your money to the Allocation Options in whole percentages. If an Index Option is chosen at issue, then the future Purchase Payment allocation instructions for the portion allocated to the Index Options will be to the AZL Money Market Fund until the next Index Anniversary unless you give us alternate instructions.

We only allow allocations (both Purchase Payments and transfers of Contract Value) into the Index Options on the Index Effective Date and on subsequent Index Anniversaries. We only allow you to move money between Index Options on an Index Anniversary. You cannot move money from one Index Option to another mid-year. When you purchase this Contract you select the Index Effective Date. The Index Effective Date can be any Business Day from the Issue Date up to and including the first Quarterly Anniversary. However, it cannot be the 29th, 30th or 31st of a month. If the Index Effective Date would occur on the 29th, 30th or 31st of a month, we change the Index Effective Date to be the next Business Day.

On each Index Anniversary, if we have not received new allocation instructions from you, all monies invested in an Index Option continue to be invested in that option at the new Caps and Declared Protection Strategy Credit Rates.

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We place any Purchase Payments you allocate to an Index Option that we receive before the Index Effective Date or the next Index Anniversary, as applicable, in the AZL Money Market Fund. Then on the Index Effective Date, we rebalance your Contract Value among your selected Allocation Options according to your Index Effective Date allocation instructions. We only allow transfers of Index Option Value from the Index Options to the Variable Options on every sixth Index Anniversary. We do not require a minimum transfer amount from the Index Options to the Variable Options. At the end of the six-year term, we allow you to transfer all of the money in the Index Options to the Variable Options, even if a portion of that money was added after the start of the six-year term, and has been allocated to the Index Options for less than six years.

You can instruct us on how to allocate additional Purchase Payments, but we do not allow you to invest additional Purchase Payments in Index Options until the next Index Anniversary. If you do not instruct us on how to allocate an additional Purchase Payment, we allocate it according to your future Purchase Payment allocation instructions. The allocation instructions you provide us at issue automatically become your future Purchase Payment allocation instructions until you give us different instructions. However,if those instructions include allocations to the Index Options, we place those allocations in the AZL Money Market Fund until the next Index Anniversary, when we transfer the allocations from the AZL Money Market Fund to the Index Option. We notify you at least 30 days in advance of each Index Anniversary as a reminder that you may transfer Contract Value from the Variable Options to the Index Options on the upcoming anniversary. Contract Value transfers between Allocation Options do not change your future allocation instructions. For more information, see section 5, Variable Options – Electronic Variable Option Transfer and Allocation Instructions.

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You can change your future allocation instructions at any time without fee or penalty. Future allocation instruction changes are effective on the Business Day we receive them in Good Order at our Service Center. If you change your future allocation instructions by writing, telephone, fax, or email, and you are participating in the automatic investment plan, your instructions must include manually signed directions for the plan. We accept changes to future allocation instructions from any Owner unless you instruct otherwise. We may allow you to authorize someone else to change allocation instructions on your behalf.

NOTE: Variable Options are subject to market risk and money allocated to them may lose value before it can be transferred into the Index Options. Additional Purchase Payments that we receive after the Index Effective Date that you allocate to an Index Option are not eligible to receive Credits until the second Index Anniversary after we receive them because they are not applied to the Index Option until the next Index Anniversary.

AUTOMATIC INVESTMENT PLAN (AIP)

The AIP makes additional Purchase Payments to the Variable Options during the Accumulation Phase on a monthly or quarterly basis by electronic money transfer from your savings, checking or brokerage account. You can participate in AIP by completing our AIP form. Our Service Center must receive your form in Good Order by the 15th of the month (or the next Business Day if the 15th is not a Business day) in order for AIP to begin that same month. We process AIP Purchase Payments on the 20th of the month, or the next Business Day if the 20th is not a Business Day. We allocate AIP Purchase Payments according to your future allocation instructions which must comply with the allocation requirements and restrictions stated in this section. AIP has a maximum of $1,000 per month. We must receive your request to stop or change AIP at our Service Center by 4 p.m. Eastern Time on the Business Day immediately before the Business Day we process AIP to make the change that month. If you choose to begin Annuity Payments, AIP ends automatically on the Business Day before the Annuity Date. We reserve the right to discontinue or modify AIP at any time and for any reason.

NOTE: For Owners of Qualified Contracts, AIP is not available if your Contract is funding a plan that is tax qualified under Section 401 of the Internal Revenue Code.

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FREE LOOK/RIGHT-TO-EXAMINE PERIOD

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). If you cancel within the allowed period, in most states we return your Contract Value as of the day we receive your cancellation request. This may be more or less than your initial Purchase Payment. In states that require us to return Purchase Payments less withdrawals if you cancel your Contract, we return Contract Value less withdrawal charges if greater.

IRA Qualified Contracts require us to return Purchase Payments less withdrawals in all states except Pennsylvania which requires us to return Contract Value. For IRA Qualified Contracts issued in a state that requires return of Contract Value, we return the greater of Purchase Payments less withdrawals or Contract Value. For IRA Qualified Contracts issued in a state that requires return of Purchase Payments less withdrawals, we return Contract Value less withdrawal charges if greater.

Some states and certain IRA Qualified Contracts require return of Purchase Payments. For these Contracts, we reserve the right to allocate your initial Purchase Payment to the AZL Money Market Fund until the free look period ends, and then re-allocate your money, less fees and charges, according to your future Purchase Payment allocation instructions. If we allocate your initial Purchase Payment to the AZL Money Market Fund during the free look period and:

• your requested Index Effective Date would occur during this time, we change your Index Effective Date to the next Business Day after the free look period that is not the 29th, 30th or 31st of the month.

• you cancel your Contract during this time, we return the greater of Purchase Payments less withdrawals, or Contract Value.

• you do not cancel your Contract during this time, we re-allocate your money according to your future Purchase Payment allocation instructions after the free look period as follows:

• if your instructions include the Variable Options, we re-allocate this portion of your money on the next Business Day after the free look period.

• if your instructions include the Index Options, we re-allocate this portion of your money on the Index Effective Date.

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Contract Value includes application of the Alternate Minimum Value if the free look occurs after the Index Effective Date and you selected an Index Option.

In the Contract, the free look provision is also called the right-to-examine.

NOTE FOR CONTRACTS ISSUED TO PERSONS AGES 60 OR OLDER IN CALIFORNIA:For Owners age 60 or older (or Annuitants age 60 or older for non-individually owned Contracts), we are required to allocate your initial Purchase Payment to the AZL Money Market Fund during the free look period unless you specify otherwise on the appropriate form. If you want to immediately apply your Purchase Payment to the Index Options or other Variable Options you must opt out of this allocation. If you do not opt out of this allocation to the AZL Money Market Fund your Index Effective Date cannot occur until the free look period has ended.

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5. VARIABLE OPTIONS

The following table lists this Contract’s Variable Options and their associated investment advisers and subadvisers, investment objectives, and primary investments. Depending on market conditions, you can gain or lose value by investing in the Variable Options. In the future, we may add, eliminate or substitute Variable Options to the extent permitted by the federal securities laws and, when required, the Securities & Exchange Commission.

You should read the Variable Options’ prospectuses carefully. The Variable 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. The operation of the Variable Options and their various risks and expenses are described in the Variable Options’ prospectuses. We send you the current copy of the Variable Options’ prospectus when we issue the Contract.(You can also obtain the current Variable Options’ prospectus by contacting your Financial Professional or calling us at the toll-free telephone number listed at the back of this prospectus.)

Currently, the Variable Options are not publicly traded mutual funds. They are available only as Variable 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. A material conflict of interest may arise between insurance companies, owners of different types of contracts, and retirement plans or their participants. Each Variable Option’s Board of Directors monitors for material conflicts, and determines what action, if any, should be taken.

The names, investment objectives and policies of certain Variable Options may be similar to the names, investment objectives and policies of other portfolios managed by the same investment advisers. Although the names, objectives and policies may be similar, the Variable Options’ investment results may be higher or lower than these other portfolios’ results. The investment advisers cannot guarantee, and make no representation, that these similar funds’ investment results will be comparable even though the Variable Options have the same names, investment advisers, objectives, and policies.

Each Variable Option offered by the Allianz Variable Insurance Products Fund of Funds Trust (Allianz VIP Fund of Funds Trust) is a “fund of funds” and diversifies its assets by investing primarily in shares of several other affiliated mutual funds.

The Variable Options may pay12b-1 fees to the Contracts’ distributor, our affiliate, Allianz Life Financial Services, LLC, for distribution and/or administrative services. In addition, we may enter into certain arrangements under which we, or Allianz Life Financial Services, LLC, are compensated by the Variable Options’ advisers, distributors and/or affiliates for administrative services and benefits we provide to the Variable Options. The compensation amount usually is based on the Variable Options’ aggregate assets purchased through contracts we issue or administer. Some advisers may pay us more or less than others. The maximum service fee we currently receive from any Variable Option in any Contract is 0.35% annually of the average aggregate amount invested by us in the Variable Options.

The Allianz VIP Fund of Funds Trust underlying funds do not pay12b-1 fees or service fees to the Trust, and the Trust does not charge12b-1 fees or service fees. The Allianz VIP Fund of Funds Trust underlying funds or their advisers may pay service fees to us and our affiliates for providing customer service and other administrative services to you. Service fees may vary depending on the underlying fund.

We offer other variable annuity contracts that may invest in these Variable 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.

Allianz Investment Management LLC is an adviser/subadviser that is a subsidiary of Allianz Life.

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VARIABLE OPTIONS

Investment Management Company and Adviser/Subadviser	Name of Variable Option	Asset Category	Objective(s)	Primary Investments (Normal market conditions)
ALLIANZ FUND OF FUNDS
Managed by Allianz Investment Management LLC	AZL MVP Balanced Index Strategy Fund	A “Fund of Funds” Model Portfolio	Long-term capital appreciation with preservation of capital as an important consideration	Invests primarily (approximately 80% to 100%) in a combination of five underlying index funds (generally allocated 40% to 60% to underlying equity index funds and 40% to 60% to underlying bond index funds), combined with the MVP (Managed Volatility Portfolio) risk management process intended to adjust the risk of the portfolio based on quantitative indicators of market risk. May invest up to 20% of the Fund’s assets in a combination of derivative and fixed income instruments.
	AZL MVP Growth Index Strategy Fund	A “Fund of Funds” Model Portfolio	Long-term capital appreciation	Invests primarily (approximately 80% to 100%) in a combination of five underlying index funds (generally allocated 65% to 85% to underlying equity index funds and 15% to 35% to underlying bond index funds), combined with the MVP (Managed Volatility Portfolio) risk management process intended to adjust the risk of the portfolio based on quantitative indicators of market risk. May invest up to 20% of the Fund’s assets in a combination of derivative and fixed income instruments.
BLACKROCK
Managed by Allianz Investment Management LLC/BlackRock Advisors, LLC	AZL Money Market Fund	Cash Equivalent	Current income consistent with stability of principal	Invests in a broad range of short-term, high quality U.S. dollar-denominated money market instruments, including government, U.S. and foreign bank, commercial and other obligations. During extended periods of low interest rates, and due in part to contract fees and expenses, the yield of the AZL Money Market Fund may also become extremely low and possibly negative.

SUBSTITUTION OF VARIABLE OPTIONS AND LIMITATION ON FURTHER INVESTMENTS

We may substitute another Variable Option for one of your selected Variable Options, for any reason in our sole discretion. To the extent required by the Investment Company Act of 1940 or other applicable law, we do not substitute any shares without SEC approval and providing you notice. We may make substitutions with respect to your existing allocations, future Purchase Payment allocations, or both. New or substitute Variable Options may have different fees and expenses, and their availability may be limited to certain purchaser classes. We may limit further Variable Option allocations if marketing, tax or investment considerations warrant, or for any reason in our sole discretion. We may also close Variable Options to additional allocations. The fund companies that sell Variable Option shares to us, pursuant to participation agreements, may end those agreements and discontinue offering us their shares.

TRANSFERS BETWEEN VARIABLE OPTIONS

You can make transfers between Variable Options, subject to the following restrictions. Currently, there is no maximum number of transfers allowed, but we may change this in the future. Transfers may be subject to a transfer fee, see section 8, Expenses.

The following applies to any transfer.

• Your request for a transfer must clearly state the Variable Options involved and how much to transfer.

• Your right to make transfers is subject to the Excessive Trading and Market Timing policy discussed later in this section.

• Variable Account Value transfers between Variable Options do not change your future Purchase Payment allocation instructions.

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We process transfer requests based on prices next determined after we receive your request in Good Order at our Service Center. If we do not receive your transfer requestbefore the end of the current Business Day, even if due to our delay in answering your call or a delay caused by our electronic systems, you receive thenext Business Day’s prices. Unless you instruct us not to, we accept transfer instructions from any Owner. We may also allow you to authorize someone else to request transfers on your behalf.

ELECTRONIC TRANSFER AND ALLOCATION INSTRUCTIONS

We use reasonable procedures to confirm that electronic transfer and allocation instructions given to us 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 fax, email and website instructions. We reserve the right to deny any transfer request or allocation instruction change, and to discontinue or modify our electronic instruction privileges at any time for any reason.

Please note that telephone, fax, email and/or the website may not always be available. Any electronic system, whether it is ours, yours, your service provider’s, or your Financial Professional’s, can experience outages or slowdowns for a variety of reasons, which may delay or prevent our processing of your transfer request or allocation instruction change. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability. If you are experiencing problems, you should submit your instructions in writing to our Service Center.

By authorizing electronic instructions, you authorize us to accept and act upon these instructions for your Contract. There are risks associated with electronic communications that do not occur with a written request. Anyone authorizing or making such requests bears those risks. You should protect your website password, because the website is available to anyone with your password; we cannot verify that the person providing instructions on the website is you, or is authorized by you.

EXCESSIVE TRADING AND MARKET TIMING

We may restrict or modify your right to make transfers to prevent any use that we consider to be part of a market timing program.

Frequent transfers, programmed transfers, transfers into and then out of a Variable Option 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.

• Dilution of the interests of long-term investors in a Variable Option, if market timers or others transfer into a Variable Option at prices that are below their true value, or transfer out at prices above their true value.

• An adverse effect on portfolio management, such as causing a Variable Option to maintain a higher level of cash or causing a Variable Option to liquidate investments prematurely.

• Increased brokerage and administrative expenses.

We attempt to protect our Owners and the Variable Options from potentially disruptive trading through our excessive trading and market timing policies and procedures. Under these policies and procedures, we could modify your transfer privileges for some or all of the Variable Options. Unless prohibited by your Contract or applicable state law, we may:

• Limit transfer frequency (for example, prohibit more than one transfer a week, or more than two a month, etc.).

• Restrict the transfer method (for example, requiring all transfers be sent by first-class U.S. mail and rescinding electronic transfer privileges).

• Require a minimum time period between each transfer into or out of the same Variable Option. Our current policy, which is subject to change without notice, prohibits “round trips” within 14 calendar days. We do not include transfers into and/or out of the AZL Money Market Fund when available in your Contract. Round trips are transfers into and back out of the same Variable Option, or transfers out of and back into the same Variable Option.

• Refuse transfer requests made on your behalf by an asset allocation and/or market timing service.

• Limit the dollar amount of any single Purchase Payment or transfer request to a Variable Option.

• Prohibit transfers into specific Variable Options.

• Impose other limitations or restrictions to the extent permitted by federal securities laws.

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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, a Variable Option may be unable to invest effectively in accordance with its investment objectives and policies. This could occur, for example, where frequent or rapid trading causes the investment adviser to hold an excess of uninvested cash to meet redemption requests, or to sell investment positions to fund redemptions, thereby affecting Variable Option returns. Similarly, rapid or frequent trading may cause a Variable Option to incur excessive transaction fees, which also could affect performance.

Currently, we attempt todeter 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 it constitutes disruptive trading, we also impose transfer restrictions. Transfer restrictions may include refusing electronic transfers and requiring all transfers be sent by 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 if we determine, in our sole discretion, that transfers disadvantage other Owners. We notify you in writing if we impose transfer restrictions on you.

We do not include automatic transfers made under any of our programs or Contract features when applying our market timing policy.

We adopted these policies and procedures as a preventative measure to protect all Owners from the potential effects of disruptive trading, while also abiding by your legitimate interest in diversifying your investment and making periodic asset re-allocations based on your personal situation or overall market conditions. We attempt to protect your interests in making legitimate transfers by providing reasonable and convenient transfer methods 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 discussed here. In determining if a transfer is appropriate, we may, but are not required to, take into consideration its relative size, whether it was purely a defensive transfer into the AZL Money Market Fund, and whether it involved an error or similar event. We may also reinstate electronic transfer privileges after we revoke them, but we do not reinstate these privileges if we believe they might be used for future disruptive trading.

We cannot guarantee the following.

• Our monitoring will be 100% successful in detecting all potentially disruptive trading activity.

• Revoking electronic transfer privileges will successfully deter all potentially disruptive trading.

In addition, some of the Variable Options are available to other insurance companies and we do not know if they adopted policies and procedures to detect and deter potentially disruptive trading, or what their policies and procedures might be. Because we may not be completely successful at detecting and preventing market timing activities, and other insurance companies that offer the Variable 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 any state or federal regulatory requirement. In addition, purchase orders for a Variable Option’s shares are subject to acceptance by that Variable Option’s manager. We reserve the right to reject, without prior notice, any Variable Option transfer request or Purchase Payment if the purchase order is rejected by the investment manager. 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 must provide information about you and your trading activities 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 Variable 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 buy orders from us until we comply.

Variable Options may add or change policies designed to restrict market timing activities. For example, Variable Options may impose restrictions on transfers between Variable Options in an affiliated group if the investment adviser to one or more of the Variable Options determines that the person requesting the transfer has engaged, or is engaging in, market timing or other abusive trading activities. In addition, a Variable Option may impose a short-term trading fee on purchases and sales within a specified period. You should review the Variable 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 Variable Option restrictions and actions taken by the Variable Options’ managers.

NOTE: This Contract is not designed for professional market timing organizations, or other persons using programmed, large, or frequent transfers, and we may restrict excessive or inappropriate transfer activity.

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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 how we apply trading restrictions, 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 electronic 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 Variable Option, we may prohibit transfers into or Purchase Payment allocations to that Variable Option. We 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 others are able to engage in potentially disruptive trading practices that have negative effects.

FINANCIAL ADVISER FEES

If you have an investment adviser and want to pay their fees from this Contract, you can submit a written request to our Service Center on a form satisfactory to us. If we approve your request, we withdraw the fee and pay it to your adviser.We treat this fee payment as a withdrawal. For tax purposes in most instances, withdrawals are considered to come from earnings first, not Purchase Payments. If any Owner is under age 59 ¹⁄₂, withdrawals may be subject to a 10% additional federal tax.You should consult a tax adviser regarding the tax treatment of adviser fee payments.

Your investment adviser acts on your behalf, not ours. We are not party to your advisory agreement or responsible for your adviser’s actions. We do not set your adviser’s fee or receive any part of it. Any adviser fee you pay is in addition to this Contract’s fees and expenses. You should ask your adviser about compensation they receive for this Contract.

You can submit a written request to our Service Center on a form satisfactory to us to allow your adviser to make Variable Option transfers on your behalf. However, we reserve the right to review an adviser’s trading history before allowing him or her to make transfers. If, in our sole discretion, we believe the adviser’s trading history indicates excessive trading, we can deny your request. If we approve it, your adviser is subject to the same trading restrictions that apply to Owners. We can deny or revoke trading authority in our sole discretion.

VOTING PRIVILEGES

We legally own the Variable Option shares. However, when a Variable Option holds a shareholder vote that affects your investment, we ask you to give us voting instructions. We then vote all of our shares, including any we own on our behalf, in proportion to those instructions. Because most Owners do not give us instructions and we vote shares proportionally, a small number of Owners may determine a vote’s outcome. If we determine we no longer need to get your voting instructions, we will decide how to vote the shares. Only Owners have voting privileges. Annuitants, Beneficiaries, Payees and other persons have no voting privileges unless they are also Owners.

We determine your voting interest in a Variable Option as follows.

• You can provide voting instructions based on the dollar value of the Variable Option’s shares in your Contract’s subaccount. We calculate this value based on the number and value of accumulation units for your Contract on the record date. We count fractional units.

• You receive proxy materials and a voting instruction form.

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6. VALUING YOUR CONTRACT

Your Contract Value increases and decreases based on Purchase Payments, transfers, withdrawals, deduction of fees and charges, and the performance of your selected Allocation Options. Your Contract Value is the total of the Variable Account Value (if you allocate to the Variable Options) and the total Index Option Value (if you allocate to the Index Options). For information on how we calculate your Index Option Values see section 7, Index Options.

ACCUMULATION UNITS

When we receive a Purchase Payment that you allocate to the Variable Options at our Service Center, we credit your Contract with accumulation units based on the Purchase Payment amount and daily price (accumulation unit value) for the subaccount of your selected Variable Option. A subaccount’s accumulation unit value is based on the price (net asset value) of the underlying Variable Option. A Variable Option’s net asset value is typically determined at the end of each Business Day, and any Purchase Payment received at or after the end of the current Business Day receives the next Business Day’s price.

We arbitrarily set the initial accumulation unit value for each subaccount. On the Issue Date, the number of accumulation units in each subaccount is equal to the initial Purchase Payment amount allocated to a subaccount, divided by that subaccount’s accumulation unit value.

Example

• On Wednesday, we receive at our Service Center an additional Purchase Payment of $3,000 from you before the end of the Business Day.

• When the New York Stock Exchange closes on that Wednesday, we determine that the accumulation unit value is $13.25 for your selected Variable Option.

We then divide $3,000 by $13.25 and credit your Contract on Wednesday night with 226.415094 subaccount accumulation units for your selected Variable Option.

At the end of each Business Day, we adjust the number of accumulation units in each subaccount as follows. Additional Purchase Payments and transfers into a subaccount increase the number of accumulation units. Withdrawals, transfers out of a subaccount, and the deduction of any Contract charge decrease the number of accumulation units.

At the end of each Business Day for each subaccount, we multiply the accumulation unit value at the end of the prior Business Day by the percentage change in value of a Variable Option since the prior Business Day. The percentage change includes the market performance of the Variable Option.

COMPUTING VARIABLE ACCOUNT VALUE

We calculate your Variable Account Value at the end of each Business Day by multiplying each subaccount’s accumulation unit value by its number of accumulation units, and then adding those results together for all subaccounts. Allocations (additional Purchase Payments and transfers of Index Option Value to the Variable Options) increase your Variable Account Value, withdrawals and Contract expenses reduce your Variable Account Value.

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7. INDEX OPTIONS

When you allocate money to the Index Options you earn Credits based on the Index Option you select. Each Index Option is the combination of a Crediting Method and Index. These are the Indices and Crediting Methods we currently offer:

S&P 500® Index	available with	Index Protection Strategy and Index Performance Strategy
Russell 2000® Index and Nasdaq-100® Index	available with	Index Performance Strategy

For more information on the Indices, see Appendix A.

The total Index Option Value is the sum of the values in each of your selected Index Options. Each Index Option Value includes any Credits from previous Index Anniversaries, and the deduction of any previously assessed contract maintenance charge, product fee, and withdrawal charge during the Index Year. Positive Credits are not guaranteed. Credits can be zero or, under the Index Performance Strategy, negative after application of the Buffer.A negative Performance Credit means that you can lose money.We apply Credits on Index Anniversaries. On Index Anniversaries each Index Option Value also increases with any additional Purchase Payment allocated to or transferred into an Index Option and decreases with any transfer out of an Index Option.

On each Business Day during the Index Year other than the Index Effective Date or an Index Anniversary, each Index Option Value under the Index Performance Strategy is valued by using the Daily Adjustment. The Daily Adjustment estimates the present value of positive or negative Performance Credits on the next Index Anniversary. The Daily Adjustment is based on your agreement to be exposed to gains in Index value subject to the Cap and losses in the Index value in excess of the Buffer on the next Index Anniversary. The Daily Adjustment is a calculation mechanism by which Index Option Values are established each Business Day for purposes of computing amounts available for full or partial withdrawals, an annuitization, death benefits, and the Contract Value used to determine the Charge Base and contract maintenance charge. The Daily Adjustment may result in an adjustment up or down from the preceding Index Anniversary or Index Effective Date.

If you take a withdrawal, annuitize the Contract, transfer Contract Value from an Index Option to a Variable Option, or if we pay a death benefit, we calculate the Alternate Minimum Value for each Index Option Value in both Crediting Methods. If we are determining the Alternate Minimum Value for an Index Performance Strategy Index Option Value on any day other than an Index Anniversary, we first calculate the Index Option Value and apply the Daily Adjustment, then compare this value to its associated Alternate Minimum Value and we pay the greater of these two amounts. If we are paying a partial withdrawal, we compare the percentage of Index Option Value with an equivalent percentage of its Alternate Minimum Value. We expect that an Alternate Minimum Value generally will not be greater than its Index Option Value.

NOTE REGARDING WITHDRAWALS DURING THE INDEX YEAR:Amounts removed from the Index Options during the Index Year for partial withdrawals and Contract expenses do not receive a Credit on the next Index Anniversary. However, the remaining amount in the Index Protection Strategy Index Option and Index Performance Strategy Index Options is eligible for a Credit on the next Index Anniversary. Performance Credits under Index Performance Strategy are subject to the Cap and Buffer.

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DETERMINING THEINDEX PROTECTION STRATEGY INDEX OPTION VALUE

On any Business Day, the Index Protection Strategy’s Index Option Value is equal to the amounts you allocate to an Index Option adjusted for withdrawals, Contract expenses, transfers into or out of the Index Option, and the Index Option Base. The Daily Adjustment does not apply to the Index Protection Strategy, but the Alternate Minimum Value does.

On the Index Effective Date both the Index Option Value and the Index Option Base for each of your Index Protection Strategy Index Options are equal to either:

• the amount of your initial Purchase Payment you allocated to Index Protection Strategy if the Index Effective Date is the Issue Date, or

• the amount of Variable Account Value you allocated to Index Protection Strategy.

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At the end of each Business Day during the Index Year we reduce each Index Protection Strategy Index Option Value by the dollar amount withdrawn from the Index Option for partial withdrawals you request and Contract expenses we deduct (any withdrawal charge, product fee and/or contract maintenance charge).

• We deduct partial withdrawals and Contract expenses from the Allocation Options proportionately based on the percentage of Contract Value in each Allocation Option.

• The percentage is equal to each Index Protection Strategy Index Option Value divided by the Contract Value using values determined at the end of the Business Day before we process the withdrawal or deduct the Contract expense.

• However, if you specifically direct us to take a partial withdrawal from an Index Protection Strategy Index Option we reduce that Index Option Value by the dollar amount you specify, including any applicable withdrawal charge.

• We then set each Index Option Base equal to its Index Option Value.

On each Index Anniversary we first determine if you receive the Declared Protection Strategy Credit. If your selected Index’s current value is less than its value on the last Index Anniversary (or the Index Effective Date if this is the first Index Anniversary), you do not receive the Declared Protection Strategy Credit. If your selected Index’s current value is equal to or greater than its value on the last anniversary, you receive the Declared Protection Strategy Credit as follows.

• We multiply the Index Option Base by its Declared Protection Strategy Credit and add this amount to the Index Option Base.

• Then we set each Index Option Value equal to the Index Option Base.

Then we increase and/or decrease each Index Option Base and Index Option Value on the Index Anniversary for additional Purchase Payments, transfers into or out of the Index Option, partial withdrawals and the deduction of any Contract expenses.

• Additional Purchase Payments received and allocated to this Index Option and transfers of Variable Account Value or Index Option Value into this Index Option increase these values by the dollar amount allocated to this Index Option.

• Transfers out of this Index Option reduce these values by the dollar amount removed from the Index Option.

• Partial withdrawals and Contract expenses reduce these values as on any other Business Day.

Lastly, at the end of each Business Day during the Index Year, we apply the Alternate Minimum Value as discussed later in this section, if you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit.

DETERMINING THEINDEX PERFORMANCE STRATEGY INDEX OPTION VALUES

We use the Index Option Base to determine the Index Option Value. On each Index Anniversary we determine each of your selected Index Performance Strategy’s Index Option Values by applying its associated Performance Credit to its Index Option Base. On any day other than an Index Anniversary each Index Option Value is equal to the Index Option Base plus the Daily Adjustment as discussed later in this section.

On the Index Effective Date both the Index Option Value and the Index Option Base for each of your selected Index Performance Strategy Index Options are equal to either:

• the amount of your initial Purchase Payment you allocated to that Index Option if the Index Effective Date is the Issue Date, or

• the percentage of Variable Account Value you allocated to that Index Option.

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At the end of each Business Day during the Index Yearother than the Index Effective Date or Index Anniversary we first add each Index Performance Strategy Index Option’s Daily Adjustment to its Index Option Base and determine its Index Option Value (as discussed later in this section) before we process any partial withdrawal or deduct any Contract expenses.

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At the end of each Business Day during the Index Year we reduce each Index Performance Strategy Index Option Value by the dollar amount withdrawn from the Index Option for partial withdrawals you request and Contract expenses we deduct (any withdrawal charge, product fee and/or contract maintenance charge).

• We deduct partial withdrawals and Contract expenses from the Allocation Options proportionately based on the percentage of Contract Value in each Allocation Option.

• The percentage is equal to each Index Performance Strategy’s Index Option Value divided by the Contract Value using values determined at the end of the Business Day before we process the withdrawal or deduct the Contract expense.

• However, if you specifically direct us to take a partial withdrawal from an Index Performance Strategy Index Option we reduce that Index Option Value by the dollar amount you specify, including any applicable withdrawal charge.

• We then reduce each Index Option Base by the same percentage that the amount withdrawn reduced its associated Index Option Value.

On each Index Anniversary we first determine your Performance Credit. If the Index Return is positive, you receive a positive Performance Credit adjusted by the Cap. For example if the Cap is 8% and the Index Return is 10%, you receive a 8% Performance Credit. If the Index Return is negative we apply the Buffer and determine if you receive a negative Performance Credit. For example, if the Buffer is 10% and the Index Return is -8%, we apply a Performance Credit of zero to your Index Option Base. If instead the Index Return is -12%, we apply a -2% Performance Credit to your Index Option Base. We then apply the Performance Credit to the Index Option as follows:

• We multiply each Index Option Base by its Performance Credit and add this amount to its Index Option Base.

• Then we set each Index Option Value equal to its Index Option Base.

Then we increase and/or decrease each Index Option Base and Index Option Value on the Index Anniversary for additional Purchase Payments, transfers into or out of the Index Option, partial withdrawals and the deduction of any Contract expenses.

• Additional Purchase Payments received and allocated to this Index Option and transfers of Variable Account Value or Index Option Value into this Index Option increase these values by the dollar amount allocated to this Index Option.

• Transfers out of this Index Option reduce these values by the dollar amount removed from the Index Option.

• Partial withdrawals and Contract expenses reduce these values as on any other Business Day.

Lastly, at the end of each Business Day during the Index Year we compare each Index Performance Strategy Index Option Value to its Alternate Minimum Value as discussed later in this section, if you take a withdrawal, annuitize the Contract, transfer Contract Value out of Index Options, or if we pay a death benefit. If the Alternate Minimum Value calculation occurs on any day other than an Index Anniversary, this comparison occurs after we apply the Daily Adjustment, and we pay the greater of these two amounts.

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Index Performance Strategy Index Option Value Daily Adjustment

We designed the Daily Adjustment to provide an Index Option Value during the Accumulation Phase on days other than the Index Effective Date or an Index Anniversary. The Daily Adjustment generally reflects the change in market value of your allocation to an Index Performance Strategy Index Option. We apply a Daily Adjustment to the Index Performance Strategy Index Option Values for purposes of computing amounts available for withdrawal, annuitization, death benefits, and the Contract Value used to determine the Charge Base and contract maintenance charge. The Daily Adjustment directly increases or decreases your Index Performance Strategy Index Option Values. The Daily Adjustment is different from the method we use to apply Performance Credits to an Index Option on an Index Anniversary. The Daily Adjustment is meant to approximate the Index Option Value on the next Index Anniversary, as adjusted for gains during the Index Year subject to the Cap and losses in excess of the Buffer. The application of the Daily Adjustment is based on your agreement to be exposed to Index Anniversary gains in Index value subject to the Cap and losses in Index value in excess of the Buffer. The Daily Adjustment does this by using a Black Scholes model to track the hypothetical value of a Proxy Investment (called the Proxy Value) each Business Day other than an Index Anniversary. The Proxy Investment is designed to return the same amount as the Index Option on an Index Anniversary (an amount equal to the Performance Credit as determined using the applicable Cap and Buffer). Between Index Anniversaries, the Proxy Investment provides a current estimate of what the Index value gain or loss would be if the investment were held until the Index Anniversary. The actual value of the relevant Index is not used in the Daily Adjustment calculation. The Daily Adjustment does not give you the actual Index return on the day of the calculation.

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The Daily Adjustment can be positive or negative. When the Daily Adjustment is positive, an Index Option Value is higher than the Index Option Base. When the Daily Adjustment is negative, an Index Option Value is lower than the Index Option Base. The Daily Adjustment will differ from the Index Return. The Daily Adjustment is affected by the length of time until the next Index Anniversary and it is generally negatively affected by increases in the expected volatility of index prices, interest rate decreases, and by poor market performance. All other factors being equal, even if the current Index Return during the Index Year is greater than the Cap, the Daily Adjustment will be lower than the Cap during the Index Year and will not be equal to the Cap until the next Index Anniversary.Even if the current Index Return during the Index Year is within the Buffer or positive, the Daily Adjustment may be negative until the next Index Anniversary.

At the end of each Business Day during the Index Year (other than the Index Effective Date or Index Anniversary) we add each Daily Adjustment to its Index Option Base to calculate each Index Option Value before we process any partial withdrawal or deduct any Contract expenses.

For more information on how we calculate the Daily Adjustment see Appendix B.

Index Performance Strategy Index Option Value Performance Locks

Under the Index Performance Strategy you can lock in a current Index Option Value by requesting a Performance Lock. You can request a lock once each Index Year for each of your selected Index Performance Strategy Index Options. A Performance Lock applies to the total Index Option Value in an Index Option, and not just a portion of that Index Option Value. After the Lock Date Daily Adjustments do not apply for the remainder of the Index Year and the Index Option Value will not receive a Performance Credit on the next Index Anniversary. However, the Index Option Value does decrease during the remainder of the Index Year for any partial withdrawals and the deduction of any Contract expenses.

Beginning on the next Index Anniversary, your locked Index Performance Strategy Index Options will no longer be locked and Daily Adjustments will again apply.

A Performance Lock can help eliminate doubt about future Index performance and possibly limit the impact, or avoid receiving, a negative Performance Credit. The disadvantage of taking a Performance Lock is that the relevant Index value may increase until the next Index Anniversary, and you will not participate in that increase. In addition, if you exercise a Performance Lock, you may receive less than the full Cap or less than the full protection of the Buffer that you would have received if you waited for us to apply the Performance Credit on the next Index Anniversary.

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THE ALTERNATE MINIMUM VALUE

The Alternate Minimum Value is the guaranteed minimum on each of your Index Option Values if we pay a death benefit, upon annuitization, if you take a withdrawal, or if you transfer Contract Value from an Index Option to a Variable Option. The Alternate Minimum Value applies to both of the Crediting Methods. If we are determining the Alternate Minimum Value for an Index Performance Strategy Index Option on any day other than an Index Anniversary, we first calculate the Index Option Value and apply the Daily Adjustment, then compare this value to its associated Alternate Minimum Value and we pay the greater of these two amounts. On the Index Effective Date the Alternate Minimum Value for each of your Index Options is equal to the Index Option Base multiplied by the AMV Factor. On each day during the Index Year, the Alternate Minimum Value is equal to the Index Option Base on the last Index Anniversary (or the Index Effective Date if this is the first Index Year) (adjusted for any withdrawals, including any withdrawal charge) multiplied by the AMV Factor plus the Accumulated Alternate Interest. We then add the Daily Adjustment if this is an Index Performance Strategy Index Option.

We establish the Alternate Minimum Base for each of your Index Options. On the Index Effective Date it is equal to the Index Option Base multiplied by the AMB Factor. The Accumulated Alternate Interest is the total interest your Contract has earned under the Alternate Minimum Value. The interest that is added each day to the Accumulated Alternate Interest is equal to the Alternate Minimum Base multiplied by the alternate interest rate, then dividing this result by 365. We set the alternate interest rate on the Issue Date and it does not change during the time you own your Contract

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On each Index Anniversary we reset your Alternate Minimum Value to equal the new Index Option Base multiplied by the AMV Factor plus the Accumulated Alternate Interest. We also reset your Alternate Minimum Base to equal the Index Option Base multiplied by the AMB Factor plus the Accumulated Alternate Interest. The Accumulated Alternate Interest does not reset on the Index Anniversary. The Index Option Base is determined at the end of the day on the Index Anniversary after applying any Credit, additional Purchase Payment, transfers into or out of the Index Option, partial withdrawals and Contract expenses. If you receive no Credits, or only modest Credits, over many years the Alternate Minimum Value may be higher than the Index Option Value. However, we expect that an Alternate Minimum Value generally will not be greater than its Index Option Value.

If you take a full withdrawal, annuitize the Contract, or we pay a death benefit we compare each of your Index Option Values (after any applicable withdrawal charge, final product fee, and final contract maintenance charge) and its associated Alternate Minimum Value using values determined at the end of the Business Day. If any Index Option Value is less than its Alternate Minimum Value, we increase the Index Option Value to equal its Alternate Minimum Value before we calculate Annuity Payments or pay out any Contract Value as a withdrawal or death benefit.

If you take a partial withdrawal or transfer Index Option Value to a Variable Option, we compare the percentage of Index Option Value withdrawn (including any applicable withdrawal charge) with an equivalent percentage of its Alternate Minimum Value using values determined at the end of the Business Day we process the partial withdrawal or transfer. If the percentage of Index Option Value is less than the equivalent percentage of Alternate Minimum Value, we add the difference to the amount we pay to you as a partial withdrawal or to the amount transferred.

You can find more information about the Alternate Minimum Value at Exhibit 99(a) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This information is incorporated by reference into this prospectus. You can obtain a copy of Exhibit 99(a) by calling (800) 624-0197.

OPTIONAL REBALANCING PROGRAM

Your selected Index Options’ performance may cause the percentage of total Index Option Value in each Index Option to change. Rebalancing can help you maintain your selected Index Option allocation percentages. You can direct us to automatically adjust your Index Option Value on each Index Anniversary (or on the next Business Day if the Index Anniversary is not a Business Day) according to your instructions. We must receive your optional rebalancing program form in Good Order at our Service Center by 4 p.m. Eastern Time on the Business Day before we rebalance. We reserve the right to discontinue or modify the optional rebalancing program at any time and for any reason. To end this program, we must receive your request at our Service Center by 4 p.m. Eastern Time on the Business Day immediately before the Index Anniversary.

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8. EXPENSES

Contract fees and expenses reduce your investment return and are described here in detail.

PRODUCT FEE

We deduct a product fee from your Contract Value during the Accumulation Phase, under death benefit payment Option B, and with optional payments under death benefit payment Option C as noted in section 11, Death Benefit. The product fee is an annualized rate of 1.25% that is calculated and accrued on a daily basis as a percentage of the Charge Base.

The Charge Base is initially equal to the Purchase Payment received on the Issue Date. At the end of each Business Day, we adjust the Charge Base as follows.

• We increase it by the amount of any additional Purchase Payments.

• We reduce it by the percentage of any Contract Value withdrawn. Withdrawals include all Contract expenses (withdrawal charge, product fee, contract maintenance charge, and transfer fee).

On each Quarterly Contract Anniversary (or on the next Business Day if the Quarterly Contract Anniversary is not on a Business Day) the Charge Base is equal to the Contract Value determined at the end of the Business Day.

We begin calculating and accruing the daily product fee amount on the day after the Issue Date. We deduct the product fee on each Quarterly Contract Anniversary (or the next Business Day if the Quarterly Contract Anniversary is not a Business Day) with the following exceptions.

• If you withdraw the total Contract Value, we deduct the final product fee (the total of all daily product fees we calculated for the current Contract quarter) before processing the withdrawal.

• If you annuitize the Contract, we deduct the final product fee before calculating Annuity Payments.

• Upon the death of an Owner (or Annuitant if the Owner is a non-individual), we deduct the final product fee before calculating the death benefit if death benefit payment Option A or Annuity Payments under death benefit payment Option C is selected.

We deduct the product fee on a dollar for dollar basis from the Contract Value and we deduct it proportionately from each Allocation Option.

We do not treat the deduction of the product fee as a withdrawal when computing total Purchase Payments adjusted for withdrawals under the Traditional Death Benefit (see section 11). If on a Quarterly Contract Anniversary (or the next Business Day if the Quarterly Contract Anniversary is not a Business Day) the Contract Value is less than the product fee, we deduct your total remaining Contract Value to cover the final product fee and reduce your Contract Value to zero. If the deduction of the final product fee reduces your Contract Value to zero and the Traditional Death Benefit has ended, we treat this as a full withdrawal and your Contract ends.

Changes to the Charge Base change the product fee amount. For example, if you make an additional Purchase Payment both your Charge Base and daily product fee amount also increase. Similarly, a withdrawal decreases both your Charge Base and daily product fee amount.

The product fee compensates us for all your Contract’s benefits, including our contractual obligation to make Annuity Payments, certain Contract expenses, and assuming the expense risk that the current charges are less than future Contract administration costs. If the product fee covers these costs and risks, any excess is profit to us. We anticipate making such a profit.

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CONTRACT MAINTENANCE CHARGE

Your annual contract maintenance charge is $50. This charge is for Contract administration and maintenance expenses. We waive this charge as follows:

• During the Accumulation Phase, if the total Contract Value for all Index Advantage Contracts you own is at least $100,000 at the end of the last Business Day before the Contract Anniversary, or if the Contract Value for this single Index Advantage Contract is at least $100,000 on the Contract Anniversary. We determine the total Contract Value for all individually owned Index Advantage Contracts by using the Owner’s social security number, and for non-individually owned Index Advantage Contracts we use the Annuitant’s social security number.

• During the Annuity Phase if the Contract Value on the last Business Day before the Annuity Date is at least $100,000.

• When paying death benefits under death benefit payment options A, B, or C.

During the Accumulation Phase, we deduct the contract maintenance charge on a dollar for dollar basis from the Contract Value on the Contract Anniversary and we deduct it proportionately from each Allocation Option. If you take a full withdrawal from your Contract (other than on a Contract Anniversary), we deduct the full contract maintenance charge. We do not treat the deduction of the contract maintenance charge as a withdrawal when computing total Purchase Payments adjusted for withdrawals under the Traditional Death Benefit. During the Annuity Phase, we deduct the contract maintenance charge proportionately from each Annuity Payment.

WITHDRAWAL CHARGE

You can take withdrawals during the Accumulation Phase. A withdrawal charge applies if any part of a withdrawal comes from a Purchase Payment that is still within the withdrawal charge period. We assess the withdrawal charge against the Withdrawal Charge Basis, which is equal to total Purchase Payments, less any Purchase Payment withdrawn (excluding any penalty-free withdrawals), and less any applicable withdrawal charge. We do not reduce the Withdrawal Charge Basis for any amounts we deduct to pay other Contract expenses.

We do not assess a withdrawal charge on penalty-free withdrawals or amounts we deduct to pay Contract expenses, other than the withdrawal charge. However, any amounts used to pay a withdrawal charge are subject to a withdrawal charge.Amounts withdrawn to pay investment adviser fees are subject to a withdrawal charge if they exceed the free withdrawal privilege. Penalty-free withdrawals include: withdrawals under the free withdrawal privilege and waiver of withdrawal charge benefit and; payments under our minimum distribution program.

For purposes of calculating any withdrawal charge, we withdraw Purchase Payments on a “first-in-first-out” (FIFO) basis and we process withdrawal requests as follows.

1. First we withdraw from Purchase Payments that we have had for six or more complete years, which is your Contract’s withdrawal charge period). This withdrawal is not subject to a withdrawal charge and it reduces the Withdrawal Charge Basis.

2. Then, if this is a partial withdrawal, we withdraw from the free withdrawal privilege (see section 9, Access to Your Money – Free Withdrawal Privilege). This withdrawal is not subject to a withdrawal charge and it does not reduce the Withdrawal Charge Basis.

3. Next, on a FIFO basis, we withdraw from Purchase Payments within your Contract’s withdrawal charge period and assess a withdrawal charge. Withdrawing payments on a FIFO basis may help reduce the total withdrawal charge because the charge declines over time. We determine your total withdrawal charge by multiplying each payment by its applicable withdrawal charge percentage and then totaling the charges. This withdrawal reduces the Withdrawal Charge Basis.

4. Finally we withdraw any Contract earnings. This withdrawal is not subject to a withdrawal charge and it does not reduce the Withdrawal Charge Basis.

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The withdrawal charge as a percentage of each Purchase Payment withdrawn is as follows.

Number of Complete Years Since Purchase Payment	Withdrawal Charge Amount(1)
0		8.5	%
1		8	%
2		7	%
3		6	%
4		5	%
5		4	%
6 years or more		0	%

(1) In Iowa and Pennsylvania the withdrawal charge is 8.25%, 8%, 7%, 6%, 5%, 4% and 0% for the time periods referenced. In Mississippi the withdrawal charge is 8.5%, 7.5%, 6.5%, 5.5%, 5%, 4% and 0% for the time periods referenced.

Upon a full withdrawal, we first deduct any applicable product fee and contract maintenance charge before we calculate the withdrawal charge. We deduct any applicable withdrawal charge from the total Contract Value and send you the remaining amount. For a partial withdrawal we deduct the amount you request, plus any applicable withdrawal charge from the total Contract Value. We apply the withdrawal charge to this total amount and we pay you the amount you requested. We deduct any partial withdrawal (including any withdrawal charge) proportionately from each Allocation Option unless you provide us with alternate instructions. If a partial withdrawal occurs on a day that we also assess the product fee and/or contract maintenance charge, we assess these charges in this order after we deduct the withdrawal and any applicable withdrawal charge from the Contract Value.

The withdrawal charge compensates us for expenses associated with selling the Contract.

Example: You make an initial Purchase Payment of $30,000 and make another Purchase Payment in the first month of the second Contract Year of $70,000. In the third month of the third Contract Year, your Contract Value is $110,000 and you request a $52,000 withdrawal. We withdraw money and compute the withdrawal charge as follows.

1) Purchase Payments beyond the withdrawal charge period. All payments are still within the withdrawal charge period, so this does not apply.

2) Amounts available under the free withdrawal privilege. You did not take any other withdrawals this year, so you can withdraw up to 10% of your total payments (or $10,000) without incurring a withdrawal charge.

3) Purchase Payments on a FIFO basis. The total amount we withdraw from the first Purchase Payment is $30,000, which is subject to a 7% withdrawal charge, and you receive $27,900. We determine this amount as follows:

(amount withdrawn) x (1 – withdrawal charge) = the amount you receive, or:

$30,000 x 0.93 = $27,900.

Next we withdraw from the second Purchase Payment. So far, you received $37,900 ($10,000 under the free withdrawal privilege and $27,900 from the first Purchase Payment), so we withdraw $14,100 from the second Purchase Payment to equal the $52,000 you requested. The second Purchase Payment is subject to an 8% withdrawal charge. We calculate the total amount withdrawn and its withdrawal charge as follows:

(the amount you receive) ÷ (1 – withdrawal charge) = amount withdrawn, or:

$14,100 ÷ 0.92 = $15,326.

4) Contract earnings. We already withdrew your requested amount, so this does not apply.

In total we withdrew $55,326 from your Contract, of which you received $52,000 and paid a withdrawal charge of $3,326.

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Reduction or Elimination of the Withdrawal Charge

We may reduce or eliminate the withdrawal charge when the Contract is sold under circumstances that reduce its sales expenses. For example, if a large group of individuals purchases Contracts 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 eliminate the withdrawal charge when a Contract is sold by a Financial Professional appointed with Allianz Life to any members of his or her immediate family and the Financial Professional waives their commission. We must pre-approve any withdrawal charge reduction or elimination. Keep in mind that if you withdraw money from an Index Performance Strategy Index Option on any day other than an Index Anniversary, we apply the Daily Adjustment when calculating your Index Option Value for the withdrawal, even if the withdrawal is not subject to a withdrawal charge.

NOTE:

• Because we do not reduce the Withdrawal Charge Basis for penalty-free withdrawals or the deduction of other Contract expenses, we may assess a withdrawal charge on more than the amount you are withdrawing upon a full withdrawal of the total Contract Value. Also, upon full withdrawal, if the Contract Value has declined due to poor performance, the withdrawal charge may be greater than the total Contract Value and you will not receive any money.

• Withdrawals may have tax consequences and, if taken before age 59 ¹⁄₂, may be subject to a 10% additional federal tax. For tax purposes in most instances, withdrawals from Non-Qualified Contracts are considered to come from earnings first, not Purchase Payments.

• For Contracts issued in Florida:The withdrawal charge cannot exceed 10% of the Contract Value withdrawn.

TRANSFER FEE

The first twelve transfers between Variable Options every Contract Year are free. After that, we deduct a $25 transfer fee for each additional transfer. We count all transfers made in the same Business Day as one transfer. We do not count transfers between the Variable Options and Index Options or reallocation of Index Option Value among the Index Options against the free transfers we allow and these transfers are not subject to a transfer fee. The transfer fee continues to apply under death benefit payment Option B, and with optional payments under death benefit payment Option C as noted in section 11, Death Benefit.

We deduct the transfer fee on a dollar for dollar basis from the amount of Variable Account Value being transferred before allocating the remaining Variable Account Value to your selected Variable Options. We do not treat the deduction of the transfer fee as a withdrawal when computing total Purchase Payments adjusted for withdrawals under the Traditional Death Benefit.

PREMIUM TAX

Premium tax is based on your state of residence at the time you make each Purchase Payment. In states that assess a premium tax, we do not currently deduct it from the Contract, although we reserve the right to do so in the future. Premium tax normally ranges from 0% to 3.5% of the Purchase Payment, depending on the state or governmental entity.

INCOME TAX

Currently, we do not deduct any Contract related income tax we incur, although we reserve the right to do so in the future.

VARIABLE OPTION EXPENSES

The Variable Options’ assets are subject to operating expenses (including management fees). These expenses are described in the Fee Tables and in the Variable Options’ prospectuses. These expenses reduce the Variable Options’ performance and, therefore, negatively affect your Contract Value and any payments based on Contract Value. The Variable Options’ investment advisers provided us with the expense information in this prospectus and we did not independently verify it.

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9. ACCESS TO YOUR MONEY

The money in your Contract is available under the following circumstances:

• by withdrawing your Contract Value;

• by taking required minimum distributions (Qualified Contracts only) as discussed in “Minimum Distribution Program and Required Minimum Distribution (RMD) Payments” later in this section;

• by taking Annuity Payments; or

• when we pay a death benefit.

You can take withdrawals during the Accumulation Phase. We process withdrawal requests based on values next determined after receipt of the request in Good Order at our Service Center. 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 receives the next Business Day’s values.

Any partial withdrawal must be for at least $100.* The Contract Value after a partial withdrawal must be at least $2,000.*We reserve the right to treat a partial withdrawal that reduces the Contract Value below this minimum as a full withdrawal.

* Does not apply to required minimum distributions.

We deduct any partial withdrawal (including any withdrawal charge) proportionately from each Allocation Option unless you provide us with alternate instructions. If you are withdrawing money from an Index Option we also apply any Alternate Minimum Value to the amount we send you as described in section 7, Index Options – Alternate Minimum Value.

When you take a full withdrawal, we process your request on the Business Day we receive it in Good Order at our Service Center as follows:

• total Contract Value,

• less any final product fee and final contract maintenance charge,

• less any withdrawal charge, and

• plus any increase from the application of the Alternate Minimum Value if you selected an Index Option.

See the Fee Tables and section 8, Expenses for a discussion of these charges. See also section 7, Index Options – Alternate Minimum Value.

We pay withdrawals within seven days of receipt of your request in Good Order at our Service Center, unless the suspension of payments or transfers provision is in effect (see the discussion later in this section).

NOTE:

• Ordinary income taxes and tax penalties may apply to any withdrawal you take.

• We may be required to provide information about you or your Contract to government regulators. We may also be required to stop Contract disbursements and thereby refuse any transfer requests, and refuse to pay any withdrawals, surrenders, or death benefits until we receive instructions from the appropriate regulator. If, pursuant to SEC rules, the AZL Money Market Fund suspends payment of redemption proceeds in connection with a fund liquidation, we will delay payment of any transfer, partial withdrawal, surrender, or death benefit from the AZL Money Market Fund subaccount until the fund is liquidated.

• For Contracts issued in Montana: If you take a partial withdrawal that reduces the Contract Value below $2,000, we contact you by phone and give you the option of modifying your withdrawal request. If we cannot reach you, we process your request as a full withdrawal.

• For Contracts issued in Texas: We only treat a partial withdrawal that reduces the Contract Value below $2,000 as a full withdrawal if you have not made an additional Purchase Payment in the past two calendar years.

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FREE WITHDRAWAL PRIVILEGE

Each Contract Year, you can withdraw up to 10% of your total Purchase Payments without incurring a withdrawal charge (the free withdrawal privilege). Any unused free withdrawal privilege in one Contract Year is not added to the amount available next year. Withdrawals of Purchase Payments that are beyond the withdrawal charge period are not subject to a withdrawal charge and do not reduce your free withdrawal privilege. Required minimum distribution payments are not subject to a withdrawal charge, but do reduce your free withdrawal privilege.

NOTE: The free withdrawal privilege is not available upon a full withdrawal.

SYSTEMATIC WITHDRAWAL PROGRAM

If your Contract Value is at least $25,000, the systematic withdrawal program can provide automatic withdrawal payments to you. You can request to receive these withdrawal payments monthly, quarterly, semi-annually or annually. The minimum amount you can withdraw under this program is $100 and there is no maximum. During the withdrawal charge period (if applicable), systematic withdrawals in excess of the free withdrawal privilege are subject to a withdrawal charge. We make systematic withdrawals on the ninth of the month, or the next Business Day if the ninth is not a Business Day. We must receive your systematic withdrawal program form instructions in Good Order at our Service Center by 4 p.m. Eastern Time on the Business Day before we process these withdrawals, or your program does not begin until the next month. This program ends at your request or when you withdraw your total Contract Value. However, we reserve the right to discontinue or modify the systematic withdrawal program at any time and for any reason.

NOTE:

• Ordinary income taxes and tax penalties may apply to systematic withdrawals.

• The systematic withdrawal program is not available while you are receiving required minimum distribution payments.

MINIMUM DISTRIBUTION PROGRAM AND REQUIRED MINIMUM DISTRIBUTION (RMD) PAYMENTS

If you own a Qualified Contract, you can participate in the minimum distribution program during the Accumulation Phase. Under this program, we make payments to you designed to meet the applicable minimum distribution requirements imposed by the Internal Revenue Code for this Qualified Contract. RMD payments are not subject to a withdrawal charge, but they reduce the free withdrawal privilege amount during the Contract Year. We can make payments to you on a monthly, quarterly, semi-annual or annual basis. However, if your Contract Value is less than $25,000, we only make annual payments. You cannot aggregate RMD payments between this Contract and other qualified contracts that you own. We make RMD payments on the ninth of the month, or the next Business Day if the ninth is not a Business Day. We must receive your program form instructions in Good Order at our Service Center by 4 p.m. Eastern Time on the Business Day before we process these payments, or your program does not begin until the next month.

NOTE:

• You should consult a tax adviser before purchasing a Qualified Contract that is subject to RMD payments.

• The minimum distribution program is not available while you are receiving systematic withdrawals.

WAIVER OF WITHDRAWAL CHARGE BENEFIT

After the first Contract Year, if any Owner becomes confined to a nursing home for a period of at least 90 consecutive days and a physician certifies that continued confinement is necessary, you can take a withdrawal and we waive the withdrawal charge. This waiver is not available if any Owner was confined to a nursing home on the Issue Date. We base this benefit on the Annuitant for non-individually owned Contracts. We must receive proof of confinement in Good Order before we waive the withdrawal charge.

NOTE FOR CONTRACTS ISSUED IN:

• Massachusetts –The waiver of withdrawal charge benefit is not available.

• New Hampshire –The definition of nursing home is an institution operated in accordance with state law.

• Pennsylvania –The waiver is not available if on the Issue Date, an Owner was confined to a nursing home or was already diagnosed with a terminal illness. Also, the nursing home confinement requirement is a total of 90 days within a six month period. These 90 days do not need to be consecutive.

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SUSPENSION OF PAYMENTS OR TRANSFERS

We may be required to suspend or postpone transfers or payments for withdrawals for any period when:

• the New York Stock Exchange is closed (other than customary weekend and holiday closings);

• trading on the New York Stock Exchange is restricted;

• an emergency (as determined by the SEC) exists as a result of which disposal of the Variable Option shares is not reasonably practicable or we cannot reasonably value the Variable Option shares; or

• during any other period when the SEC, by order, so permits for the protection of Owners.

10. THE ANNUITY PHASE

Prior to annuitization, you can surrender your Contract and receive your total Contract Value (less the final product fee, final contract maintenance charge, and any applicable withdrawal charge).

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 apply your Contract Value to regular periodic fixed annuity payments (Annuity Payments). The Payee receives the Annuity Payments. You receive tax reporting on the payments, whether or not you are the Payee. We may require proof of the Annuitant(s)’ age before we make any life contingent Annuity Payment. If you misstate the Annuitant(s)’ age or gender, we pay the amount that would have been paid at the true age or gender.

CALCULATING YOUR ANNUITY PAYMENTS

We base Annuity Payments upon the following:

• The Contract Value on the Annuity Date.

• The age of the Annuitant and any joint Annuitant on the Annuity Date.

• The gender of the Annuitant and any joint Annuitant where permitted.

• The Annuity Option you select.

• Your Contract’s interest rate (or current rates, if higher) and mortality table.

If the Annuity Date is not an Index Anniversary and you selected the Index Performance Strategy, Contract Value includes the Daily Adjustment. Contract Value also includes any increase from the Alternate Minimum Value if you selected any of the available Index Options. If you annuitize on any day other than a Contract Anniversary, the Declared Protection Strategy Credit for the current Index Year is not applied to your Annuity Payments. We guarantee the dollar amount of Annuity Payments and this amount remains fixed and does not change during the entire annuity payout option period that you selected, except as provided under Annuity Option 3. The contract maintenance charge is deducted proportionately from each Annuity Payment, unless your beginning annuitization value is greater than $100,000.

ANNUITY PAYMENT OPTIONS

You can choose one of the Annuity Options described below or any other payment option to which we agree. Before the Annuity 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.

Option 1. Life Annuity. We make Annuity Payments during the life of the Annuitant, and the last payment is the one that is due before the Annuitant’s death. If the Annuitant dies shortly after the Annuity 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 make Annuity Payments during the life of the Annuitant, with payments for a guaranteed minimum period that you select.

Option 3. Joint and Last Survivor Annuity.We make Annuity Payments during the lifetimes of the Annuitant and the joint Annuitant. Upon the death of one Annuitant, Annuity Payments to the Payee continue during the lifetime of the surviving joint Annuitant, at a level of 100%, 75% or 50% selected by the Owner when he or she chose this Annuity Payment option. If both Annuitants die shortly after the Annuity Date, the Payee may receive less than your investment in the Contract.

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Option 4. Joint and Last Survivor Annuity with Payments Over 5, 10, 15 or 20 Years Guaranteed. We make Annuity Payments during the lifetimes of the Annuitant and the joint Annuitant, with payments for a minimum guaranteed period that you select.

Option 5. Refund Life Annuity. We make Annuity Payments during the lifetime of the Annuitant, and the last payment is the one that is due before the Annuitant’s death. After the Annuitant’s death, the Payee may receive a lump sum refund. The amount of the refund equals the amount applied to this Annuity Option minus the total paid under this option.

After the Annuitant’s death under Option 2, or the last surviving joint Annuitant’s death under Option 4, we make Annuity Payments during the remaining guaranteed period in the following order based on who is still alive: the Payee, any surviving original Owner, the last surviving Owner’s Beneficiaries, or to the last surviving Owner’s estate if there are no remaining or named Beneficiaries.

Annuity Payments are usually 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. If you choose life contingent Annuity Payments, payout rates for a younger Annuitant are lower than the payout rates for an older Annuitant and payout rates for life with a guaranteed period are typically lower than life only payments. Monthly payout rates are lower than annual payout rates, payout rates for a 20-year guaranteed period are less than payout rates for a 10-year guaranteed period, and payout rates for a 50-year-old Annuitant are less than payout rates for a 70-year-old Annuitant.

NOTE: If you do not choose an Annuity Option before the Annuity Date, we make Annuity Payments to the Payee under Annuity Option 2 with ten years of guaranteed monthly payments.

WHEN ANNUITY PAYMENTS BEGIN

Annuity Payments begin on the Annuity Date. Your scheduled Annuity Date is 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) the tenth Contract Anniversary. An earlier Annuity Date or a withdrawal may be required to satisfy minimum required distribution rules under certain Qualified Contracts.You can make an authorized request for a different, earlier or later Annuity Date after the Issue Date, but any such request is subject to applicable law and our approval. An earlier or later Annuity Date may not be available to you depending on the Financial Professional you purchase your Contract through and your state of residence. Your Annuity Date must be at least two years after the Issue Date.* The Annuity Date cannot be later than what is permitted under applicable law.

* In Florida, the earliest acceptable Annuity Date is one year after the Issue Date.

NOTE:If on the maximum permitted Annuity Date (which is generally age 95 or 100) your Contract Value is greater than zero, you must annuitize the Contract. We notify you of your available options in writing 60 days in advance. If you have not selected an Annuity Option, we make payments under Annuity Option 2 with ten years of guaranteed monthly payments. Upon annuitization you no longer have Contract Value or a death benefit, and you cannot receive any other periodic withdrawals or payments other than Annuity Payments.

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11. DEATH BENEFIT

“You” in this section refers to the Owner, or the Annuitant if the Contract is owned by a non-individual.

The death benefit is only available during the Accumulation Phase.If you or the Determining Life (Lives) die during the Accumulation Phase, we process the death benefit using prices determined after we receive the required information, which is either a Valid Claim or due proof of death as stated here. (For information on due proof of death see the Glossary – Valid Claim). If we receive this information after the end of the current Business Day, we use the next Business Day’s prices. We will not accept additional Purchase Payments after receipt of the first Valid Claim. We also will not allow any partial or full withdrawals after receipt of a Valid Claim.

If there are multiple Beneficiaries, each Beneficiary receives the portion of the death benefit he or she is entitled to when we receive his or her Valid Claim. If a Beneficiary dies before you or the Designated Life, that Beneficiary’s interest in this Contract ends unless your Beneficiary designation specifies otherwise. If there are no remaining Beneficiaries, or no named Beneficiaries, we pay the death benefit to your estate, or if the Owner is a non-individual, to the Owner. Unless you instruct us to pay Beneficiaries a specific percentage of the death benefit, he or she each receives an equal share. Any part of the death benefit that is in the Allocation Options remains there until distribution begins. From the time we determine the death benefit until we make a complete distribution, any amount in the Allocation Options continues to be subject to investment risk that is borne by the recipient(s). Once we receive notification of death, we no longer accept additional Purchase Payments or process transfer requests.

The Contract provides the Traditional Death Benefit based on the greater of:

• Contract Value, or

• total of all Purchase Payments received, reduced by the percentage of Contract Value withdrawn, determined at the end of each Business Day. Withdrawals include withdrawal charges, but not amounts we withdraw for other Contract expenses.

If the date we are determining the death benefit is not an Index Anniversary and you selected the Index Performance Strategy, Contract Value includes the Daily Adjustment. Contract Value also includes any increase from the Alternate Minimum Value if you selected any of the available Index Options.

If you are the Determining Life, or if you and the Determining Life (Lives) are different individuals and die simultaneously as defined by applicable state law or regulation we determine the Traditional Death Benefit at the end of the Business Day we receive a Valid Claim. For multiple Beneficiaries, each surviving Beneficiary receives the greater of their portion of total Purchase Payments adjusted for withdrawals determined at the end of the Business Day we receive the first Valid Claim from any one Beneficiary, or their portion of the Contract Value determined at the end of the Business Day during which we receive his or her Valid Claim.

If you and the Determining Life (Lives) are different individuals and do not die simultaneously, the death benefit is as follows.This can only occur if you change the Owner after the Issue Date.

• If a Determining Life dies before you we do not pay a death benefit to the Beneficiary(s), but we may increase the Contract Value. We compare the Contract Value and total Purchase Payments adjusted for withdrawals determined at the end of Business Day we receive due proof of a Determining Life’s death. If your Contract Value is less than total Purchase Payments adjusted for withdrawals, we increase your Contract Value to equal total Purchase Payments adjusted for withdrawals. The Traditional Death Benefit becomes the Contract Value,and the Traditional Death Benefit ends. We allocate any Contract Value increase to the Variable Options according to future Purchase Payment allocation instructions.

• Upon your death your Beneficiary(s) receive the Contract Value determined at the end of the Business Day during which we receive each Beneficiary’s Valid Claim.

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The Traditional Death Benefit ends upon the earliest of the following.

• The Business Day before the Annuity Date.

• The Business Day that total Purchase Payments adjusted for withdrawals and Contract Value are both zero.

• Upon the death of a Determining Life, the end of the Business Day we receive a Valid Claim from all Beneficiaries if you and the Determining Life are the same individuals, or if you and the Determining Life (Lives) are different individuals and die simultaneously as defined by applicable state law or regulation.

• Upon the death of a Determining Life, the end of the Business Day we receive due proof of the Determining Life’s death if you and the Determining Life (Lives) are different individuals and do not die simultaneously.

• Upon the death of an Owner (or Annuitant if the Owner is a non-individual), the end of the Business Day we receive the first Valid Claim from any one Beneficiary, if the Owner (or Annuitant) is no longer a Determining Life.

• The Business Day the Contract ends.

NOTE:The Traditional Death Benefit is a first-to-die benefit based on the Determining Life. This means that upon the death of an Owner (or Annuitant if the Owner is a non-individual), if a surviving spouse continues the Contract the Traditional Death Benefit is no longer available. Also, if you and the Determining Life (Lives) are different individuals and you die first, the Traditional Death Benefit is not available to your Beneficiary(s).

DEATH OF THE OWNER AND/OR ANNUITANT

The appendix to the Statement of Additional Information includes tables that 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.

DEATH BENEFIT PAYMENT OPTIONS DURING THE ACCUMULATION PHASE

If you do not designate a death benefit payment option, a Beneficiary must select one of the options listed below. If a Beneficiary requests a lump sum payment under Option A, we pay that Beneficiary within seven days of receipt of his or her Valid Claim, unless the suspension of payments or transfers provision is in effect. Payment of the death benefit may be delayed, pending receipt of any state forms.

Spousal Continuation: If the Beneficiary is the deceased Owner’s spouse, he or she can choose to continue the Contract with the portion of the death benefit the spouse is entitled to in his or her own name. For non-individually owned Contracts, spousal continuation is only available to Qualified Contracts.Spouses must qualify as such under federal law to continue the Contract.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 surviving spouse continues the Contract, at the end of the Business Day we receive his or her Valid Claim, we increase the Contract Value to equal total Purchase Payments adjusted for withdrawals, if applicable. If the surviving spouse continues the Contract:

• he or she may exercise all of the Owner’s rights, including naming a new Beneficiary or Beneficiaries;

• he or she is subject to any remaining withdrawal charge; and

• upon the surviving spouse’s death their Beneficiary(s) receive the Contract Value determined at the end of the Business Day during which we receive a Valid Claim from each Beneficiary.

Option A:Lump sum payment of the death benefit.

Option B:Payment of the entire death benefit within five years of the date of any Owner’s death. The Beneficiary can continue to make transfers between Allocation Options and is subject to a transfer fee and the product fee.

Option C:If the Beneficiary is an individual, payment of the death benefit as fixed Annuity Payments under Annuity Options 1, 2 or 5. With our written consent other options may be available for payment over a period not extending beyond the Beneficiary’s life expectancy under which the Beneficiary can continue to make transfers between Allocation Options and is subject to a transfer fee and the product fee.

Distribution must begin within one year of the date of the Owner’s death. Any portion of the death benefit not applied to 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 an 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 is interpreted and administered in accordance with Section 72(s) of the Internal Revenue Code.

Other rules may apply to Qualified Contracts.

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12. TAXES

This section provides a summary explanation of the tax ramifications of purchasing a Contract. More detailed information about product taxation is contained in the Statement of Additional Information, which is available by calling the toll-free telephone number at the back of this prospectus. We do not provide individual tax advice. You should contact your tax adviser to discuss this Contract’s effects on your personal tax situation.

QUALIFIED AND NON-QUALIFIED CONTRACTS

You can purchase either a Qualified Contract or a Non-Qualified Contract. A Qualified Contract is purchased pursuant to a specialized provision of the Internal Revenue Code (Code). For example, a Contract may be purchased pursuant to Section 408 of the Code as an Individual Retirement Annuity (IRA).

Qualified Contracts are subject to certain restrictions, including restrictions on the amount of annual contributions, restrictions on how much you can earn and still be able to contribute to a Qualified Contract, and specialized restrictions on withdrawals. Qualified Contracts must be purchased from earned income from the relevant year or years, or from a rollover or transfer from a qualified contract. Purchase Payments to Qualified Contracts other than from a qualified transfer may be restricted once the Owner reaches age 70 ¹⁄₂.

Currently, we offer the following types of Qualified Contracts.

Type of Contract	Persons and Entities that can buy the Contract
IRA	Must have the same individual as Owner and Annuitant.
Roth IRA	Must have the same individual as Owner and Annuitant.
Simplified Employee Pension (SEP) IRA	Must have the same individual as Owner and Annuitant.
Certain Code Section 401 Plans	A qualified retirement plan is the Owner and the Annuitant must be an individual. We may determine which types of qualified retirement plans are eligible to purchase this Contract.

If you purchase a Qualified Contract, you already receive the benefit of tax deferral through the qualified plan, and so you should purchase this Contract for purposes other than tax deferral.

You can instead purchase a Non-Qualified Contract, which is not qualified pursuant to a specialized provision of the Code. There are no Code restrictions on annual contributions to a Non-Qualified Contract or how much you can earn and still contribute to a Contract.

TAXATION OF ANNUITY CONTRACTS

The Contract has the following tax characteristics.

• Taxes on earnings are deferred until you take money out. Non-Qualified Contracts owned by corporations or partnerships do not receive income tax deferral on earnings.

• When you take money out of a Non-Qualified Contract, earnings are generally subject to federal income tax and applicable state income tax. All pre-tax funds distributed from Qualified Contracts are subject to federal and state income tax, but qualified distributions from Roth IRA Contracts are not subject to federal income tax. This prospectus does not address specific state tax laws. You should discuss state taxation with your tax adviser.

• Taxable distributions are subject to an ordinary income tax rate, rather than a capital gains rate.

• Beginning in 2013, distributions from Non-Qualified Contracts will be considered investment income for purposes of the newly enacted Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may apply to some or all of the taxable portion of distributions (e.g. earnings) to individuals whose income exceeds certain threshold amounts ($200,000 for filing single, $250,000 for married filing jointly and $125,000 for married filing separately.) Please consult a tax advisor for more information.

• If you take partial withdrawals from your Non-Qualified Contract, the withdrawals are generally taxed as though you were paid taxable earnings first, and then as a non-taxable return of Purchase Payments.

• If you annuitize your Non-Qualified Contract and receive a stream of Annuity Payments, you receive the benefit of the exclusion ratio. The exclusion ratio is a calculation that causes a portion of each Annuity Payment to be non-taxable, based upon the percentage of your Contract Value that is from Purchase Payments. Purchase Payments are treated as a non-taxable return of principal, whereas earnings are taxable.

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• If you take partial withdrawals or annuitize a Qualified Contract, you will be responsible for determining what portion, if any, of the distribution consists of after-tax funds.

• If you take out earnings before age 59 ¹⁄₂, you may be subject to a 10% additional federal tax, unless you take a lifetime annuitization of your Contract or you take money out in a stream of substantially equal payments over your expected life in accordance with the requirements of the Code.

• A pledge, assignment, or ownership change of a Contract may be treated as a taxable event. You should discuss any pledge, assignment, or ownership change of a Contract with your tax adviser.

• If you purchase multiple non-qualified deferred annuity contracts from an affiliated group of companies in one calendar year, these contracts are treated as one contract for purposes of determining the tax consequences of any distribution.

• Death benefit proceeds from Non-Qualified Contracts are taxable to the beneficiary as ordinary income to the extent of any earnings. Death benefit proceeds must be paid out in accordance with the requirements of the Code.

• Depending upon the type of Qualified Contract you own, required minimum distributions (RMDs) must be satisfied when you reach a certain age. If you enroll in our minimum distribution program, we make RMD payments to you that are designed to meet this Contract’s RMD requirements.

• When you take money out of a Contract, we may deduct premium tax that we pay on your Contract. This tax varies from 0% to 3.5%, depending on your state. Currently, we pay this tax and do not pass it on to you.

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:

• you might have to pay a withdrawal charge on your previous contract,

• there is a new withdrawal charge period for this Contract,

• other charges under this Contract may be higher (or lower),

• the benefits may be different, and

• you 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 additional federal tax, on the exchange. You should not exchange an existing life insurance policy or another annuity contract for this Contract unless you determine the exchange is in your best interest and not just better for the person selling you the Contract who generally earns a commission on each sale. You should consult a tax adviser to discuss the potential tax effects before making a 1035 exchange.

13. OTHER INFORMATION

THE REGISTERED 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 shares of the Variable Options that have been purchased with Contract assets. We keep the Separate Account assets separate from the assets of our general account and other separate accounts, including the non-unitized separate accounts we established in connection with the Index Options. The Separate Account is divided into subaccounts, each of which invests exclusively in a single Variable Option.

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 are insulated, so that the assets cannot be used to pay any of our liabilities, other than those arising from the investment of Contract assets in the Variable Options.

If the Separate Account’s assets exceed the required reserves and other liabilities, we may transfer the excess to our general account, to the extent of seed money invested by us or earned fees and charges. The obligations under the Contracts are obligations of Allianz Life.

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OUR GENERAL ACCOUNT

Our general account holds all our assets other than assets in our separate accounts. We own our general account assets, and, subject to applicable law, have sole investment discretion over them. The assets are subject to our general business operation liabilities and claims of our creditors and may lose value. We have not registered our general account as an investment company under the Investment Company Act of 1940.

Our general account assets fund guarantees provided in the Contracts, including obligations associated with the Index Options. Contract Value that you apply to Annuity Payments becomes part of our general account. In addition, we place a majority of the assets you allocate to the Index Options in our general account where we primarily invest the assets in a variety of fixed income securities.

OUR UNREGISTERED SEPARATE ACCOUNT

Initially, a substantial majority of the aggregate assets backing the Index Performance Strategy Index Options are allocated to our general account. We place all other assets that you allocate to the Index Performance Strategy Index Options that are not invested in the general account in an unregistered, non-unitized, non-insulated separate account (Separate Account IANA), which we established under Minnesota Insurance Law solely for the purpose of supporting our obligations to pay Performance Credits associated with the Index Performance Strategy Index Options. Subsequently, there may be significant transfer of assets between the general account and Separate Account IANA in response to Index performance during the then-current Index Year. We typically transfer assets between these accounts if there is a 10% incremental change in year-to-date Index performance. We examine year-to-date Index performance daily and change the account allocations daily if needed based on this 10% increment.

We invest the assets in Separate Account IANA in hedging instruments, including derivative investments such as put and call options, as well as cash and fixed income securities. Like our general account, the assets in Separate Account IANA are subject to our general business operation liabilities and the claims of our creditors.

An Owner who allocates Contract Value to an Index Option does not have any interest in or claim on the assets in Separate Account IANA. In addition, neither the Owner nor the Index Options participate in any way in the performance of assets held in Separate Account IANA.

NOTE FOR CONTRACTS ISSUED IN TEXAS: We place all assets that you allocate to the Index Performance Strategy Index Options that are not invested in the general account in an unregistered, non-unitized, insulated separate account (Separate Account IATX). Separate Account IATX is structured differently from Separate Account IANA. Unlike Separate Account IANA, Separate Account IATX is for the exclusive benefit of persons purchasing a Contract in the State of Texas. Separate Account IATX is insulated from the claims of creditors and Contract purchasers are given priority with regard to Separate Account IATX’s assets over Contract purchasers from other states as well as general creditors. Separate Account IATX was established under Minnesota law for the benefit of Texas Contract purchasers. Separate Account IATX supports our obligations to pay Performance Credits to Texas Contract Owners. Allocations and reallocations to and from the Separate Account IATX are managed in the same manner as for the national, non-unitized, non-insulated Separate Account IANA. The assets in Separate Account IATX are kept separate from the rest of our general account and other separate account assets. The assets in Separate Account IATX are insulated, and so are not subject to our general business operation liabilities or the claims of our creditors. Neither Texas Contract purchasers nor the Index Performance Strategy Index Options participate in any way in the performance of assets held in Separate Account IATX.

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 is a limited liability company organized in Minnesota, and 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, 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 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 Allianz Life Financial for the distribution of the Contracts. Allianz Life Financial also may perform various administrative services on our behalf.

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We may fund Allianz Life Financial’s operating and other expenses, including: overhead; legal and accounting fees; Financial Professional training; compensation for the Allianz Life Financial management team; and other expenses associated with the Contracts. Financial Professionals 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.

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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 Financial Professionals. 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 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 Financial Professionals. Financial Professionals may receive cash and non-cash compensation and other benefits. Ask your Financial Professional for further information about what they and their firm may receive in connection with your purchase of a Contract.

We intend to recover commissions and other 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.

Broker-dealers and their Financial Professionals and managers involved in sales of the Contracts may receive payments from us for administrative and other services that do not directly involve the sale of the Contracts, including payments made for recordkeeping, the recruitment and training of personnel, production of promotional literature and similar services. In addition, certain firms and their Financial Professionals may receive compensation for distribution and administrative services when acting in a wholesaling capacity and working with retail firms.

In certain instances, we and/or Allianz Life Financial may make payments to a broker/dealer for inclusion of this Contract in its list of products that it offers for sale.

We and/or Allianz Life Financial may pay certain selling firms additional marketing support allowances for:

• marketing services and increased access to their Financial Professionals;

• sales promotions relating to the Contracts;

• costs associated with sales conferences and educational seminars;

• the cost of client meetings and presentations; and

• other sales expenses incurred by them.

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.

We may also make payments for marketing and wholesaling support to broker/dealer affiliates of Variable 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.

The Variable Options may assess a Rule12b-1 fee. These fees are paid to Allianz Life Financial as consideration for providing certain services and incurring certain expenses permitted under the Variable Option’s plan. These fees typically equal 0.25% of a Variable Option’s average daily net assets.

In certain instances, an investment adviser and/or subadviser (and/or their affiliates) of a Variable Option may make payments for administrative services to Allianz Life Financial or its affiliates.

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.

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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.

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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. Our Service Center mailing address and telephone number are listed at the back of this prospectus. The administrative services performed by our Service Center include:

• issuance and maintenance of the Contracts,

• maintenance of Owner records,

• processing and mailing of account statements and other mailings to Owners, and

• 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 Variable Options, will be mailed to your household, even if you or other persons in your household have more than one contract issued by us or our affiliate. Call our Service Center at the toll-free telephone 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.

STATUS PURSUANT TO SECURITIES EXCHANGE ACT OF 1934

Allianz Life hereby relies on the exemption provided by Rule 12h-7 under the Securities Exchange Act of 1934 from the requirement to file reports pursuant to Section 15(d) of that Act.

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14. INFORMATION ON 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 are a wholly owned subsidiary of Allianz of America, Inc. (AZOA), a financial holding company. AZOA is a wholly owned subsidiary of Allianz Europe, B.V., which in turn is a wholly owned subsidiary of Allianz Societas Europaea (Allianz SE), Allianz Life’s ultimate parent, which is incorporated in Munich, Germany. Allianz Life Insurance Company of North America and its wholly owned subsidiaries are referred to as the Company. We offer fixed and variable annuities and individual life insurance. We are licensed to do direct business in 49 states and the District of Columbia.

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.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

BOARD OF DIRECTORS

The Board currently consists of six members, including our Chairman, our President and Chief Executive Officer, our Chief Financial Officer, and three independent members.

The Board holds regular quarterly meetings, generally in February, April/May, July, and October/November of each year, and holds special meetings or takes action by unanimous written consent as circumstances warrant. The Board has standing Executive, Audit, Actuarial Balances, Ethics, Finance, Rate Setting and Risk Committees, each of which is described in further detail below. Each of the directors attended at least 75% of the Board and committee meetings to which he or she was assigned during 2013.

The current members of our Board are as follows:

Gary C. Bhojwani

Chairman of the Board

Gary C. Bhojwani, age 46, joined the Company in 2007, and currently serves as the Chief Executive Officer of Allianz of America, Inc., the Company’s parent, and Chairman of the Company’s Board of Directors. Prior to his current role, Mr. Bhojwani served as President and Chief Executive Officer of the Company, as well as a member of the Board of Directors, from 2007 to 2011. Prior to joining the Company, Mr. Bhojwani served as President of Commercial Business for Fireman’s Fund Insurance Company from 2004 to 2007. Prior to that, Mr. Bhojwani spent two years with Lincoln General Insurance Company as President and Chief Executive Officer. Prior to joining Lincoln General, Mr. Bhojwani served as President of Avalon Risk Management for four years and President of Trade Insurance Services, Inc. for two years.

Mr. Bhojwani brings to the Board diverse financial services experience and expertise developed though his service as an executive, including his past service as Chief Executive Officer to the Company and current service as Chief Executive Officer of AZOA.

Walter R. White

President and Chief Executive Officer

Walter R. White, age 57, joined the Company in 2009, and currently serves as President and Chief Executive Officer, as well as a member of the Board of Directors. In this role, Mr. White is responsible for leading and overseeing the Company and providing strategic management and direction. Mr. White also served as Chief Administrative Officer of the Company from 2009 to 2011. Prior to joining the Company, Mr. White held executive roles at Woodbury Financial Services from 2001 to 2009, serving as Chief Operating Officer from 2003 to 2007 and President from 2007 to 2009. Prior to that, Mr. White held senior management roles at Fortis from 1994 to 2001, serving as Senior Vice President of Fortis Investors from 1998 to 2001. Mr. White also held senior management roles at the MONY Group from 1988 to 1994, serving as the President of MONY Brokerage from 1991 to 1994.

Mr. White brings to the Board extensive financial services and brokerage experience as well as key strategic planning and leadership skills developed as the Chief Executive Officer of the Company and President of Woodbury Financial.

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Giulio Terzariol

Director, Senior Vice President, Chief Financial Officer and Treasurer

Giulio Terzariol, age 42, joined the Company in 2007 and currently serves as Senior Vice President, Chief Financial Officer and Treasurer and as a member of the Board of Directors. In this role, Mr. Terzariol is responsible for all finance and risk management functions, with oversight of the controller, tax, treasury and enterprise data intelligence areas. Prior to joining the Company, Mr. Terzariol served as Regional Chief Financial Officer for Allianz Insurance Management Asia Pacific in Singapore from 2005 to 2007. Prior to that, Mr. Terzariol spent seven years with Allianz SE in Munich, Germany as a financial analyst and then as Head of International Insurance Unit within the Group Planning and Controlling Division. Mr. Terzariol started his career in the insurance business in 1996 with Generali as part of theirtwo-year international training program.

Mr. Terzariol brings to the Board extensive financial services and insurance industry experience and his general knowledge and experience in financial matters, including serving as Chief Financial Officer of the Company.

Ronald M. Clark

Director

Ronald M. Clark, age 66, joined the Company’s Board of Directors on January 1, 2014. Mr. Clark has over 40 years of experience in investments, having served as the President of Allianz Investment Corporation from 1980 to 1990, Chief Operating Officer of AZOA from 1990 to 2001, and Chief Investment Officer of AZOA from 2002 to 2011. Mr. Clark retired as of December 31, 2011. Mr. Clark also serves on the Board of Directors of Allianz Life Insurance Company of New York and serves as a director and Chair of the Compensation Committee of Manitex International, Inc. Manitex is a leading provider of engineered lifting solutions, including cranes, forklifts and reach stackers.

Mr. Clark brings to the Board extensive experience in the financial services and insurance industries as well as extensive experience with investment matters. The Board also benefits from his perspective as a current and former director of other companies.

David L. Conway

Director

David L. Conway, age 66, joined the Company’s Board of Directors on January 1, 2014. Mr. Conway has over 40 years of experience in the insurance industry. Mr. Conway worked with Fireman’s Fund Insurance Company (“FFIC”) from 1970 through 2010, including serving in various executive positions. In 2004, Mr. Conway was appointed as FFIC’s first Chief Risk Officer, and in 2007, he was appointed FFIC’s new Chief Underwriting Officer and established the role, responsibilities and authorities related to that position. Mr. Conway has also served as a director for several insurance and risk industry groups.

Mr. Conway brings to the Board extensive experience in the insurance industry as well as extensive experience in risk and underwriting. The Board also benefits from his experience with several industry councils and boards.

Marna C. Whittington

Director

Marna C. Whittington, age 66, joined the Company’s Board of Directors in March 2012 and also serves as Chair of the Audit Committee. Prior to joining the Company, Ms. Whittington served as President and Chief Executive Officer of Allianz Global Investors Capital from 2001 to 2012 and Chief Operating Officer of Allianz Global Investors (parent company of Allianz Global Investors Capital) from 2002 to 2011. Prior to that, Ms. Whittington served as Managing Director and Chief Operating Officer of Morgan Stanley Investment Management from 1996 to 2001 and was a partner with Miller, Anderson & Sherrerd, LLP from 1992 until January 1996 when it was acquired by Morgan Stanley.

Ms. Whittington brings to the Board invaluable expertise as Chair of the Audit Committee and has extensive financial services and insurance industry experience as well as general knowledge and experience in financial matters. The Board also benefits from her perspective as a current and former director of other companies.

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EXECUTIVE OFFICERS

The current executive officers (other than Messrs. White and Terzariol, whose biographies are included above in the Board of Directors information) are as follows:

Thomas P. Burns

Senior Vice President, Chief Distribution Officer

Thomas P. Burns, age 58, joined the Company in 2006 and currently serves as Senior Vice President, Chief Distribution Officer. In this role, Mr. Burns is responsible for the development, design and implementation of the Company’s sales and distribution strategies for the Company’s insurance and annuities products. Prior to joining the Company, Mr. Burns served as Senior Vice President, Distribution, of Securian from 2002 to 2006. Prior to joining Securian, Mr. Burns worked for Prudential for 24 years, from 1978 to 2002, in various managerial capacities.

Gretchen Cepek

Senior Vice President, General Counsel and Secretary

Gretchen Cepek, age 46, joined the Company in 2009, and currently serves as Senior Vice President, General Counsel and Secretary. In this role, Ms. Cepek is responsible for the legal and compliance departments as well as government relations and the special investigations unit. Prior to her current role, Ms. Cepek served as Vice President, Legal Business/Operations/Distribution, of the Company from 2009 to February 2012. Prior to joining the Company, Ms. Cepek served as Counsel at Woodbury Financial Services from 2005 to 2009. Prior to joining Woodbury Financial, Ms. Cepek spent 13 years with the law firm of Querrey & Harlow, Ltd. from 1992 to 2005, where she served as a law clerk, associate attorney and then as a shareholder. Ms. Cepek received her J.D. from Valparaiso University School of Law in 1993.

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Nancy E. Jones

Senior Vice President, Chief Marketing Officer

Nancy E. Jones, age 53, joined the Company in 2008, and currently serves as Senior Vice President, Chief Marketing Officer. In this role, Ms. Jones is responsible for product innovation, marketing and corporate communications and manages the Company’s product strategy and development for its fixed annuity, variable annuity, and life insurance products. Prior to joining the Company, Ms. Jones served as the Senior Vice President of Client Experience and Marketing Operations at Ameriprise Financial. Prior to that, Ms. Jones held several senior roles at American Express in the traditional financial advisory business, as well as developing new direct and online businesses. Her career in the financial services industry spans more than 20 years, with roles in business strategy, product development, distribution channel management, and marketing.

Cathy A. Mahone

Senior Vice President, Chief Administrative Officer

Cathy Mahone, age 49, joined the Company in 2008 and currently serves as Senior Vice President Chief Administrative Officer. In her current role, Ms. Mahone is responsible for the oversight of enterprise operations, information technology, compliance and other strategic initiatives. Prior to that, Ms. Mahone was Senior Vice President, Enterprise Operations, a position she held until assuming her current role in 2012. Prior to joining the Company, Ms. Mahone had approximately 20 years of financial services experience with Ameriprise Financial (formerly American Express), where she served in several leadership roles, including Vice President of the Operations Project Management Office. In her more than 20-year career with Ameriprise, Ms. Mahone held a variety of leadership positions in operations, distribution and marketing.

Neil H. McKay

Senior Vice President, Chief Actuary

Neil H. McKay, age 52, joined the Company in 1999 and currently serves as Senior Vice President, Chief Actuary. In this role, Mr. McKay is responsible for all of the actuarial functions of the Company, including the actuarial assumptions underlying the Company’s products and the rate setting associated with the Company’s existing and new products. Prior to joining the Company, Mr. McKay served in a variety of roles at LifeUSA Holding Company (prior to its merger with the Company) from 1990 to 1999, culminating in the position of Vice President of Finance. Prior to that, Mr. McKay held the position of Assistant Product Actuary from 1984 to 1990 for Security Life of Denver, in Denver, Colorado.

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Carsten Quitter

Senior Vice President, Chief Investment Officer

Carsten Quitter, age 49, joined the Company in 2011, and currently serves as Senior Vice President and Chief Investment Officer. In this role, Mr. Quitter is responsible for investment management, liquidity planning, hedging and trading the insurance assets for the Company, FFIC, Allianz Global Corporate & Specialty and Allianz Mexico. Prior to joining the Company, Mr. Quitter served as the chief investment manager and head of risk management for Allianz Switzerland. Mr. Quitter joined Allianz Switzerland in 2005 as head of asset liability management. Prior to that, Mr. Quitter spent eight years with Swiss Re in a variety of executive positions, including managing director and chief operating officer of new markets. Mr. Quitter also served as a partner with Zimmermann & Partner, a consulting firm for the re-insurance industry.

Suzanne Zeller

Senior Vice President, Human Resources

Suzanne Zeller, age 60, joined the Company in August 2010 and currently serves as Senior Vice President, Human Resources. In this position, Ms. Zeller leads the Human Resources and Facilities departments and is responsible for setting strategy and leading the Human Resources and Facilities departments to improve business results and increase employee engagement. Prior to joining the Company, Ms. Zeller worked in various capacities with The Hartford Financial Services Group from 2003 to 2010, culminating in the position of Vice President of Human Resources for the international wealth management business of Hartford Life, Inc., a subsidiary of The Hartford Financial Services Group. Prior to that, Ms. Zeller ran her own consulting practice that specialized in executive coaching, business strategy planning and leadership development. Ms. Zeller also has held senior human resources and organizational effectiveness positions at a number of insurance and reinsurance companies, including Swiss Re, Met Life, American Re and Chubb Executive Risk.

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Robert DeChellis

Field Senior Vice President, Broker Dealer Distribution

Robert DeChellis, age 47, joined the Company in 2006 and currently serves as Field Senior Vice President, Broker Dealer Distribution as well as the President of Allianz Life Financial Services, LLC. In these positions, Mr. DeChellis is responsible for sales and distribution of the Company’s products, including variable annuities, fixed indexed annuities and advisory annuities through broker-dealers and other financial institutions. Prior to joining the Company, Mr. DeChellis served as Executive Vice President of the Retail Annuities Division of Travelers Life & Annuity. Prior to that, Mr. DeChellis served as Executive Vice President and national sales manager for Jackson National Life Distributors, Inc. Before joining the annuity industry, Mr. DeChellis spent 13 years in asset management, holding positions with firms such as Goldman Sachs and Lord Abbett.

CORPORATE GOVERNANCE

Committees of the Board

The Executive Committee of the Board (“Executive Committee”) is currently composed of Messrs. Bhojwani (Chair), White and Terzariol. The function of the Executive Committee is to exercise the authority of the Board in the management of the Company between meetings of the Board, with the exceptions set forth in the Company’s By-Laws. The Executive Committee did not hold any formal meetings in 2013.

The Audit Committee of the Board is currently composed of Ms. Whittington (Chair) and Messrs. Bhojwani, Clark and Conway. The Audit Committee is responsible for overseeing the Company’s accounting and financial reporting and control processes on behalf of the Board of Directors, which includes assisting with Board oversight of (1) quality and integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the qualifications, independence and fees of the independent auditors (4) the Company’s system of internal controls and (5) the performance of the Company’s internal audit function. The Board has also determined that each member of the Audit Committee is financially literate. The Audit Committee met four times in 2013.

The Actuarial Balances Committee of the Board is currently composed of Mr. McKay (Chair); Mr. Steven Thiel, the Company’s Vice President, Actuarial Reporting & Analysis; Nicole Scanlon, the Company’s Controller; Andreas Graser, the Company’s Chief Risk Officer and Chief Credit Officer; Mr. Terzariol; and Mr. White. The Actuarial Balances Committee reviews the appropriateness of assumptions and methods that impact actuarial balances and approves any material changes to actuarial balances. The Actuarial Balances Committee met five times in 2013.

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The Ethics Committee of the Board is currently composed of Ms. Cepek (Chair); Yvonne Franzese, the Chief Human Resources Officer for Allianz of America Corporation; Kendall Bishop, the Company’s Vice President, Internal Audit; Michael Brennan, the Company’s Chief Compliance Officer; H. Le Phan, the Company’s Ethics Counsel; Marty Vanderzanden, the Company’s Director of the Special Investigations Unit; and Ms. Zeller. The Ethics Committee assists the Company in continuing to operate according to high ethical standards and in accordance with applicable laws and regulations. The Ethics Committee met two times in 2013.

The Finance Committee of the Board is currently composed of Mr. Quitter (Chair); Carolina Otero, K.W. Park and Gunther Thallinger from the Company’s parent, Allianz SE; Mr. Michael Scriver, the Global Head of Hedging; and Messrs. Graser, McKay, Terzariol and White. The purpose of the Finance Committee is to (1) oversee the Company’s investment activities, (2) appoint and oversee the activities of one or more asset managers, (3) ensure the proper and effective investment of risk capital, (4) approve significant and strategic investment transactions of the Company, (5) ensure a risk/return profile for investments that is consistent with the Company’s asset-liability management requirements, (6) oversee the planning and execution of the Company’s investment income strategies, (7) oversee the external funding needs of the Company, and (8) ensure that all investment activities of the Company are carried out in accordance with legal, regulatory, accounting, and other applicable requirements. The Finance Committee met four times in 2013.

The Rate Setting Committee of the Board is currently composed of Mr. McKay (Chair); Mr. Burns; Mr. Graser; Ms. Jones; Mr. Quitter; and Mr. Terzariol. The Rate Setting Committee determines all non-guarantee elements and profitability levers for new business and in-force business for the Company’s fixed annuity, fixed indexed annuity, universal life, indexed universal life and variable annuity products. The Rate Setting Committee met three times in 2013 and acted once by written action.

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The Risk Committee of the Board is currently composed of Mr. Graser (Chair); Ms. Cepek; Ms. Mahone; Mr. McKay; Mr. Quitter; Mr. Terzariol; and Mr. White. The Risk Committee develops and maintains the Company’s risk framework, controls and processes in order to identify, assess and manage risks associated with the Company’s business activities; supports the Company’s executive leadership group in meeting its responsibilities to the Company’s overall risk strategy; and helps to build a strong risk culture within the Company. The Risk Committee held four regular meetings and four special meetings in 2013.

Independence of Certain Directors

The Company is not subject to the independence standards of the New York Stock Exchange or any other national securities exchange, but is subject to the independence standards required under the Model Audit Rule. Applying the independence standards of the Model Audit Rule to the current members of the Board of Directors, the Board of Directors has determined that Ms. Whittington, Mr. Clark and Mr. Conway are “independent” under the Model Audit Rule.

Code of Ethics

All of our officers and employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are subject to the Company’s Code of Ethics.

Section 16(a) Beneficial Ownership Reporting Compliance

Not applicable.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

In this section, we provide an overview of the goals and principal components of our executive compensation program and describe how we determine the compensation of our “Named Executive Officers.” For 2013, our Named Executive Officers were:

• Walter White, President and Chief Executive Officer

• Giulio Terzariol, Senior Vice President and Chief Financial Officer

• Thomas Burns, Senior Vice President and Chief Distribution Officer

• Neil McKay, Senior Vice President and Chief Actuary

• Robert DeChellis, Field Senior Vice President, Broker Dealer Distribution

The details of each Named Executive Officer’s compensation may be found in the Summary Compensation Table and other compensation tables included in this Executive Compensation discussion.

Executive Summary

Our compensation programs are intended to align our NEOs’ interests with those of our stockholder by rewarding performance that meets or exceeds the goals established by the Compensation Committee of AZOA Services Corporation, which is tasked with establishing the executive compensation philosophy for the Company and its affiliates. In line with our compensation philosophy described below, the total compensation received by our NEOs will vary based on individual and corporate performance in light of our annual and long-term performance goals. Our NEOs’ total compensation is composed of a mix of annual base salary, annual cash awards based on corporate objectives and executive performance factors and long-term equity incentive awards in the form of restricted stock units of the equity securities of Allianz SE, our ultimate parent company.

Compensation Philosophy and Strategy

Overview

The overriding goal of our executive compensation program is to attract, retain and motivate top-performing executive officers who will dedicate themselves to our long-term financial and operational success and the long-term success of our affiliates, including our parent company, Allianz SE. To this end, we have structured our executive compensation program to foster a pay-for-performance management culture by:

• providing total compensation opportunities that we believe are competitive with the levels of total compensation available at the large diversified financial services companies with which we most directly compete in the marketplace;

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• setting performance metrics and objectives for our variable compensation arrangements that reward executives for attaining both annual targets and medium-range and long-term business objectives, thereby providing individual executives with the opportunity to earn above-average compensation by achieving above-average results;

• establishing equity-based arrangements that align our executives’ financial interests with those of Allianz SE by ensuring our executives have a material financial stake in the equity value of Allianz SE and the business success of its affiliates; and

• structuring compensation packages and outcomes to foster internal pay equity.

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Compensation Components

To support this pay-for-performance strategy, our total compensation program provides a mix of compensation components that bases the majority of each executive’s compensation on our success and on an assessment of each executive’s overall contribution to that success.

Compensation Element	Description	Objective
Base Salary	Fixed rate of pay that compensates employees for fulfilling their basic job responsibilities. For NEOs, increases are generally provided in the case of a significant increase in responsibilities or a significant discrepancy vs. the market.	Attract and retain high-caliber leadership
Annual Incentive Plan	Incentive compensation that promotes and rewards the achievement of annual performance objectives through awards under the AZOA Services Corporation Annual Incentive Plan (the “AIP”).	Link compensation to annual performance results Attract, motivate and retain high-caliber leadership Align the interests of NEOs and shareholders
Long-Term Incentives	Incentive compensation that promotes and rewards the achievement of long-term performance objectives through awards under the AZOA Services Corporation Long-Term Performance Unit Plan (the “ALTPUP”). In the case of our Chief Executive Officer, Walter White, he is eligible to receive annual awards through the Allianz SE Mid-Term Bonus Plan instead of the ALTPUP.	Link compensation to performance results Attract, motivate and retain high-caliber leadership Align the interests of NEOs and shareholders
Performance-Based Equity Incentives	Incentive compensation through restricted stock unit awards made under the Allianz Equity Incentive Plan (“AEI”) that promotes and rewards the achievement of our senior executive officers. The AEI replaced the Allianz Group Equity Incentives 2007 plan.	Attract and retain high-caliber leadership. Align the interests of NEOs and shareholders. Provide market competitive compensation
Severance Arrangements	Severance payments to employees, including NEOs, under certain company-initiated termination events.	Compensate employees for situations where the employee’s position is eliminated as a result of outsourcing, merger or other corporate transaction
Perquisites-Benefits	Perquisites provided to our NEOs include employer matching contributions to the NEOs’ 401(k) plans and may also include the payment of life insurance premiums, relocation reimbursements, reimbursements for financial planning and tax preparation services and reimbursements of spousal travel expenses.	Provide market competitive compensation

In addition, we offer all employees, including our NEOs, broad-based benefits, including comprehensive medical, dental and vision insurance, group term life insurance and participation in our 401(k) plan.

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How Compensation Decisions Are Made

Role of the Board of Directors and Compensation Committee

The framework governing the executive compensation policies for the Allianz Group of Companies in North America (“Allianz NA Group”), which includes Allianz Life, except as such policies relate to the compensation for the Chief Executive Officer of Allianz Life, is set through the Board of Directors of AZOA Services Corporation (“ASC”). The Board of Directors has delegated the following responsibilities to the Compensation Committee of the Board of Directors:

• In consultation with senior management, establish the general compensation philosophy and strategy of the Allianz NA Group and oversee the development and implementation of compensation, benefit and perquisite programs for corporate executives consistent with the principles of ensuring that leadership is compensated effectively in a manner consistent with the stated compensation strategy, internal equity considerations, competitive practices, shareholder interests, and the requirements of any applicable regulatory bodies in order to enable the Allianz NA Group to attract and retain high-quality leadership.

• Review and recommend to the Board of Directors the establishment of, or material modification to, any executive incentive compensation plans or programs for the Allianz NA Group.

• Review and recommend to the Board of Directors the approval of any special benefits, perquisites or compensation contracts in effect for, or offered to, any prospective, current or former Allianz NA Group employee, regardless of the employee’s level or assignment within the Allianz NA Group. Such benefits and perquisites are those that are unusual or different than the benefits offered to all similarly-situated employees.

• Review and recommend to the Board of Directors any employment agreements or any severance, change in control or similar termination arrangements or agreements proposed to be made with any prospective, current or former employee of any Allianz NA Group company. This does not include special termination agreements, separation or settlement agreements negotiated in connection with and at the time of termination of an executive’s employment.

• In consultation with senior management, ensure that any Allianz NA group plans are fiscally responsible, consistent with good management practices and in the best interest of the Allianz NA Group and the shareholders. Review and recommend to the Board the adoption of, or amendment to, any such Plan.

• Review and ratify compensation decisions.

• Make Group-wide comparisons of compensation decisions and ensure adherence to Group Standards and German regulations.

The Compensation Committee will at all times be composed of at least three directors of ASC who are appointed by the full Board of Directors of ASC. The Compensation Committee currently consists of the following directors: Gary Bhojwani, Walter White and Andrew Torrance. The Compensation Committee also utilizes an internal compensation consultant to provide advice to the Compensation Committee regarding market trends in compensation policies at competing companies and on a more macro level.

Following its review and discussion, the Compensation Committee produces and submits a report on executive compensation to the Board of Directors. The report on executive compensation provides recommendations to the Board of Directors for its discussion and approval.

Role of the Chief Executive Officer

Our Chief Executive Officer assists the Compensation Committee in its review of the total compensation of all the Named Executive Officers except himself. He provides the Compensation Committee with his assessment of their performances relative to the corporate and individual goals and other expectations set for them for the preceding year. He then provides his recommendations for each NEO’s total compensation and the appropriate goals for each in the year to come. However, the Compensation Committee is not bound by his recommendations.

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Role of Allianz Life’s Human Resources

Allianz Life Human Resources supports the Board of Directors and the Compensation Committee on executive compensation matters by being responsible for many of the organizational and administrative tasks that underlie the compensation review and determination process and making presentations on various topics. Human Resources’ efforts include, among other things:

• evaluating the compensation data from industry groups, national executive pay surveys and other sources for the NEOs and other executive officers as appropriate;

• gathering and correlating performance ratings and reviews for individual executive officers, including the NEOs;

• reviewing executive compensation recommendations against appropriate market data and for internal consistency and equity; and

• reporting to, and answering requests for, information from the Compensation Committee.

Human Resources officers also coordinate and share information with their counterparts at Allianz SE.

Use of Competitive Compensation Data

Because we compete most directly for executive talent with other large diversified financial services companies, we regard it as essential to regularly review the competitiveness of our total compensation program for our executives to ensure that we are providing compensation opportunities that compare favorably with the levels of total compensation offered to similarly situated executives by other companies that participate in the compensation surveys with which we participate. We rely primarily on external market general surveys of corporate compensation and benefits published by various national compensation consulting firms, especially salary surveys focus on insurance companies. In addition, other factors taken into account include the average revenues and number of employees of companies that participate in such surveys.

All these information sources are employed to measure and compare actual pay levels not only on an aggregate, total compensation basis but by breaking down our total compensation program component by component to review and compare specific compensation elements as well as the particular mixes of fixed versus variable, short-term versus long-term and cash versus equity-based compensation at the surveyed companies. This information, as collected and reviewed by the Human Resources department of ASC, is submitted to the Compensation Committee for review and discussion.

Internal Pay Equity Analysis

Our compensation program is designed with the goal of providing compensation to our NEOs that is fair, reasonable, and competitive. To achieve this goal, we believe it is important to compare compensation paid to each NEO not only with compensation paid by the surveyed companies, as discussed above, but also with compensation paid to each of our other NEOs. Such an internal comparison is important to ensure that compensation is equitable among our NEOs.

Components of Total Compensation For Our NEOs

We provide total compensation to our NEOs that consists of several components. These components include the three components of our total compensation program (i.e., base salary, annual and multi-year incentives and equity) as well as: (i) retirement, health and other benefit programs, (ii) severance benefits and (iii) perquisites.

Base Salary

Our philosophy is to make base salary a relatively small portion of the overall compensation package for our NEOs, which we believe is common in the industry in which we operate. The amount of the base salary awarded to NEOs is based on the position held, the NEO’s career experience, the scope of the position’s responsibilities and the NEO’s own performance, all of which are reviewed with the aid of market survey data. Using this data, we maintain a 50th percentile pricing philosophy, comparing our base salaries against the median for comparable salaries at surveyed companies, unless exceptional conditions require otherwise.

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NEO compensation is determined based on the achievement of specific corporate and individual performance objectives. In determining the amount of each NEO’s base salary, the Compensation Committee considers the scope of their responsibilities, taking into account available competitive market compensation paid by other companies for similar positions. With respect to the base salary of our Chief Executive Officer, the Chairman of the Compensation Committee considered the Chief Executive Officer’s experience, performance, and contribution to our overall corporate performance when determining his base salary for 2013. Base salaries for our other NEOs for 2013 were also set by the Compensation Committee, together with the Chief Executive Officer’s input, based upon each NEO’s individual experience and contribution to the overall performance of our Company, and subject to Compensation Committee reviews.

Annual Incentive Plan

We offer annual cash bonuses to certain of our executive officers under the Annual Incentive Plan (the “AIP”). The AIP is designed to improve the performance and profitability of the Company by motivating employees to accomplish organizational objectives and financial goals set forth by the Compensation Committee of ASC. The AIP seeks to accomplish this purpose by providing a bonus opportunity to eligible employees. Bonus awards that may be paid pursuant to the AIP are wholly within the sole discretion of the Compensation Committee of ASC and are intended to:

• Reward the performance of participants who have made significant contributions during the prior year to the achievement of the Company’s annual goals and objectives;

• Provide an incentive that will encourage superior individual performance; and

• Encourage the retention of employees who are anticipated to significantly contribute to the future success of the Company.

Over the course of the year, the Compensation Committee, together with input from our Chief Executive Officer, developed a specific amount of cash awards to be made pursuant to the AIP to executive officers, including our NEOs, for the 2013 operating year. The amount determined to be available for such awards was at the discretion of the Compensation Committee and was dependent upon many factors as outlined previously, including, but not limited to, our current financial performance and performance related contributions of our NEOs in achieving our performance objectives.

Targeted levels of bonus awards made pursuant to the AIP for our NEOs were established by the Compensation Committee based on a number of factors related to the Company’s performance and the performance of the NEO. Maximum bonus awards made to our NEOs except for Walter White pursuant to the AIP were set at a level equal to two times the target amount for each NEO. The maximum bonus award under the AIP for Walter White was set at a level equal to 165% of the target amount established by the Compensation Committee. See footnote (2) to the Summary Compensation Table for the specific amounts awarded to each NEO for the year ended December 31, 2013.

Long-Term Incentives

The purpose of the AZOA Services Corporation Long-Term Performance Unit Plan (the “ALTPUP”) is to advance the interests of the Allianz NA Group, including the Company, and their respective shareholders. The ALTPUP seeks to accomplish this purpose by providing an incentive in addition to current compensation to certain individuals within designated classes of employees of each Allianz NA Group company who contribute significantly to the company’s long-term performance. Such incentive shall be in the form of Long-Term Performance Units (“ALTPUP Units”), which are contingent awards, subject to the terms, conditions and restrictions described in the ALTPUP and the Award Agreement under which such awards are made, by which participants in the ALTPUP may become entitled to receive cash upon the redemption of the ALTPUP Units. The award of ALTPUP Units is discretionary and any payments from the ALTPUP are intended to:

• Reward the performance of participants who have made significant contributions to the achievement of the Company’s goals and objectives,

• Provide an incentive that will encourage superior individual performance in the future, and

• Encourage the retention of participants who have demonstrated exceptional performance and/or are anticipated to significantly contribute to the long-term success of the Company.

The Compensation Committee reviewed the performance of our NEOs following the end of our 2013 fiscal year relative to the long-term equity incentive and retention awards program the Compensation Committee administers.

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Targeted levels of bonus awards made pursuant to the ALTPUP for our NEOs were established by the Compensation Committee based on a number of factors related to the Company’s performance and the performance of the NEO. Maximum bonus awards made to our NEOs pursuant to the ALTPUP are set to two times the target amount for each NEO. See footnote (2) to the Summary Compensation Table for the specific amounts awarded to each NEO for the year ended December 31, 2013.

Our Chief Executive Officer receives cash awards pursuant to the terms of the Mid-Term Bonus Plan instead of the ALTPUP. The Mid-Term Bonus Plan covers business performance over a non-rolling three-year period. The minimum payout is zero and the maximum payout is 165% of the target amount set by the Compensation Committee. Target award amounts generally focus on performance of the Company, including its growth and operating profit and achievement of goals set by Allianz NA group. At the end of each three-year period, the performance of the Allianz NA Group and each company thereunder are assessed, along with relevant comparable company comparisons. Proposed incentive awards are endorsed by the Allianz SE Board of Management and approved by the respective Compensation Committee.

Performance-Based Equity Incentives

Allianz Equity Incentive Plan

The Allianz Equity Incentive Plan (“AEI”) is (a) one part of the variable compensation element for senior executives and provided under the Allianz Sustained Performance Plan (“ASPP”) or (b) offered by an Allianz NA Group Company to selected senior employees as an additional part of their variable compensation on a case to case basis. The AEI is granted in the form of restricted stock units of Allianz SE (“RSUs”). An RSU constitutes the right to receipt of the market value of Allianz SE common stock at the time of exercise. This amount will be paid in cash, stock, or other consideration at the sole discretion of the company. RSUs are subject to a four-year vesting period. At the end of the four-year period, the RSUs are exercised uniformly for all participants, provided they remain employed by the Allianz NA Group or are pensioners. The cap on the amount of the payout upon exercise of the RSU is 200% for all NEOs except for Walter White, in which case the cap on the amount of the payout upon exercise of the RSU is 165%.

Benefit Perquisites

We provide our NEOs with certain limited perquisites. All of our employees, including our NEOs, may participate in our qualified 401(k) plan. We generally provide our executive officers, including our NEOs, with a matching contribution up to $19,125 annually. In addition we provide excess liability insurance coverage to all of our NEOs and provide financial planning and tax preparation services, relocation reimbursements and reimbursements of spousal travel expenses to certain of our NEOs. The incremental costs of perquisites for the NEOs during 2013 are included in the column entitled “All Other Compensation” in the Summary Compensation Table included herein.

Change in Control and Severance Arrangements

We have entered into an Executive Severance Agreement with our Chief Executive Officer, Walter White, which is described in the section of the prospectus entitled, “Executive Compensation—Severance and Change in Control Arrangements.” We have not entered into any other specific severance or change in control agreements with any of our NEOs.

The remainder of our NEOs are subject to severance payments under either the Executive Severance Plan or the Severance Allowance Plan. If an NEO is eligible to receive severance payments pursuant to the Executive Severance Plan, he or she is not eligible to receive severance payments under the Severance Allowance Plan.

Executive officers that have the title of Senior Vice President or above and report directly to a senior executive officer at a specific level are eligible to receive severance allowance benefits under the Executive Severance Plan. For the year ended December 31, 2013, the NEOs eligible for severance benefits under this plan were Giulio Terzariol, Thomas Burns and Neil McKay. Pursuant to the Executive Severance Plan, eligible executive officers who are involuntarily terminated will receive a lump sum cash payment equal to one and one-half times their “annual base pay” in effect at the time of termination. Annual base pay, for purposes of this agreement, equals base salary and excludes special payments, such as bonuses, expense reimbursements, living or other allowances.

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All of our employees, including our NEOs, who are not eligible to receive severance benefits under the Executive Severance Plan, are subject to severance payments under the Severance Allowance Plan. For the year ended December 31, 2013, the NEO eligible for severance benefits under this plan was Robert DeChellis. The Severance Allowance Plan provides that employees who are terminated for certain company-initiated reasons are eligible to receive a severance payment in an amount based on the employee’s weekly base pay multiplied by the number of weeks set forth in the Severance Allowance Plan. Employees are generally eligible for severance payments if they are terminated for the following reasons:

• Employee’s position is eliminated by the Company;

• Employee’s position is outsourced; or

• Employee’s position is eliminated in connection with a sale or merger or other corporate transaction.

Other than the Executive Severance Plan and the Severance Allowance Plan, which are described above, our NEOs (except for Walter White) are not eligible for severance or change in control payments. Certain of our executive officers receive offer letters which set forth the terms relating to base salary, sign-on incentives and equity compensation. However, the Company does not view these offer letters as employment agreements as each offer letter states that employment with the Company is “at will.”

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Other Compensation Policies

Tax and Accounting Implications

Stock-Based Compensation. We account for stock-based compensation, including SARs and RSUs granted pursuant to Allianz equity programs, in accordance with the requirements of FASB ASC Topic 718. Under the FASB ASC Topic 718, we estimate the fair value of our SAR awards at the date of grant using the Black-Scholes-Merton option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates on the expected term, volatility and forfeiture rates of the awards. Forfeitures are not estimated due to our limited history but are reversed in the period in which forfeiture occurs. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value stock-based awards granted in future periods. We estimate the fair value of our RSU awards based on grant date market closing price.

Deductibility of Executive Compensation.When analyzing both total compensation and individual elements of compensation paid to our NEOs, the Compensation Committee considers the income tax consequences to the Company of its compensation policies and procedures. In particular, the Compensation Committee considers Section 162(m) of the Internal Revenue Code, which limits the deductibility of non-performance-based compensation paid to certain of the NEOs to $1,000,000 per affected NEO. The Compensation Committee intends to balance its objective of providing compensation to our NEOs that is fair, reasonable, and competitive with the Company’s capability to take an immediate compensation expense deduction. The Board believes that the best interests of the Company and its stockholders are served by executive compensation programs that encourage and promote the Company’s principal compensation philosophy, enhancement of stockholder value, and permit the Compensation Committee to exercise discretion in the design and implementation of compensation packages. Accordingly, the Company may from time to time pay compensation to its NEOs that may not be fully tax deductible, including certain bonuses and RSU awards. SARs granted under our ALTPUP are intended to qualify as performance-based compensation under Section 162(m) and are generally fully deductible. We will continue to review the Company’s executive compensation plans periodically to determine what changes, if any, should be made as a result of the limitation on deductibility.

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Summary Compensation Table

The following table sets forth the compensation paid by Allianz Life during the years ended December 31, 2013 and 2012 to our principal executive officer, our principal financial officer and each of the three highest paid executive officers (collectively, the “Named Executive Officers” or “NEOs”) who are involved in the management and operations of Allianz Life.

Name and Principal Position (a)	Year (b)		Salary (c)		Bonus (d)		Stock Awards (e)(1)		Option Awards (f)		Non-Equity Incentive Plan Compensation (g)(2)			Change in Pension Value and Nonqualified Deferred Compensation Earnings (h)		All Other Compensation (i)(5)		Total (j)
Walter White President and Chief Executive Officer		2013 2012	$ $	800,000 750,000		N/A	$ $	1,109,120 885,000		N/A	$ $	2,218,240 1,770,000	(3)		N/A	$ $	24,363 24,212	$ $	4,151,723 3.429,212
Giulio Terzariol(4) Senior Vice President and Chief Financial Officer		2013 2012	$ $	466,000 455,000		N/A	$ $	491,000 423,000		N/A	$ $	770,600 696,000			N/A	$ $	766 8,944	$ $	1,728,366 1,582,944
Thomas Burns Senior Vice President and Chief Distribution Officer		2013 2012	$ $	585,000 585,000		N/A	$ $	521,000 393,000		N/A	$ $	872,000 744,000			N/A	$ $	23,049 19,785	$ $	2,001,049 1,741,785
Neil McKay Senior Vice President and Chief Actuary		2013 2012	$ $	490,000 490,000		N/A	$ $	445,000 364,000		N/A	$ $	739,000 658,000			N/A	$ $	19,843 19,597	$ $	1,693,843 1,531,597
Robert DeChellis Field Senior Vice President, Broker Dealer Distribution		2013 2012	$ $	400,000 400,000		N/A	$ $	128,000 128,000		N/A	$ $	685,000 610,000			N/A	$ $	182,735 79,182	$ $	1,395,735 1,217,182

(1) Represents the grant date fair value of the restricted stock units (“RSUs”) issued pursuant to the Allianz Equity Incentives plan. The RSUs vest over a four-year period. The RSUs issued in 2012 have a March 2016 exercise date, and the RSUs issued in 2013 have a March 2017 exercise date. The grant price of the RSUs was the market value of Allianz SE’s shares on the grant date. These numbers show the amount realized for financial reporting purposes as calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of the common stock of Allianz SE on the date of grant, which is then recognized over the requisite service period of the award.

(2) Includes the following payments made pursuant to the AIP and the ALTPUP.

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Name and Principal Position	Year		Grants made pursuant to the AIP		Grants made pursuant to the ALTPUP
Walter White		2013 2012	$ $	1,109,120 885,000	$ $	1,109,120 885,000
Giulio Terzariol		2013 2012	$ $	491,000 423,000	$ $	279,600 273,000
Thomas Burns		2013 2012	$ $	521,000 393,000	$ $	351,000 351,000
Neil McKay		2013 2012	$ $	445,000 364,000	$ $	294,000 294,000
Robert DeChellis		2013 2012	$ $	525,000 450,000	$ $	160,000 160,000

(3) Walter White, as Chief Executive Officer, participates in the global Mid-Term Bonus Program rather than the ALTPUP.

(4) Mr. Terzariol also participates in certain plans maintained by Allianz SE that are not part of Allianz Life’s compensation program.

(5) The following table provides additional details regarding compensation found in the “All Other Compensation” column.

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Name	Year		Spousal Travel(6)		Relocation(7)		Tax Services(8)		Milestone/ Anniversary/ Recognition(9)		Tuition(10)		Life Insurance Premiums		Employer Match to 401(k) Plan		Total
Walter White		2013 2012	$ $	4,336 3,911		—   —		—   —	$	792		—   —	$ $	902 759	$ $	19,125 18,750	$ $	24,363 24,212
Giulio Terzariol		2013 2012		—   —	$ $	100 4,507	$	—   2,523	$	—   1,222		—   —	$ $	666 692		—   —	$ $	766 8,944
Thomas Burns		2013 2012	$ $	3,558 603		—   —		—   —		—   —		—   —	$ $	366 432	$ $	19,125 18,750	$ $	23,049 19,785
Neil McKay		2013 2012		—   —		—   —		—   —		—   —		—   —	$ $	718 847	$ $	19,125 18,750	$ $	19,843 19,597
Robert DeChellis		2013 2012		—   —	$ $	89,446 60,000		—   —		—   —	$	75,423 —	$ $	366 432	$ $	17,499 18,750	$ $	182,735 79,182

(6) Represents reimbursement or payments made to defray the costs of a spouse’s travel.

(7) Represents reimbursement or payments made to defray the cost of relocation expenses.

(8) Represents reimbursements or payments made to defray the cost of tax related services.

(9) Represents Milestone Anniversary Program, which pays a bonus at one, three and five year anniversaries, and then every five years thereafter.

(10) Represents reimbursement or payments made to defray the cost of Executive MBA tuition expenses.

Performance-Based Incentive Compensation Plans

Allianz Equity Incentive Plan (AEI)

The Allianz Equity Incentive Plan is designed to recognize senior employees’ continuous employment with the Company or any member of the Allianz NA Group, and serves as an incentive to continue in employment. Grants and payments under the AEI are made to employees that (i) hold a valid employment contract with the Company at the date of grant, (ii) stay with the Company or any member of the Allianz NA Group during the vesting period of the RSU and (iii) have not given or received notice terminating his or her office or employment. The securities issuable under the AEI are restricted stock units, or RSUs.

An RSU constitutes the right to receipt of the market value of Allianz SE common stock at the time of exercise. This amount will be paid in cash or Allianz SE stocks. RSUs issued under the AEI are subject to a four-year vesting period. At the end of the four-year period, the RSUs are exercised uniformly for all participants, provided they remain employed by the Allianz NA Group or are pensioners. The cap on the amount of the payout upon exercise of the RSU is 200% for all NEOs except for Walter White, in which case the cap on the amount of the payout upon exercise of the RSU is 165%.

Allianz Annual Incentive Plan (AIP)

The Allianz Annual Incentive Plan is designed to improve the performance and profitability of the Company by motivating employees to accomplish organizational objectives and financial goals set forth by the Company. The plan is intended to provide an incentive that will encourage superior individual performance and encourage retention of employees who are anticipated to significantly contribute to the future success of the Company. The plan seeks to accomplish this purpose by providing a bonus opportunity to eligible employees who have made significant contributions during the plan year to the achievement of the Company’s annual goals and objective.

The ASC Compensation Committee or other duly authorized committee determines allocation of bonus awards to Allianz employees. The guidelines for target awards are meant to be illustrative of competitive market bonuses for similar job levels in the marketplace. While the target awards may be used for illustrative, budget planning or distribution scenarios, all bonus awards are discretionary and are in no way guaranteed.

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Allianz Long-Term Performance Plan (ALTPUP)

The Allianz Long-Term Performance Plan is designed to advance the interests of the Company and its stockholders. The plan seeks to accomplish this purpose by providing an incentive in addition to current compensation to certain individuals within designated classes of employees of the Company and its subsidiaries who contribute significantly to the Company’s long-term performance. The plan is intended to (i) reward the performance of participants who have made significant contributions to the achievement of the Company’s goals and objectives; (ii) provide an incentive that will encourage superior individual performance in the future; and (iii) encourage the retention of participants who have demonstrated exceptional performance and/or are anticipated to significantly contribute to the long-term success of the Company. In order to be eligible for ALTPUP awards, individuals must be nominated by the business unit and approved by the Compensation Committee. Receipt of an ALTPUP award one year is not a guarantee that an ALTPUP award will be granted in subsequent years.

The ALTPUP incentive is in the form of Long-Term Performance Units (ALTPUP Units), which have a target value of $10.00. The threshold value is $5.00, and the maximum value is $20.00. ALTPUP Units are contingent awards, subject to the terms, conditions and restrictions of the plan by which plan participants may become entitled to receive cash upon the Company’s redemption of the Units on the valuation date. The plan consists of three-year award periods with two overlapping periods, and one-third of the ALTPUP Units pay out each year over the three-year award period. The valuation date is December 31 at the end of each performance year, unless the ASC Compensation Committee in its discretion selects an earlier date. The award of Units is discretionary.

Mid-Term Bonus Plan

Our Chief Executive Officer receives cash awards pursuant to the terms of the Mid-Term Bonus Plan instead of the ALTPUP. The Mid-Term Bonus Plan covers business performance over a non-rolling three-year period. The minimum payout is zero and the maximum payout is 165% of the target amount set by the Compensation Committee. Target award amounts generally focus on performance of the Company, including its growth and operating profit and achievement of goals set by Allianz NA group. At the end of each three-year period, the performance of the Allianz NA Group and each company thereunder are assessed, along with relevant comparable company comparisons. Proposed incentive awards are endorsed by the Allianz SE Board of Management and approved by the respective Compensation Committee.

Allianz Group Equity Incentives Plan (GEI) 2007

The Allianz Group Equity Incentives has been replaced by the Allianz Equity Incentive Plan. The GEI was designed to align a portion of the compensation paid to the executive management team of the Allianz NA Group with the interests of its shareholders. Issuances of securities under the GEI were tied to the common stock of Allianz SE which is traded on stock exchanges in Germany, London, Milan, Paris, and Zurich and, through American Depositary Shares, on the New York Stock Exchange. The securities issuable under the GEI were stock appreciation rights, or SARs, and restricted stock units, or RSUs.

Stock Appreciation Rights

A SAR constitutes the right to a payout of the difference between the current price of Allianz SE common stock at the time of exercise by the participant and the grant price of the SAR, paid in cash. SARs issued under the GEI were subject to a two-year vesting period and could only be exercised by recipients at the beginning of the third year after issuance. Such rights expire at the end of the seventh year following issuance. In order for a recipient to be able to exercise a SAR, the recipient must still be employed by the Allianz NA Group or be a pensioner, the value of the Allianz SE common stock must have outperformed the Dow Jones Europe Stoxx Price Index once on five consecutive trading days, and the price of the Allianz SE common stock must have risen by at least 20% over the grant price. The maximum payout to a recipient is capped at 150% over the grant price of the SAR.

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Restricted Stock Units

An RSU constitutes the right to receipt of the market value of Allianz SE common stock at the time of exercise. This amount will be paid in cash, stocks, or other consideration at the sole discretion of the company. RSUs issued under the GEI were subject to a five-year vesting period. At the end of the five-year period, the RSUs are exercised uniformly for all participants, provided they remain employed by the Allianz NA Group or are pensioners. The maximum payout to a recipient is capped at 200% over the grant price of the RSU.

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Grants of Plan-Based Awards

The following table provides additional information about plan-based compensation disclosed in the Summary Compensation Table. This table includes both equity and non-equity awards granted during the year ended December 31, 2013.

Name	Grant Date		Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)(2)						Estimated Future Payouts Under Equity Incentive Plan Awards(3)(4)
			Threshold ($)		Target ($)		Maximum ($)		Threshold ($)		Target ($)		Maximum ($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Walter White     RSUs (under AEI)     AIP Award     Midterm Bonus Plan		3/10/2014		—   —	$ $	800,000 800,000	$ $	1,320,000 1,320,000		—	$	800,000	$	1,320,000
Giulio Terzariol     RSUs (under AEI)     AIP Award     ALTPUP Award		3/10/2014		—   —	$ $	279,600 279,600	$ $	559,200 559,200		—	$	279,600	$	559,200
Thomas Burns     RSUs (under AEI)     AIP Award     ALTPUP Award		3/10/2014		—   —	$ $	351,000 351,000	$ $	702,000 702,000		—	$	351,000	$	702,000
Neil McKay     RSUs (under AEI)     AIP Award     ALTPUP Award		3/10/2014		—   —	$ $	294,000 294,000	$ $	588,000 588,000		—	$	294,000	$	588,000
Robert DeChellis     RSUs (under AEI)     AIP Award     ALTPUP Award		3/10/2014		—   —	$ $	500,000 160,000	$ $	1,000,000 320,000		—	$	128,000	$	256,000

(1) The target and maximum columns show the target award and maximum award for 2013 for each NEO under the AIP. There is no threshold amount for any participant in the AIP. The actual 2013 awards granted to the NEOs are listed in the Non-Equity Incentive Compensation column of the Summary Compensation Table. AIP target and maximum awards are a pre-designated percentage of base salary determined at the executive’s level.

(2) The target and maximum columns show the target award and maximum award for 2013 for each NEO under the ALTPUP. Under the ALTPUP, all awards are discretionary. To the extent that awards are made, the minimum amount of an award will equal at least 50% of the target amount as determined by the Compensation Committee of the Board of Directors of ASC. The actual 2013 awards granted to the NEOs are listed in the Non-Equity Incentive Compensation column of the Summary Compensation Table. ALTPUP target and maximum awards are a pre-designated percentage of base salary determined at the executive’s level.

(3) RSUs have a vesting schedule as disclosed in the footnotes to the Summary Compensation Table. See “Outstanding Equity Awards at December 31, 2013” for disclosure regarding the number of RSUs that are unvested as of December 31, 2013.

(4) The target and maximum columns show the target award and maximum award for 2013 for each NEO under the AEI. There is no threshold amount for any participant in the AEI. The actual 2013 awards granted to the NEOs are listed in the Non-Equity Incentive Compensation column of the Summary Compensation Table.

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Outstanding Equity Awards at December 31, 2013

The following table sets forth the outstanding equity awards outstanding at the December 31, 2013 fiscal year-end. The table shows stock appreciation rights, or SARs, and restricted stock units, or RSUs, granted pursuant to the Allianz Group Equity Incentive Plan (GEI) and the Allianz Equity Incentive Plan (AEI).

	SAR Awards										RSU Awards
Name	Number of Securities Underlying Unexercised SARs Exercisable		Number of Securities Underlying Unexercised SARs Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned SARs		SAR Base Price		SAR Expiration Date		Number of Restricted Stock Units That Have Not Vested		Market Value of Restricted Stock Units That Have Not Vested		Equity Incentive Plan Awards: Number of Unearned Restricted Stock Units That Have Not Vested		Equity Incentive Plan Awards: Market or Payout Value of Unearned Restricted Stock Units That Have Not Vested
(a)	(b)(1)		(c)		(d)		(e)		(f)		(g)(2)(3)		(h)(4)		(i)		(j)
Walter White		4,160		—		—		—		3/12/2017						—		—
				—								5,537 3,788 7,930	$ $ $	997,023 682,088 1,427,919
Giulio Terzariol		1,253		—		—		—		3/5/2015						—		—
		3,939		—						3/10/2017		7,094 4,853 3,792	$ $ $	1,277,385 873,858 682,808
Thomas Burns		3,426		—		—		—		3/5/2015						—		—
		4,294		—						3/10/2017		7,131 5,201 3,526	$ $ $	1,284,047 936,521 634,911
Neil McKay		2,367		—		—		—		3/5/2015						—		—
		4,274		—						3/10/2017		6,394 4,357 3,264	$ $ $	1,151,339 784,545 587,734
Robert DeChellis		1,869		—		—		—		3/5/2015						—		—
												2,778 1,407 1,147	$ $ $	500,222 253,352 206,535

(1) There is a two-year vesting period for exercisable securities underlying unexercised SARs.

(2) Represents unvested restricted stock units issued pursuant to the GEI and the AEI. RSUs issued under the GEI plan during the years 2006 – 2010 are subject to a five-year vesting period from the grant date. RSUs issued under the AEI plan during the years 2011, 2012 and 2013 are subject to a four-year vesting period from the grant date. At the end of the respective vesting period, the RSUs are exercised uniformly for all participants, provided they remain employed by the Allianz NA Group or are pensioners.

(3) For each of the named executive officers, the number of RSUs listed on the first line expire March 2015, the RSUs listed on the second line expire March 2016, and the RSUs listed on the third line expire March 2017.

(4) Based on an assumed stock price of $180.07 per share, which was the closing stock price of Allianz SE common stock on December 31, 2013, converted from Euros into U.S. dollars.

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Option Exercises and Stock Vested in 2013

The following table summarizes the value received from stock option exercises and stock grants vested during the year ended December 31, 2013.

	Option Awards				Stock Awards
Name	Number of Shares Acquired on Exercise (#)		Value Realized on Exercise ($)(1)		Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)(2)
Walter White		—		—		1,287	$	138,188
Giulio Terzariol		608	$	63,627		609	$	47,319
Thomas Burns		1,663	$	226,243		1,519	$	117,190
Neil McKay		1,149	$	156,316		1,351	$	140,514
Robert DeChellis		907	$	123,393		1,207	$	93,119

(1) Represents SARs that were exercised during 2013 pursuant to the GEI. Amounts realized were paid in cash.

(2) Represents RSUs that were exercised during 2013 pursuant to the GEI. Amounts realized were paid in cash.

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Severance and Change in Control Arrangements

Allianz Life Executive Severance Agreement

Allianz Life entered into an Executive Severance Agreement with our Chief Executive Officer, Walter White, dated January 1, 2012, with an expiration date of December 31, 2014. The severance arrangements for Mr. White are prescribed by the Executive Severance Agreement.

Pursuant to the Executive Severance Agreement, Mr. White is entitled to lump sum cash payments upon separation of $3,000,000 in the event he is terminated without “cause” or resigns for “good reason,” as both terms are defined in the Executive Severance Agreement. In addition, he would be entitled to receive executive career outplacement services for a period of 12 months following termination or resignation. In lieu of continuation of medical and dental benefits at the employee premium rates, the Executive’s lump-sum cash payment shall be increased by $15,000.

In the event that Mr. White is terminated as a result of a “change in control,” as defined in the Executive Severance Agreement, he would be entitled to receive a lump sum cash payment in the amount of $3,000,000. In addition, he would be entitled to receive executive career outplacement services for a period of 12 months following termination or resignation. In lieu of continuation of medical and dental benefits at the employee premium rates, the Executive’s lump-sum cash payment shall be increased by $15,000.

In the event that Mr. White’s employment terminates as a result of permanent and total disability, he would be entitled to receive a lump sum cash payment in the amount of two times his annual base pay, not including any bonus payments, bonus targets or incentive payments, in effect as of the date of termination. In addition, Mr. White would be entitled to all rights and benefits under the AIP, ALTPUP, GEI, ASPP and AEI as of the date of termination.

In the event of Mr. White’s death, his designated beneficiary would be entitled to receive a lump sum cash payment in the amount of two times his annual base pay, not including any bonus payments, bonus targets or incentive payments, in effect as of the date of termination. In addition, Mr. White would be entitled to all rights and benefits under the AIP, ALTPUP, GEI, ASPP and AEI as of the date of termination.

Pursuant to the Executive Severance Agreement, in the event that Mr. White is terminated for any of the reasons noted above, Mr. White agrees that for a period of one-year following the termination date, he would not interfere with the business of the Company by attempting to solicit, induce or otherwise cause any employee, client, prospect or candidate of the Company to terminate his or her relationship with the Company. In addition, Mr. White agrees that for a period of one year following the termination date, he would not directly or indirectly engage or assist others to engage, directly or indirectly, in the life insurance business.

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Payments Due Under the Executive Severance Agreement

Name	Maximum Severance Payable Upon Termination by Company Without Cause or Resignation for Good Reason		Maximum Severance Payable Upon Termination following Change In Control		Maximum Severance Payable Upon Termination by Company as a Result or Permanent and Total Disability		Maximum Severance Payable to Designated Beneficiary in the Event of Death
Walter White President and Chief Executive Officer	$	3,015,000	$	3,015,000	$	4,927,360	$	4,927,360

The remainder of our NEOs are subject to severance payments under either the Executive Severance Plan or the Severance Allowance Plan. If an NEO is eligible to receive severance payments pursuant to the Executive Severance Plan, he or she is not eligible to receive severance payments under the Severance Allowance Plan. The terms of each of these plans are set forth below.

Executive Severance Plan

Executive officers that have the title of Senior Vice President or above and report directly to a senior executive officer at a specific level are eligible to receive severance allowance benefits under the Executive Severance Plan. For the year ended December 31, 2013, the NEOs eligible for severance benefits under this plan were Giulio Terzariol, Thomas Burns and Neil McKay. The purpose of the Executive Severance Plan is to provide severance benefits to executive officers whose employment is involuntarily terminated in order to assist with job transition. Pursuant to the Executive Severance Plan, eligible executive officers who are involuntarily terminated will receive a lump sum cash payment equal to one and one-half times their “annual base pay” in effect at the time of termination. Annual base pay, for purposes of this agreement, equals base salary and excludes special payments, such as bonuses, expense reimbursements, living or other allowances.

Severance Allowance Plan

All of our employees, including our NEOs, who are not eligible to receive severance benefits under the Executive Severance Plan, are subject to severance payments under the Severance Allowance Plan. For the year ended December 31, 2013, the NEO eligible for severance benefits under this plan was Robert DeChellis. The Severance Allowance Plan provides that employees who are terminated for certain company-initiated reasons are eligible to receive a severance payment in an amount based on the employee’s weekly base pay multiplied by the number of weeks set forth in the Severance Allowance Plan. Employees are generally eligible for severance payments if they are terminated for the following reasons:

• Employee’s position is eliminated by the Company;

• Employee’s position is outsourced; or

• Employee’s position is eliminated in connection with a sale or merger or other corporate transaction.

The following table shows the lump sum payments that would have been payable to each of our NEOs had they been terminated on December 31, 2013 and been eligible for severance payments pursuant to the Executive Severance Plan or the Severance Allowance Plan, as the case may be.

NEO	Lump Sum Payment
Walter White		N/A	(1)
Giulio Terzariol	$	699,000
Thomas Burns	$	877,500
Neil McKay	$	735,000
Robert DeChellis	$	292,308

(1) Mr. White is not eligible to receive payments pursuant to the Severance Allowance Plan. See “Allianz Life Executive Severance Agreement” for information regarding severance payments that Mr. White is eligible to receive upon termination of service.

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Director Compensation

The following table provides information on compensation paid to the directors of Allianz Life for the year ended December 31, 2013.

Name	Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation		Total ($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Gary Bhojwani(2) Chairman		—		—		—		—		—		—		—
Walter White(3) President and Chief Executive Officer		—		—		—		—		—		—		—
Giulio Terzariol(3) Senior Vice President and Chief Financial Officer		—		—		—		—		—		—		—
Michael Sullivan(4) Independent Director	$	25,000		—		—		—		—		—	$	25,000
Dale Lauer(4) Independent Director	$	25,000		—		—		—		—		—	$	25,000
Marna Whittington Independent Director	$	25,000		—		—		—		—		—	$	25,000

1 Represents cash compensation provided to our independent directors for the year ended December 31, 2013.

2 Mr. Bhojwani does not receive any compensation for his services as a director since he is not an independent director.

3 As employee directors, Messrs. White and Terzariol do not receive any compensation for their service as directors. The compensation Messrs. White and Terzariol receive as executive officers of the Company is disclosed in the Summary Compensation Table as set forth herein.

4 Messrs. Sullivan and Lauer resigned from the board of directors effective December 31, 2013. They were replaced, effective January 1, 2014, by Ronald M. Clark and David L. Conway.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

We are an indirect wholly owned subsidiary of Allianz SE. Allianz SE’s principal executive offices are located at Königinstrasse 28, 80802 Munich, Germany. As of March 31, 2014, the directors and executive officers of Allianz Life held less than 1% of Allianz SE’s ordinary shares issued and outstanding.

We are not aware of any arrangements that may at a later date result in a change in control of Allianz Life.

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS

We are a wholly owned subsidiary of AZOA, which is a wholly owned subsidiary of Allianz Europe, B.V., Allianz Europe. B.V. is a wholly owned subsidiary of Allianz SE, the Company’s ultimate parent, which is incorporated in Munich, Germany.

Based on the information available to our Chief Legal Officer and to the Board, there have been no transactions between us and any related party since January 1, 2013, nor are any currently proposed, for which disclosure is required under SEC rules.

RISKS ASSOCIATED WITH THE FINANCIAL SERVICES INDUSTRY

There are a number of risks associated with the financial services industry including the insurance industry.

Legal, Regulatory, and Tax Risks

We are heavily regulated by state insurance departments and other regulators, and changes in existing or new laws and regulations may reduce our profitability and limit our growth.

We are subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which we operate. Our insurance operations are subject to insurance laws and regulations, which are generally intended to protect policyholders, not our shareholders or creditors. Changes in existing insurance laws and regulations may materially affect the way in which we conduct our business and the products we offer.

Our products are heavily regulated and must be approved by the individual state regulators where such products are sold. State insurance regulators and the National Association of Insurance Commissioners (“NAIC”) regularly reexamine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, including, potentially rescinding prior product approvals, are often made for the benefit of the consumer at the expense of the insurer and, therefore, could have a material adverse effect on our financial condition and consolidated results of operations.

We are subject to increasing regulation under various laws and regulations governing the solvency of insurers and other financial institutions. We are also increasingly subject to detailed and comprehensive regulations governing such matters as money laundering, “know your customer,” requirements, prohibited transactions with countries or counterparties subject to sanctions, and bribery and other anti-corruption measures.

In October 2011, the NAIC established a subgroup to study insurers’ use of captives and special purpose vehicles to transfer insurance risk in relation to existing state laws and regulations, and to establish appropriate regulatory requirements to address concerns identified in the study. Additionally, in June 2013, the New York State Department of Financial Services (the “NYDFS”) released a report critical of certain captive reinsurance structures and calling, in part, for other state regulators to adopt a moratorium on approving such structures pending further review by state and federal regulators. We cannot predict what actions and regulatory changes will result from the NAIC study or the NYDFS report and what impact such changes will have on our financial condition and results of operations.

Our business is subject to significant litigation risks in the various states in which we operate; changes in existing or new laws and government regulations in these states and/or an adverse outcome in any significant pending or future litigation or regulatory investigation may have an adverse effect on our business, financial condition, results of operations, reputation or image in the marketplace.

We have been named as defendants in lawsuits (both class actions and individual lawsuits) and involved in various regulatory investigations and examinations and may be involved in more in the future. These actions arise in various contexts, including in connection with our activities as an insurer, securities issuer, employer, investment adviser, investor and taxpayer. Certain lawsuits or regulatory investigations could have a material adverse effect on our financial condition and results of operations.

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Our products are subject to extensive regulation and failure to meet any of the complex product requirements may reduce profitability.

Our products are subject to a complex and extensive array of state and federal tax, securities, insurance and employee benefit plan laws and regulations, which are administered and enforced by a number of different governmental and self-regulatory authorities, including, among others, state insurance regulators, state securities administrators, state banking authorities, the SEC, the FINRA, the Department of Labor and the IRS.

For example, U.S. federal income tax law imposes requirements relating to insurance and annuity product design, administration and investments that are conditions for beneficial tax treatment of such products under the Internal Revenue Code. Additionally, state and federal securities and insurance laws impose requirements relating to insurance and annuity product design, offering and distribution and administration. Failure to administer product features in accordance with contract provisions or applicable law, or to meet any of these complex tax, securities, or insurance requirements could subject us to administrative penalties imposed by a particular governmental or self-regulatory authority, unanticipated costs associated with remedying such failure or other claims, litigation, harm to our reputation or interruption of our operations. If this were to occur, it could adversely impact our profitability, results of operations and financial condition.

Laws and regulations aimed at bank and financial institutions, including the Dodd-Frank Act, could have an adverse impact on our business, financial condition and results of operations.

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Currently, the U.S. federal government does not directly regulate the business of insurance. While the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) does not remove primary responsibility for the supervision and regulation of insurance from the states, Title V of the Dodd-Frank Act establishes a Federal Insurance Office (“FIO”) within the U.S. Treasury Department. The FIO has authority that extends to a wide variety of lines of insurance, including life insurance and annuities. Under the Dodd-Frank Act, the FIO is charged with monitoring all aspects of the insurance industry (including identifying gaps in regulation that could contribute to a systemic crisis), recommending to the Financial Stability Oversight Council the designation of any insurer and its affiliates as a non-bank financial company subject to oversight by the Board of Governors of the Federal Reserve System (including the administration of stress testing on capital), assisting the Treasury Secretary in negotiating “covered agreements” with non-U.S. governments or regulatory authorities, and, with respect to state insurance laws and regulation, determining whether such state insurance measures are pre-empted by such covered agreements.

On December 12, 2013, the FIO released a study required by Title V of the Dodd-Frank Act entitled “How to Modernize and Improve the System of Insurance Regulation in the United States” (the “Report”). While the Report reflects extensive study and analysis of the broader issue of the appropriate regulatory framework for insurance, it also reviews some narrower regulatory issues that are current topics of discussion. The Report does not recommend direct federal regulation of insurance, but does recommend significantly greater federal involvement in a number of areas. We cannot predict whether any of the recommendations set forth in the Report will be adopted or what effect any recommendations that stem from the Report may have on our financial condition or results of operations.

Other aspects of our operations could also be affected by the Dodd-Frank Act. For example, the Dodd-Frank Act also includes a new framework of regulation of the Over-The-Counter (“OTC”) derivatives markets that requires that certain types of transactions currently traded over-the-counter must be traded on swaps execution facilities. This imposes additional costs, new capital and margin requirements, and additional regulation as well as changing the market structure for the trading of these types of derivatives. Increased margin requirements could reduce our liquidity and narrow the range of securities in which we invest.

The sales of insurance products could also be adversely affected to the extent that some or all of the third-party firms that distribute our products face heightened regulatory scrutiny and/or increased regulation that causes them to de-emphasize sales of the types of products issued by our insurance companies.

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In addition, regulators and lawmakers in non-U.S. jurisdictions are engaged in addressing the causes of the financial crisis in 2008-09 and means of avoiding such crises in the future. For example, on July 18, 2013, the Financial Stability Board (“FSB”) published its initial list of nine global systemically important insurers (“G-SIIs”), which includes Allianz SE, our parent company. While the precise implications of being designated a G-SII are not yet clear, it could have far-reaching regulatory and competitive implications for Allianz SE and adversely impact its capital requirements, profitability, ability to provide capital/financial support for its affiliates, and ability to grow through future acquisitions, and could change the way it conducts its business and harm its overall competitive position in relation to insurance groups that are not designated G-SIIs. All of these possibilities, if they occurred, could affect the way we conduct our business (including, for example, which products we offer) and manage our capital, and may require us to satisfy increased capital requirements, any of which in turn could materially affect our consolidated results of operations, financial condition and liquidity.

Changes in tax laws and regulations, including elimination of tax benefits for our products, may adversely affect sales of our insurance products, and also impact our deferred tax assets.

Changes to tax laws may affect the attractiveness of certain of our products, which currently have favorable tax treatment. From time to time, governments have considered or implemented proposals for changes in tax law that could adversely affect our products.

In addition, changes in tax laws or regulations or an operating performance below currently anticipated levels may lead to a significant impairment of deferred tax assets, in which case we could be obligated to write off certain tax assets.

Capital, Credit and Investment Risks

The amount of statutory capital that we have and the amount of statutory capital we must hold to meet our statutory capital requirements and our financial strength and credit ratings can vary significantly from time to time.

Statutory accounting standards and capital and reserve requirements are prescribed by the applicable state insurance regulators and the NAIC. State insurance regulators have established regulations that govern reserving requirements and provide minimum capitalization requirements based on risk-based capital (“RBC”) ratios for life insurance companies. In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors. Additionally, state insurance regulators have significant leeway in interpreting existing regulations, which could further impact the amount of statutory capital or reserves that we must maintain. Moreover, rating agencies may implement changes to their internal models that have the effect of increasing or decreasing the amount of capital we must hold in order to maintain our current ratings. To the extent that our statutory capital resources are deemed to be insufficient to maintain a particular rating, our financial strength and credit ratings might be downgraded by one or more rating agencies.

Changes in statutory reserve or other requirements and/or the impact of adverse market conditions could result in changes to our product offerings that could negatively impact our business.

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Changes in statutory reserve requirements, increased costs of hedging and other risk mitigation techniques, and other adverse market conditions could result in certain products becoming less profitable or unprofitable. These circumstances have already caused us to modify and/or eliminate certain features of various products, including our fixed indexed annuity and variable annuity products, and could cause further modifications and/or the cessation of sales of certain products in the future. Modifications to products that we make may result in certain of our products being less attractive and/or competitive. This may adversely impact sales, which could negatively impact our ability to retain our sales personnel and maintain our distribution relationships.

Our reserves could be inadequate due to differences between our actual experience and management’s estimates and assumptions.

We establish and carry reserves to pay future policyholder benefits and claims. Our reserve requirements for our business are calculated based on a number of estimates and assumptions. The assumptions and estimates used in connection with the reserve estimation process are inherently uncertain and involve the exercise of significant judgment. We cannot determine with precision the amounts that we will pay for, or the timing of payment of, benefits and claims or whether the assets supporting the policy liabilities will grow to the level assumed prior to payment of benefits or claims. Our claim costs could increase significantly and our reserves could be inadequate. If so, we will be required to increase reserves or accelerate amortization of deferred acquisition costs (“DAC”), which could adversely impact our earnings and/or capital.

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Our investments are subject to market risks.

The fair values of our investments are subject to a number of market risks, including credit risk, interest rate risk, and equity price risk. These factors may have a material effect on the fair values of our investments.

Losses due to defaults by financial institution counterparties and other third parties could negatively affect the value of our investments and reduce our profitability.

Third parties that owe us money, securities or other assets may not perform under their obligations. Many of our transactions with these third parties expose us to credit risk in the event of default of our counterparty. In addition, with respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to cover the full amount of the secured obligation. Also, defaults by parties with which we have no direct contractual relation, such as a credit insurer that has insured securities we may hold in our investment portfolios, may adversely impact the value of those securities. The default of a major market participant could disrupt the securities markets or clearance and settlement systems in our major markets, which could in turn cause market declines or volatility. A failure of a major market participant could also cause some clearance and settlement systems to assess members of that system or could lead to defaults that could adversely affect us.

Some of our investments are relatively illiquid. If we are forced to liquidate these investments, we may be unable to sell them at prices that reflect fair value.

We hold certain investments that may lack liquidity, such as privately placed fixed maturity securities, mortgage loans, collateralized debt obligations, commercial mortgage-backed securities, equity real estate and limited partnership interests. If we were required to liquidate these investments on short notice, we may have difficulty doing so and be forced to sell them for less than we otherwise would have been able to realize.

Interest rate and credit spread volatility may adversely affect our profitability.

Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates.

During periods of declining interest rates, life insurance and annuity products may be relatively more attractive to consumers, resulting in increased premium payments on products with flexible premium features, and a higher percentage of insurance policies remaining in force from year-to-year, creating asset -liability duration mismatches. During a low interest rate period, our investment earnings may be lower because the interest earnings on our fixed income investments will likely have declined in parallel with market interest rates, which would also cause unrealized losses on our assets recorded at fair value under GAAP. In addition, mortgages and fixed maturity securities in our investment portfolios will be more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest rates, our profitability may suffer as the result of a decrease in the spread between interest rates charged to policyholders and returns on our investment portfolios.

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Conversely, in periods of increasing interest rates, surrenders of life insurance policies and fixed annuity contracts may increase as policyholders choose to forgo insurance protection and seek higher investment returns. Obtaining cash to satisfy these obligations may require us to liquidate fixed maturity investments at a time when market prices for those assets are depressed because of increases in interest rates. This may result in realized investment losses. Regardless of whether we realize an investment loss, these cash payments would result in a decrease in total invested assets, and may decrease our net income. Premature withdrawals may also cause us to accelerate amortization of deferred policy acquisition costs, which would also reduce our net income.

Recent periods have been characterized by low interest rates, and the Federal Reserve Board has committed to keeping interest rates low until there is substantial improvement in the labor market. A prolonged period during which interest rates remain at levels lower than those anticipated may result in (1) greater costs associated with certain of our product features that guarantee death benefits or income streams for stated periods or for life, (2) higher costs for derivative instruments used to hedge certain of our product risks or (3) shortfalls in investment income on assets supporting policy obligations as our portfolio earnings decline over time, each of which may require us to record charges to increase reserves. In addition to compressing spreads and reducing net investment income, such an environment may cause policies to remain in force for longer periods than we anticipated in our pricing, potentially resulting in greater claims costs than we expected and resulting in lower overall returns on business in force.

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Our exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. A widening of credit spreads will increase the net unrealized loss position of the investment portfolio. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturity securities. Ongoing volatility in interest rates and credit spreads, individually or in tandem with other factors such as lack of pricing transparency, market illiquidity and declines in equity prices could have a material adverse effect on our consolidated results of operations, financial condition or cash flows through realized losses, impairments, and changes in unrealized loss positions.

Our hedging and reinsurance programs may be inadequate to protect us against the full extent of the exposure or losses we seek to mitigate.

Certain of our products, including our fixed and variable annuity products, include guarantees of income streams for stated periods or for life. Changes in equity markets, increased equity volatility, or reduced interest rates could result in an increase in the valuation of liabilities associated with such products, resulting in increases in reserves and reductions in net income. Our fixed indexed annuity and life insurance products include features that increase in value along with the growth in underlying indices. Growth in the underlying indices may result in an increase in reserves and a corresponding reduction in net income.

We seek to mitigate these risks through the use of economic hedging and reinsurance programs. However, these programs cannot eliminate all of these risks, and no assurance can be given as to the extent to which such programs will be effective in reducing such risks. If the hedging instruments we use do not perform as intended, we could realize losses and have unanticipated cash needs to collateralize or settle such transactions. In addition, adverse market conditions can limit the availability and increase the costs associated with hedging instruments and such costs may not be recovered in the pricing of the underlying products being hedged. Finally, hedging counterparties may fail to perform their obligations resulting in unhedged exposures and losses on positions that are not collateralized.

Poor investment performance in our variable products could adversely affect our financial condition and results of operations.

We believe that investment performance is an important factor in the growth of our fixed indexed annuity, fixed indexed universal life and variable annuity business. Poor investment performance could result in a reduction in fee income received from our variable annuity products since these products generate fees primarily related to the value of our assets under management. Poor performance could also impair our prospects for growth, because our ability to attract funds from existing and new clients might diminish and existing clients might withdraw assets from our variable products in favor of better performing products of other companies, which would result in lower revenues.

The determination of the amount of allowances and impairments taken on our investments requires use of significant management judgment in certain cases, particularly for debt instruments, and could materially impact our results of operations or financial position.

The determination of the amount of allowances and impairments vary by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with each asset class. There can be no assurance that our judgments, as reflected in our financial statements, will ultimately prove to be an accurate estimate of the actual and eventual diminution in realized value.

A downgrade or potential downgrade in our financial strength ratings could result in a loss of business.

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Claims-paying and financial strength ratings, which various ratings organizations publish as measures of an insurance company’s ability to meet contract holder and policyholder obligations, are important to maintaining public confidence in our company and our products, and the ability to market our products and our competitive position. A downgrade in our financial strength ratings, or the announced potential for a downgrade, could have an adverse effect on our financial condition, results of operations and cash flows.

The impairment or negative performance of other financial institutions could adversely affect our business.

We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry. A decline in the financial condition of one or more financial services institutions or the perceived lack of creditworthiness of such financial institutions may expose us to credit losses or defaults, limit access to liquidity or otherwise disrupt the operations of our business.

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Business and Operational Risks

Difficult conditions in the global capital markets and the economy could adversely affect our business.

Our business is materially affected by conditions in the global capital markets and the economy generally. We have been affected by the financial crisis and its aftermath since 2008. While financial markets generally stabilized and performed well in 2013, a wide variety of factors continue to negatively impact economic conditions and consumer confidence. These factors include, among others, concerns over the pace of the economic recovery, the U.S. Federal Reserve’s tapering of its bond buying program, including, the potential impact to emerging economies, the recent shutdown of the U.S. government, the level of U.S. national debt, the European sovereign debt crisis, unemployment, the level of interest rates and market volatility, the availability and cost of credit and hedging instruments, the U.S. housing market, inflation levels, and geopolitical issues. These events have had and may in the future have an adverse effect on us.

We use numerous assumptions to determine the appropriate level of insurance reserves and DAC to calculate certain widely used industry measures of value; if these assumptions are not correct, it may have an adverse impact on our business.

The establishment of insurance reserves and the establishment of DAC are inherently uncertain processes involving assumptions about factors such as policyholder behavior (e.g., lapses, persistency and mortality), court decisions, changes in laws and regulations, and in the life insurance and annuity business, assumptions concerning mortality and morbidity trends. The use of different assumptions could have a material effect on our reserves and underwriting expenses as well as on our DAC. In addition, reserves for minimum guarantees contained within certain of our variable and fixed annuity products may be significantly impacted by the state of the financial markets.

We face competition from other insurance companies, banks, and other financial institutions, which may adversely impact our market share and profitability.

There is strong competition among financial institutions seeking clients for the types of retirement and savings products and services we provide. This competition makes it especially difficult to provide unique insurance products since, once such products are made available to the public, they often are reproduced and offered by our competitors. In addition, this competition may adversely impact our market share.

Consolidation of distributors of insurance products may adversely affect the insurance industry.

The insurance industry distributes many of its products through other financial institutions such as banks, broker-dealers and field marketing organizations. Over the last several years, there has been substantial consolidation of these financial institutions. An increase in consolidation may create firms with even stronger competitive positions and negatively impact the industry’s sales. Such consolidation could increase competition for access to distributors, result in greater distribution expenses and more difficulty in marketing our products to current or new customers. Consolidation of distributors may also increase the likelihood that distributors will try to renegotiate existing selling agreements to less favorable terms.

Inadequate or failed processes or systems, human factors or external events may adversely affect our profitability, reputation or operational effectiveness.

Operational risk is inherent in our business and can manifest itself in various ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, human errors, employee misconduct, and external fraud. These events can potentially result in financial loss, harm to our reputation and/or hinder our operational effectiveness.

The failure to maintain and modernize our information systems could adversely affect our business.

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Our business depends significantly on effective information systems, and we have different information systems for our various lines of business. We must commit significant resources to maintain and enhance our existing information systems, and develop new ones in order to keep pace with the evolving information technology, industry and regulatory standards and customer preferences. If we do not maintain adequate information systems, we may not be able to gather and rely on adequate information to base our pricing, underwriting and reserving decisions. We may also have difficulties in attracting new distributors and customers and preserving our existing customer base. In addition, underperforming information systems could cause us to become subject to increased customer, provider and agent disputes, and increase our litigation and regulatory exposure, administrative expenses, and remediation costs.

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We may not be able to protect our intellectual property and may be subject to infringement claims by a third party.

We rely on a combination of contractual rights, copyright, trademark, and trade secret laws to establish and protect our intellectual property. Third parties may attempt to infringe or misappropriate our intellectual property. The loss of intellectual property protection or the inability to secure or enforce our intellectual property assets could have a material adverse effect on our business.

Third parties may have patents or other protections that could be infringed by our products, methods, processes or services. This could limit our ability to offer certain product features. In recent years, there has been increasing intellectual property litigation in the financial services industry challenging product designs and business processes. If a third party were to successfully assert an intellectual property infringement claim against us, or if we were otherwise precluded from offering certain features or designs, or utilizing certain processes, it could have a material adverse effect on our business.

Changes in and the adoption of accounting standards could have a material impact on our financial statements.

We prepare our financial statements in accordance with U.S. GAAP. From time to time, the Financial Accounting Standards Board, the SEC, and other regulators change the financial accounting and reporting standards governing the preparation of our financial statements. In some cases, we could be required to apply a new or revised standard retrospectively. Such changes could have a material effect on our financial condition and results of operations.

Our risk management policies and procedures may not be fully effective in identifying or mitigating our risk exposure in all market environments or against all types of risk.

We have devoted significant resources to develop our risk management policies and procedures and will continue to do so. Nonetheless, our policies and procedures to identify, monitor and manage risks may not always be fully effective in mitigating our risk exposure in all market environments or against all types of risk. This could cause us to incur investment losses or cause our hedging and other risk management strategies to be ineffective.

Moreover, we are subject to the risks of errors and misconduct by our employees, such as fraud, non-compliance with policies, recommending transactions that are not suitable, and improperly using or disclosing confidential information. These risks could harm our business.

We are subject to the risk of nonperformance or inadequate performance of contractual obligations by third-party vendors of products and services that are used in our business. Insurance and other traditional risk-shifting tools may be available to us in order to manage certain exposures, but they are subject to deductibles, limits and policy exclusions, as well as risk of denial of coverage, default or insolvency.

Breaches of security, or interference with our technology infrastructure, could harm our business.

Our business is reliant upon technology systems and networks, including systems and networks managed by third parties to process, transmit and store information and to conduct business activities and transactions. We are also subject to certain federal and state regulations that require us to establish and maintain policies and procedures designed to protect sensitive client information. Maintaining the integrity of our systems is critical to the success of our business operations, including the retention of clients. We routinely encounter and address such threats, including an increasing frequency of phishing scams, introductions of malware and unauthorized payment requests. Any breaches or interference by third parties or by our employees that may occur could have a material adverse impact on our business.

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The failure to protect our clients’ confidential information and privacy could adversely affect our business.

A number of our businesses are subject to privacy regulations and confidentiality obligations, including the regulations of the Gramm-Leach-Bliley Act and state privacy laws and regulations. We also have contractual obligations to protect certain confidential information we obtain from our existing vendors and clients.

If we do not properly comply with privacy regulations and protect confidential information, we could experience adverse consequences, including regulatory sanctions, loss of reputation, and possible litigation. This could have an adverse impact on our Company’s image and business.

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We face intense competition in attracting and retaining key talent.

Our continued success depends to a substantial degree on our ability to attract and retain qualified people. The market for qualified talent is extremely competitive, and we may not be able to attract and retain the employees we need to sustain and grow our business and operations.

Third-party defaults, bankruptcy filings, legal actions and other events may limit the value of or restrict our access to cash and investments.

Capital and credit market volatility can exacerbate, and has exacerbated, the risk of third-party defaults, bankruptcy filings, foreclosures, legal actions and other events that may limit the value of or restrict our access to cash and investments.

We may have contingent liabilities from discontinued, divested and run-off businesses and may incur other off-balance sheet liabilities that could result in charges to the income statement.

We may, from time to time, retain insurance obligations and other contingent liabilities in connection with our liquidation or run-off of various businesses. Our reserves for these types of obligations and liabilities may be inadequate, which could cause us to take additional charges that could be material to our results of operations. We may also, from time to time and in the course of our business, provide guarantees and enter into derivative and other types of off-balance sheet transactions that could result in income statement charges.

Protection from system interruptions and operating errors is important to our business. If we were to experience a sustained interruption to our telecommunications or data processing systems or other failure in operational execution, these events could harm our business.

Operating errors and system or network interruptions could delay and disrupt our ability to develop, deliver or maintain our products and services, causing harm to our business and reputation and resulting in loss of customers or revenue.

We rely on third party service providers and vendors for certain communications, technology and business functions and face the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other third party service providers that we use to facilitate our transactions. These risks are heightened by the evolution in the financial markets of increasingly sophisticated products, by business-driven hedging, by compliance issues and by other risk, investment, or financial management strategies. Any such failure, termination or constraint could adversely impact our ability to implement transactions, service clients, manage exposure to risk or otherwise achieve desired outcomes.

Failures elsewhere in the insurance industry could obligate us to pay assessments through guaranty associations.

When an insurance company becomes insolvent, state insurance guaranty associations have the right to assess other insurance companies doing business in their state for funds to pay obligations to policyholders of the insolvent company, up to the state-specified limit of coverage. The failure of a life, health or annuity insurer could trigger assessments which we would be obligated to pay.

The occurrence of natural or man-made disasters and catastrophes could adversely affect our financial condition and results of operations.

The occurrence of natural disasters and catastrophes, including acts of terrorism, insurrections and military actions, could adversely affect our ordinary business operations, financial condition or results of operations. Such disasters and catastrophes may also impact us indirectly by changing the condition and behaviors of our customers, business counterparties and regulators, as well as by causing declines or volatility in the economic and financial markets.

You can find a more detailed explanation of the industry risks associated with the financial services and insurance industry at Exhibit 99(c) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This exhibit is incorporated by reference into this prospectus. You can obtain a copy of this exhibit by calling (800) 624-0197.

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15. SELECTED FINANCIAL DATA

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (FOR THE 12 MONTH PERIOD ENDING DECEMBER 31, 2013)

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and notes to those statements included in this prospectus. The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” and elsewhere in this prospectus, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities in 2013 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements. See “Forward-Looking Statements.”

Part I

Item 11(e).

Financial Statements meeting the requirements of S-X

Item 11(f)

Selected Financial Data

(dollars in thousands, unless otherwise stated)

The following table sets forth the Company’s selected historical consolidated financial data. The selected financial data has been derived from the audited Financial Statements included elsewhere in this prospectus, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s financial statements and related notes.

These historical results are not necessarily indicative of results to be expected for any future period.

	Year Ended December 31,
	2013		2012			2011			2010		2009
Selected income data
Net premiums and policy fees	$	1,288,373	$	1,049,157		$	926,195		$	875,972	$	913,666
Interest and similar income, net		3,592,117		3,632,406			3,520,016			3,324,907		3,118,268
Change in fair value of assets and liablilities		921,265		(157,279	)		(205,567	)		35,859		580,680
Realized investment gains (losses), net		188,297		227,701			113,393			195,905		(392,716	)
Fee, commission and other revenue		306,779		240,706			222,185			222,975		198,171
Total revenue (loss)		6,296,831		4,992,691			4,576,222			4,655,618		4,418,069
Benefits and expenses		5,552,353		5,080,032			4,583,204			4,228,023		3,794,530
Income tax (benefit) expense		203,292		(44,959	)		(57,875	)		109,072		217,204
Net (loss) income	$	541,186	$	(42,382	)	$	50,893		$	318,523	$	406,335

	As of December 31,
	2013		2012		2011		2010		2009
Selected balance sheet data
Total Investments		75,459,751		75,657,875		72,440,837		65,458,479		58,871,624
Reinsurance recoverables and receivables		4,105,078		4,079,593		4,054,150		3,981,493		4,007,516
Deferred acquisition costs		4,820,215		2,603,307		4,858,136		5,352,713		6,073,131
Separate account assets		30,747,777		25,670,675		20,558,885		19,327,536		15,925,814
Total assets		121,124,973		112,669,962		107,805,542		99,442,275		88,892,881
Policyholder liabilities		78,949,169		75,844,762		75,569,962		70,211,585		64,801,884
Separate account liabilities		30,747,777		25,670,675		20,558,885		19,237,536		15,925,814
Total liabilities		114,028,449		104,024,654		99,523,615		92,190,903		82,611,883
Stockholders equity		7,096,524		8,435,459		8,281,927		7,251,372		6,280,998

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Item 11(h).

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides an assessment by management of the Company’s financial condition as of December 31, 2013, compared with December 31, 2012, and its results of operations for each of the three years ended December 31. The information contained herein should be read in conjunction with the Company’s 2013 and 2012 audited U.S. generally accepted accounting principles (GAAP) consolidated financial statements and schedules. The information contained below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” and elsewhere in this prospectus, that could cause actual growth, results of operations, performance, financial position and business prospects and opportunities in 2014 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements. See “Forward-Looking Statements.”

Company Overview

Allianz Life Insurance Company of North America (hereafter referred to as “the Company”, “we”, “our” and “us”) is a life insurance company with two wholly owned life insurance company subsidiaries, Allianz Life Insurance Company of New York (Allianz Life of NY) and Allianz Life and Annuity Company (ALAC). The Company is domiciled in the State of Minnesota, and is a wholly owned subsidiary of Allianz of America, Inc. (AZOA), which is a wholly owned subsidiary of Allianz Europe, B.V.. Allianz Europe, B.V. is a wholly owned subsidiary of Allianz Societas Europaea (Allianz SE), the Company’s ultimate parent, which is incorporated in Munich, Germany.

We offer a portfolio of individual annuities and individual life insurance products. We are licensed to sell in the United States, Canada, and several U.S. territories. We also maintain a legacy portfolio of individual long-term care (LTC), individual and group life, individual and group annuity, and group accident and health policies, but do not actively issue new policies related to these products. Our products are either sold through licensed independent agents, contracted with a field marketing organization or insurance agency, or through licensed registered representatives that are contracted with a broker/dealer.

Our business is classified into four operating segments: Individual Annuities, Life, Questar, and Legacy Products.

Individual Annuity

The Individual Annuity segment provides tax-deferred investment growth and lifetime income opportunities for our customers through fixed, fixed-indexed, and variable annuities. The “fixed” and “variable” classifications describe whether we or the contractholders bear the investment risk of the assets supporting the contract. We are one of the largest sellers of fixed and fixed-indexed annuity products and also offer a number of variable products. Fixed and variable annuities provide for both asset accumulation and asset distribution needs. Fixed and fixed-indexed annuities provide guarantees related to the preservation of principal and interest credited. Variable annuities allow the contractholder to make deposits into various investment options and also have unique product features that allow for guaranteed minimum income benefits, guaranteed minimum accumulation benefits, guaranteed minimum death benefits, and guaranteed minimum withdrawal benefits. The variable annuity products with guaranteed minimum benefits which provide a minimum return based on their initial deposit may be increased by additional deposits, bonus amounts, or other account crediting features. The income and accumulation benefits shift a portion of the investment risk from the contractholder back to the Company. In 2013, we introduced a new variable indexed annuity to the market. This product has characteristics similar to our fixed-indexed annuities but allow contractholders to invest a portion of the funds into a variety of mutual funds and stock indexes. Our individual annuity products are sold through independent distribution channels made up of agents and registered representatives.

Life

Our life insurance products provide flexibility and control over a person’s assets, providing the assurance that the beneficiaries will be protected after the insured is gone and, in certain cases, to add cash value accumulation potential. The focus of our Life segment is building and repositioning our fixed-indexed universal life insurance product (FIUL). The life segment is an emerging focus within our Company. The FIUL product allows the insured to increase or decrease the amount of death benefit coverage over the term of the contract and the owner to adjust the amount and frequency of the deposits. Deposits are credited to an account maintained for the policyholder. In addition to FIUL, the life segment encompasses some products (including term and whole life) that we no longer sell or distribute. Our individual life products are sold through independent distribution channels made up of agents and registered representatives.

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Questar

The Questar segment consists of two wholly owned subsidiaries, Questar Capital Corporation (Questar Capital) and Questar Asset Management Inc. (QAM). Questar Capital is registered as a broker-dealer under the Securities Exchange Act of 1934 and operates as a retail broker-dealer. QAM provides portfolio management for clients and revenue is based upon wrap fees of assets under management. Questar Capital distributes a full range of securities products, including mutual funds and variable life insurance and annuity contracts. Questar Capital also processes general securities transactions through a clearing arrangement with Pershing, LLC.

Legacy Products

The legacy business consists of our closed block of long-term care and our Special Markets products. The Special Market products consist of closed blocks of individual and group universal life and term insurance. Although our legacy product lines are part of the consolidated results, we do not focus additional resources in this area, other than to maintain the operational support to our current customers. The performance of these product lines is not material enough to warrant discussion as separate operating segments.

Refer to Application of Critical Accounting Policies below for information related to the allocation of income and expense to our segments.

Basis of Presentation

The Consolidated Financial Statements have been prepared in accordance with GAAP, which vary in certain respects from accounting practices prescribed or permitted by state insurance regulatory authorities. The accounts of our primary subsidiary, Allianz Life of New York, and all other subsidiaries have been consolidated. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformance with GAAP requires us to make certain estimates and assumptions that affect reported assets and liabilities, including reporting or disclosure of contingent assets and liabilities as of the balance sheet date and the reported 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.

Application of Critical Accounting Policies

The preparation of the financial statements in conformance with GAAP requires us to adopt accounting policies and make certain estimates and assumptions, which affect amounts reported in the Consolidated Financial Statements. Our critical accounting policies are summarized in “Summary of Significant Accounting Policies” included in the accompanying notes to the consolidated financial statements and require the use of judgments related to a variety of assumptions and estimates, in particular expectations of current and future mortality, persistency, investment returns, equity market performance, expenses, and interest rates. Our most critical accounting policies include those policies related to the Company’s accounting for (i) Valuation of Investments, (ii) Derivatives and Hedging, (iii) Deferred Acquisition Costs (DAC) and Deferred Sales Inducements (DSI), (iv) Account Balances and Future Policy Benefit Reserves (v) Other than Temporary Impairments (OTTI), and (vi) Income Taxes. Due to the inherent uncertainty of assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could be materially different from that reported in the consolidated financial statements. A discussion of the various critical accounting policies is presented below.

Valuation of Investments

We have portfolios of certainfixed-maturity and equity securities classified 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, Value of Business Acquired (VOBA) and Other Intangible Assets, 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. We have portfolios of certainfixed-maturity securities classified as “held-to-maturity,” and accordingly, the securities are carried at amortized cost on the Consolidated Balance Sheets. We use a significant amount of judgment to determine the fair value of these investments.

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The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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 we have 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;

(c) Inputs other than quoted prices that are observable; and

(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 our own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

The fair value offixed-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 by 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 some cases, including private placement securities and certaindifficult-to-price securities, internal pricing models may be used that are based on market proxies.

Generally, U.S. treasury securities andexchange-traded stocks are included in Level 1. Most fixed maturities for which prices are provided bythird-party pricing sources are included in Level 2, because the inputs used are market observable. Fixed maturities for which prices were obtained from broker quotes and private placement securities that are internally priced are included in Level 3.

See Note 5 of the Notes to the Consolidated Financial Statements for additional information regarding fair value of investments, including management’s process related to review of third-party pricing services.

Derivatives and Hedging

We utilize derivatives within certain actively managed investment portfolios to manage the risk associated with variability in cash flows related to financial assets and liabilities. Within these portfolios, derivatives can be used for hedging, replication, and income generation only. The financial instruments are carried at fair value and the unrealized gains and losses on the derivatives are reflected in derivative income (loss) within the Consolidated Statements of Operations.

Interest rate swaps are used to hedge against the changes in cash flows associated with variable interest rates on certain underlyingfixed-maturity securities. The interest rate swaps have notional amounts and maturity dates equal to the underlyingfixed-maturity securities.

We also utilize over-the-counter (OTC) options and exchange-traded options (ETOs) with the objective to economically hedge certainfixed-indexed annuity and life products tied to certain indices as well as certain variable annuity guaranteed benefits. These options are not used for speculative or income generating purposes. The ETOs provide us flexibility to use instruments, which areexchange-cleared and allow us to mitigate counterparty credit risk. These options are cleared through the Options Clearing Corporation (OCC), which operates under the jurisdiction of both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). The credit rating on the OCC is currently AA+ from Standard and Poors (S&P).

We utilize futures to economically hedge individual annuities and our life products. The futures contracts do not require an initial investment other than collateral posted as initial margin and we are required to settle cash daily based on movements of the representative index; therefore, no asset or liability is recorded as of December 31, 2013 and 2012.

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We utilize interest rate swaps to economically hedge certain variable annuity guarantee benefits. We can receive the fixed or variable rate. The interest rate swaps are traded in10-,20-, and30-year maturities. We will only enter into OTC interest rate swap contracts with counterparties ratedA- or better. Typically, we transact with the same counterparties the OTC options are traded.

Certainfixed-indexed annuity products, variable annuity riders, and universal life policies include a market value liability option (MVLO), which is essentially an embedded derivative withequity-indexed features. This embedded derivative is reported within account balances and future policy benefit reserves on the Consolidated Balance Sheets with changes in fair value reported in change in fair value of annuity embedded derivatives on the Consolidated Statements of Operations.

We issue certain variable annuity products with guaranteed minimum benefit riders, including guaranteed minimum withdrawal benefit (GMWB) and guaranteed minimum accumulation benefit (GMAB), 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 account balances and future policy benefit reserves on the Consolidated Balance Sheets.

See Note 5 of the Notes to the Consolidated Financial Statements for additional information regarding derivatives and hedging instruments.

Deferred Acquisition Costs and Deferred Sales Inducements

We capitalize costs which consist of commissions and other incremental costs that are directly related to the successful acquisition of insurance contracts. Acquisition costs are deferred to the extent recoverable from future policy revenues and gross profits. However, acquisition costs associated with insurance contracts recorded under the fair value option are not deferred as guidance related to the fair value option requires that transaction costs are recorded immediately as an expense. For annuity and FIUL 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 legacy (Long Term Care (LTC)) 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. DAC is reviewed for recoverability, at least annually, and adjusted when necessary. Recoverability is evaluated separately forfixed-indexed annuities, variable annuities, and life insurance products. Recoverability is atwo-step process where current policy year issues are evaluated, and thenin-force policies are evaluated. Before assessing recoverability, DAC is capped such that the balance cannot exceed the original capitalized costs plus interest.

We review our best estimate assumptions and record “unlocking” as appropriate. These reviews are based on recent changes in the organization and businesses of the Company and actual and expected performance ofin-force policies. Our review includes all assumptions, including mortality, lapses, expenses, and separate account returns. The revised best estimate assumptions are applied to the currentin-force policies to project future gross profits.

Sales inducements are product features that enhance the investment yield to the contractholder on the contract. We offer 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 when credited to contractholders and life sales inducements are deferred and recognized as part of the liability for policy benefits. DSI is 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 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 onfixed-indexed annuities is recorded in policy fees on the Consolidated Statements of Operations at policy issuance.

The impact of unlocking during 2013 was a $82,082 increase in amortization of DAC and $20,860 increase in amortization of DSI primarily due to adjustments made to future period assumptions for interest margins, policyholder behavior (including surrender, annuitization and lifetime income benefit utilization), separate account returns and maintenance expenses. In 2012, the impact of unlocking was a $63,616 increase in DAC amortization and a $14,512 increase in DSI amortization due to similar assumption changes.

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In 2012, we implemented the FASB issued guidance that changes the accounting for costs associated with acquiring or renewing insurance contracts. This guidance was adopted on a prospective basis. Specifically, the guidance changes the definition of acquisition costs eligible for deferral. In 2012, we capitalized $737,390 of acquisition costs compared to $820,993 that would have been capitalized if the Company’s previous policy had continued to be applied.

During 2012, the Company recorded a change in estimate related to the implementation of a new model for the valuation of policyholder reserves, DAC, DSI, and VOBA for the Company’s fixed and fixed-indexed annuities. Reserve changes were primarily driven by more sophisticated modeling of newer product features such as lifetime income riders. In addition to DAC amortization related to these reserve changes, the Company’s DAC balances changed as a result of bringing the DAC projection model in line with the reserve model. Historically, the valuation and projection models were distinct in such cases as compression and product mapping. Now, valuation and projection are maintained within the same model, which provides greater consistency and a more refined estimate. This change in estimate resulted in a reserve decrease of $288,822, and caused additional DAC, DSI, and VOBA amortization of $710,549.

See Note 10 of the Notes to the Consolidated Financial Statements for additional information regarding DAC and DSI.

Account Balances and Future Policy Benefit Reserves

We calculate and maintain reserves for the estimated future payment of claims to policyholders based on actuarial assumptions and in accordance with industry practice. Many factors can affect these reserves, including economic and social conditions, inflation, changes in doctrines of legal liability. The reserves we establish are Policy and contract account balances forinterest-sensitive products, which include universal life and fixed deferred annuities and are generally carried at accumulated contract values. Forfixed-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. We must include provisions for our own credit risk and for risk that our 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.

Certaintwo-tier fixed annuity products provide additional benefits payable upon annuitization forperiod-certain andlife-contingent payout options. An additional annuitization reserve is accrued using assumptions consistent with those used in estimating gross profits for purposes of amortizing DAC.

We issue variable annuity contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. We recognize 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. We also issue variable annuity and life contracts through our separate accounts where we provide 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 GMAB, and a 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.

Changes in GMDB and GMIB are calculated in accordance with the Financial Services – Insurance Topic of the Codification and are included in policyholder benefits on the Consolidated Statements of Operations. GMAB and GMWB are considered to be embedded derivatives under the Derivatives and Hedging Topic of the Codification, 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 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 GMIB is a living benefit that provides the contractholder with a guaranteed annuitization value. The GMDB and GMIB liabilities are determined each period by estimating the expected future claims in excess of the associated account balances. We regularly evaluate estimates used and adjust the additional liability balance, with a related charge or credit to policyholder benefits on the Consolidated Statements of Operations if actual experience or other evidence suggests that earlier assumptions should be revised. 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. The GMWB is a living benefit that provides the contractholder with a guaranteed amount of income in the form of partial withdrawals.

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Policy and contract account balances for variable annuity products are carried at accumulated contract values. Future policy benefit 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. Future policy benefit reserves for accumulation and withdrawal benefits that may exceed account values are established using capital market assumptions, such as index and volatility, along with estimates of future policyholder behavior.

See Note 2 of the Notes to the Consolidated Financial Statements for additional information regarding Account Balances and Future Policy Benefit Reserves.

Other than Temporary Impairments

We review the available for sale and held-to-maturity investment portfolios each quarter to determine whether or not declines in fair value are other-than-temporary. We continue 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, the Investments-Debt and Equity Securities topic of the FASB ASC require that we evaluate other-than-temporary impairments on available for sale and held-to-maturity fixed maturity securities based on additional factors. Specifically, declines in value resulting from changes in risk free interest rates must also be considered.

When the fair value of afixed-maturity security is less than its amortized cost, we assess whether or not: (i) we have the intent to sell the security or (ii) it is more likely than not that we will be required to sell the security before its anticipated recovery. We also evaluate factors to determine whether we or any of our investment managers have intent to sell a security or a group of securities. Additionally, we perform a cash flow projection for several years into the future to determine whether cash needs would require the sale of any securities. If either of these conditions is met, we must recognize another-than-temporary impairment for the difference between the investment’s amortized cost basis and its fair value through earnings. For securities that do not meet the above criteria, and we do not expect to recover a security’s amortized cost basis, the security is consideredother-than temporarily impaired. For these securities, we separate the total impairment into the credit loss component and the amount of the loss related to other factors. The amount of the total impairment related to credit loss is considered an OTTI and is recognized in realized investment gains, net on the Consolidated Statements of Operations. The amount of the total impairment related to other factors is recognized in other comprehensive income, net of impacts to DAC, DSI, VOBA, reserves, and deferred income taxes.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information regarding other than temporary impairment losses.

Income Taxes

We 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 reimbursement will be in accordance with an intercompany tax reimbursement arrangement. We provide for federal income taxes based on amounts we believe are ultimately owed. 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, we 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, we evaluate 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.

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We utilize 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 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 asother-than-temporary impairments, will not reverse over time.

Although realization is not assured, we believe 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 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.

See Note 16 of the Notes to the Consolidated Financial Statements for additional information regarding income tax estimates and assumptions.

Allocation of Income and Expense

The Company does not maintain segregated investment portfolios for each segment. All interest and similar income, net and realized investment gains, are allocated to the segments. Assets are only monitored at the total Company level, and as such, asset disclosures by segment are not included herein.

Income and expense related to assets backing policyholder reserves are allocated to the segments based on policyholder reserve levels. The results of our Individual Annuity, Life, and Legacy segments also reflect allocation of income and expense related to assets backing surplus. Income and expense related to assets backing surplus are allocated to the segments based on required capital levels for each segment and are excluded from estimated gross profits used in reserve and DAC model projections.

Consolidated Results of Operations

									Increase (decrease)					Increase (decrease)
	Year Ended December 31,								and % change					and % change
	2013		2012			2011			2013 - 2012					2012 - 2011
Revenue:
Net premiums and policy fees	$	1,288,373	$	1,049,157		$	926,195		$	239,216		22.8	%	$	122,962		13.3	%
Interest and similar income, net		3,592,117		3,632,406			3,520,016			(40,289	)	(1.1	)%		112,390		3.2	%
Change in fair value of assets and liabilities		921,265		(157,279	)		(205,567	)		1,078,544		685.8	%		48,288		23.5	%
Realized investment gains, net		188,297		227,701			113,393			(39,404	)	(17.3	)%		114,308		100.8	%
Fee, commission and other revenue		306,779		240,706			222,185			66,073		27.4	%		18,521		8.3	%
Total revenue		6,296,831		4,992,691			4,576,222			1,304,140		26.1	%		416,469		9.1	%
Benefits and expenses:
Net benefits		3,704,019		2,890,203			3,724,792			813,816		28.2	%		(834,589	)	(22.4	)%
General and administrative and commission		1,641,635		1,505,479			1,593,563			136,156		9.0	%		(88,084	)	(5.5	)%
Change in deferred acquisition costs, net		206,699		684,350			(735,151	)		(477,651	)	(69.8	)%		1,419,501		193.1	%
Total benefits and expenses		5,552,353		5,080,032			4,583,204			472,321		9.3	%		496,828		10.8	%
Pretax (loss) income		744,478		(87,341	)		(6,982	)		831,819		952.4	%		(80,359	)	NM
Income tax (benefit) expense		203,292		(44,959	)		(57,875	)		248,251		552.2	%		12,916		22.3	%
Net (loss) income	$	541,186	$	(42,382	)	$	50,893		$	583,568		NM		$	(93,275	)	(183.3	)%

NM =   Not Meaningful.

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										Increase (decrease)					Increase (decrease)
	Year Ended December 31,									and % change					and % change
	2013			2012			2011			2013 - 2012					2012 - 2011
Pretax (loss) income:
Individual Annuity	$	720,235		$	(105,170	)	$	(39,425	)	$	825,405		784.8	%	$	(65,745	)	(166.8	)%
Life		10,862			22,005			11,660			(11,143	)	(50.6	)%		10,345		88.7	%
Questar		(17,156	)		(17,683	)		(17,138	)		527		3.0	%		(545	)	(3.2	)%
Legacy Products		30,537			13,507			37,921			17,030		126.1	%		(24,414	)	(64.4	)%
Total Pretax (loss) income	$	744,478		$	(87,341	)	$	(6,982	)	$	831,819		NM		$	(80,359	)	NM

NM =   Not Meaningful.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Overview

• Net income (loss): For the Company, net income is an increase of $583,568 to $541,186 for 2013 compared to ($42,382) for the prior year. The increase is primarily due to the unfavorable impact in 2012 related to a change in accounting estimate for the fixed and fixed-indexed annuity reserve and the DAC model update, more favorable unlocking in 2013 compared to 2012, and favorable impact for the Individual Annuity reserves net of economic hedging driven by market movement in 2013.

Revenue

Net premiums and policy fees.Net premiums consist primarily of premiums for life insurance, and LTC, net of reinsurance. Policy fees 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.

• Premium and policy fee revenue increase of $239,216 or 22.8% in 2013 as compared to 2012 is primarily due to increases in fee revenue and rider charges driven by higher separate account balances and higher surrender charges within our Individual Annuity segment, and increased premium and expense fees for our Life segment.

Interest and similar income, net.Interest and similar income primarily includes interest income on fixed maturity securities classified as available-for-sale and held-to-maturity, and interest income, dividend income, and changes in fair value on fixed maturity and equity securities classified as trading.

• Interest and similar income decrease of $40,289 or 1.1% in 2013 compared to 2012 is primarily due to a decrease in the average yield earned on the investments.

Change in fair value of assets and liabilities.Change in fair value of assets and liabilities represents the changes in fair value and the realized gains and losses from derivative instruments driven by interest rate and market movement. It also includes gains and losses on investments classified as trading or for which we have elected the fair value option. We utilize derivatives within certain actively managed investment portfolios to manage the risk associated with variability in cash flows or changes in fair values related to financial assets and liabilities. See Application of Critical Accounting Policies for additional information.

• Change in fair value of assets and liabilities increase of $1,078,544 or 685.8% in 2013 compared to 2012 is driven by more positive results on derivative assets due to market growth for Individual Annuity and Life products. The Individual Annuity and Life derivative results economically hedge reserve changes in net benefits.

Realized investment gains, net. Realized investment gains (losses) consist of gains and losses from the sale or impairment of investments.

• Realized investment gains, net is a decrease of $39,404 or 17.3% in 2013 compared to 2012 and is primarily a result of lower fixed maturity securities sales to fund surrenders and withdrawals of the general account for variable annuities. In 2013, the change in our valuation allowance for mortgage loans is a favorable impact of $18,500, due to the change in estimate of realizable value of the underlying collateral. In 2012, the change in our valuation allowance for mortgage loans is an unfavorable impact of $10,232. OTTI was $15,048 in 2013 compared to $28,768 in 2012. The impairments are primarily comprised of corporate fixed maturity securities in 2013 as compared to corporate fixed maturity securities and commercial debt obligations in 2012.

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Fee, commission and other revenue.Fee, commission and other revenue relate primarily to annual marketing or distribution fees on mutual funds (12B-1 fees) and investment advisory fees earned on assets under management by fund companies within Individual Annuity and Questar, and gross dealer concessions from sales of products within Questar. This also includes the change in cash surrender value for our company owned life insurance policy.

• Fee, commission and other revenue increase of $66,073 or 27.4% in 2013 compared to 2012 is due to higher registered investment advisor fees driven by increases in assets under management partially offset by lower gross dealer concessions revenue.

Benefits and Expenses

Net benefits.Net benefits consist of amounts paid to policyholders and changes in liabilities held for anticipated future benefit payments under insurance policies and annuity contracts. Amounts are net of benefit payments recovered or expected to be recovered under reinsurance contracts. The index benefit under fixed indexed annuities and fixed indexed universal life, and the accumulation and withdrawal benefits under variable annuity guarantees include the change in fair value for these embedded derivatives. The derivatives to economically hedge these benefits are included in revenue under Change in fair value of assets and liabilities. Net benefits also include amortization of DSI.

• Net benefits increase of $813,816 or 28.2% in 2013 compared to 2012 is primarily due to an unfavorable change in reserves for Individual Annuity primarily driven by the impact of market movement in 2013 compared to 2012. The change was partially offset by other product market impacts, driven by low interest rates and low volatility of the equity market. There was an additional unfavorable impact due to the 2012 change in accounting estimate. Benefits include a favorable impact from unlocking in 2013 of $203,214 compared to an unfavorable impact of $101,108 in 2012.

General and administrative and commissions.General and administrative and commission includes compensation, commissions paid to sales force, consultant fees, information technology, facilities and equipment, advertising and marketing, legal and regulatory, and corporate related expenses. Commissions and other incremental costs, which are directly related to the successful acquisition of insurance contracts, are capitalized in change in deferred acquisition costs, net.

• General and administrative and commission increase of $136,156 or 9.0% in 2013 compared to 2012 is primarily due to higher commissions as a result of the `increase in Individual Annuity deposits. We also experienced higher commissions within Questar, consistent with higher gross dealer concessions in 2013.

Change in deferred acquisition costs, net. Change in deferred acquisition costs, net represents the capitalization of acquisition costs reported in general and administrative and commission expenses, and amortization of DAC. For Individual Annuity and Life contracts, acquisition costs are amortized in relation to the present value of expected future gross profits from investment margins, mortality, morbidity, and expense charges. Acquisition costs for LTC policies are deferred and amortized over the lives of the policies. Changes in assumptions are recorded as an increase or decrease in amortization (unlocking).

• Change in deferred acquisition costs is a decrease of $477,651 or 69.8% in 2013 compared to 2012. The favorable change is primarily due to the 2012 change in accounting estimate causing higher 2012 amortization. This is partially offset by the unfavorable impact of $82,082 from unlocking in 2013 compared to $63,616 from unlocking in 2012.

Income tax expense (benefit)

• Income tax expense (benefit): The income tax expense is an increase of $248,251 for an effective tax rate of 27.3% compared to an effective tax rate of 51.5% in 2012. The change in income causes the effective tax rate to change based upon the pretax earnings of $744,478 that were reported in 2013 compared to the loss of ($87,341) reported in 2012.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Overview

• Net (loss) income: For the Company, net income is a decrease of $93,275 or 183.3%, to ($42,382) for 2012 compared to $50,893 for the prior year. The pretax loss increase is primarily due to the unfavorable impact of unlocking, change in accounting estimate related to the fixed and fixed-indexed annuity reserve and DAC model update, and increase in reserves for Legacy Products, partially offset by the favorable impact for the Individual Annuity reserves net of economic hedging driven by market movement in 2012.

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Revenue

• Premium and policy fee revenue increase of $122,962 or 13.3% in 2012 as compared to 2011 and is primarily due to increases in fee revenue and rider charges driven by higher Individual Annuity separate account balances and premium and expense fees for our Life segment driven by increased deposits from a new product launched in 2011 and maturing block of business. We also recorded a negative impact of $22,885 for unlocking in 2011.

• Interest and similar income increase of $112,390 or 3.2% in 2012 compared to 2011 is primarily due to an increase in average invested assets, slightly offset by a decrease in the average yield earned on the investments.

• Change in fair value of assets and liabilities decrease of $48,288 or 23.5% in 2012 compared to 2011 is driven by results on derivatives for Individual Annuity and Life, and for assets backing surplus. The Individual Annuity and Life derivative results are intended to economically hedge reserve changes in net benefits.

• Realized investment gains is an increase of $114,308 or 100.8% in 2012 compared to 2011 and is primarily as a result of the sale of fixed maturity securities to fund surrenders and withdrawals of the general account for Individual Annuities and other sales of assets backing surplus. In 2012, the change in our valuation allowance for mortgage loans is an unfavorable impact of $10,232, due to establishing a specific reserve on one mortgage loan of $40,250, partially offset by a reduction in our general provision of $30,018. In 2011, the change in our valuation allowance for mortgage loans is a favorable impact of $32,325, due to a reduction in our general provision. Other than temporary impairments are $29,969 in 2012 as compared to $21,487 in 2011. The impairments are primarily comprised of corporate fixed maturity securities and commercial debt obligations in 2012 as compared to corporate fixed maturity securities in 2011.

• Fee, commission and other revenue increase of $18,521 or 8.3% in 2012 compared to 2011 is due to higher gross dealer concessions revenue driven by increases in registered representatives, and higher registered investment advisor fees driven by increases in assets under management.

Benefits and Expenses

• Net benefits decrease of $834,589 or 22.4% in 2012 compared to 2011 is primarily due to a favorable change in reserves for Individual Annuity driven by the impact of market movement in 2012 compared to 2011, and a benefit from a change in accounting estimate, which impacted reserves in 2012. Individual Annuity reserve movements are economically hedged in Change in fair value of assets and liabilities. Benefits include an unfavorable impact of $101,108 from unlocking in 2012 compared to a favorable impact of $45,898 in the prior year.

• General and administrative and commission expenses decrease of $88,084 or 5.5% in 2012 compared to 2011 is primarily due to lower commissions as a result of a decrease in Individual Annuity deposits, partially offset by higher commission as a result of an increase in Life product deposits.

• Change in deferred acquisition costs is an increase of $1,419,501 or 193.1% in 2012 compared to 2011. The unfavorable change is due to unfavorable amortization for Individual Annuities driven by higher actual gross profits in 2012 compared to 2011 and lower capitalization from the decrease in deposits for Individual Annuities, partially offset by a favorable change in deferred acquisition costs due to higher capitalization from an increase in deposits for Life products. The change in deferred acquisition costs includes an unfavorable impact for the adoption of guidance on acquisition costs eligible for deferral in 2012 and the unfavorable impact of $63,616 from unlocking in 2012 compared to a favorable impact of $34,334 in the prior year.

Income tax (benefit) expense

• Income tax (benefit) expense: The income tax benefit is a decrease of $12,916 for an effective tax rate of 51.5% compared to an effective tax rate of 828.9% in 2011. The change in the effective tax rate is attributable to the unfavorable impact from the release of deferred taxes related to an investment in a prepaid forward agreement in 2011, offset by a larger nondeductible gain on a corporate owned life insurance policy, and higher foreign tax in 2012.

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Individual Annuity

Segment results of operations

									Increase (decrease)						Increase (decrease)
	Year Ended December 31,								and % change						and % change
	2013		2012			2011			2013 - 2012						2012 - 2011
Revenue:
Net premiums and policy fees	$	1,050,072	$	821,192		$	705,258		$	228,880			27.9	%	$	115,934		16.4	%
Interest and similar income, net		3,464,951		3,514,953			3,418,279			(50,002	)		(1.4	)%		96,674		2.8	%
Change in fair value of assets and liabilities		843,121		(169,234	)		(198,571	)		1,012,355			598.2	%		29,337		14.8	%
Realized investment gains, net		172,940		225,246			110,814			(52,306	)		(23.2	)%		114,432		103.3	%
Fee, commission and other revenue		239,692		189,120			149,516			50,572			26.7	%		39,604		26.5	%
Total revenue		5,770,776		4,581,277			4,185,296			1,189,499			26.0	%		395,981		9.5	%
Benefits and expenses:
Net benefits		3,378,366		2,656,502			3,535,771			721,864			27.2	%		(879,269	)	(24.9	)%
General and administrative and commission		1,408,107		1,300,668			1,418,280			107,439			8.3	%		(117,612	)	(8.3	)%
Change in deferred acquisition costs, net		264,068		729,277			(729,330	)		(465,209	)	��	(63.8	)%		1,458,607		200.0	%
Total benefits and expenses		5,050,541		4,686,447			4,224,721			364,094			7.8	%		461,726		10.9	%
Pretax (loss) income	$	720,235	$	(105,170	)	$	(39,425	)	$	825,405			784.8	%	$	(65,745	)	(166.8	)%

NM =   Not Meaningful.

Selected operating performance measures

							Increase (decrease)				Increase (decrease)
	Year Ended December 31,						and % change				and % change
	2013		2012		2011		2013 - 2012				2012 - 2011
Individual Annuity
Deposits	$	9,087,280	$	8,809,101	$	10,343,301	$	278,179	3.2	%	$	(1,534,200	)	(14.8	)%
In-force		89,971,242		83,274,087		75,212,067		6,697,155	8.0	%		8,062,020		10.7	%

Deposits and in-force amounts in the table above are for direct and assumed business. Deposits reflect amounts collected on both new and renewal business. Individual Annuity in-force represents account values of the annuity contracts for our fixed, fixed-indexed, and variable annuity contracts. The increase in deposits in 2013 compared to 2012 is a result of strong sales results primarily due to the launch of a successful indexing strategy, improved market conditions, and product promotions on certain FIA products. The movement of inforce, year over year, is primarily driven by policyholder activity and market performance. Inforce increases are driven by deposits and new business, and decreases are driven by policyholder charges, surrenders, and claims.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Overview

Our Individual Annuity segment pretax income increase of $825,405 or 784.8% to $720,235 for 2013 compared to ($105,170) for the prior year is primarily due to the unfavorable impact in 2012 related to the change in accounting estimate related to the fixed and fixed-indexed annuity reserve and DAC model update, 2013 favorable impacts of unlocking, and the 2013 yield curve movement, net of DAC impacts.

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Revenue

• Net premiums and policy fees: The premiums and policy fees increase of $228,880 or 27.9% in 2013 as compared to 2012 is primarily due to increases in fee revenue and rider charges driven by higher variable annuity products separate account balances and higher fixed and fixed index surrender margins.

• Interest and similar income, net:Interest and similar income decrease of $50,002 or 1.4% in 2013 compared to 2012 is primarily due to a decrease in variable products general account balance and a decrease in the average yield earned on the investments, partially offset by an increase in the fixed and fixed indexed annuity products average invested assets.

• Change in fair value of assets and liabilities:Change in fair value of assets and liabilities increase of $1,012,355 or 598.2% in 2013 compared to 2012 is driven by more positive results on derivative assets due to market growth for fixed annuity products, partially offset by a decrease for variable annuity products driven by interest rate impacts on derivatives backing variable annuity products. The Individual Annuity derivative results economically hedge reserve changes in net benefits.

• Realized investment gains, net:Realized gains decrease of $52,306 or 23.2% in 2013 compared to 2012 is primarily a result of lower fixed maturity security sales. The 2012 sales were higher to fund the reduction of the variable products general account.

• Fee, commission and other revenue: The revenue increase of $50,572 or 26.7% in 2013 compared to 2012 is a result of the improved market conditions in 2013 compared to 2012.

Benefits and Expenses

• Net benefits: The benefits are an increase of $721,864 or 27.2% in 2013 compared to 2012. Equity markets continued to increase in 2013, which caused an overall reserve increase. The fixed annuity products unfavorable change in reserves was partially offset by favorable impacts from the change in the yield curve impacting the MVLO discount rate. The variable annuity products reflect a favorable change in reserves primarily due to market impacts, driven by the low interest rate environment and low volatility of the equity market. Individual Annuity reserve movements are economically hedged in Change in fair value of assets and liabilities. Net benefits include a favorable impact of $203,211 from unlocking in 2013 compared to an unfavorable impact of $101,108 in the prior year, which is partially offset by the 2012 change in accounting estimate related to the fixed and fixed-indexed annuity reserve and DAC model update.

• General and administrative and commission: The expenses increase of $107,439 or 8.3% in 2013 compared to 2012 is primarily due to higher commissions within fixed and fixed indexed annuity, consistent with the increase in deposits (offset in change in DAC capitalizations).

• Change in deferred acquisition costs, net: The change in deferred acquisition costs, net is a decrease of $465,209 or 63.8% in 2013 compared to 2012. The Individual Annuity products reflect a favorable change in deferred acquisition costs primarily due to the 2012 unfavorable impact from the change in accounting estimate partially offset by the variable products impact due to the change in interest rates and its impact on estimated gross profits in 2013 compared to 2012. Change in deferred acquisition costs include an unfavorable impact of $82,459 from unlocking in 2013 compared to a favorable impact of $63,837 in the prior year.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Overview

Our Individual Annuity segment pretax loss increase of $65,745 or 166.8% to ($105,170) for 2012 compared to ($39,425) for the prior year is primarily due to the unfavorable impact of unlocking and change in accounting estimate related to the fixed and fixed-indexed annuity reserve and DAC model update, partially offset by the favorable impact for the variable annuity products reserves net of hedging driven by market movement in 2012.

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Revenue

• Net premiums and policy fees: The premiums and policy fees increase of $115,934 or 16.4% in 2012 as compared to 2011 is primarily due to increases in fee revenue and rider charges driven by higher variable annuity products separate account balances, partially offset by lower surrender charges. Net premiums include minimal change from unlocking in 2012 compared to an unfavorable impact of $22,954 in the prior year.

• Interest and similar income, net:Interest and similar income increase of $96,674 or 2.8% in 2012 compared to 2011 is primarily due to an increase in fixed annuity products average invested assets and an increase in surplus assets, partially offset by a decrease in variable products general account balance, and a decrease in the average yield earned on the investments.

• Change in fair value of assets and liabilities:Change in fair value of assets and liabilities decrease of $29,337 or 14.8% in 2012 compared to 2011 is driven by results on derivatives for assets backing surplus, and for fixed annuity products, partially offset by an increase for variable annuity products. The Individual Annuity derivative results economically hedge reserve changes in net benefits.

• Realized investment gains, net:Realized gains increase of $114,432 or 103.3% in 2012 compared to 2011 is primarily a result of fixed maturity security sales to fund the reduction of the variable products general account and sales of assets backing surplus.

• Fee, commission and other revenue: The revenue increase of $39,604 or 26.5% in 2012 compared to 2011 is as a result of the improved market conditions in 2012 compared to 2011.

Benefits and Expenses

• Net benefits: The benefits are a decrease of $879,269 or 24.9% in 2012 compared to 2011. The fixed annuity products reflect an unfavorable change in reserves primarily due to the unfavorable impact of market movement in 2012 compared to 2011 partially offset by a benefit from a change in accounting estimate, which reduced reserves $288,822 and increased DSI amortization $125,650 in 2012. The variable annuity products reflect a favorable change in reserves primarily driven by the impact of market movement in 2012 compared to unfavorable interest rate movement in 2011. Individual Annuity reserve movements are economically hedged in Change in fair value of assets and liabilities. Net benefits include an unfavorable impact of $101,108 from unlocking in 2012 compared to a favorable impact of $45,709 in the prior year.

• General and administrative and commission: The expenses decrease of $117,612 or 8.3% in 2012 compared to 2011 is primarily due to lower commissions as a result of a decrease in deposits.

• Change in deferred acquisition costs, net: The change in deferred acquisition costs is an increase of $1,458,607 or 200.0% in 2012 compared to 2011. The Individual Annuity products reflect an unfavorable change in deferred acquisition costs due to lower capitalization from decrease in deposits and adoption of guidance on acquisition costs eligible for deferral, and unfavorable amortization due to higher actual gross profits in 2012 compared to 2011, and change in accounting estimate. The change in estimate caused additional DAC amortization of $583,757. Change in deferred acquisition costs include an unfavorable impact of $63,687 from unlocking in 2012 compared to a favorable impact of $35,455 in the prior year.

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Life

Segment results of operations

										Increase (decrease)					Increase (decrease)
	Year Ended December 31,									and % change					and % change
	2013			2012			2011			2013 - 2012					2012 - 2011
Revenue:
Net premiums and policy fees	$	104,715		$	93,795		$	84,421		$	10,920		11.6	%	$	9,374		11.1	%
Interest and similar income, net		71,125			67,509			58,941			3,616		5.4	%		8,568		14.5	%
Change in fair value of assets and liabilities		77,920			12,125			(6,490	)		65,795		542.6	%		18,615		NM
Realized investment gains, net		2,227			1,387			1,537			840		60.6	%		(150	)	(9.8	)%
Fee, commission and other revenue		583			295			55			288		97.6	%		240		NM
Total revenue		256,570			175,111			138,464			81,459		46.5	%		36,647		26.5	%
Benefits and expenses:
Net benefits		180,923			92,872			74,599			88,051		94.8	%		18,273		24.5	%
General and administrative and commission		136,417			118,602			74,851			17,815		15.0	%		43,751		58.5	%
Change in deferred acquisition costs, net		(71,632	)		(58,368	)		(22,646	)		(13,264	)	(22.7	)%		(35,722	)	(157.7	)%
Total benefits and expenses		245,708			153,106			126,804			92,602		60.5	%		26,302		20.7	%
Pretax income	$	10,862		$	22,005		$	11,660		$	(11,143	)	(50.6	)%	$	10,345		88.7	%

NM =   Not Meaningful.

Selected operating performance measures

							Increase (decrease)				Increase (decrease)
	Year Ended December 31,						and % change				and % change
	2013		2012		2011		2013 - 2012				2012 - 2011
Total Life Insurance
Deposits and Gross Premiums Written	$	397,374	$	307,609	$	234,237	$	89,765	29.2	%	$	73,372	31.3	%
In-force		21,624,339		19,552,225		17,786,234		2,072,114	10.6	%		1,765,991	9.9	%

Deposits and gross premiums written and in-force amounts in the table above are for direct and assumed business. Deposits reflect amounts collected on our fixed-indexed universal life business, and gross premiums written reflect premiums collected on our term business. Life in-force amounts represent our fixed-indexed universal life and our older universal life and term life business. The increase in deposits in 2013 compared to 2012 is a result of momentum from the new 2012 product offering. The movement of in-force, year over year, is primarily driven by policyholder activity. Increases are driven by deposits and new business, and decreases are driven by policyholder charges, surrenders, and claims.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Overview

Our Life segment pretax income decrease of $11,143 or 50.6% to $10,862 for 2013 compared to $22,005 for the prior year is primarily due to higher interest and index credits and higher allocated expenses driven by a growing and maturing block of business.

Revenue

• Net premiums and policy fees: The premiums and policy fees increase of $10,920 or 11.6% in 2013 as compared to 2012 is primarily due to higher premium and expense fees driven by increased deposits from the maturing block of business.

• Interest and similar income, net:Interest and similar income increase of $3,616 or 5.4% in 2013 compared to 2012 is primarily due to an increase in Life average invested assets, partially offset by a decrease in the average yield earned on the investments.

• Change in fair value of assets and liabilities:Derivative income increase of $65,795 or 542.6% in 2013 compared to 2012 is due to Life derivative results primarily driven by change in fair value of options, which are intended to economically hedge reserve changes in net benefits.

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Benefits and Expenses

• Net benefits: The benefits increase of $88,051 or 94.8% in 2013 compared to 2012 is due to an unfavorable change in reserves primarily due to the growing block of business and 2013 market impacts and an unfavorable increase in claims due to death claim activity and associated reinsurance. The Life fair value reserve movement is economically hedged in Change in fair value of assets and liabilities.

• General and administrative and commission: The expenses increase of $17,815 or 15.0% in 2013 compared to 2012 is primarily due to higher commissions as a result of an increase in deposits and higher allocated expenses due to the growing block of business.

• Change in deferred acquisition costs, net: The change in deferred acquisition costs decrease of $13,264 or 22.7% in 2013 compared to 2012 is primarily due to higher commission capitalization. Additionally, there was lower amortization as a result of lower estimated gross profits.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Overview

Our Life segment pretax income increase of $10,345 or 88.7% to $22,005 for 2012 compared to $11,660 for the prior year is primarily due to increases in policy fees and interest and similar income, net driven by a growing and maturing block of business.

Revenue

• Net premiums and policy fees: The premiums and policy fees increase of $9,374 or 11.1% in 2012 as compared to 2011 is primarily due to higher premium and expense fees driven by increased deposits from a new product launched in 2011 and a maturing block of business.

• Interest and similar income, net:Interest and similar income increase of $8,568 or 14.5% in 2012 compared to 2011 is primarily due to an increase in Life average invested assets, partially offset by a decrease in the average yield earned on the investments.

• Change in fair value of assets and liabilities:Change in fair value of assets and liabilities increase of $18,615 in 2012 compared to 2011 is due to Life derivative results primarily driven by change in fair value of options, which are intended to economically hedge reserve changes in net benefits.

Benefits and Expenses

• Net benefits: The benefits increase of $18,273 or 24.5% in 2012 compared to 2011 is due to an unfavorable change in reserves primarily due to the growing block of business, partially offset by a favorable decline in claims due to death claim activity and associated reinsurance. The Life fair value reserve movement is economically hedged in Change in fair value of assets and liabilities.

• General and administrative and commission: The expenses increase of $43,751 or 58.5% in 2012 compared to 2011 is primarily due to higher commissions as a result of an increase in deposits.

• Change in deferred acquisition costs, net: The change in deferred acquisition costs decrease of $35,722 or 157.7% in 2012 compared to 2011 is primarily due to a favorable change in deferred acquisition costs due to higher commission capitalization, partially offset by the adoption of guidance on acquisition costs eligible for deferral.

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Questar

Segment results of operations

										Increase (decrease)				Increase (decrease)
	Year Ended December 31,									and % change				and % change
	2013			2012			2011			2013 - 2012				2012 - 2011
Revenue:
Interest and similar income, net	$	(16	)	$	(20	)	$	(39	)	$	4	20.0	%	$	19		48.7	%
Realized Investment gains (losses), net		8			—			—			8	—	%		—		—	%
Fee, commission and other revenue		93,485			72,917			69,951			20,568	28.2	%		2,966		4.2	%
Total revenue		93,477			72,897			69,912			20,580	28.2	%		2,985		4.3	%
Benefits and expenses:
General and administrative and commission		110,633			90,580			87,050			20,053	22.1	%		3,530		4.1	%
Total benefits and expenses		110,633			90,580			87,050			20,053	22.1	%		3,530		4.1	%
Pretax loss	$	(17,156	)	$	(17,683	)	$	(17,138	)	$	527	3.0	%	$	(545	)	(3.2	)%

Fee, Commission and Other Revenue

							Increase (decrease)					Increase (decrease)
	Year Ended December 31,						and % change					and % change
	2013		2012		2011		2013 - 2012					2012 - 2011
Fee, commission and other revenue:
Gross Dealer Concessions	$	59,388	$	65,371	$	64,231	$	(5,983	)	(9.2	)%	$	1,140	1.8	%
Registered Investment Advisor Fees		8,526		7,480		5,671		1,046		14.0	%		1,809	31.9	%
Total Fee, commission and other revenue	$	67,914	$	72,851	$	69,902	$	(4,937	)	(6.8	)%	$	2,949	4.2	%

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Overview

Our Questar segment pretax loss decrease of $527 or 3.0% to ($17,156) for 2013 compared to ($17,683) for the prior year is primarily due to growth in fee and commission income partially offset by higher expenses.

Revenue

• Fee, commission and other revenue: The revenue increase of $20,568 or 28.2% in 2013 compared to 2012 is due to higher gross dealer concessions revenue due to increases in registered representatives, and higher registered investment advisor fees due to increases in assets under management.

Benefits and Expenses

• General and administrative and commission: The expenses increase of $20,053 or 22.1% in 2013 compared to 2012 is primarily due to higher commissions consistent with gross dealer concessions and higher expenses due to adding division sales managers.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Overview

Our Questar segment pretax loss increase of $545 or 3.2% to ($17,683) for 2012 compared to ($17,138) for the prior year is primarily due to higher expenses, partially offset by growth in fee and commission income.

Revenue

• Fee, commission and other revenue: The revenue increase of $2,966 or 4.2% in 2012 compared to 2011 is due to higher gross dealer concessions revenue due to increases in registered representatives, and higher registered investment advisor fees due to increases in assets under management.

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Benefits and Expenses

General and administrative and commission: The expenses increase of $3,530 or 4.1% in 2012 compared to 2011 is primarily due to higher commissions consistent with gross dealer concessions and higher expenses due to adding division sales managers.

Legacy Products

Segment results of operations

									Increase (decrease)					Increase (decrease)
	Year Ended December 31,								and % change					and % change
	2013		2012			2011			2013 - 2012					2012 - 2011
Revenue:
Net premiums and policy fees	$	133,586	$	134,170		$	136,516		$	(584	)	(0.4	)%	$	(2,346	)	(1.7	)%
Interest and similar income, net		56,057		49,964			42,835			6,093		12.2	%		7,129		16.6	%
Change in fair value of assets and liabilities		224		(170	)		(506	)		394		231.8	%		336		66.4	%
Realized investment gains, net		13,122		1,068			1,042			12,054		1,128.7	%		26		2.5	%
Fee, commission and other revenue		6,207		7,594			8,215			(1,387	)	(18.3	)%		(621	)	(7.6	)%
Total revenue		209,196		192,626			188,102			16,570		8.6	%		4,524		2.4	%
Benefits and expenses:
Net benefits		144,730		140,829			114,422			3,901		2.8	%		26,407		23.1	%
General and administrative and commission		19,666		24,849			18,934			(5,183	)	(20.9	)%		5,915		31.2	%
Change in deferred acquisition costs, net		14,263		13,441			16,825			822		6.1	%		(3,384	)	(20.1	)%
Total benefits and expenses		178,659		179,119			150,181			(460	)	(0.3	)%		28,938		19.3	%
Pretax income	$	30,537	$	13,507		$	37,921		$	17,030		126.1	%	$	(24,414	)	(64.4	)%

Selected operating performance measures

							Increase (decrease)					Increase (decrease)
	Year Ended December 31,						and % change					and % change
	2013		2012		2011		2013 - 2012					2012 - 2011
Legacy Products
Gross Premiums Written	$	251,299	$	257,175	$	268,763	$	(5,876	)	(2.3	)%	$	(11,588	)	(4.3	)%
Inforce		4,562,126		4,865,241		5,228,581		(303,115	)	(6.2	)%		(363,340	)	(6.9	)%

Gross premiums written and in-force amounts in the table above are for direct and assumed business. Gross premiums written reflect premiums collected on renewal business. There are no new premiums as these are closed blocks of business. Legacy Products in-force amounts represent life insurance in-force within our special markets products. The decrease in gross premiums written and in-force over the last two years is due to these being closed blocks of business.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Overview

Our Legacy Products segment pretax income is an increase of $17,030 or 126.1% to $30,537 for 2013 compared to $13,507 for the prior year. For Special Markets, pretax income increased due a realized gain recognized on the disposal of a subsidiary in 2013. For LTC, pretax income decreased primarily due to an increase in claim reserves and the update to the claim continuance rated assumptions in 2013.

Revenue

• Net premiums and policy fees: The premiums and policy fees is a decrease of $584 or 0.4% in 2013 as compared to 2012. LTC reflects lower premiums, as expected for this closed block of business.

• Interest and similar income, net:Interest and similar income is an increase of $6,093 or 12.2% in 2013 compared to 2012. LTC reflects higher investment income due to growth in reserves driven by an aging block of business.

• Realized investment gains, net: The realized investment gain is an increase of $12,054 or 1128.7% due to the gain on the disposal of a subsidiary in 2013.

• Fee, commission and other revenue: The revenue is a decrease of $1,387 or 18.3% in 2013 compared to 2012. Special Markets reflects lower other revenue due to lower scheduled amortization of deferred gains on old blocks of business.

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Benefits and Expenses

• Net benefits: The benefits are an increase of $3,901 or 2.8% in 2013 compared to 2012. LTC reflects an unfavorable change is reserves, higher incurred claims and incurred but not yet reported claims (IBNR) driven by the maturing of in-force policies. Special Markets reflects overall decreases in IBNR reserves.

• General and administrative and commission: The expenses are a decrease of $5,183 or 20.9% in 2013 compared to 2012. Special Markets reflect lower expenses primarily due to a receivable write-off in 2012. LTC reflects an increase in expenses due to transition of claims processing to a third party in 2012, partially offset by a lower ceding allowance.

• Change in deferred acquisition costs, net: The change in deferred acquisition costs are an increase of $822 or 6.1% in 2013 compared to 2012. LTC reflects lower amortization driven by policyholder activity and premium levels. Special Markets is driven by lower capitalization in 2013 compared to 2012.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Overview

Our Legacy Products segment pretax income is a decrease of $24,415 or 64.4% to $13,507 for 2012 compared to $37,921 for the prior year. For LTC, pretax income decreased primarily due to an increase in claim reserves and a reduction in terminations. For Special Markets, pretax income decreased primarily due to an unfavorable change in reserves and expenses.

Revenue

• Net premiums and policy fees: The premiums and policy fees is a decrease of $2,346 or 1.7% in 2012 as compared to 2011. LTC reflects lower premiums, as expected for this closed block of business.

• Interest and similar income, net:Interest and similar income is an increase of $7,129 or 16.6% in 2012 compared to 2011. LTC reflects higher investment income due to growth in reserves driven by an aging block of business.

• Fee, commission and other revenue: The revenue is a decrease of $621 or 7.6% in 2012 compared to 2011. Special Markets reflects lower other revenue due to lower scheduled amortization of deferred gains on old blocks of business.

Benefits and Expenses

• Net benefits: The benefits are an increase of $26,407 or 23.1% in 2012 compared to 2011. LTC reflects an unfavorable change is reserves, higher IBNR claims driven by the maturing of in-force policies. Special Markets reflects increases in IBNR reserves for unclaimed property, partially offset by a favorable 2012 change in GMDB reserves compared to the 2011 unfavorable change in GMDB reserves driven by market movement.

• General and administrative and commission: The expenses are an increase of $5,915 or 31.2% in 2012 compared to 2011. LTC reflects a decrease in expenses due to premium tax true-ups, partially offset by a lower ceding allowance. Special Markets reflect higher expenses primarily due to a receivable write-off.

• Change in deferred acquisition costs, net: The change in deferred acquisition costs are a decrease of $3,384 or 20.1% in 2012 compared to 2011. LTC reflects lower scheduled amortization driven by policyholder activity and premium levels.

Financial Condition

Investment Strategy

Our investment strategy focuses on diversification by asset class. We seek to achieve economic diversification, while reducing overall credit and liquidity risks. We attempt to mitigate these credit and liquidity risks 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. We also consider all relevant objective information available in estimating the cash flows related to structured securities. In addition, we seek to mitigate the impact of cash flow variability from embedded options in our variable annuities, through certain investment products such as interest rate swaps, option contracts and futures contracts. We actively monitor and manage exposures, and determine whether any securities are impaired. The aggregate credit risk taken in the investment portfolio is influenced by our risk/return preferences, the economic and credit environment, and the relationship of credit risk in the asset portfolio to liabilities. We also have an asset-liability management strategy to align cash flows and duration of the investment portfolio with contractholder liability cash flows and duration.

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The following table presents the investment portfolio at December 31.

	2013					2012
Portfolio Composition	Carrying value		% of total			Carrying value		% of total
Fixed maturities	$	66,624,474		88.3	%	$	68,653,236		90.7	%
Mortgage loans on real estate		6,134,525		8.1	%		6,045,334		8.0	%
Derivatives		831,707		1.1	%		490,149		0.6	%
Acquired loans		205,131		0.3	%		216,062		0.3	%
Policy loans		158,217		0.2	%		163,768		0.2	%
Equity securities		256,934		0.3	%		31,837		0.0	%
Loans to affiliates		1,191,170		1.6	%		28,725		0.0	%
Other invested assets		50,046		0.1	%		23,262		0.0	%
Short term securities		7,547		0.0	%		5,502		0.0	%
Total investments	$	75,459,751		100.0	%	$	75,657,875		100.0	%

Fixed Maturity Securities

At December 31, the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of fixed-maturity securities (excluding trading securities) are shown in the following tables:

						Gross		Gross
	Amortized					unrealized		unrealized
2013	cost or cost		% of Total			gains		losses		Fair value		% of Total
Fixed-maturity securities, available-for-sale:
US government	$	1,103,739		1.7	%		58,198		3,078		1,158,859		1.7	%
Agencies not backed by the full faith and credit of the U.S. government		480,981		0.8	%		30,861		13		511,829		0.8	%
States and political subdivisions		4,916,086		7.8	%		161,812		119,538		4,958,360		7.5	%
Foreign government		341,223		0.5	%		24,167		156		365,234		0.5	%
Public utilities		4,692,512		7.5	%		467,650		23,952		5,136,210		7.7	%
Corporate securities		39,446,124		62.7	%		2,700,886		470,158		41,676,852		62.6	%
Mortgage-backed securities		11,668,499		18.5	%		876,705		19,911		12,525,293		18.8	%
Collateralized mortgage obligations		12,557		0.0	%		1,655		—		14,212		0.0	%
Collateralized debt obligations		44,687		0.1	%		12,291		105		56,873		0.1	%
Total fixed-maturity securites, available-for-sale		62,706,408		99.6	%		4,334,225		636,911		66,403,722		99.7	%
Fixed-maturity securities, held to maturity:
Corporate securities		110		0.0	%		19		—		129		0.0	%
Collateralized debt obligations		220,642		0.4	%		1,100		2,355		219,387		0.3	%
Total fixed-maturity securities, held to maturity		220,752		0.4	%		1,119		2,355		219,516		0.3	%
Total available-for-sale and held-to-maturity securities		62,927,160		100.0	%		4,335,344		639,266		66,623,238		100.0	%

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						Gross		Gross
	Amortized					unrealized		unrealized
2012	cost or cost		% of Total			gains		losses		Fair value		% of Total
Fixed-maturity securities, held to maturity:
US government		880,251		1.5	%		131,250		2,054		1,009,447		1.5	%
Agencies not backed by the full faith and credit of the US government		744,623		1.2	%		129,001		—		873,624		1.3	%
States and political subdivisions		3,891,615		6.5	%		587,357		5,339		4,473,633		6.5	%
Foreign government		460,615		0.8	%		63,379		—		523,994		0.8	%
Public utilities		4,512,465		7.5	%		882,652		738		5,394,379		7.8	%
Corporate securities		35,834,283		59.6	%		5,135,779		32,590		40,937,472		59.6	%
Mortgage-backed securities		13,263,966		22.0	%		1,629,977		246		14,893,697		21.7	%
Collateralized mortgage obligations		15,225		0.0	%		1,940		15		17,150		0.0	%
Collateralized debt obligations		48,993		0.1	%		5,867		94		54,766		0.1	%
Total fixed-maturity securities, available-for-sale		59,652,036		99.2	%		8,567,202		41,076		68,178,162		99.3	%
Fixed-maturity securities, held to maturity:
Corporate securities		138		0.0	%		24		—		162		0.0	%
Collateralized debt obligations		474,936		0.8	%		11,617		—		486,553		0.7	%
Total fixed maturity securities, held-to-maturity		475,074		0.8	%		11,641		—		486,715		0.7	%
Total available-for-sale and held-to-maturity securities		60,127,110		100.0	%		8,578,843		41,076		68,664,877		100.0	%

As of December 31, 2013 and 2012, there were 993 and 111 available for sale fixed maturity securities that were in an unrealized loss position.

As of December 31, 2013 and 2012, of the total amount of unrealized losses, $587,100 or 92.2% and $23,413 or 57.0%, respectively, are related to unrealized losses on investment grade securities. Investment grade is defined as a security having a credit rating of Aaa, Aa, A, or Baa from Moody’s or a rating of AAA, AA, A, or BBB from Standards and Poor (S&P), or a NAIC rating of 1 or 2 if a Moody’s or S&P rating is not available. Unrealized losses on securities are principally related to changes in interest rates or changes in sector spreads from the date of purchase. As contractual payments continue to be met, management continues to expect all contractual cash flows to be received. The Company reviews these securities regularly to determine whether or not declines in fair value are other than temporary. Further, as the Company neither has an intention to sell nor does it expect to be required to sell the securities outlined above, the Company did not consider these investments to be other than temporarily impaired.

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Total available for sale fixed-maturity securities by quality rating category were as follows at December 31, 2013 and 2012.

	2013
	Fair Value		% of Total			Amortized Cost		% of Total
AAA	$	9,307,248		14.0	%	$	8,674,489		13.8	%
AA		13,511,443		20.3	%		12,893,106		20.6	%
A		20,009,799		30.1	%		18,506,131		29.5	%
BBB		22,880,939		34.5	%		21,922,813		35.0	%
BB		628,698		0.9	%		641,306		1.0	%
B and below		65,595		0.1	%		68,563		0.1	%
Total	$	66,403,722		100.0	%	$	62,706,408		100.0	%
	2012
	Fair Value		% of Total			Amortized Cost		% of Total
AAA	$	10,056,888		14.8	%	$	8,825,858		14.8	%
AA		14,820,421		21.7	%		13,091,541		21.9	%
A		21,056,976		30.9	%		17,989,457		30.2	%
BBB		21,207,280		31.1	%		18,754,450		31.4	%
BB		897,088		1.3	%		859,052		1.4	%
B and below		139,509		0.2	%		131,678		0.2	%
Total	$	68,178,162		100.0	%	$	59,652,036		100.0	%

The amortized cost and fair value of available-for-sale and held to maturity fixed-maturity securities at December 31, 2013, by contractual maturity, are shown below:

	Amortized cost		Fair value
Available for sale
Due in one year or less	$	1,211,284	$	1,241,135
Due after one year through five years		9,976,377		10,992,907
Due after five years through ten years		18,583,011		19,365,467
Due after ten years		21,254,680		22,264,708
MBS and CMO		11,681,056		12,539,505
Total available for sale	$	62,706,408	$	66,403,722
	Amortized cost		Fair value
Held to maturity
Due after five years through ten years	$	110	$	129
Due after ten years		220,642		219,387
Total held to maturity	$	220,752	$	219,516

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.

Sub-prime and Alt-A Mortgage Exposure

We do not originate or purchase whole-loan mortgages. We do not have exposure to residential mortgage-backed securities (RMBS). Sub-prime lending is the origination of loans to customers with weaker credit profiles. Due to the high quality of our mortgaged-backed securities, and the lack of sub-prime loans in the securities, we do not have a material exposure to sub-prime mortgages in those holdings. Our Sub-prime exposure is limited to a concentration within certain CDO investments. Alt-A loans are defined as any security backed by residential mortgage collateral which is not clearly identifiable as prime or sub-prime; we do not have a material exposure to Alt-A mortgages.

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Commercial Mortgage-backed and Other Asset-backed Securities

Commercial mortgage-backed securities (CMBS) represent pools of commercial mortgages that are broadly diversified across property types and geographical areas. The following table summarizes our exposure to CMBS holdings by credit quality and vintage year as of December 31:

2013
% of total CMBS					Vintage
AAA	$	7,898,631	78.5	%	2013	$	6,267	0.1	%
AA		1,290,537	12.8	%	2012		138,244	1.4	%
A		765,161	7.6	%	2011		574,978	5.7	%
BBB		110,576	1.1	%	2010		220,673	2.2	%
BB and below		—	0.0	%	2009 and prior		9,124,743	90.6	%
	$	10,064,905	100.0	%		$	10,064,905	100.0	%

2012
% of total CMBS					Vintage
AAA	$	8,448,695	78.8	%	2012	$	131,607	1.2	%
AA		1,329,676	12.4	%	2011		591,713	5.5	%
A		831,442	7.7	%	2010		251,882	2.4	%
BBB		117,158	1.1	%	2009		72,539	0.7	%
BB and below		—	0.0	%	2008 and prior		9,679,230	90.2	%
	$	10,726,971	100.0	%		$	10,726,971	100.0	%

Our Asset Backed Security (ABS) holdings consist primarily of CDOs. The CDO investment assets generally include credit asset-backed securities, mortgage-backed securities, default swaps/synthetic CDO, and asset-backed securities that meet specific criteria, such as credit quality, insurance requirements, or limits on the types of collateral underlying those investments.

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The following table summarizes our exposure to other ABS holdings by credit quality and vintage year as of December 31:

2013
% of total other ABS					Vintage
AAA	$	486,876	44.0	%	2013	$	22,769	2.0	%
AA		50,909	4.6	%	2013		97,122	8.8	%
A		88,696	8.0	%	2011		37,177	3.4	%
BBB		219,658	19.8	%	2010		26,653	2.4	%
BB and below		260,916	23.6	%	2009 and prior		923,334	83.4	%
	$	1,107,055	100.0	%		$	1,107,055	100.0	%

2012
% of total other ABS					Vintage
AAA	$	725,715	46.8	%	2012	$	92,135	5.9	%
AA		28,222	1.8	%	2011		36,561	2.4	%
A		91,205	5.9	%	2010		28,979	1.9	%
BBB		220,906	14.2	%	2009		60,674	3.9	%
BB and below		486,554	31.3	%	2008 and prior		1,334,253	85.9	%
	$	1,552,602	100.0	%		$	1,552,602	100.0	%

Unrealized investment losses of fixed-maturity securities, for investment grade (IG) and below investment grade (BIG) securities by duration are as follows at December 31:

	2013
	IG		% of IG and BIG			BIG		% of IG and BIG
Twelve months or less below amortized cost	$	558,206		87.6	%	$	35,336		5.5	%
More than twelve months below amortized cost		28,896		4.5	%		14,473		2.3	%
Total	$	587,102		92.2	%	$	49,809		7.8	%
	2012
	IG		% of IG and BIG			BIG		% of IG and BIG
Twelve months or less below amortized cost	$	22,020		53.6	%	$	1,925		4.7	%
More than twelve months below amortized cost		1,393		3.4	%		15,738		38.3	%
Total	$	23,413		57.0	%	$	17,663		43.0	%

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Unrealized investment losses of fixed-maturity securities, for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive periods as indicated in the tables below, were as follows at December 31:

	Amortized Cost				Unrealized Capital Loss				Number of Securities
2013	< 20%		> 20%		< 20%		> 20%		< 20%		> 20%
Twelve months or less below amortized cost	$	13,095,922	$	125,935	$	562,980	$	30,562		948		7
More than twelve months below amortized cost		428,157		—		43,369		—		38		—
Total unrealized investment losses	$	13,524,079	$	125,935	$	606,349	$	30,562		986		7
	Amortized Cost				Unrealized Capital Loss				Number of Securities
2012	< 20%		> 20%		< 20%		> 20%		< 20%		> 20%
Twelve months or less below amortized cost	$	1,161,237	$	—	$	23,946	$	—		96		—
More than twelve months below amortized cost		245,880		—		17,130		—		15		—
Total unrealized investment losses	$	1,407,117	$	—	$	41,076	$	—		111		—

OTTI, by market sector, for impairments included in the Consolidated Statements of Operations, were as follows at December 31:

	2013				2012
	Impairment		No. of Securities		Impairment		No. of Securities
States and political subdivisions	$	1,337		1	$	—		—
Corporate securities		13,620		5		3,199		4
Collateralized debt obligations		91		1		25,569		4
Total	$	15,048		7	$	28,768		8

The following table presents a rollforward of the Company’s cumulative impairments on fixed-maturity securities held on December 31:

	2013			2012
Balance as of January 1	$	60,128		$	60,620
Additions for credit impairments recognized on:
Securities not previously impaired		1,870			28,768
Securities previously impaired		91			—
Securities that the Company intends to sell or more likely than not be required to sell before recovery (interest)		13,087			—
Reductions for credit impairments previously on:
Securities that matured, were sold, or were liquidated during the period		(29,454	)		(29,260	)
Securities due to an increase in expected cash flows		—			—
Balance as of December 31	$	45,722		$	60,128

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The following financial instruments are carried at fair value on a recurring basis in the Company’s Consolidated Financial Statements: available-for-sale and trading fixed-maturity securities, freestanding and embedded derivatives, equity securities, corporate-owned life insurance, and separate accounts assets and liabilities. The Company has analyzed the valuation techniques and related inputs, evaluated its assets and liabilities reported at fair value, and determined an appropriate 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. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 for additional information.

2013	Total		Level 1		Level 2		Level 3
Assets accounted for at fair value
Fixed maturity—available for sale	$	66,403,722		1,158,860	$	61,222,628	$	4,022,234
Derivative investments		831,707		1,151		821,890		8,666
Equity securities, available for sale		29,112		29,112		—		—
Equity securities, trading		227,822		206,500		21,322		—
Corporate-owned life insurance		290,752		—		290,752		—
Separate account assets		30,747,777		30,747,777		—		—
Total assets accounted for at fair value	$	98,530,892	$	32,143,400	$	62,356,592	$	4,030,900
Liabilities accounted for at fair value
Derivative liabilities	$	1,391,988	$	770	$	1,361,967	$	29,251
Separate account liabilities		30,747,777		30,747,777		—		—
Reserves at fair value	$	11,943,461	$	—	$	—	$	11,943,461
Total liabilities accounted for at fair value	$	44,083,226	$	30,748,547	$	1,361,967	$	11,972,712
2012	Total		Level 1		Level 2		Level 3
Assets accounted for at fair value
Fixed maturity—available for sale	$	68,178,162	$	1,009,447	$	63,379,515	$	3,789,200
Derivative investments		490,149		2,596		479,669		7,884
Equity securities, trading		31,837		18,979		12,858		—
Separate account assets		25,670,675		25,670,675		—		—
Total assets accounted for at fair value	$	94,370,823	$	26,701,697	$	63,872,042	$	3,797,084
Liabilities accounted for at fair value
Derivative liabilities	$	279,825	$	5,167	$	222,953	$	51,705
Separate account liabilities	$	25,670,675	$	25,670,675	$	—	$	—
Reserves at fair value	$	10,961,562	$	—	$	—	$	10,961,562
Total liabilities accounted for at fair value	$	36,912,062	$	25,675,842	$	222,953	$	11,013,267

Mortgage Loans on Real Estate

The Company’s investment in mortgage loans on real estate at December 31 is summarized as follows:

	2013			2012
Mortgage loans on real estate:
Commercial	$	6,200,697			6,129,542
Residential		578			1,042
Valuation allowance		(66,750	)		(85,250	)
Total mortgage loans on real estate	$	6,134,525			6,045,334

In 2013, the decrease to the valuation allowance on mortgage loans is a result of the Company reducing a specific reserve on one mortgage loan in the amount of $13,500 related to a change in the estimate of realizable value of the underlying collateral. The Company also reevaluated the allowance related to the remainder of the mortgage loan portfolio during 2013, which resulted in a reduction of the provision of $5,000.

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The Company analyzes loan impairment quarterly when assessing the valuation allowance. The Company considers recent trends in the Company’s loan portfolio and information on current loans, such asloan-to-value ratios and debt service coverage, which could impact a loan’s credit quality. The Company also evaluates the valuation allowance 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 defaulted loans.

Loan-to-value (LTV) and debt service coverage (DSC) ratios are common measurements used to assess the risk and quality of commercial mortgage loans. The LTV ratio, calculated at the time of origination, is the percentage of the loan amount relative to the value of the underlying property. The DSC ratio, based upon the most recently received financial statements from the debtor, is calculated as the amount of the property’s net income divided by the debt service payments.

LTV and DSC ratios were as follows at December 31:

	2013		2012
Loan-to-Value Ratio:
Less than 50%	$	2,025,011	$	1,735,242
50% - 60%		1,668,987		1,859,780
60% - 70%		1,622,171		1,124,262
70% - 80%		477,096		960,158
80% - 90%		168,964		205,356
90% - 100%		—		95,890
Greater than 100%		238,468		148,854
Total Commercial Mortgage Loans	$	6,200,697	$	6,129,542
	2013		2012
Debt Service Coverage Ratio:
Greater than 1.4x	$	4,103,809	$	4,156,144
1.2x - 1.4x		955,230		776,303
1.0x - 1.2x		858,438		752,588
Less than 1.0x		283,220		444,507
Total Commercial Mortgage Loans	$	6,200,697	$	6,129,542

Commercial property collateralizing mortgage loans is geographically dispersed throughout the United States as follows at December 31:

	2013					2012
Commercial Mortgage Loans by Region	Gross Carry Value		% of Total			Gross Carry Value		% of Total
East North Central	$	903,056		14.5	%	$	729,824		11.9	%
Middle Atlantic		294,210		4.7	%		230,975		3.8	%
Mountain		488,316		7.9	%		504,604		8.2	%
New England		389,034		6.3	%		283,138		4.6	%
Pacific		2,112,705		34.1	%		2,378,957		38.9	%
South Atlantic		952,613		15.4	%		901,974		14.7	%
West North Central		305,099		4.9	%		308,331		5.0	%
West South Central		755,664		12.2	%		791,739		12.9	%
Total	$	6,200,697		100.0	%	$	6,129,542		100.0	%

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Commercial property collateralizing mortgage loans diversified by property type are as follows at December 31:

	2013					2012
Commercial Mortgage Loans by Property Type	Gross Carry Value		% of Total			Gross Carry Value		% of Total
Industrial	$	2,035,644		32.8	%	$	2,083,980		34.0	%
Retail		1,262,682		20.4	%		1,117,880		18.2	%
Office		1,256,699		20.3	%		1,237,914		20.2	%
Apartments		1,645,672		26.5	%		1,689,768		27.6	%
Total	$	6,200,697		100.0	%	$	6,129,542		100.0	%

Liquidity and Capital Resources

Overview

Liquidity and Capital Resources represent our overall financial strength and ability to generate cash flows from the business. The liquidity requirements are generally met through funds provided by investment income, receipt of insurance premiums, management and expense (M&E) fees and benefit rider income, maturities and sales of investments, reinsurance recoveries, participation in the Allianz SE (Cash Pool), and capital contributions from Allianz SE as needed. The Cash Pool is comprised of various short term investments and access is limited to entities within the Allianz SE holding company structure.

We became a member of the Federal Home Loan Bank (FHLB) of Des Moines in 2012 through the purchase of membership stock, which provides access to collateralized borrowings. Funding from the FHLB of Des Moines is collateralized with government securities, agency residential mortgage backed securities and commercial mortgage backed securities from our General Account investment portfolio. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding the funding agreements entered into in 2013.

Reinsurance may play a key role in funding our continued growth, and is utilized for any new line of business for which there is significant uncertainty related to future claims experience. Moreover, we are generally risk adverse for our smaller lines of business, and predictability of future profitability takes precedence over retaining a large percentage of risk.

We do not utilize the capital markets as a source of capital. Should the need for capital arise, we may obtain capital contributions from our ultimate parent, Allianz SE, as an alternative source of funding. The primary uses of funds are policy benefits, commissions, other product-related acquisition and sales inducement costs, investment purchases, operating expenses, and dividends to AZOA. We routinely review our source and use of funds in order to meet our ongoing obligations.

Financial Ratings and Strength

We received the following financial strength ratings as of December 31, 2013:

• AM Best A (Excellent)

• Standard & Poor’s AA (Very Strong)

• Moody’s A2 (Good)

The financial strength ratings are influenced by many factors including the operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage, and exposure to risks.

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Cash Flows

The following table sets forth information from our Consolidated Statements of Cash Flows for the years ended December 31:

	Year Ended December 31,
Consolidated Cash Flows	2013			2012			2011
Net cash provided by operating activities	$	5,107,888		$	2,705,705		$	1,411,898
Net cash used in investing activities		(3,044,914	)		(1,176,419	)		(2,360,470	)
Net cash (used in) provided by financing activities		(1,198,753	)		(2,613,197	)		1,533,090
Net change in cash and cash equivalents	$	864,221			(1,083,911	)		584,518

For the year ended December 31, 2013, cash and cash equivalents increased $864,221 as compared to 2012 and decreased $1,083,191 for the year ended December 31, 2012, compared to 2011. The Company has the funds necessary to meet the capital requirements of all states in which the Company does business, and to support the Company’s operations.

The increase in net cash provided by operating activities in 2013 compared to 2012 is a result of gains recognized on the settlement of futures contracts. The increase in net cash provided by operating activities in 2012 as compared to 2011 is a result of timing of settlement of certain operating payable balances.

In 2013, the increase in cash flows used in investing activities was primarily related to increased purchases and lower sales of available-for-sale fixed-maturity securities. Additionally, an increase in loan to affiliate represents the investment in the Allianz SE cash pool. In 2012, the decrease in cash flows used in investing activities was primarily related to net change in securities lending.

The increase in cash flows from financing activities was driven by higher deposits and lower withdrawals, partially offset by $650,000 in dividend payments made to our parent compared to the $150,000 in 2012. In 2012, the decrease in cash flows from financing activities was driven by lower deposits, and increased withdrawals and the dividend payments of $150,000 to our parent company, compared to $50,000 in 2011.

Securities Lending

We account for our 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 cash and cash equivalents, and other liabilities, respectively. Securities on loan remain on the Consolidated Balance Sheets, and interest and dividend income earned on loaned securities is recognized in interest and similar income, net on the Consolidated Statements of Operations.

We also participate in restricted securities lending arrangements whereby specific securities are loaned to other institutions. The collateral is defined by the agreement to be cash and cash equivalents. We began participating in unrestricted arrangements whereby we may use collateral for general purposes. For securities lending agreements, our policies require a minimum of 102% of fair value of securities loaned under securities lending agreements to be maintained as collateral. We had securities on loan of $1,754,187 and $821,782, in fixed maturities, at fair value on the Consolidated Balance Sheets, and held collateral in the amounts of $1,824,788 and $854,424, as of December 31, 2013 and 2012, respectively.

Risk-Based Capital

An insurance enterprise’s state of domicile imposes minimum risk based capital requirements that were developed by the National Association of Insurance Commissioners (NAIC). The formulas for determining the amount of risk based capital specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of an enterprise’s regulatory total adjusted capital to its authorized control level risk based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. This ratio for the Company significantly exceeds required minimum thresholds as of December 31, 2013 and 2012.

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Capital Contributions and Dividends

We paid cash dividends of $650,000 to our parent, AZOA, during the year ended December 31, 2013 compared to dividends of $150,000 in the prior year.

Statutory accounting practices prescribed or permitted by our 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, 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.

Our statutory capital and surplus reported in the statutory annual statement filed with the State of Minnesota as of December 31, 2013 and 2012, was $4,426,168 and $5,332,410, respectively.

We are also required to meet minimum statutory capital and surplus requirements. Our statutory capital and surplus as of December 31, 2013 and 2012, was 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 pay from its surplus cash dividends of no more than the greater of 10% of itsbeginning-of-the-year statutory surplus, or the net gain from operations of the insurer, not including realized gains, for the12-month period ending the 31st day of the next preceding year. Ordinary dividends of $442,617 can be paid in 2014 without prior approval of the Commissioner of Commerce.

Commitments

The following table summarizes certain contractual obligations and the Company’s commitments by period as of December 31, 2013:

			In 1 year		after 1 year		After 3 years		After
	Total		or less		up to 3 years		up to 5 years		5 Years
Payments due
Policyholder liabilities	$	93,258,189	$	5,891,009	$	12,724,337	$	12,927,444	$	61,715,399
Mortgage notes payable		99,210		7,026		15,268		17,046		59,870
Operating leases		5,202		1,333		1,608		1,145		1,116
Total payments due	$	93,362,601	$	5,899,368	$	12,741,213	$	12,945,635	$	61,776,385

Policyholder liabilities include estimated claim and benefit, policy surrender and commission obligations offset by expected future deposits and premiums on in-force insurance policies and investment contracts in the Individual Annuity and Life segments. We have excluded the separate account liabilities as these obligations are legally insulated from general account obligations and will be fully funded by cash flows from separate account assets. The obligations have not been discounted at present value. Estimated claim and benefit obligations are based upon mortality, morbidity and lapse assumptions comparable to historical experience. The results are based on assuming market growth and interest crediting consistent with other valuation assumptions. In contrast to this table, the majority of the Company’s obligations are recorded on the balance sheet at current account values or other GAAP prescribed measurements that are not directly related to liability cash flows. These obligations do not incorporate an expectation on future market growth, interest crediting, or future deposits. Therefore, due to the significance of the assumptions used, the amounts presented could materially differ from actual results.

Mortgage notes payable includes contractual principal and interest payments and therefore exceeds the amount shown in the Consolidated Balance Sheet. See Note 11 of the Notes to Consolidated Financial Statements in Item 8 for additional information.

Operating leases include non-cancelable obligations on certain office space and equipment.

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Contingencies

We are named as defendants in various pending or threatened legal proceedings on an ongoing basis, including four putative and certified class action proceedings, arising from the conduct of our business. Two of the class action lawsuits have been certified as class actions, and have been consolidated. One of the other putative class action lawsuits is pending in the United States District Court, Eastern District of Arkansas and has been stayed. The other putative class action lawsuit is pending in the United States District Court for the District of Minnesota. We intend to vigorously contest the lawsuits, but may pursue settlement negotiations in some cases, if appropriate. The outcome of these cases is uncertain at this time, and there can be no assurance that such litigation, or any future litigation, will not have a material adverse effect on the Company and/or its subsidiaries. In 2007 and in 2011, we settled two class action lawsuits. With respect to those settlements, uncertainty remains regarding our ultimate obligations due to the fact that it will depend upon future policy owner behavior and elections. We recognize legal costs as incurred.

We are also 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 funds, variable and fixed annuities, life insurance, distribution companies, andbroker-dealers, is subject to close scrutiny by regulators, legislators, and the media.

Federal and state regulators, such as state insurance departments, state securities departments, the SEC, the Financial Industry Regulatory Authority (FINRA) and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning various selling practices, including suitability reviews, product exchanges, sales to seniors, and compliance with, among other things, insurance laws and securities laws. State regulators have also been investigating various practices relating to unclaimed property. In certain instances, these investigations have led to regulatory enforcement proceedings. We are subject to ongoing market conduct examinations and investigations by regulators which may have a material adverse effect on the Company.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet transactions, arrangements or other relationships that we believe would be reasonably likely to have a material effect on our liquidity or the requirements for capital resources.

We utilize exchange-traded futures to economically hedge certain product liabilities. Under this kind of transaction, we agree to purchase a specified number of contracts and settle the variation margin with the counterparty on a daily basis in an amount equal to the change in the market value of the underlying contracts from the close of the previous trading day. The parties with whom we enter into the exchange-traded futures contracts are regulated futures commission’s merchants who are members of a trading exchange.

We are exposed to credit-related losses in the event of non-performance by counterparties under the terms of the futures contracts. We minimize counterparty credit risk by establishing relationships only with counterparties rated A- and higher. Given the credit ratings of the counterparties with which we transact, we do not expect any counterparties to fail to meet their obligations. We also have executed Credit Support Annex (CSA) agreements with all active counterparties and require a CSA from all new counterparties added to our counterparty pool. The CSA agreements further limit our counterparty credit risk by requiring the counterparty to post collateral to a segregated custodial account based on the net exposure to the Company.

As our futures transactions are executed through a regulated exchange, positions are marked-to-market and settled on a daily basis, and collateral is posted prior to execution of a transaction, we have minimal exposure to credit-related losses in the event of non-performance.

We are also required to post collateral for any futures and options contracts that are executed. The amount of collateral required is determined by the exchange on which the contract is traded. For 2013 and 2012, we posted U.S. Government Securities to satisfy this collateral requirement.

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Forward-looking Statements

This report reviews the Company’s financial condition and results of operations. Where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts, and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases or expressions with similar meaning. Forward-looking statements are subject to risks and uncertainties. Readers are cautioned not to place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to update publicly or revise any forward-looking statements.

Item 11(j).

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. The following is a discussion of our market risk exposures and our risk management practices.

Interest Rate Risk

Interest rate risk is the risk that interest rates will change and cause a decrease in the value of an insurer’s assets relative to the value of its liabilities and/or an unfavorable change in prepayment activity resulting in compressed interest margins.

We have an asset-liability management strategy to align the cash flows and duration of the investment portfolio with those of the policyholder liabilities. We further limit interest rate risk on variable annuity guarantees through economic interest rate hedges.

Equity Market Risk

Equity market risk is the risk that movements in equity prices will cause a decrease in the value of an insurer’s assets relative to the value of its liabilities.

The policy value of thefixed-indexed annuity products is linked to equity market indexes. We economically hedge this exposure with derivatives.

The variable annuity products provide a minimum guaranteed level of payments irrespective of market movements. We have adopted an economic hedging program to manage the equity market risk of these products.

The policy value of the fixed indexed universal life products is linked to equity market indices. We economically hedge this exposure with derivatives.

We monitor the economic and accounting impacts of equity stress scenarios on assets and liabilities regularly.

Basis risk is the risk that the variable annuity economic hedge asset value changes unexpectedly relative to the value of the underlying separate account funds of the variable annuity contracts. Basis risk may arise from our inability to directly hedge with the underlying mutual funds of the variable annuity contracts. We mitigate this risk through regular review and synchronization of fund mappings, product design features, and economic hedge design.

Sensitivity Analysis

To assess the impact of changes in interest rate and equity markets, we perform sensitivity tests. Sensitivity tests measure the instantaeous impact of a single hypothetical interest rate or equity price change on our pre-tax income, or fair value of an asset or liability, while holding all other rates or prices constant. To assess interest rate risk we perform a sensitivity test which instantaneously shocks interest rates across all maturities by a hypothetical 50 basis points. To assess equity risk, we perform a sensitivity test which instantaneously decreases all equity prices by a hypothetical 15%.

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Interest Rate Risk

One means of assessing exposure to interest rate changes is to measure the potential change in fair value of an asset due to a hypothetical change in interest rates of 50 basis points across all maturities. We noted that under this model, with all other factors remaining constant, a 50 bps increase in interest rates would result in the decrease in the fair value of our fixed income securities of $2,184,170 based on our securities positions as of December 31, 2013.

We also examined the impact on pre-tax income due to hypothetical decrease in interest rates of 50 bps across all maturities. Note that all impacts referenced below reflect reserve changes net of economic hedge impact and DAC changes unless otherwise noted. Under this model, with all other factors being constant, we estimated that such a decline would cause our pre-tax income to decrease by $100,580 as of December 31, 2013.

Equity Market Risk

One means of assessing exposure to changes in equity market prices is to estimate the potential changes in pre-tax income from a hypothetical decline in equity market prices of 15%. Under this model, with all other factors constant, we estimated that such a decline in equity market prices would cause our pre-tax income to increase by $35,680 based on our equity exposure as of December 31, 2013.

Adoption of New Financial Accounting Standards

See Note 2 – “Summary of Significant Accounting Policies” of the Company’s Consolidated Financial Statements in Item 8 – Financial Statements of this prospectus for information related to recent accounting pronouncements.

16. FINANCIAL STATEMENTS

The financial statements of Allianz Life Variable Account B as of and for the year or period ended December 31, 2013 (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), are included in Part C of the Registration Statement filed with the SEC on Form N-4 in reliance upon the report of KPMG LLP, independent registered public accounting firm, and upon the authority of said firm as experts in accounting and auditing.

The consolidated financial statements and supplemental schedules of Allianz Life Insurance Company of North America as of December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013, are included in Appendix C of this prospectus, in reliance upon the report of KPMG LLP, independent registered public accounting firm, and upon the authority of said firm as experts in accounting and auditing.

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17. PRIVACY AND SECURITY STATEMENT

2014

Your privacy is a high priority for Allianz Life Insurance Company of North America (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 maintain 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.

Information about you that Allianz collects

Allianz collects information about you so that we can provide you with the products and services you have requested, maintain your account, improve our services, and inform you of additional products or services that may be of interest to you. We limit the amount of information collected to what we feel is needed for these purposes. We may collect your information from the following sources:

• From you, either directly or through your agent. This includes information on your insurance application or other information provided during the application process or while you hold a policy with us.

• From others, through the process of handling a claim. This may include information from medical or accident reports.

• From your doctor or health provider. This is medical information about you, gathered with your written authorization.

• From a consumer reporting agency such as a medical, credit, or motor vehicle report.

• From sources using the information you provide, in order to obtain updated or additional information. An example is the U.S. Postal Service, in order to validate your current mailing address so that we may maintain records to correspond with you.

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 as follows:

• With affiliates and service providers in order to administer or service your policy, and with research groups to conduct various studies. However, no individual is identified in any study or summary report. These companies sign a Privacy

and Security Agreement, requiring them to protect your information.

• 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.

• With your insurance agent and their affiliates so that they can perform services for you.

• With medical professionals in order to process your claim.

• With a state Department of Insurance in order to examine our records or business practices.

• With a state or federal law enforcement agency, as required by law or to report suspected fraud activities.

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 except to administer or service your policy.

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 and are in place to secure our websites and protect the information that may be shared over these sites.

When you visit our website, 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. Refer to the Privacy link at the bottom of our website for more information on browsing privacy practices.

Your ability to access and correct your information

You have the right to access and obtain 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. Alternatively, you may also make your request through our secure website.

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Within 30 working days of our receipt of your request, your information will be available. You may see the information in person or we will send you a copy. 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, or through our secure website. 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 that is obtained from a

consumer reporting agency or a Department of Motor Vehicles. At your request, 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.

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 Privacy Office at 800.950.5872, write us at the following address or contact us via the website.

Allianz Life Insurance Company of North America 5701 Golden Hills Drive Minneapolis, MN 55416-1297   800.950.5872   www.allianzlife.com Allianz family of companies:   •     Allianz Life Insurance Company of North America   •     Allianz Life Insurance Company of New York   •     Allianz Investment Management LLC   •     Allianz Life Financial Services, LLC   •     Questar Asset Management, Inc.   •     Questar Capital Corporation

M40018 (R-12/2013)

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153

18. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION (SAI)

Legal Opinions	2
Distributor	2
Federal Tax Status	3
Annuity Contracts in General	3
Taxation of Annuities in General	3
Qualified Contracts	3
Purchasing a Qualified Contract	5
Distributions-Qualified Contracts	5
Distributions-Non-Qualified Contracts	6
Required Distributions	7
Diversification	8
Owner Control	8
Contracts Owned by Non-Individuals	8
Annuity Purchases by Nonresident Aliens and Foreign Corporations	8

Income Tax Withholding	8
Multiple Contracts	9
Partial 1035 Exchanges	9
Assignments, Pledges and Gratuitous Transfers	9
Death Benefits	9
Spousal Continuation and the Federal Defense of Marriage Act (DOMA)	9
Federal Estate Taxes	9
Generation-Skipping Transfer Tax	9
Foreign Tax Credits	9
Possible Tax Law Changes	10
Annuity Payments	10
Annuity Payment Options	10
Appendix – Death of the Owner and/or Annuitant	11

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154

APPENDIX A – AVAILABLE INDICES

STANDARD & POOR’S 500^® INDEX

The S&P 500^® Index is considered by many to be the most common benchmark used in measuring the performance of U.S. stock market large caps, which are companies with a market capitalization value of more than $10 billion. The S&P 500 represents a broad cross-section of common stocks traded on every major U.S. stock exchange. The Index is a selection of 500 leading companies from 100 distinct industry groups found in 10 leading American industrial market sectors. Visit www.spglobal.com for more information.

S&P^® is a registered trademark of Standard & Poor’s Financial Services LLC (S&P). This trademark has been licensed for use by S&P Dow Jones Indices LLC. S&P marks are trademarks of S&P. This trademark has been sublicensed for certain purposes by Allianz Life Insurance Company of North America (Allianz Life). The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Allianz Life.

Allianz Life products are not sponsored, endorsed, sold, or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the owners of the Allianz Life products or any member of the public regarding the advisability of investments generally or in Allianz Life products particularly or the ability of the S&P 500 Index to track general market performance. S&P Dow Jones Indices’ only relationship to Allianz Life with respect to the S&P 500 Index is the licensing of the S&P 500 Index and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its third-party licensors. The S&P 500 Index is determined, composed, and calculated by S&P Dow Jones Indices without regard to Allianz Life or the products. S&P Dow Jones Indices have no obligation to take the needs of Allianz Life or the owners of the products into consideration in determining, composing, or calculating the S&P 500 Index. S&P Dow Jones Indices are not responsible for and have not participated in the design, development, pricing, and operation of the products, including the calculation of any interest payments or any other values credited to the products. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing, or trading of products. There is no assurance that investment products based on the S&P 500 Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC and its subsidiaries are not investment advisors. Inclusion of a security or futures contract within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security or futures contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to products currently being issued by Allianz Life, but which may be similar to and competitive with Allianz Life products. In addition, CME Group Inc., an indirect minority owner of S&P Dow Jones Indices LLC, and its affiliates may trade financial products which are linked to the performance of the Index and Average. It is possible that this trading activity will affect the value of the products.

S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS, AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY ALLIANZ LIFE, OWNERS OF THE PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME, OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND ALLIANZ LIFE OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix A

155

RUSSELL 2000^® INDEX

The Russell 2000 measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not affect the performance and characteristics of the true small-cap index. Visit www.russell.com/indexes/default.asp for more information.

The Russell 2000 is a trademark of Russell Investments and has been licensed for use by Allianz Life. The Contract is not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the Contract.

NASDAQ-100^® INDEX

Launched in January 1985, the Nasdaq-100 Index^® includes 100 of the Nasdaq Stock Market’s most actively traded issues, representing a cross-section of major industry groups. Its 100 companies are selected from the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market. Company size is based on market capitalization. Visit www.nasdaq.com for more information.

The Nasdaq-100 Index^® includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market, based on capitalization. The Nasdaq-100^®, Nasdaq-100 Index^®, Nasdaq^®, and OMX^® are registered trade marks of NASDAQ OMX Group, Inc. (which with its affiliates are the Corporations) and are licensed for use by Allianz Life. The Contract has not been passed on by the Corporations as to their legality or suitability. The Contract is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE CONTRACT.

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Appendix A

156

APPENDIX B – DAILY ADJUSTMENT

We designed the Daily Adjustment to provide an Index Option Value for the Index Performance Strategy Index Options on days other than the Index Effective Date or an Index Anniversary. The Daily Adjustment is meant to approximate the Index Option Value on the next Index Anniversary, as adjusted for gains during the Index Year subject to the Cap and losses in excess of the Buffer. The application of the Daily Adjustment is based on your agreement to be exposed to these Index Anniversary gains subject to the Cap and losses in excess of the Buffer. The Daily Adjustment in essence is a proxy for the performance of the Index Performance Strategy accomplished by investing a portion of the Index Option Value in a set of options and the remaining balance in an interest bearing asset.

The Daily Adjustment has two components, the change in Proxy Value and accumulated proxy interest. The change in Proxy Value represents the current market value of the Proxy Investment (“current Proxy Value”), less the cost of the Proxy Investment at the beginning of the Index Year (“beginning Proxy Value”). The proxy interest is an amount of interest that is earned to provide compensation for the cost of the Proxy Investment at the beginning of the Index Year. The proxy interest is approximated by the value of amortizing the cost of the Proxy Investment over the Index Year to zero. The proxy interest may be significantly different from current interest rates available on interest bearing investments. The proxy interest rate will be higher for investors taking more risk (higher Cap or lower Buffer) and lower for investors taking less risk (lower cap or higher buffer). The change in Proxy Value and the proxy interest estimates the present value of positive or negative Performance Credits on the next Index Anniversary. You should note that even if your selected Index(s) experience positive growth, their Daily Adjustments may be negative because of other market conditions, such as the expected volatility of Index prices and interest rates.

The formula for the calculation of the Daily Adjustment is as follows:

Daily Adjustment = (a) change in Proxy Value plus (b) proxy interest

(a) change in Proxy Value = (current Proxy Value – beginning Proxy Value) x Index Option Base

(b) proxy interest = proxy interest rate x (1 - time remaining) x Index Option Base

proxy interest rate = beginning Proxy Value

The current Proxy Value is the Proxy Value calculated on the same day as the Daily Adjustment. The beginning Proxy Value is the Proxy Value calculated on the first day of the current Index Year. The time remaining is equal to the number of days remaining in the Index Year divided by 365.

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157

The Proxy Value tracks three hypothetical derivative investments (call and put options) that we designed to mimic the market value of your allocation to an Index Performance Strategy Index Option. We calculate a Proxy Value for each of your selected Index Performance Strategy Index Options.

The Proxy Value has three components:

• an at-the-money call;

• an out-of-the-money call; and

• an out-of-the-money put.

An Index Option’s Proxy Value = (at-the-money call) – (out-of-the-money call) – (out-of-the-money put)

We designed the two call options to value the potential for Index gains up to the Cap. We designed the put option to value the potential for Index losses below the Buffer. It is important to note that the put option will almost always reduce the Daily Adjustment, even when the current Index value is higher than it was at the beginning of the Index Year. This is because the risk that the Index value could be lower on the next Index Anniversary is present to some extent whether or not the Index value is lower than it was at the beginning of the Index Year.

On the Index Anniversary, the current Proxy Value for an Index Option is equal to its Performance Credit as discussed in section 7, Index Options – Determining the Index Performance Strategy Index Option Values.

You can find a more detailed explanation of the calculation of the Proxy Value, including examples, at Exhibit 99(b) of the Form S-1 Registration Statement filed with the SEC, of which this prospectus is a part. This Exhibit is incorporated by reference into this prospectus. You can obtain a copy of this Exhibit by calling (800) 624-0197.

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Appendix B

158

APPENDIX C – FINANCIAL STATEMENTS

The consolidated financial statements and supplemental schedules of Allianz Life Insurance Company of North America and subsidiaries as of December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013, are included in this Appendix in reliance upon the report of KPMG LLP, independent registered public accounting firm, and upon the authority of said experts in accounting and auditing. The principal business address of KPMG LLP is 4200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN.

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, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholder’s equity, and cash flows for each of the years in thethree-year period ended December 31, 2013. 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, 2013 and 2012, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

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.

KPMG LLP

Minneapolis, Minnesota

March 25, 2014

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.

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Appendix C

159

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2013 and 2012

(In thousands, except share data)

	2013		2012
Assets
Investments:
Fixed-maturity securities:
Available-for-sale, at fair value (amortized cost of $62,706,408 and $59,652,036, respectively)	$	66,403,722		68,178,162
Held to maturity, at amortized cost (fair value of $219,516 and $486,715, respectively)		220,752		475,074
Mortgage loans on real estate (net of valuation allowances of $66,750 and $85,250, respectively)		6,134,525		6,045,334
Short-term securities		7,547		5,502
Derivatives		831,707		490,149
Loans to affiliates		1,191,170		28,725
Policy loans		158,217		163,768
Acquired loans		205,131		216,062
Equity securities:
Available-for-sale (cost of $29,112 and $0, respectively)		29,112		—
Trading (cost of $209,978 and $28,523, respectively)		227,822		31,837
Other invested assets		50,046		23,262
Total investments		75,459,751		75,657,875
Cash and cash equivalents		2,944,394		2,080,173
Accrued investment income		831,904		768,277
Receivables (net of allowance for uncollectible accounts of $6,254 and $6,938, respectively)		142,028		158,588
Reinsurance recoverables and receivables		4,105,078		4,079,593
Deferred acquisition costs		4,820,215		2,603,307
Other assets		2,073,826		1,651,474
Assets, exclusive of separate account assets		90,377,196		86,999,287
Separate account assets		30,747,777		25,670,675
Total assets	$	121,124,973		112,669,962

(Continued)

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160

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2013 and 2012

(In thousands, except share data)

	2013		2012
Liabilities and Stockholder’s Equity
Policyholder liabilities:
Account balances and future policy benefit reserves	$	78,125,212		75,210,540
Policy and contract claims		416,109		358,732
Unearned premiums		135,639		88,883
Other policyholder funds		272,209		186,607
Total policyholder liabilities		78,949,169		75,844,762
Derivative liability		1,391,989		279,825
Mortgage notes payable		99,210		105,858
Other liabilities		2,840,304		2,333,383
Liabilities, exclusive of separate account liabilities		83,280,672		78,563,828
Separate account liabilities		30,747,777		25,670,675
Total liabilities		114,028,449		104,234,503
Stockholder’s equity:
Class A, Series A preferred stock, $1 par value. Authorized, issued, and outstanding, 8,909,195 shares; liquidation preference of $2,340 and $150,082 at December 31, 2013 and 2012, respectively		8,909		8,909
Class A, Series B preferred stock, $1 par value. Authorized, 10,000,000 shares; issued and outstanding, 9,994,289 shares; liquidation preference of $2,625 and $149,509 at December 31, 2013 and 2012, respectively		9,994		9,994
Common stock, $1 par value. Authorized, 40,000,000 shares; issued and outstanding, 20,000,001 shares at December 31, 2013 and 2012		20,000		20,000
Additional paid-in capital		4,053,371		4,053,371
Retained earnings		2,001,466		2,110,280
Accumulated other comprehensive income, net of tax		1,002,784		2,232,905
Total stockholder’s equity		7,096,524		8,435,459
Total liabilities and stockholder’s equity	$	121,124,973		112,669,962

See accompanying notes to consolidated financial statements.

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Appendix C

161

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2013, 2012, and 2011

(In thousands)

	2013			2012			2011
Revenue:
Premiums	$	235,783			240,604			254,501
Policy fees		1,172,357			932,737			803,684
Premiums and policy fees, ceded		(119,767	)		(124,184	)		(131,990	)
Net premiums and policy fees		1,288,373			1,049,157			926,195
Interest and similar income, net		3,592,117			3,632,406			3,520,016
Change in fair value of assets and liabilities		921,265			(157,279	)		(205,567	)
Realized investment gains, net		188,297			227,701			113,393
Fee and commission revenue		261,926			212,458			210,687
Other revenue		44,853			28,248			11,498
Total revenue		6,296,831			4,992,691			4,576,222
Benefits and expenses:
Policyholder benefits		834,552			973,757			707,552
Change in fair value of annuity embedded derivatives		1,598,061			1,140,185			1,984,638
Benefit recoveries		(268,067	)		(286,714	)		(342,544	)
Net interest credited to account values		1,539,473			1,062,975			1,375,146
Net benefits and expenses		3,704,019			2,890,203			3,724,792
Commissions and other agent compensation		978,316			859,823			963,909
General and administrative expenses		663,319			645,656			629,654
Change in deferred acquisition costs, net		206,699			684,350			(735,151	)
Total benefits and expenses		5,552,353			5,080,032			4,583,204
Income (loss) from operations before income taxes		744,478			(87,341	)		(6,982	)
Income tax expense (benefit):
Current		42,854			280,018			(63,316	)
Deferred		160,438			(324,977	)		5,441
Total income tax expense (benefit)		203,292			(44,959	)		(57,875	)
Net income (loss)	$	541,186			(42,382	)		50,893
Supplemental disclosures:
Realized investment (losses), net:
Total other-than-temporary impairment losses on securities	$	(15,048	)		(28,768	)		(21,487	)
Portion of loss recognized in other comprehensive income		—			—			—
Net impairment losses recognized in realized investment gains, net		(15,048	)		(28,768	)		(21,487	)
Other net realized gains		203,345			256,469			134,880
Realized investment gains, net	$	188,297			227,701			113,393

See accompanying notes to consolidated financial statements.

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Appendix C

162

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Years ended December 31, 2013, 2012, and 2011

(In thousands)

	2013			2012			2011
Net income (loss)	$	541,186			(42,382	)		50,893
Foreign currency translation adjustments, net of tax		(1,650	)		604			(541	)
Unrealized gains (losses) on postretirement obligation, net of tax		167			(226	)		12
Unrealized (losses) gains on fixed-maturity and equity securities, net of tax		(1,228,638	)		340,573			926,215
Total other comprehensive (loss) income		(1,230,121	)		340,951			925,686
Total comprehensive (loss) income	$	(688,935	)		298,569			976,579

See accompanying notes to consolidated financial statements.

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Appendix C

163

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Statements of Stockholder’s Equity

Years ended December 31, 2013, 2012, and 2011

(In thousands)

													Accumulated
					Loan to			Additional					other			Total
	Preferred		Common		parent			paid-in		Retained			comprehensive			stockholder’s
	stock		stock		company			capital		earnings			income			equity
2011:
Balance, beginning of year	$	18,903		20,000		(108,939	)		4,053,371		2,301,769			966,268			7,251,372
Comprehensive income:
Net income		—		—		—			—		50,893			—			50,893
Net unrealized gain on investments, net of shadow adjustments and deferred taxes		—		—		—			—		—			926,215			926,215
Net unrealized gain on postretirement obligation, net of deferred taxes		—		—		—			—		—			12			12
Foreign currency translation adjustment, net of deferred taxes		—		—		—			—		—			(541	)		(541	)
Total comprehensive income																	976,579
Dividend		—		—		50,000			—		(50,000	)		—			—
Payment received on loan		—		—		53,976			—		—			—			53,976
Balance, end of year	$	18,903		20,000		(4,963	)		4,053,371		2,302,662			1,891,954			8,281,927
2012:
Balance, beginning of year	$	18,903		20,000		(4,963	)		4,053,371		2,302,662			1,891,954			8,281,927
Comprehensive income:
Net loss		—		—		—			—		(42,382	)					(42,382	)
Net unrealized gain on investments, net of shadow adjustments and deferred taxes		—		—		—			—		—			340,573			340,573
Net unrealized loss on postretirement obligation, net of deferred taxes		—		—		—			—		—			(226	)		(226	)
Foreign currency translation adjustment, net of deferred taxes		—		—		—			—		—			604			604
Total comprehensive income																	298,569
Dividend		—		—		—			—		(150,000	)		—			(150,000	)
Payment received on loan		—		—		4,963			—		—			—			4,963
Balance, end of year	$	18,903		20,000		—			4,053,371		2,110,280			2,232,905			8,435,459
2013:
Balance, beginning of year	$	18,903		20,000		—			4,053,371		2,110,280			2,232,905			8,435,459
Comprehensive income:
Net income		—		—		—			—		541,186			—			541,186
Net unrealized loss on investments, net of shadow adjustments and deferred taxes		—		—		—			—		—			(1,228,638	)		(1,228,638	)
Net unrealized gain on postretirement obligation, net of deferred taxes		—		—		—			—		—			167			167
Foreign currency translation adjustment, net of deferred taxes		—		—		—			—		—			(1,650	)		(1,650	)
Total comprehensive loss																	(688,935	)
Dividend		—		—		—			—		(650,000	)		—			(650,000	)
Balance, end of year	$	18,903		20,000		—			4,053,371		2,001,466			1,002,784			7,096,524

See accompanying notes to consolidated financial statements.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

164

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2013, 2012, and 2011

(In thousands)

	2013			2012			2011
Cash flows provided by operating activities:
Net income (loss)	$	541,186			(42,382	)		50,893
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment gains		(199,546	)		(229,909	)		(112,150	)
Purchases of trading securities		(226,555	)		(13,174	)		(4,806	)
Sale and other redemptions of trading securities		49,856			17,179			130,077
Change in annuity-related options, derivatives, and gross reserves		3,573,672			1,358,018			398,135
Deferred income tax (benefit) expense		160,438			(324,977	)		5,441
Charges to policy account balances		(136,807	)		(120,090	)		(103,906	)
Gross interest credited to account balances		1,731,843			1,430,161			1,727,538
Amortization of discount, net		(10,259	)		(56,380	)		(20,739	)
Change in:
Accrued investment income		(63,627	)		(15,178	)		(62,190	)
Receivables		16,560			(88,379	)		71,186
Reinsurance recoverables and receivables		(25,485	)		(25,443	)		(72,657	)
Deferred acquisition costs		206,699			684,350			(735,151	)
Future policy benefit reserves		(764,875	)		112,768			1,444,265
Policy and contract claims		57,377			64,723			41,010
Other policyholder funds		85,602			(5,413	)		(44,466	)
Unearned premiums		9,639			(5,730	)		(75	)
Other assets and liabilities		105,279			(34,519	)		(1,299,919	)
Other, net		(3,109	)		80			(588	)
Total adjustments		4,566,702			2,748,087			1,361,005
Net cash provided by operating activities		5,107,888			2,705,705			1,411,898

(Continued)

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

165

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2013, 2012, and 2011

(In thousands)

	2013			2012			2011
Cash flows used in investing activities:
Purchase of available-for-sale fixed-maturity securities	$	(9,190,492	)		(7,832,093	)		(10,131,213	)
Purchase of available-for-sale equity securities		(163,512	)		(337,225	)		(68	)
Purchase of real estate		—			(228	)		(4,350	)
Funding of mortgage loans on real estate		(559,154	)		(592,716	)		(955,786	)
Sale and other redemptions of fixed-maturity securities		5,831,084			7,087,767			5,765,352
Matured fixed-maturity securities		724,008			472,067			464,602
Sale of available-for-sale equity securities		134,400			348,635			4,884
Sale of derivative securities		85,471			318,150			635,174
Sale of real estate		15,471			—			316,183
Net change in securities lending		970,364			(688,770	)		1,531,308
Repayment/disposal of mortgage loans on real estate		493,391			463,591			319,904
Net change in short-term securities		(2,045	)		350			72,185
Purchase of home office property and equipment		(2,831	)		(4,016	)		(2,737	)
Purchase of interest in equity method investees		(1,478	)		(1,219	)		(1,754	)
Change in loan to affiliate		(1,162,445	)		27,293			25,932
Options purchased, net		(217,382	)		(431,167	)		(404,109	)
Other, net		236			(6,838	)		4,023
Net cash used in investing activities		(3,044,914	)		(1,176,419	)		(2,360,470	)
Cash flows (used in) provided by financing activities:
Policyholders’ deposits to account balances		7,014,576			5,817,341			6,812,260
Policyholders’ withdrawals from account balances		(6,438,692	)		(6,826,518	)		(5,644,985	)
Policyholders’ net transfers between account balances		(1,094,927	)		(1,495,577	)		293,032
Change in amounts drawn in excess of bank balances		(23,062	)		42,887			24,762
Dividend paid to parent company		(650,000	)		(150,000	)		—
Payment received on loan to parent company		—			4,963			53,976
Repayment of mortgage notes payable		(6,648	)		(6,293	)		(5,955	)
Net cash (used in) provided by financing activities		(1,198,753	)		(2,613,197	)		1,533,090
Net change in cash and cash equivalents		864,221			(1,083,911	)		584,518
Cash and cash equivalents at beginning of year		2,080,173			3,164,084			2,579,566
Cash and cash equivalents at end of year	$	2,944,394			2,080,173			3,164,084

See accompanying notes to consolidated financial statements.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

166

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(1) Organization

Allianz Life Insurance Company of North America is a wholly owned subsidiary of Allianz of America, Inc. (AZOA or parent company), which is a wholly owned subsidiary of Allianz Europe, B.V., Allianz Europe, B.V. is a wholly owned subsidiary of Allianz Societas Europaea (Allianz SE), the Company’s ultimate parent, which is incorporated in Munich, 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 and individual life, and group accident and health policies in the United States, Canada, and several U.S. territories. Based on 2013 statutory net premium written, 95%, 4%, and 1% of the Company’s business is annuity, life insurance, and accident and health, respectively. The annuity business comprisesfixed-indexed, variable, and fixed interest annuities representing 66%, 33%, and 1% of 2013 statutory annuity net premium written, respectively. Life business comprises both traditional and group life. Life business includes products with guaranteed premiums and benefits and consists principally of universal life policies, fixed index universal life policies, term insurance policies, limited payment contracts, and certain annuity products with life contingencies. Accident and health business primarily comprises closed blocks oflong-term care (LTC) insurance. The Company’s primary distribution channels are through independent agents,broker-dealers, banks, andthird-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 all other subsidiaries have been consolidated. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Use of Estimates

The preparation of consolidated 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, 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 are 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 accordance with contractual terms. Derivatives embedded infixed-indexed, variable, and certain life products are recorded at fair value and changes in value are included in change in reserves at fair value 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 account values and policyholder benefits, respectively, on the Consolidated Statements of Operations.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

167

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

During 2013, the Company began offering a variable annuity product that combines a separate account option with a general account option that is similar to afixed-indexed annuity. The Company has elected the fair value option to account for the entire insurance contract liability and the mutual fund assets backing the separate account. The insurance contracts’ reserves are reported in account balances and future policy benefit reserves and the mutual fund assets backing the separate account are reported in equity securities, trading on the Consolidated Balance Sheets. Electing the fair value option for an insurance contract liability requires that the Company account for that liability as a financial instrument and also requires that acquisition costs be recognized immediately in expense.

(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 deferral and amortization of 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, which is one level below an operating segment. Goodwill of a reporting unit is also tested for impairment on an interim basis if a triggering event occurs, such as a significant adverse change in the business climate or a decision to sell or dispose of a business unit.

(f) Value of Business Acquired and Other Intangible Assets

The value of insurancein-force purchased is recorded as the VOBA and 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 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 onavailable-for-sale investments used to support 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 insurancein-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 general and administrative expenses within the Consolidated Statements of Operations.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

168

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Intangible assets are identified by the Company in accordance with the Intangibles – Goodwill and Other Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification), 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 when 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, and 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 and are generally amortized over five years using thestraight-line method. Also included in the Company’s intangible assets are the trade name and service mark of abroker-dealer acquired during 2005, and state insurance licenses acquired in 2007.

Recoverability of the value of the amortizing intangible assets is assessed 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 annually or earlier if events or changes in circumstances indicate the carrying amount may not be recoverable.

(g) Deferred Acquisition Costs

Acquisition costs consist of commissions and other incremental costs that are directly related to the successful acquisition of insurance contracts. Acquisition costs are deferred to the extent recoverable from future policy revenues and gross profits. However, acquisition costs associated with insurance contracts recorded under the fair value option are not deferred as guidance related to the fair value option requires that transaction costs are recorded immediately as an expense. Forinterest-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. DAC is reviewed for recoverability, at least annually, and adjusted when necessary. Recoverability is evaluated separately for fixed annuities, variable annuities, and life insurance products. Evaluating recoverability is atwo-step process where current policy year issues are evaluated, and thenin-force policies are evaluated. Before assessing recoverability, DAC is capped, if necessary, such that the balance cannot exceed the original capitalized costs plus interest.

Adjustments to DAC are made to reflect the corresponding impact on the present value of expected future gross profits from unrealized gains and losses onavailable-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, which is referred to as 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.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

169

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Company formally evaluates the appropriateness of thebest-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 in change in DAC, net on the Consolidated Statements of Operations.

Adjustments may also be made to the estimated gross profits related to DAC that correspond to deferred annuities and universal life products for investment activity, such aswrite-downs onother-than-temporarily impairedfixed-maturity securities, and realized gains and losses. Management action may include assumption changes in the DAC models, such as adjustments to expected future gross profits used, as well asin-force management action such as crediting rate changes or index rate cap adjustments. This approach applies tofixed-maturity securities purchased at investment grade only and notnoninvestment-grade items that were purchased with other yield considerations. See further discussion of DAC unlocking in note 10.

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 anin-force 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 is immediately expensed and any new DAC on the replacement contract is 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 when 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. DSI capitalization and amortization are recorded in policyholder benefits on the Consolidated Statements of Operations.

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 onavailable-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 aswrite-downs onother-than-temporarily impairedfixed-maturity securities, and realized 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 tofixed-maturity securities purchased at investment grade only and not noninvestment grade items that were purchased with other yield considerations.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

170

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(i) Account Balances and Future Policy Benefit Reserves

Policy and contract account balances forinterest-sensitive products, which include universal life and fixed deferred annuities, are generally carried at accumulated contract values. Forfixed-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.

Certaintwo-tier fixed annuity products provide additional benefits payable upon annuitization forperiod-certain andlife-contingent payout options. An additional annuitization reserve is accrued 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. Future policy benefit 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. Future policy benefit reserves for accumulation and withdrawal benefits that may exceed account values are established using capital market assumptions, such as index and volatility, along with estimates of future policyholder behavior.

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 2.6% to 6.0%.

Future policy benefit reserves on LTC products are computed using a net level reserve method. Reserves are determined as the excess of the present value of future benefits over the present value of future net premiums and are based on best estimate assumptions at the time of issue for morbidity, mortality, lapse, and interest with provisions for adverse deviation. Most LTC reserve interest assumptions range from 5.0% to 6.0%.

An additional reserve has been established to provide for future expected losses that are anticipated to occur after a period of profits. The reserve accrual will be over the profit period and is based on best estimate assumptions as of the beginning of the accrual period without provisions for adverse deviation.

(j) 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 on the Company’s accident and health business. Actuarial reserve 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 ashort-term nature are not discounted, but those claim liabilities resulting from disability income or LTC benefits include interest and mortality discounting.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

171

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(k) 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 and are included in premiums and policy fees, ceded, and benefit recoveries, respectively, on the Consolidated Statements of Operations. Insurance liabilities are reported before the effects of reinsurance. Account balances and future policy benefit reserves, and policy and contract claims covered under reinsurance contracts are recorded in reinsurance recoverables and receivables on the Consolidated Balance Sheets. Amounts paid or deemed to have been paid for claims covered by reinsurance contracts are recorded as receivables on the Consolidated Balance Sheets. 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 athird-party reinsurer is deferred and recorded in other liabilities on the Consolidated Balance Sheets. Such gains are amortized into operations over therevenue-producing period or the claimsrun-off period of the related reinsured policies. These amortized gains are recorded in other revenue on the Consolidated Statements of Operations.

(l) Investments

Fixed-Maturity and Equity Securities

The Company has portfolios of certainfixed-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 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 certainfixed-maturity and equity securities classified as “trading,” and accordingly, the securities are carried at fair value, and related unrealized gains and losses are reflected in change in fair value of assets and liabilities, within the Consolidated Statements of Operations. The Company has portfolios of certainfixed-maturity securities classified as“held-to-maturity,” and accordingly, the securities are carried at amortized cost on the Consolidated Balance Sheets. The Company has the intent and ability to hold such securities to maturity.

Dividends are accrued on the date they are declared and interest is accrued as earned. Premiums or discounts onfixed-maturity securities are amortized using the constant yield method. Realized gains and losses are computed based on the average cost basis of all lots owned of each security.

Mortgage-backed securities and structured securities are amortized using, among other assumptions, anticipated prepayments. Prepayment assumptions forloan-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. The Company recognizes income using a constant effective yield method based on prepayment assumptions and the estimated economic life of the securities. For all structured securities without expected credit deterioration, 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. For structured securities with expected credit deterioration, when adjustments are anticipated for prepayments and other expected changes in future cash flows, the effective yield is recalculated using the prospective method as required by the Beneficial Interests in Securitized Financial Assets Topic of the Codification.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

172

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The fair value offixed-maturity securities and equity securities is obtained fromthird-party pricing sources whenever possible. Management completes its own Independent Price Verification (IPV) process, which ensures security pricing is obtained from athird-party source other than the sources used by the investment managers. The IPV process supports the reasonableness of price overrides and challenges by the investment managers and reviews pricing for appropriateness. Results of the IPV are reviewed by the Company’s Pricing Committee.

The Company reviews theavailable-for-sale andheld-to-maturity investment portfolios to determine whether or not declines in fair value are other than temporary. 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 whetherfixed-income securities are consideredother-than-temporarily impaired. In addition, the Investments – Debt and Equity Securities Topic of the Codification requires that the Company evaluateother-than-temporary impairments (OTTI) onavailable-for-sale andheld-to-maturityfixed-maturity securities based on additional factors. Specifically, declines in value resulting from changes inrisk-free interest rates must also be considered.

When the fair value of afixed-maturity security is less than its amortized cost, the Company assesses whether or not (i) it has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. The Company evaluates these factors to determine whether the Company or any of its investment managers have an intent to sell a security or a group of securities. Additionally, the Company performs a cash flow projection for several years into the future to determine whether cash needs would require the sale of any securities in an unrealized loss position. If either of these conditions is met, the Company must recognize an OTTI for the difference between the investment’s amortized cost basis and its fair value through earnings. For securities that do not meet the above criteria, and the Company does not expect to recover a security’s amortized cost basis, the security is consideredother-than-temporarily impaired. For these securities, the Company separates the total impairment into the credit loss component and the amount of the loss related to other factors. The amount of the total impairment related to credit loss is considered an OTTI and is recognized in realized investment gains, net on the Consolidated Statements of Operations. The amount of the total impairment related to other factors is recognized in other comprehensive income, net of impacts to DAC, DSI, VOBA, reserves, and deferred income taxes. Foravailable-for-sale andheld-to-maturity securities that have recognized an OTTI through earnings, if through subsequent evaluation there is a significant increase in the cash flow expected, the difference between the amortized cost basis and the discounted cash flows expected to be collected is accreted as interest income. Subsequent increases and decreases not related to additional credit losses in the fair value ofavailable-for-sale securities are included as a separate component in the Consolidated Statements of Comprehensive Income.

The Company evaluates whether a credit loss exists by considering primarily the following factors: (a) the length of time and extent to which the fair value has been less than the amortized cost of the security, (b) changes in the financial condition, credit rating, andnear-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral, if any, and (e) the payment structure of the security. The Company uses aprobability-weighted cash flow model for corporate bonds to determine the credit loss amount. This measurement is a quantitative and qualitative process that incorporates information received fromthird-party sources along with certain internal assumptions and significant judgments regarding the future performance of the security. The Company’sprobability-weighted cash flow model involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates. For structured securities, the Company selects aprobability-weighted or best estimate cash flow model depending on the specifics of the individual security and the information available to measure the expected cash flows of the underlying collateral. In the event that sufficient information is not available to measure the expected cash flows of a structured security in a timely manner due to a lack of available information on the valuation date, the entire decline in fair value is considered to be related to credit loss.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

173

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Company provides a supplemental disclosure on its Consolidated Statements of Operations that presents the total OTTI losses recognized during the period less the portion of OTTI losses recognized in other comprehensive income to equal thecredit-related portion of OTTI that was recognized in earnings during the period. The portion of OTTI losses recognized in other comprehensive income includes the portion of OTTI losses related to factors other than credit recognized during the period, offset by reclassifications of OTTI losses previously determined to be related to factors other than credit that are determined to be credit related in the current period. The amount presented in the supplemental disclosure on the Consolidated Statements of Operations represents the portion of OTTI losses recognized in other comprehensive income and excludes subsequent increases and decreases in the fair value of these securities.

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 asother-than-temporarily impaired. However, other factors, including market analysis, current events, recent price declines, and management’s judgment related to the likelihood of recovery within a reasonable period of time, are also used to determine whether equity securities are consideredother-than-temporarily impaired and may result in an equity security being impaired. All previously impaired equity securities will incur additional OTTI 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 securities, as discussed in their respective sections of this note.

Mortgage Loans on Real Estate

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 quarterly when assessing the adequacy of the allowance for uncollectible balances. The Company considers recent trends in the Company’s loan portfolio and information on current loans, such asloan-to-value ratios and debt service coverage, which could impact a loan’s credit quality. The Company also 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. The Company does not accrue interest on defaulted loans.

Other Invested Assets

Other invested assets includeshort-term securities, policy loans, loans to affiliates, real estate, equity securities carried at cost, acquired loans, and partnership investments.Short-term securities are carried at amortized cost, which approximates fair value. Policy loans, which are supported by the underlying cash value of the policies, are carried at unpaid principal balances, which approximate fair value. Loans to affiliates are carried at cost, and interest is accrued monthly, with payments received semiannually. Real estate consists of building and land and is carried at cost less accumulated depreciation. The buildings are amortized over 39 years at acquisition, and improvements and additions are depreciated using thestraight-line method over the remaining life of the real estate.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

174

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Company is a member of the Federal Home Loan Bank of Des Moines (FHLB), primarily for the purpose of participating in the Bank’s mortgage collateralized loan advance program withshort-term andlong-term funding facilities. Members are required to purchase and hold a minimum amount of FHLB capital stock plus additional stock based on outstanding advances. The investment is carried at cost, which approximates fair value, and is reported in other invested assets on the Consolidated Balance Sheets. The investment is evaluated for impairment based on the ultimate recoverability of its par value.

Acquired Loans

The Company acquired a portfolio of assets that have deteriorated credit quality and are recorded as acquired loans within other invested assets on the Consolidated Balance Sheets. Acquired loans are initially recorded at fair value, and changes in expected cash flows are recorded as adjustments to accretable yield, to the carrying amount, or both. Fair values are obtained using a combination ofthird-party vendors and cash flow modeling, which is reviewed by the Company Pricing Committee. Accretable yield refers to the amount of undiscounted cash flows expected in excess of the carrying amount. This amount is converted into a rate and accreted into interest and similar income, net on the Consolidated Statements of Operations. Interest is recorded as received on certain acquired loans that do not have reasonably estimable cash flows.

Repurchase Agreements

The Company has entered into atri-party repurchase facility agreement with an unaffiliated bank, whereby the Company may sell securities with an agreement to repurchase at a later date for a specified price. The Company’s repurchase agreements are accounted for as collateralized borrowings, whereby the underlying securities sold by the Company under the repurchase agreement are considered collateral pledged against the cash borrowed and the assets pledged as collateral are reclassified and reported separately from other assets not so encumbered.

(m) Derivatives

The Company utilizes 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 change in fair value of assets and liabilities within the Consolidated Statements of Operations.

Hedge Accounting

To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated changes in 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, at inception and on a quarterly basis, whether the derivatives used in hedging transactions have been and are expected to continue to be highly effective in offsetting changes in 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, net of tax on the Consolidated Balance Sheets. The ineffective portion of the change in the fair value of the hedging instrument is recognized in change in fair value of assets and liabilities in the Consolidated Statements of Operations. There has been no significant impact to the Consolidated Financial Statements as a result of applying hedge accounting.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

175

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Options and Futures Contracts

The Company provides additional benefits through certain life and annuity products, which are linked to the fluctuation of various United States and international stock market indices. In addition, certain variable annuity contracts provide minimum guaranteed benefits. The Company has analyzed the characteristics of these benefits and has entered intoover-the-counter (OTC) option contracts,exchange-traded option (ETO) contracts, andexchange-traded futures contracts tied to an appropriate underlying index with similar characteristics with the objective to economically hedge these risks. The Company usesexchange-traded futures contracts with the objective to increase the effectiveness of the economic hedge. Management monitorsin-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 and ETO contracts are reported at fair value as derivatives on the Consolidated Balance Sheets. The fair value of the OTCs is derived internally and deemed by management to be reasonable via performing an IPV process. 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 fair value of the ETOs is based on quoted market prices. Changes in unrealized gains and losses on the option contracts and incremental gains and losses from expiring options are recorded in change in fair value of assets and liabilities on the Consolidated Statements of Operations. The liability for the benefits is reported in account balances and future policy benefit reserves on the Consolidated Balance Sheets. 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 change in fair value of assets and liabilities on the Consolidated Statements of Operations.

Interest Rate Swaps and Total Return Swaps

The Company utilizes interest rate swaps and total return swaps (TRS) to hedge cash flows and market risks embedded in certain annuities. The interest rate swaps and TRS are reported at fair value as derivatives on the Consolidated Balance Sheets. The fair value of the interest rate swaps is derived using athird-party vendor software program and deemed by management to be reasonable. The fair value of the TRS is based on counterparty pricing and deemed by management to be reasonable. Changes in unrealized gains and losses on the swaps are recorded in change in fair value of assets and liabilities on the Consolidated Statements of Operations.

(n) 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 cash and cash equivalents, and other liabilities, respectively. Securities on loan remain on the 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.

The Company participates in restricted securities lending arrangements whereby specific securities are loaned to other institutions. The collateral is defined by the agreement to be cash and cash equivalents; is unrestricted and may be used for general purposes. Company policy requires a minimum of 102% of fair value of securities loaned under securities lending agreements to be maintained as collateral.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

176

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(o) Receivables

Receivable balances (contractual amount less allowance for doubtful accounts) are based on pertinent information available to management as ofyear-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 assessment of the ability to collect. The allowance is estimated by aging the balances due from individual parties and generally setting up an allowance for any balances that are more than 90 days old.

(p)Company-Owned Life Insurance

Company-owned life insurance (COLI) is recognized at the amount that could be realized assuming the surrender of anindividual-life policy (or certificate in a group policy), otherwise known as the cash surrender value. Subsequent measurement of the contract is also at the cash surrender value with changes in cash surrender value recognized in Other Revenue on the Consolidated Statements of Operations. The COLI policies are reported in other assets on the Consolidated Balance Sheets.

(q) Home Office Property and Equipment

Home office property consists of buildings and land. Equipment consists of furniture, office equipment, leasehold improvements, and computer hardware. Both are reported at cost, net of accumulated depreciation, 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 thestraight-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 property and equipment balance was $146,242, net of accumulated depreciation of $110,880 as of December 31, 2013, and $151,661, net of accumulated depreciation of $104,281 as of December 31, 2012.

Preoperating andstart-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 thestraight-line method, over a39-year period. The amounts of capitalized costs amortized, including interest, during 2013, 2012, and 2011 were $2,275, $2,275, and $2,275, respectively. The expansion of the Company’s headquarters was put into operation in 2006, resulting in amortization of $2,104, $2,104, and $2,104 for the years ended December 31, 2013, 2012, and 2011, respectively.

(r) Income Taxes

The Company and its subsidiaries 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 reimbursement will be in accordance with an intercompany tax reimbursement arrangement. The Company, and its insurance subsidiaries generally will be paid for the tax benefit on their losses and any other tax attributes to the extent they could have obtained a benefit against theirpost-1990 separate return tax liability.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

177

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

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 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 will not reverse over time (see further discussion in note 16).

(s) Stockholder’s Equity, Loan to Parent Company

The Company entered into an agreement during 2002 to lend AZOA $250,000 (see further discussion in note 17). 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 Equity Topic of the Codification. This loan was paid in full during 2012.

(t) 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 22). The net assets of the Company’s foreign operations are translated into U.S. dollars using exchange rates in effect at eachyear-end. Translation adjustments arising from differences in exchange rates from period to period are included in the foreign currency translation adjustments, net of tax reported, as a separate component of comprehensive income on the Consolidated Statements of Comprehensive Income.

(u) 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.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

178

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

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 the Financial Services – Insurance Topic of the Codification and are included in policyholder benefits on the Consolidated Statements of Operations. GMAB and GMWB are considered to be embedded derivatives under the Derivatives and Hedging Topic of the Codification, 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 contractholder 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 contractholder account value, assuming that all benefit selections occur as of the valuation date. The GMAB net amount at risk is defined as the current guaranteed value amount that would be added to the contracts less the current contractholder account value. The GMWB net amount at risk is defined as the current accumulated benefit base amount less the current contractholder 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:

• Return of Premium – Provides the greater of account value or total deposits made to the contract, less any partial withdrawals and assessments.

• Reset – Provides the greater of a return of premium death benefit or the most recentfive-year anniversary account value (prior to age 81), adjusted for withdrawals.

• 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, andsix-year – evaluated every sixth year.

• 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.

• Earnings Protection Rider – Provides the greater of a return of premium death benefit or a death benefit equal to the contract value plus a specified percentage of the earnings on the contract at the date of death.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

179

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The GMIB is a living benefit that provides the contractholder with a guaranteed annuitization value. The GMIB features are:

• Return of Premium – Provides the greater of account value or total deposits made to the contract less any partial withdrawals and assessments.

• Ratchet – Provides an annuitization value equal to the greater of account value, net premiums, or the highestone-year anniversary account value (prior to age 81), adjusted for withdrawals.

• Rollup – Provides an annuitization value equal to the greater of account value and premiums adjusted for withdrawals accumulated with a compound interest rate, which is subject to a cap for certain interest rates and products.

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 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, 2013 and 2012:

• 100 stochastically generated investment performance scenarios.

• Mean investment performance assumption of 6.5% in 2013 and 2012.

• Volatility assumption of 13.4% in 2013 and 2012.

• Mortality assumption of 94.3% and 94.0% of the Annuity 2000 Mortality Table for all actively sold variable annuity products in 2013 and 2012, respectively, and 50.0% of the 1994 MGDB Mortality Table for all other products.

• Lapse rates vary by contract type and duration. Spike rates could approach 40% with an ultimate rate around 15%.

• Discount rates vary by contract type and equal an assumedlong-term investment return (6.5%), less the applicable mortality and expense rate.

• GMIB contracts only – dynamic lapse assumption. For example, if the contract is projected to have a large additional benefit, then it becomes less likely to lapse.

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, seventh contract anniversary, or tenth contract anniversary depending on the type of contract. 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 specified ages in the contract. 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 guaranteed annual increase of purchase payments (capped at twice the total purchase payments). Additionally, there is a GMWB living benefit where the benefit is an initial payment percentage established at issue, based on issue age. For each year there is ayear-over-year contract value increase, the payment percentage will increase by 1.0% (up to age 91). This payment percentage is applied against total purchase payments instead of a benefit base value.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

180

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

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.

The following assumptions were used to determine the GMAB and GMWB liabilities as of December 31, 2013 and 2012:

• 1000 stochastically generated investment performance scenarios.

• Market volatility assumption varies by fund type and grades from a current volatility number to along-term assumption over one year as shown below:

	2013
Fund index type	Current volatility			Long-term forward volatility
Large cap		15.8	%		18.2	%
Bond		3.4			4.0
International		17.0			24.5
Small cap		19.8			21.1
Cash		—			—
	2012
Fund index type	Current volatility			Long-term forward volatility
Large cap		18.5	%		19.8	%
Bond		3.4			4.1
International		21.5			25.2
Small cap		23.1			21.4
Cash		—			—

• Mortality assumption 93.3% and 94.0% of the Annuity 2000 Mortality Table for all actively sold variable annuity products in 2013 and 2012, respectively, and 50.0% of the 1994 MGDB Mortality Table for all other products.

• Lapse rates vary by contract type and duration. Spike rates could approach 40% with an ultimate rate around 15%.

Discount rates equal to current month’s London Interbank Offered Rate (LIBOR) plus a company specific spread. In 2012 and prior years, these cash flows were discounted using the U.S. Treasury rate plus a company specific spread.

The Company issuesfixed-indexed annuities with a GMWB as an optional rider. The GMWB has aroll-up feature. The net amount at risk is partially limited, because the contractholder account value has an annual credit that is floored at zero. Since the account value cannot 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.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

181

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(v) 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 has a permitted practice in effect for one of its affiliates, which allows interest rate swaps to be accounted for using hedge accounting. This permitted practice does not significantly impact statutory capital and surplus or regulatoryrisk-based capital requirements.

(w) Recently Issued Accounting Pronouncements – Adopted

In July 2013, the FASB issued guidance that indefinitely defers the effective date of certain quantitative disclosure requirements for an employee benefit plan, other than those plans that are subject to the Securities and Exchange Commission (SEC) filing requirements, that holds investments in the plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities that are within the scope of the disclosure requirements in the fair value measurement and disclosure requirements issued in 2011. This guidance is effective immediately upon issue. However, the Company does not have employee benefit plans that invest in nonpublic equity of the Company or any of its affiliates.

In July 2013, the FASB issued guidance allowing the Fed Funds Effective Swap Rate (OIS) to be used as a benchmark interest rate for hedge accounting purposes, in addition to the U.S. Treasury rate and LIBOR. Additionally, this guidance removes a restriction that previously required similar hedges to use the same benchmark interest rate. As part of this guidance, the glossary of the Accounting Standard Codification was updated to define the OIS rate and define that it is considered a proxy for arisk-free interest rate. This guidance is effective for hedging relationships beginning on or after July 17, 2013. The Company adopted this guidance beginning July 17, 2013. The Company has not designated new hedging relationships using OIS in 2013. However, the Company began discounting its collateralized derivatives recorded at fair value using OIS as the discount rate in 2013.

In February 2013, the FASB issued guidance requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required tocross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This guidance is effective for fiscal years beginning after December 15, 2012. This guidance was adopted January 1, 2013. The Company elected to present the required information in note 24 to the Consolidated Financial Statements.

In December 2011, the FASB issued guidance that amended the Disclosures about Offsetting Assets and Liabilities Topic in the Codification. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities will disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. Also, the guidance requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. In January 2013, the FASB issued a clarification to the scope of this amended guidance, which specifies that it applies only to derivative instruments, repurchase and reverse repurchase agreements, securities lending and securities borrowing transactions. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures should be applied retrospectively for all comparative periods presented. The guidance did not have a financial impact on the Company’s Consolidated Financial Statements as it applies only to disclosures.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

182

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

In December 2011, the FASB issued guidance about the timing of derecognition when a parent ceases to have a controlling interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. Under this guidance, derecognition should not occur until the legal title has transferred, even if the parent no longer has a controlling financial interest. This guidance is effective for fiscal years beginning on or after June 15, 2012. The Company adopted this guidance on January 1, 2013. The guidance did not have a financial impact on the Company’s Consolidated Financial Statements.

In October 2010, the FASB issued guidance that changes the accounting for costs associated with acquiring or renewing insurance contracts. Specifically, the guidance changes the definition of acquisition costs eligible for deferral. The new definition is meant to reduce diversity in practice regarding the types of expenses treated as DAC in the insurance industry. The new DAC definition states that acquisition costs include only those incremental costs that are directly related to the successful acquisition of insurance contracts. An entity may defer incremental direct costs of contract acquisition that are incurred in transactions sold by independent third parties and incremental direct costs of contract acquisition that are incurred in transactions sold by employees. Additionally, an entity may capitalize as DAC only those advertising costs meeting the capitalization criteria fordirect-response advertising. All other acquisition costs are to be charged to expense as incurred. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company adopted this guidance beginning January 1, 2012. In 2012, the Company capitalized $737,390 of acquisition costs compared to $820,993 that would have been capitalized if the Company’s previous policy had continued to be applied.

(x) Recently Issued Accounting Pronouncements – To Be Adopted

In July 2013, the FASB issued guidance about the presentation of unrecognized tax benefits. This guidance requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance is effective for fiscal years beginning after December 15, 2013. The Company does not expect the guidance to have a material financial impact on the Company’s Consolidated Financial Statements.

In April 2013, the FASB issued guidance that requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example,limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. This guidance does not apply to investment companies under the Investment Company Act of 1940. The guidance is effective for annual reporting periods beginning after December 15, 2013. The Company does not expect the guidance to have a material financial impact on the Company’s Consolidated Financial Statements.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

183

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

In March 2013, the FASB issued guidance that applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. Changes are applied prospectively with early adoption permitted. The guidance is effective for fiscal years beginning after December 15, 2013. The Company does not expect the guidance to have a material financial impact on the Company’s Consolidated Financial Statements.

In February 2013, the FASB issued guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements that are not included in other guidance and for which the total amount of the obligation is fixed at the reporting date. Examples of such liabilities include debt arrangements, other contractual obligations, and settled legal and judicial rulings. The guidance is effective for fiscal years beginning after December 15, 2013. The Company does not expect the guidance to have a material financial impact on the Company’s Consolidated Financial Statements.

In July 2011, the FASB issued guidance that addresses how health insurers should recognize and classify, in their income statements, fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts). The Acts impose an annual fee (not tax deductible) on health insurers for each calendar year beginning on or after January 1, 2014. The liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the calendar year with a corresponding deferred cost that is amortized to expense using astraight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The guidance is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. The Company does not expect the guidance to have a material financial impact on the Company’s Consolidated Financial Statements.

(y) Accounting Changes

On September 30, 2012, the Company applied a prospective change to its method of grouping insurance policies for measuring amortization of DAC and DSI for its variable annuity policies. This was a change in estimate that is inseparable from the effect of a related change in accounting principle. The implementation of the new DAC and DSI groupings better reflects the way the Company examines the profitability of its variable business and results in more logical amortization rates, sensitivities, and other analyses. The implementation of this change resulted in additional income from operations before income taxes of $38,503 for the year ended December 31, 2012.

During 2012, the Company recorded a change in estimate related to the implementation of a new model for the valuation of policyholder reserves, deferred acquisition costs (DAC), deferred sales inducements (DSI), and value of business acquired (VOBA) for the Company’s fixed andfixed-indexed annuities. Reserve changes were primarily driven by more sophisticated modeling of newer product features such as lifetime income riders. In addition to DAC amortization related to these reserve changes, the Company’s DAC balances changed as a result of bringing the DAC projection model in line with the reserve model. Historically, the valuation and projection models were distinct in such cases as compression and product mapping. Now, valuation and projection are maintained within the same model, which provides greater consistency and a more refined estimate. This change in estimate resulted in a reserve decrease of $288,822, and caused additional DAC, DSI, and VOBA amortization of $710,549 for the year ended December 31, 2012.

(z) Reclassifications

Certain prior year balances have been reclassified to conform to the current year presentation.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

184

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(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

Credit risk is the risk that issuers offixed-rate and variable rate income securities, mortgages on commercial real estate, or other parties with whom we have transactions, such as reinsurers and derivative counterparties, default on their contractual obligations, resulting in unexpected credit losses.

The Company mitigates this risk by adhering to investment policies and limits that provide portfolio diversification on an asset class, asset quality, creditor, and geographical 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 ability to manage this risk through liability portfolio management.

For derivative counterparties, the Company mitigates credit risk by tracking and limiting exposure to each counterparty through limits that are reported regularly and, once breached, restricts further trades; establishing relationships with counterparties ratedA- and higher; and monitoring the credit default swap (CDS) of each counterparty as an early warning signal to cease trading when CDS spreads imply severe impairment in credit quality.

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 segregated account to cover any counterparty exposure.

(b) Credit Concentration Risk

Credit concentration risk is the risk of increased exposure to significant 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. Concentration risk exposure is monitored regularly.

The Company’s Finance Committee, responsible for asset/liability management issues (ALM), recommends an investment policy to the Company’s Board of Directors (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 the Finance Committee who is responsible for implementing internal controls and procedures. Deviations from the policy are monitored and addressed. The Finance Committee and, subsequently, the BOD review the policy and mandates at least annually.

To further mitigate this risk, internal concentration limits based on credit rating and sector have been established and are monitored regularly. Any ultimate obligor group exceeding these limits is placed on a restricted list to prevent further purchases, and the excess exposure may be actively sold down to comply with concentration limit guidelines. Further, the Company performs a quarterly concentration risk calculation to ensure compliance with certain state insurance regulations.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

185

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(c) Liquidity Risk

Liquidity risk is the risk that unexpected timing or amounts of cash needed will require liquidation of assets in a market that will result in a realized loss or an inability to sell certain classes of assets such that an insurer will be unable to meet its obligations and contractual guarantees. Liquidity risk also includes the risk that in the event of a company liquidity crisis refinancing is only possible at higher interest rates or by liquidating assets at a discount. Liquidity risk can be affected by the maturity of liabilities, the presence of withdrawal penalties, the breadth of funding sources, and terms of funding sources. It can also be affected by counterparty collateral triggers as well as whether anticipated liquidity sources such as credit agreements are cancelable.

The Company manages liquidity within four specific domains: (1) monitoring product development, product management, business operations, and the investment portfolio; (2) setting ALM strategies; (3) managing the cash requirements stemming from the Company’s derivative dynamic hedging activities; and (4) establishing liquidity facilities to provide additional liquidity. The Company has established liquidity risk limits, which are approved by the Company’s Risk Committee, and the Company monitors its liquidity risk regularly. The Company also sets target levels for the liquid securities in its investment portfolio.

(d) Interest Rate Risk

Interest rate risk is the risk that interest rates will change and cause a decrease in the value of an insurer’s assets relative to the value of its liabilities and/or an unfavorable change in prepayment activity resulting in compressed interest margins. The Company has anasset-liability management strategy to align cash flows and duration of the investment portfolio with policyholder liability cash flows and duration. The Company further limits interest rate risk on variable annuity guarantees through interest rate hedges.

(e) Equity Market Risk

Equity market risk is the risk that movements in equity prices will cause a decrease in the value of an insurer’s assets relative to the value of its liabilities.

The policy value of thefixed-indexed annuity andfixed-indexed universal life products is linked to equity market indices. The Company economically hedges this exposure with derivatives.

The variable annuity products provide a minimum guaranteed level of payments irrespective of market movements. The Company has adopted an economic hedging program to manage the equity risk of these products.

The Company monitors the economic and accounting impacts of equity stress scenarios on assets and liabilities regularly.

Basis risk is the risk that the variable annuity hedge asset value changes unexpectedly relative to the value of the underlying separate account funds of the variable annuity contracts. Basis risk may arise from the Company’s inability to directly hedge the underlying mutual funds of the variable annuity contracts. The Company mitigates this risk through regular review and synchronization of fund mappings, product design features, and hedge design.

(f) Legal/Regulatory Risk

Legal/regulatory risk is 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 contract holders.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

186

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Company mitigates this risk by offering a broad range of annuity products and by operating throughout the United States. The Company actively monitors allmarket-related exposure and has members that participate in national and international discussions relating to legal, regulatory, and accounting changes that may impact the business. A formal process exists to assess the Company’s risk exposure to changes in regulation including monitoring by the Compliance and Legal departments and regular reporting to the BOD of all known compliance risks and the effectiveness of the approach used to mitigate such risks.

(g) Ratings Risk

Ratings risk is 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. 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. Rating agency capital is calculated and analyzed regularly. Stress tests are performed regularly to assess how rating agency capital adequacy models would be impacted by severe economic events.

(h) Mortality Risk

Mortality risk is the risk that life expectancy assumptions used by the Company to price its products are too high (i.e., insureds live shorter than expected lives). Conversely, longevity risk is the risk that life expectancy assumptions used by the Company to price its products are too low (i.e., insureds live longer than expected lives).

The Company mitigates mortality risk primarily through reinsurance, whereby the Company cedes a significant portion of its new and existing mortality to third parties. The Company manages mortality risk through the underwriting process. The Company also manages both mortality and longevity risks by reviewing its mortality assumptions at least annually, and reviewing mortality experience periodically.

(i) Lapse Risk

Lapse risk is the risk that actual lapse experience evolves differently than the assumptions used for pricing and valuation exercises leading to a significant loss in Company value and/or income.

The Company mitigates this risk by performing sensitivity analysis at the time of pricing, asset/liability management and regular monitoring of policyholder experience. The Company quantifies lapse risk regularly.

(j) Reinsurance Risk

Reinsurance risk is 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 to certain business lines and to enable better capital management.

The Company mitigates this risk by requiring certain counterparties to meet thresholds related to the counterparty’s credit rating, exposure, or other factors. If the thresholds are not met by those counterparties, they are required to establish a trust or letter of credit backed by assets meeting certain quality criteria. All arrangements are regularly monitored to determine whether trusts or letters of credit are sufficient to support the ceded liabilities and that their terms are being met. Also, the Company reviews the financial standings and ratings of its reinsurance counterparties and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies regularly.

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.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

187

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(4) Investments

Fixed-Maturity Securities

At December 31, 2013 and 2012, the amortized cost or cost, gross unrealized gains, gross unrealized losses, and fair values ofavailable-for-sale andheld-to-maturity securities are as shown in the following tables:

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
2013:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,103,739		58,198		3,078		1,158,859		—
Agencies not backed by the full faith and credit of the U.S. government		480,981		30,861		13		511,829		—
States and political subdivisions		4,916,086		161,812		119,538		4,958,360		—
Foreign government		341,223		24,167		156		365,234		—
Public utilities		4,692,512		467,650		23,952		5,136,210		650
Corporate securities		39,446,124		2,700,886		470,158		41,676,852		1,429
Mortgage-backed securities		11,668,499		876,705		19,911		12,525,293		—
Collateralized mortgage obligations		12,557		1,655		—		14,212		—
Collateralized debt obligations		44,687		12,291		105		56,873		11,480
Total fixed-maturity securities, available-for-sale		62,706,408		4,334,225		636,911		66,403,722		13,559

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

188

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
Fixed-maturity securities, held-to-maturity:
Corporate securities	$	110		19		—		129		—
Collateralized debt obligations		220,642		1,100		2,355		219,387		—
Total fixed-maturity securities, held-to-maturity		220,752		1,119		2,355		219,516		—
Total available-for- sale and held-to-maturity securities	$	62,927,160		4,335,344		639,266		66,623,238		13,559

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
2012:
Fixed-maturity securities, available-for-sale:
U.S. government	$	880,251		131,250		2,054		1,009,447		—
Agencies not backed by the full faith and credit of the U.S. government		744,623		129,001		—		873,624		—
States and political subdivisions		3,891,615		587,357		5,339		4,473,633		—
Foreign government		460,615		63,379		—		523,994		—
Public utilities		4,512,465		882,652		738		5,394,379		975
Corporate securities		35,834,283		5,135,779		32,590		40,937,472		9,996
Mortgage-backed securities		13,263,966		1,629,977		246		14,893,697		979
Collateralized mortgage obligations		15,225		1,940		15		17,150		—
Collateralized debt obligations		48,993		5,867		94		54,766		5,454
Total fixed-maturity securities, available-for-sale		59,652,036		8,567,202		41,076		68,178,162		17,404

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

189

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses		Fair value		OTTI in accumulated other comprehensive income (1)
Fixed-maturity securities, held-to-maturity:
Corporate securities	$	138		24		—		162		—
Collateralized debt obligations		474,936		11,617		—		486,553		—
Total fixed-maturity securities, held-to-maturity		475,074		11,641		—		486,715		—
Total available-for-sale and held-to-maturity securities	$	60,127,110		8,578,843		41,076		68,664,877		17,404

(1) The amount represents the net unrealized gain or loss onother-than-temporarily impaired securities. It includes the portion of OTTI losses in accumulated other comprehensive income, which was not included in earnings.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

190

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The net unrealized gains onavailable-for-sale securities and ineffective portion of cash flow hedges consist of the following at December 31:

	2013			2012			2011
Available-for-sale securities:
Fixed maturity	$	3,697,314			8,526,126			5,877,872
Equity		—			—			—
Cash flow hedges		1,570			2,251			4,964
Adjustments for:
Shadow adjustments		(2,174,866	)		(5,114,147	)		(3,001,532	)
Deferred taxes		(533,407	)		(1,194,981	)		(1,002,627	)
Net unrealized gains	$	990,611			2,219,249			1,878,677

The amortized cost and fair value ofavailable-for-salefixed-maturity securities at December 31, 2013, by contractual maturity, are shown below:

	Amortized cost		Fair value
Available-for-sale fixed-maturity securities:
Due in one year or less	$	1,211,284		1,241,135
Due after one year through five years		9,976,377		10,992,907
Due after five years through ten years		18,583,011		19,365,467
Due after ten years		21,254,680		22,264,708
Mortgage-backed securities and collateralized mortgage obligations		11,681,056		12,539,505
Total available-for-sale fixed-maturity securities	$	62,706,408		66,403,722

The amortized cost and fair value ofheld-to-maturityfixed-maturity securities at December 31, 2013, by contractual maturity, are shown below:

	Amortized cost		Fair value
Held-to-maturity fixed-maturity securities:
Due after one year through five years	$	110		129
Due after ten years		220,642		219,387
Total held-to-maturity fixed-maturity securities	$	220,752		219,516

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 offixed-maturity securities with rights to call or prepay without penalty is $18,866,913 as of December 31, 2013.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

191

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Proceeds from sales ofavailable-for-sale and trading investments for the years ended December 31 are presented in the following table:

	2013		2012		2011
Available-for-sale:
Fixed-maturity securities:
Proceeds from sales	$	2,503,974		3,156,402		3,652,020
Equity securities:
Proceeds from sales		134,400		348,635		4,884
Trading:
Fixed-maturity securities:
Proceeds from sales		—		—		127,704
Equity securities:
Proceeds from sales		46,109		17,180		2,026

As of December 31, 2013 and 2012, investments with a carrying value of $54,479 and $49,019, respectively, were held on deposit with various insurance departments and in other trusts as required by statutory regulations.

The Company’savailable-for-sale and tradingfixed-maturity security portfolios includemortgage-backed securities and collateralized mortgage obligations. Due to the high quality of these investments and the lack of subprime loans within the securities, the Company does not have a material exposure to subprime mortgages.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

192

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Unrealized Investment Losses

Unrealized losses onavailable-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
2013:
Fixed-maturity securities, available- for- sale:
U.S. government	$	406,462		2,334		4,404		744		410,866		3,078
U.S. government agency		688		13		—		—		688		13
States and political subdivisions		1,847,094		113,718		38,616		5,820		1,885,710		119,538
Foreign government		2,244		156		—		—		2,244		156
Public utilities		480,124		19,904		27,946		4,048		508,070		23,952
Corporate securities		8,969,453		437,577		309,527		32,581		9,278,980		470,158
Mortgage-backed securities		902,186		19,735		4,295		176		906,481		19,911
CMOs		—		—		—		—		—		—
CDOs		20,064		105		—		—		20,064		105
Total temporarily impaired securities	$	12,628,315		593,542		384,788		43,369		13,013,103		636,911
2012:
Fixed-maturity securities, available- for- sale:
U.S. government	$	95,094		2,054		—		—		95,094		2,054
States and political subdivisions		228,424		5,339		—		—		228,424		5,339
Public utilities		16,817		253		8,266		485		25,083		738
Corporate securities		764,119		15,946		220,463		16,644		984,582		32,590
Mortgage-backed securities		27,618		246		20		—		27,638		246
CMOs		607		15		—		—		607		15
CDOs		4,613		94		—		—		4,613		94
Total temporarily impaired securities	$	1,137,292		23,947		228,749		17,129		1,366,041		41,076

All unrealized losses onheld-to-maturity investments have existed for less than 12 months.

As of December 31, 2013 and 2012, there were 993 and 111available-for-sale investment holdings that were in an unrealized loss position forfixed-maturity securities.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

193

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

As of December 31, 2013 and 2012, of the total amount of unrealized losses, $587,100 or 92.2% and $23,413 or 57.0%, respectively, are related to unrealized losses on investment grade securities. Investment grade is defined as a security having a credit rating of Aaa, Aa, A, or Baa from Moody’s or a rating of AAA, AA, A, or BBB from Standards and Poor’s (S&P), or a NAIC rating of 1 or 2 if a Moody’s or S&P rating is not available. Unrealized losses on securities are principally related to changes in interest rates or changes in sector spreads from the date of purchase. As contractual payments continue to be met, management continues to expect all contractual cash flows to be received. As mentioned in note 2, the Company reviews these securities regularly to determine whether or not declines in fair value are other than temporary. Further, as the Company neither has an intention to sell, nor does it expect to be required to sell the securities outlined above, the Company did not consider these investments to beother-than-temporarily impaired.

OTTI Losses

The following table presents a rollforward of the Company’s cumulative credit impairments onfixed-maturity securities held at December 31:

	2013			2012
Balance as of January 1	$	60,128			60,620
Additions for credit impairments recognized on (1):
Securities not previously impaired		1,870			28,768
Securities previously impaired		91			—
Securities that the Company intends to sell or more likely than not be required to sell before recovery (interest)		13,087			—
Reductions for credit impairments previously on:
Securities that matured, were sold, or were liquidated during the period		(29,454	)		(29,260	)
Securities due to an increase in expected cash flows		—			—
Balance as of December 31	$	45,722			60,128

(1) There were $15,048 and $28,768 of additions included in the net OTTI losses recognized in realized investment gains, net in the Consolidated Statements of Operations for the years ended December 31, 2013 and 2012, respectively.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

194

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Realized Investment Gains (Losses)

Gross and net realized investment gains (losses) for the years ended December 31, are summarized as follows:

	2013			2012			2011
Available-for-sale:
Fixed-maturity securities:
Gross gains on sales and exchanges	$	160,091			294,642			179,387
Gross losses on sales and exchanges		(36,798	)		(52,449	)		(65,414	)
OTTI		(14,957	)		(10,506	)		(21,074	)
Net gains on fixed-maturity securities		108,336			231,687			92,899
Equity securities:
Gross gains on sales		—			11,972			—
Gross losses on sales		—			(562	)		(227	)
Net gains (losses) on equity securities		—			11,410			(227	)
Net gains on available-for-sale securities		108,336			243,097			92,672
Held-to-maturity:
Gross gains on exchanges		44,179			1,342			9,767
Gross losses on exchanges		(11	)		—			—
OTTI		(91	)		(18,262	)		(413	)
Net gains (losses) on held-to-maturity securities		44,077			(16,920	)		9,354
Benefit (provision) for mortgage loans on real estate		18,500			(10,232	)		32,325
Gains (losses) for mortgage loans on real estate		4,929			—			(1,580	)
Investment in affiliates		11,810			—			—
(Loss) gain on real estate sales		(29	)		—			(19,396	)
Impairments on real estate		—			(4,538	)		—
Net gains on sales of acquired loans		674			5,154			—
Other		—			11,140			18
Net realized investment gains	$	188,297			227,701			113,393

The 2013 realized gain on investment in affiliates is related to the disposal of a subsidiary. The 2013 realized gain for mortgage loans on real estate is a result of the sale of certain loans to two subsidiary companies of AZOA.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

195

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Interest and Similar Income

Major categories of interest and similar income, net, for the respective years ended December 31 are shown below:

	2013		2012		2011
Interest and similar income:
Available-for-sale fixed-maturity securities	$	3,185,680		3,210,655		3,082,859
Mortgage loans on real estate		367,196		367,506		357,394
Investment income (loss) on trading securities		9,735		4,624		(606	)
Held-to-maturity fixed-maturity securities		26,781		38,618		72,933
Rental income on real estate		1,462		2,943		19,662
Interest on loans to affiliates		1,549		2,614		8,435
Interest on acquired loans		27,817		31,085		1,127
Interest rate swaps		697		3,314		17,755
Other invested assets		196		72		1,019
Policy loans		10,461		10,177		11,005
Short-term securities		5,575		4,872		4,380
Interest on assets held by reinsurers		2,915		3,043		3,162
Total		3,640,064		3,679,523		3,579,125
Less investment expenses		47,947		47,117		59,109
Total interest and similar income, net	$	3,592,117		3,632,406		3,520,016

Mortgage Loans

The Company’s investment in mortgage loans on real estate at December 31 is summarized as follows:

	2013			2012
Mortgage loans on real estate:
Commercial	$	6,200,697			6,129,542
Residential		578			1,042
Valuation allowances		(66,750	)		(85,250	)
Total mortgage loans on real estate	$	6,134,525			6,045,334

At December 31, 2013, mortgage loans on real estate in California and Texas exceeded the 10% concentration level by state with concentrations of 30.8% or $1,910,426, and 12.2% or $755,664, respectively. At December 31, 2012, mortgage loans on real estate in California and Texas exceeded the 10% concentration level by state with concentrations of 34.8% or $2,118,998, and 13.0% or $791,739, respectively.

Interest rates on investments in new mortgage loans ranged from a minimum of 3.3% to a maximum of 5.7%.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

196

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The valuation allowances on mortgage loans on real estate at December 31 and the changes in the allowance for the years then ended are summarized as follows:

	2013			2012		2011
Balance, beginning of year	$	85,250			75,018		107,343
(Benefit) provision charged to operations		(18,500	)		10,232		(32,325	)
Balance, end of year	$	66,750			85,250		75,018

In 2013, the decrease to the valuation allowance on mortgage loans is a result of the Company reducing a specific reserve on one mortgage loan in the amount of $13,500 related to a change in the estimate of realizable value of the underlying collateral. The Company also reevaluated the allowance related to the remainder of the mortgage loan portfolio during 2013, which resulted in a reduction of the provision of $5,000.

In 2012, the increase to the valuation allowance on mortgage loans is a result of the Company establishing a specific reserve on one mortgage loan in the amount of $40,250. The Company also reevaluated the allowance related to the remainder of the mortgage loan portfolio during 2012, which resulted in a reduction of the provision of $30,018.

In 2011, the decrease in the valuation allowance on mortgage loans on real estate was a result of the Company reevaluating its mortgage loan portfolio. As indicated in note 2, Management assesses the valuation allowance on an annual basis.

During 2010, the Company closed on a deed in lieu of foreclosure for a mortgage loan on real estate. The Company sold the property in 2011, resulting in a gain of $7,078, which is reported within realized investment gains, net on the Consolidated Statements of Operations.

Securities Lending

The Company had fair value of securities on loan of $1,754,187 and $821,782, infixed-maturity securities, on the Consolidated Balance Sheets, and held collateral in the amounts of $1,824,788 and $854,424, in cash and cash equivalents, on the Consolidated Balance Sheets as of December 31, 2013 and 2012, respectively.

Variable Interest Entities

In the normal course of business, the Company enters into relationships with various entities that are deemed to be variable interest entities (VIE). A VIE is an entity that either (1) has equity investors that lack certain essential characteristics of a controlling financial interest (including the ability to control activities of the entity, the obligation to absorb the entity’s expected losses, and the right to receive the entity’s expected residual returns) or (2) lacks sufficient equity to finance its own activities without financial support provided by other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE.

The Company’sheld-to-maturity collateralized debt obligations (CDOs) were purchased in 2009 and represent interests in VIEs. The CDOs exist for the sole purpose of acquiring and managing a diversified portfolio ofasset-backed and synthetic securities and are funded by the issuance of several tranches of funding notes. The CDOs, which are primarily the highest ranking debt tranches of each respective deal, contain similar features. There are several classes of notes, which include a structure that subordinates one note to another. Priorities of payment provide that the most senior classes of notes are paid first. Each CDO trust holds investments in eligible assets, which generally include creditasset-backed securities,mortgage-backed securities, default swaps/synthetic CDOs, other CDOs, and otherasset-backed securities. These assets have a concentration in subprimemortgage-backed securities. Each CDO also contains tests, which, if failed, will result in cash payments that would normally be directed to a junior class of note holders, be redirected to the most senior class of note holders. The CDOs contain call features that may be exercised if requested by the appropriate class of note and if other criteria required by the CDO documents are met.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

197

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

In addition, the Company invests in structured securities including VIEs. These structured securities typically invest infixed-income investments managed by third parties and includemortgage-backed securities, collateralized mortgage obligations, and other CDOs.

The Company has carefully analyzed the VIEs to determine whether the Company is the primary beneficiary, taking into consideration whether the Company, or the Company together with its affiliates, has the power to direct the activities of the VIE, that most affect its economic performance and whether the Company has the right to benefits from the VIE. Based on that analysis, the Company has concluded that it is not the primary beneficiary and, as such, did not consolidate any VIEs in the Consolidated Financial Statements. The CDOs are classified asfixed-maturity securities,held-to-maturity on the Consolidated Balance Sheets and reported at amortized cost. The other structured securities are classified asfixed-maturity securities,available-for-sale on the Consolidated Balance Sheets and reported at fair value, or acquired loans and reported at amortized cost. The Company’s maximum exposure to loss from these entities is limited to their carrying value. The Company has not provided, and has no obligation to provide, material, financial, or other support that was not previously contractually required to these entities. The Company had no liabilities recorded as of December 31, 2013 or 2012 related to these entities.

During 2013, the Company issued an acceleration direction to the trustee of one of the Company’s CDOs. The trustee then issued a notice of acceleration to the noteholders and beneficial owners notifying them that the principal and all accrued and unpaid interest on the notes are immediately due and repayable. As a result of this acceleration the underlying collateral was sold at auction. The Company received cash of $253,125 for securities with a book value of $208,946 resulting in a realized gain of $44,179.

During 2011, the Company issued an acceleration direction to the trustee of one of the Company’s CDOs. The trustee then issued a notice of acceleration to the noteholders and beneficial owners notifying them that the principal and all accrued and unpaid interest on the notes are immediately due and repayable. As a result of this acceleration, the Company exchanged its interest in the CDO for a portion of the underlying collateral. The Company exchanged CDOs with a book value of $380,460 for collateral of $390,227 resulting in a realized gain of $9,767.

Prepaid Forward Agreement

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 prior to January 12, 2009, 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 Dresdner Bank Luxembourg, a wholly owned subsidiary of Dresdner Bank Aktiengesellschaft (Dresdner Bank). On January 12, 2009, Allianz SE closed the sale of 100% of Dresdner Bank, including its subsidiaries, to Commerzbank AG. All financial activity with Dresdner Bank, including its subsidiaries, is recorded or disclosed in the Consolidated Financial Statements as nonaffiliated.

The effect of the forward agreement was a Reference Portfolio whereby DKPII designated a portfolio of assets in accordance with preestablished investment guidelines. The net value of this agreement was $629,127 as of December 31, 2011. In January 2012, Commerzbank AG delivered common stock of DKPII, to AZLPF, Inc. in fulfillment of its obligations under the prepaid forward contract.

A preferred stock liability of $32,195 was recorded at December 31, 2013 and 2012, representing Commerzbank AG’s share, and is reported in other liabilities on the Consolidated Balance Sheets.

At December 31, 2013, the remaining assets of DKPII, in addition to its investment in its subsidiary, Allianz Fund Investments (AFI), are primarily invested intax-exempt municipal bonds, reported infixed-maturity securities,available-for-sale on the Consolidated Balance Sheets. These securities are accounted for consistent with the Company’s otheravailable-for-sale investments.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

198

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(5) Derivatives and Hedging Instruments

The Company uses derivatives as a risk management strategy to hedge its exposure to various market risks associated with both its products and operations. Derivative assets and liabilities are recorded at fair value in the Consolidated Financial Statements using valuation techniques further discussed in note 6.

Each derivative is designated by the Company as either a cash flow hedging instrument (cash flow hedge) or not qualified as a hedging instrument (nonqualifying strategies).

Cash Flow Hedges

Interest rate swaps are used by the Company to hedge against the changes in cash flows associated with variable interest rates on certain underlyingfixed-maturity securities. The interest rate swaps have notional amounts and maturity dates equal to the underlyingfixed-maturity securities and are deemed to be 100% effective as of December 31, 2013 and 2012. The cumulative amount of unrealized gains and losses on the effective portion of the interest rate swaps is recorded as a component of total other comprehensive income in the Consolidated Statements of Comprehensive Income.

The following table presents the components of the gains or losses related to derivatives that qualify as cash flow hedges:

Derivatives designated as	Amount of (losses) gains recognized at December 31
cash flow hedging instruments	2013			2012			2011
Interest rate swaps, net of tax (benefit) expense of ($238), ($950), and ($6,542), at December 31, 2013, 2012, and 2011, respectively	$	(443	)		(1,763	)		(12,149	)

At December 31, 2013, the Company does not expect to reclassify any pretax gains or losses on cash flow hedges into earnings during the next 12 months. Recurring interest income earned is recorded in interest and similar income, net in the Consolidated Statements of Operations. The Company has estimated $697 of interest income will be earned in 2014 from the interest rate swaps. In the event that cash flow hedge accounting is no longer applied because the derivative is no longer designated 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.

Nonqualifying Strategies

Option Contracts

The Company utilizes OTC options and ETOs with the objective to economically hedge certainfixed-indexed annuity and life products tied to certain indices as well as certain variable annuity guaranteed benefits. These options are not used for speculative or income generating purposes. The ETOs provide the Company flexibility to use instruments, which areexchange-cleared and allow the Company to mitigate counterparty credit risk. These options are cleared through the Options Clearing Corporation (OCC), which operates under the jurisdiction of both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). The credit rating on the OCC is currently AA+ from S&P.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

199

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

As of December 31, the Company held options purchased (asset) and options sold (liability) with the following amortized cost basis, fair value, and notional amounts:

	2013		2012
Options:
Purchased (asset):
Amortized cost	$	397,427		360,834
Fair value		603,043		288,296
Notional		29,396,102		19,359,512
Sold (liability):
Basis	$	305,781		126,873
Fair value		415,813		78,060
Notional		25,178,432		13,969,973

Futures

The Company utilizes futures to economically hedgefixed-indexed annuity, life, and variable annuity guarantees. The futures contracts do not require an initial investment except for the initial margin described below and the Company is required to settle cash daily based on movements of the representative index, therefore, no asset or liability is recorded as of December 31, 2013 and 2012. Futures contracts are also utilized to hedge the investment risk associated with seed money.

The Company is required to post collateral as initial margin for futures contracts by the Chicago Mercantile Exchange, Chicago Board of Trade, London International Financial Futures Exchange, and the Eurex. 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, 2013 and 2012, had a fair value of $826,227 and $412,078, respectively, and is included infixed-maturity securities on the Consolidated Balance Sheets.

Interest Rate Swaps

The Company utilizes interest rate swaps to economically hedge certain variable annuity guarantee benefits. The Company can receive the fixed or variable rate. The interest rate swaps are traded in10-,20-, and30-year maturities. The Company will only enter into OTC interest rate swap contracts with counterparties ratedA- or better. Typically, the Company transacts with the same counterparties the OTC options are traded. The interest rate swap exposure can be netted with the OTC option for settlement and is subject to the rules of the International Swaps and Derivatives Association, Inc. agreements. See the option contracts section of this note for collateral management.

Total Return Swaps

The Company engages in the use of OTC TRS, which allow the parties to exchange cash flows based on a variable reference rate such as thethree-month LIBOR and the return of an underlying index. The Company uses the TRS with the intent to economically hedgefixed-indexed annuity and variable annuity guarantees.

Currency Swaps

The Company utilized currency swaps in an attempt to hedge the economic currency exposure ofEuro-denominated German Pfandbriefe in connection with the prepaid forward agreement discussed previously. Pfandbriefe are covered bonds issued by European banks and collateralized by pools of German mortgages. The net effect is a credit exposure to German Pfandbriefe and an income stream of U.S. dollar. The Pfandbriefe were all sold during 2012 and the related swaps were settled.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

200

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Stock Appreciation Rights

The Company also enters into contracts with Allianz SE with the objective to economically hedge risk associated with the Allianz SEstock-based compensation plan, which awards certain employees stock appreciation rights (SARs). The contracts are recorded at fair value within derivatives on the Consolidated Balance Sheets with the change in fair value recorded in change in fair value of assets and liabilities on the Consolidated Statements of Operations. As of December 31, 2013 and 2012, the Company owned 193,249 and 183,889 contracts with a cost of $15,018 and $12,753, respectively. See further discussion of thestock-based compensation plan in note 18.

Embedded Derivatives

The Company issues certain variable annuity products with guaranteed minimum benefit riders, including GMWB and GMAB, 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 account balances and future policy benefit reserves on the Consolidated Balance Sheets.

Certainfixed-indexed annuity products, variable annuity riders, and universal life policies include a market value liability option (MVLO), which is essentially an embedded derivative withequity-indexed features. This embedded derivative is reported within account balances and future policy benefit reserves on the Consolidated Balance Sheets with changes in fair value reported in change in fair value of annuity embedded derivatives on the Consolidated Statements of Operations.

The Company bifurcates and separately records an embedded derivative related to certain CDOs. This embedded derivative is recorded within derivatives on the Consolidated Balance Sheets, with changes in fair value reported in change in fair value of assets and liabilities on the Consolidated Statements of Operations.

Forward Commitments

The Company had previously utilized forward commitments, on a limited basis, for the generation of income through certain actively managed portfolios. Forward commitments of $0, $0, and $140,471 were settled by the Company during 2013, 2012, and 2011, respectively. There were no outstanding forward commitments reported within derivatives on the Consolidated Balance Sheets as of December 31, 2013 and 2012, respectively. Realized gains and losses on the sale of forward commitments and any change in fair value are reported within change in fair value of assets and liabilities on the Consolidated Statements of Operations.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

201

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The following table presents the balance sheet location and the fair value of the derivatives, including embedded derivatives, for both cash flow hedges and nonqualifying strategies as of December 31:

	Fair value
	2013			2012
Derivatives designated as cash flow hedging instruments
Interest rate swaps	$	1,570			2,251
Total cash flow hedging instruments		1,570			2,251
Derivatives designated as nonqualifying hedging instruments and certain hedged items, net
OTC		184,313			211,032
ETO		381			(2,572	)
SAR		2,536			1,777
GMWB		(45,772	)		(957,865	)
GMAB		(107,973	)		(345,703	)
MVLO		(11,756,097	)		(9,657,994	)
CDO embedded derivative		3,819			3,938
TRS		(24,405	)		(47,759	)
Other embedded derivative		1,903			2,526
Interest rate swaps		(730,399	)		39,131
Total nonqualifying hedging instruments		(12,471,694	)		(10,753,489	)
Total derivative instruments	$	(12,470,124	)		(10,751,238	)
Location in Consolidated Balance Sheets
Derivatives	$	831,707			490,149
Account balances and future policy benefit reserves		(11,909,842	)		(10,961,562	)
Derivative liability		(1,391,989	)		(279,825	)
Total derivative instruments	$	(12,470,124	)		(10,751,238	)

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

202

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The following table presents the gains or losses recognized in income on the various nonqualifying strategies:

Derivatives
designated as		Amount of (losses) gains on
nonqualifying hedging		derivatives recognized for the
instruments and	Location in Consolidated	years ended December 31
certain hedged item, net	Statements of Operations	2013			2012			2011
MVLO	Policy fees	$	568,744			518,420			408,196
MVLO	Policyholder benefits		10,191			(38,024	)		(185,844	)
MVLO	Change in fair value of annuity embedded derivatives		(2,677,038	)		(1,165,614	)		(798,291	)
GMWB	Change in fair value of annuity embedded derivatives		912,073			59,087			(926,603	)
GMAB	Change in fair value of annuity embedded derivatives		166,904			(33,658	)		(259,744	)
	Total change in fair value of annuity embedded derivatives		(1,598,061	)		(1,140,185	)		(1,984,638	)
OTC	Change in fair value of assets and liabilities		(479,713	)		(198,790	)		213,500
ETO	Change in fair value of assets and liabilities		(11,538	)		(119,830	)		(148,046	)
Futures	Change in fair value of assets and liabilities		1,693,399			(14,930	)		(600,321	)
SAR	Change in fair value of assets and liabilities		1,823			1,292			(938	)
CDO embedded derivative	Change in fair value of assets and liabilities		(119	)		(33	)		(128	)
Other embedded derivatives	Change in fair value of assets and liabilities		(623	)		(2,151	)		1,965
Forward commitments	Change in fair value of assets and liabilities		—			—			(473	)
Interest rate swaps	Change in fair value of assets and liabilities		(684,511	)		39,610			317,242
TRS	Change in fair value of assets and liabilities		391,726			152,174			38,346
Currency swaps	Change in fair value of assets and liabilities		—			(16,829	)		(25,471	)
	Total change in fair value of freestanding and other derivatives		910,444			(159,487	)		(204,324	)
	Total derivative loss, net	$	(108,682	)		(819,276	)		(1,966,610	)

Offsetting Assets and Liabilities

Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets under GAAP. The Company’s derivative instruments are subject to master netting arrangements and collateral arrangements. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy.

The Company’s policy is to recognize amounts subject to master netting arrangements on a gross basis on the Consolidated Balance Sheets.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

203

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The following tables present additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:

	December 31, 2013
									Gross amounts not
									offset in the Balance
									Sheet
				Gross		Net amounts
	Gross			amounts		presented						Collateral
	amounts			offset in the		in the			Financial			pledged/			Net
	recognized			Balance Sheet		Balance Sheet			instruments (1)			received			amounts
Derivative assets	$	823,449			—		823,449			(700,630	)		(103,612	)		19,207
Derivative liabilities		(1,391,989	)		—		(1,391,989	)		700,630			690,015			(1,344	)
Net derivatives	$	(568,540	)		—		(568,540	)		—			586,403			17,863
	December 31, 2012
									Gross amounts not
									offset in the Balance
									Sheet
				Gross		Net amounts
	Gross			amounts		presented						Collateral
	amounts			offset in the		in the			Financial			pledged/			Net
	recognized			Balance Sheet		Balance Sheet			instruments (1)			received			amounts
Derivative assets	$	481,908			—		481,908			(259,700	)		(220,433	)		1,775
Derivative liabilities		(279,825	)		—		(279,825	)		259,700			16,072			(4,053	)
Net derivatives	$	202,083			—		202,083			—			(204,361	)		(2,278	)

(1) Represents the amount of assets or liabilities that could be offset by liabilities or assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.

In the tables above, the gross amounts of assets or liabilities as presented in the Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(6) Fair Value Measurements

The following assets and liabilities are carried at fair value on a recurring basis in the Company’s Consolidated Financial Statements:available-for-sale and tradingfixed-maturity securities, freestanding and embedded derivatives, equity securities, and separate account assets and liabilities.

The Fair Value Measurements and Disclosures Topic of the Codification 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

(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 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. Transfers of securities among the levels occur at the beginning of the reporting period.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The following tables present the assets and liabilities measured at fair value on a recurring basis and their corresponding level in the fair value hierarchy at December 31:

	Total		Level 1		Level 2		Level 3
2013:
Assets accounted for at fair value:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,158,859		1,158,859		—		—
Agencies not backed by the full faith and credit of the U.S. government		511,829		—		511,829		—
States and political subdivisions		4,958,360		—		4,958,360		—
Foreign government		365,234		—		331,950		33,284
Public utilities		5,136,210		—		4,935,015		201,195
Corporate securities		41,676,852		—		37,949,049		3,727,803
Mortgage-backed securities		12,525,293		—		12,522,213		3,080
CMOs		14,212		—		14,212		—
CDOs		56,873		—		—		56,873
Derivative investments		831,707		1,151		821,890		8,666
Equity securities, available for sale		29,112		29,112		—		—
Equity securities, trading		227,822		206,500		21,322		—
Corporate-owned life insurance		290,752		—		290,752		—
Separate account assets		30,747,777		30,747,777		—		—
Total assets accounted for at fair value	$	98,530,892		32,143,399		62,356,592		4,030,901
Liabilities accounted for at fair value:
Derivative liabilities	$	1,391,989		770		1,361,968		29,251
Separate account liabilities		30,747,777		30,747,777		—		—
Reserves at fair value (1)		11,943,461		—		—		11,943,461
Total liabilities accounted for at fair value	$	44,083,227		30,748,547		1,361,968		11,972,712

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

	Total		Level 1		Level 2		Level 3
2012:
Assets accounted for at fair value:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,009,447		1,009,447		—		—
Agencies not backed by the full faith and credit of the U.S. government		873,624		—		873,624		—
States and political subdivisions		4,473,633		—		4,473,633		—
Foreign government		523,994		—		489,088		34,906
Public utilities		5,394,379		—		5,201,217		193,162
Corporate securities		40,937,472		—		37,435,895		3,501,577
Mortgage-backed securities		14,893,697		—		14,888,908		4,789
CMOs		17,150		—		17,150		—
CDOs		54,766		—		—		54,766
Derivative investments		490,149		2,596		479,669		7,884
Equity securities, trading		31,837		18,979		12,858		—
Separate account assets		25,670,675		25,670,675		—		—
Total assets accounted for at fair value	$	94,370,823		26,701,697		63,872,042		3,797,084
Liabilities accounted for at fair value:
Derivative liabilities	$	279,825		5,167		222,953		51,705
Separate account liabilities		25,670,675		25,670,675		—		—
Reserves at fair value (1)		10,961,562		—		—		10,961,562
Total liabilities accounted for at fair value	$	36,912,062		25,675,842		222,953		11,013,267

(1) Reserves at fair value are reported in account balances and future policy benefit reserves on the Consolidated Balance Sheets.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The following is a discussion of the methodologies used to determine fair values for the assets and liabilities listed in the above table. These fair values represent an exit price (i.e., what a buyer in the marketplace would pay for an asset in a current sale or charge to transfer a liability).

(a) Valuation ofFixed-Maturity Securities and Equity Securities

The fair value offixed-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 some cases, including private placement securities and certaindifficult-to-price securities, internal pricing models may be used that are based on market proxies.

Generally, Treasury securities andexchange-traded stocks are included in Level 1. Most bonds for which prices are provided bythird-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.

The Company is responsible for establishing and maintaining an adequate internal control structure to prevent or detect material misstatements related to fair value measurements and disclosures. This responsibility is especially important when using third parties to provide valuation services.

The Company’s control framework aroundthird-party valuations begins with obtaining an understanding of the pricing vendor’s methodologies. A pricing committee is in place that meets quarterly to establish and review a pricing policy, which includes approving any changes to pricing sources, assessing reasonableness of pricing services, and addressing any ad hoc valuation issues that arise. The pricing methodologies used by the service providers and internal control reports provided by the service providers are reviewed by management.

In addition to monitoring thethird-party vendor’s policies, the Company is also responsible for monitoring the valuation results. Controls are in place to monitor the reasonableness of the valuations received. These controls include price analytic reports that monitor significant fluctuations in price as well as an independent price verification process by which the Company obtains prices from vendors other than the primary source and compares them for reasonableness. Results of the independent price verification are also reviewed by the Pricing Committee.

There are limited instances in which the primarythird-party vendor is not used to obtain prices for fixed maturity securities. These instances include private placement securities, a portfolio of securities received during 2011 as a result of the liquidation of a CDO, and certain other immaterial portfolios priced by a secondary external vendor.

At December 31, 2013 and 2012, private placement securities of $3,902,925 and $3,722,038, respectively, were included in Level 3. Internal pricing models based on market proxy securities and U.S. Treasury rates, which are monitored monthly by the investment manager for reasonableness, are used to value these holdings. This includes ensuring there are no significant credit events impacting the proxy security and that the spreads used are still reasonable under the circumstances.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The portfolio of securities received as a result of liquidating a CDO were priced using a combination ofthird-party vendors and cash flow modeling. The methodology used is dependent on the availability of observable inputs. Prices are reviewed for reasonableness by reviewing cash flow projections, related yields on similar securities, and comparison to auction prices and other expectations. The securities are reviewed by Management via the Company’s Pricing Committee.

(b) Valuation of Derivatives

The fair value of OTC option assets and liabilities 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, because active markets do not exist. The valuation results are reviewed by Management via the Pricing Committee. Options that are internally priced and interest rate swaps are included in Level 2, because they use market observable inputs. TRS are included in Level 3 because they use valuation techniques in which significant inputs are unobservable. The fair value of ETOs and futures is based on quoted market prices and are generally included in Level 1.

Certain derivatives are priced using externalthird-party vendors. The Company has controls in place to monitor the valuations of these derivatives. Using market observable inputs, interest rate swap prices are derived from athird-party source and are independently recalculated internally and reviewed for reasonableness at the position level on a monthly basis. TRS prices are obtained from the respective counterparties. These prices are also internally recalculated and reviewed for reasonableness at the position level on a monthly basis.

(c) Valuation of Separate Account Assets and Liabilities

Separate account assets are carried at fair value, which 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 investments held by the Company in the general account (e.g., if the separate account invested in corporate bonds or otherfixed-maturity securities, that portion could be considered a Level 2 or Level 3). In accordance with the Financial Services – Insurance Topic of the Codification, the fair value of separate account liabilities is set to equal the fair value of separate account assets.

(d) Valuation of Reserves at Fair Value

Reserves at fair value principally include theequity-indexed features contained infixed-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 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.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The fair value of the embedded derivative contained in thefixed-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 historicalinterest/equity-indexed credits. The valuation of the embedded derivative includes an adjustment for the Company’s own credit standing and a risk margin for noncapital 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 noncapital 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 contractholder behavior and risk margin related to noncapital market inputs may result in significant fluctuations in the fair value of these embedded derivatives that could materially affect net income.

The Company issues certain variable annuity products with guaranteed minimum benefit riders, including 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 reserves at fair value on the Consolidated Statements of Operations. These embedded derivatives are classified within account balances and 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 LIBOR. These cash flows are then discounted using the current month’s LIBOR plus a company specific spread. In 2012 and prior years, these cash flows were discounted using the U.S. Treasury rate plus a company specific spread. The valuation of these riders includes an adjustment for the Company’s own credit standing and a risk margin for noncapital 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 noncapital 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 contractholder behavior and risk margins related to noncapital market inputs may result in significant fluctuations in the fair value of the riders that could materially affect net income.

The Company elected the fair value option for certain insurance contracts related to the variable index annuity product. The fair value is calculated internally using the present value of future expected cash flows. Future expected cash flows are generated using contractual features, actuarial assumptions, and market emergence over a complete set of market consistent scenarios. Cash flows are then averaged over the scenario set and discounted back to the valuation date using the appropriate discount factors adjusted for nonperformance risk on the noncollateralized portions of the contract.

The Company also has an embedded derivative asset related to a modified coinsurance agreement with Transamerica, which is reported within derivatives on the Consolidated Balance Sheets. This agreement results in a credit derivative, with a fair value based on the difference between the LIBOR and CorporateA- spread as of an average portfolio purchase date. The asset is included in Level 2 as the valuation uses market observable inputs. This derivative is on a closed block of business and is not significant to the ongoing results of the Company.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(e) Level 3 Rollforward

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:

																						Realized
																						gains (losses)
																						included
																						in net
																						income
				Total realized/unrealized																		related to
				gains (losses) included in																		financial
							Other			Purchases			Sales			Transfer into						instruments
	Beginning						comprehensive			and			and			and/or out of			Ending			still held at
	balance			Net income			income (loss)			issuances			settlements			Level 3, net			balance			December 31
2013:
Fixed-maturity securities:
Available-for-sale:
Foreign government	$	34,906			—			(1,622	)		—			—			—			33,284			—
Public utilities		193,162			—			(10,278	)		68,300			(679	)		(49,310	)		201,195			—
Corporate securities		3,501,577			3,344			(237,236	)		549,744			(89,626	)		—			3,727,803			140
CDOs		54,766			2,009			6,413			—			(6,316	)		—			56,872			1,984
Mortgage-backed securities		4,789			91			68			—			(1,868	)		—			3,080			86
Total fixed-maturity securities	$	3,789,200			5,444			(242,655	)		618,044			(98,489	)		(49,310	)		4,022,234			2,210
Derivative assets	$	7,884			593,079			—			—			(592,297	)		—			8,666			782
Derivative liabilities		(51,705	)		(242,038	)		—			—			264,492			—			(29,251	)		22,453
Reserves at fair value		(10,961,562	)		(1,015,824	)		—			(1,232,687	)		1,266,612			—			(11,943,461	)		(2,248,511	)

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

																						Realized
																						gains (losses)
																						included
																						in net
																						income
				Total realized/unrealized																		related to
				gains (losses) included in																		financial
							Other			Purchases			Sales			Transfer into						instruments
	Beginning						comprehensive			and			and			and/or out of			Ending			still held at
	balance			Net income			income (loss)			issuances			settlements			Level 3, net			balance			December 31
2012:
Fixed-maturity securities:
Available-for-sale:
Foreign government	$	32,382			—			2,524			—			—			—			34,906			—
Public utilities		58,796			—			11,366			123,000			—			—			193,162			—
Corporate securities		2,523,244			670			136,784			862,500			(21,621	)		—			3,501,577			341
CDOs		66,958			2,899			1,638			—			(16,729	)		—			54,766			2,268
Mortgage-backed securities		69,189			262			(24	)		—			(1,749	)		(62,889	)		4,789			262
Total fixed-maturity securities	$	2,750,569			3,831			152,288			985,500			(40,099	)		(62,889	)		3,789,200			2,871
Derivative assets	$	70,145			512,096			—			—			(574,357	)		—			7,884			(57,935	)
Derivative liabilities		(7,059	)		(408,325	)		—			—			363,679			—			(51,705	)		(44,646	)
Reserves at fair value		(10,612,779	)		(793,258	)		—			(1,143,374	)		1,587,849			—			(10,961,562	)		1,936,632

(f) 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 observable or 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 into and/or out of Levels 1, 2, and 3 are reported as of the beginning of the period in which the change occurs.

The net transfers out of Level 3 for the years ended December 31, 2013 and 2012, are a result of observable inputs being used for certainfixed-maturity securities There were no transfers between Level 1 and Level 2 for the year ended December 31, 2013.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(g) Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs

The following table provides a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities on a recurring basis at December 31:

	Fair			Valuation	Unobservable	Range (weighted
	value			Technique	input	average)
2013:
Fixed-maturity securities:
Available-for-sale:
Foreign government	$	33,284		Matrix pricing	Option adjusted spread	160–164 (161)
Public utilities		201,195		Matrix pricing	Option adjusted spread	72–311 (176)
Corporate securities		3,727,803		Matrix pricing	Option adjusted spread	30–486 (177)
CDOs		56,873		Intex discounted	Constant prepayment rate	0–25.0% (0.7%)
				cash flows	Annual default rate	0.5–62.5% (5.1%)
					Loss severity	10–80.0% (56.1%)
					Delinquencies	0–32.0% (1.0%)
					Discount Margin to LIBOR	1.7–10.7% (5.4%)
Mortgage-backed securities		3,080		Intex discounted	Constant prepayment rate	1.5–2.0% (2.0%)
				cash flows	Annual default rate	15.0–90.0% (20.0%)
					Loss severity	55.0–70.0% (57.6%)
					Delinquencies	5.0–30.0% (16.8%)
					Discount Margin to LIBOR	4.2–4.2% (4.2%)
Derivative assets:
TRS	$	4,847		Third-Party Vendor	Spread and discount rates	*
CDO embedded derivative		3,819		Discounted cash flow	Prepayment rates	*
Derivative liabilities:
TRS		(29,251	)	Third-Party Vendor	Spread and discount rates	*

	Fair			Valuation	Unobservable	Range (weighted
	value			Technique	input	average)
Reserves at Fair Value:
MVLO	$	(11,756,097	)	Discounted cash flow	Annuitizations	0–25%
					Surrenders	0–25%
					Mortality**	0–100%
					Withdrawal Benefit Election	0–50%
GMWB and GMAB		(153,745	)	Discounted cash flow	Surrenders	0.5–35%
					Mortality**	0–100%

* Management does not have insight into the specific assumptions used. See narrative below for qualitative discussion.

** Mortality assumptions are derived by applying management determined factors to the Annuity 2000 Mortality Table for MVLO and actively issued GMWB and GMAB and the 1994 MGDB Mortality Table for all other GMWB and GMAB.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(h) Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs

Fixed-maturity securities matrix pricing:The primary unobservable input used in the matrix pricing model is a benchmark security option adjusted spread (OAS), which is applied to an OAS ratio. A significant yield increase of the benchmark security OAS in isolation could result in a decreased fair value, while a significant yield decrease in OAS could result in an increased fair value.

Fixed-maturity securities and CDO embedded derivative discounted cash flows:A significant increase (decrease) in the prepayment rates could result in an increase (decrease) in fair value. A significant decrease (increase) in default rates or loss severity could result in an increase (decrease) in fair value. A significant widening of the spread in isolation could result in a decreased fair value, while significant spread tightening could result in an increased fair value.

Derivative assets and liabilities:The TRS are priced by athird-party vendor and the Company internally reviews the valuation for reasonableness. The Company does not have insight into the specific inputs used; however, the key unobservable input would generally include the spread. For a long position, a significant increase (decrease) in the spread used in the fair value of the TRSs in isolation could result in higher (lower) fair value. For a short position, a significant increase (decrease) in the spread used in the fair value of the TRSs in isolation could result in lower (higher) fair value.

Reserves at fair value:A significant increase (decrease) in the utilization of annuitization benefits could result in a higher (lower) fair value. A significant decrease (increase) in mortality rates, surrender rates, or utilization of lifetime income benefits could result in a higher (lower) fair value.

(i) Nonrecurring Fair Value Measurements

Occasionally, certain assets and liabilities are measured at fair value on a nonrecurring basis. In 2013, no nonrecurring fair value adjustments were recorded. In 2012, an impairment of $4,538, was recorded on real estate held for sale. This real estate property was transferred from held for investment to held for sale on 2012 and is recorded within other assets on the Consolidated Balance Sheets. In 2011, an impairment of $413 was recorded on a CDO and an impairment of $1,580 was recorded on a mortgage loan on real estate. In 2010, an impairment of $5,000 was recorded associated with a mortgage loan on real estate, and an additional $2,167 loss was incurred upon its final disposition. The impairment was based on the appraisal value of the underlying property that is an input classified as Level 3 in the hierarchy. On February 12, 2010, the Company closed on a deed in lieu of foreclosure related to this mortgage loan on real estate and the impaired value of $50,500 was transferred to real estate. This real estate was sold during 2011 for a gain of $7,078.

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NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(j) 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:

	2013
	Carrying		Fair value
	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Held-to-maturity fixed-maturity securities	$	220,752		—		—		219,516		219,516
Mortgage loans on real estate		6,134,525		—		—		6,554,054		6,554,054
Loans to affiliates		1,191,170		—		1,191,170		—		1,191,170
Policy loans		158,217		—		158,217		—		158,217
Acquired loans		205,131		—		162,320		85,238		247,558
Other invested assets		50,046		—		—		50,046		50,046
Financial liabilities:
Investment contracts	$	71,735,796		—		—		72,477,568		72,477,568
Mortgage notes payable		99,210		—		—		112,884		112,884

	2012
	Carrying		Fair value
	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Held-to-maturity fixed-maturity securities	$	475,074		—		—		486,715		486,715
Mortgage loans on real estate		6,045,334		—		—		6,773,362		6,773,362
Loans to affiliates		28,725		—		—		29,720		29,720
Policy loans		163,768		—		163,768		—		163,768
Acquired loans		216,062		—		204,632		35,365		239,997
Real Estate—held for sale		15,500		—		15,500		—		15,500
Other invested assets		23,262		—		—		23,262		23,262
Financial liabilities:
Investment contracts	$	69,286,685		—		—		70,143,265		70,143,265
Mortgage notes payable		105,858		—		—		129,065		129,065

The Company has portfolios of certainfixed-maturity securities classified as“held-to-maturity,” and accordingly, the securities are carried at amortized cost on the Consolidated Balance Sheets. The fair value is calculated internally with cash flow models using unobservable inputs and is categorized as Level 3.

The fair value of mortgage loans on real estate is calculated by analyzing individual loans and assigning ratings to each loan based on a combination ofloan-to-value ratios and debt service coverage ratios. Default rates and loss severities are then applied to each loan and a fair value is determined based on these factors as well as the contractual cash flows of each loan and the current market interest rates for similar loans. The inputs used are unobservable and the fair value is classified as Level 3.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

In 2013, the fair value of loans to affiliates balance comprises investments in a cash pool managed by Allianz SE (Cash Pool). The Cash Pool does not carry a quoted market price and investment access is limited to entities within the Allianz SE holding company structure. However, the Cash Pool comprises various short term investments whose fair value is based on market observable inputs. Therefore, fair value is classified as Level 2.

In 2012 and prior years, the fair value of loans to affiliates was calculated by management using the market price of a financial instrument with similar characteristics. Prices for loans to affiliates were provided via an internal model, using observable inputs, including the treasury spot curve rate and corporate market spread data. The fair value was, therefore, classified as Level 3. Policy loans, which are supported by the underlying cash value of the policies, are carried at unpaid principal balances, which approximate fair value. Therefore, fair value is classified as Level 2.

During 2011, the Company acquired a portfolio of assets as part of the liquidation of a CDO investment. A portion of these acquired assets have deteriorated credit quality and are recorded as acquired loans. Acquired loans are initially recorded at fair value, and changes in expected cash flows are recorded as adjustments to accretable yield, to the carrying amount, or both. Fair values are obtained using a combination ofthird-party vendors cash flow modeling, and matrix pricing with unobservable inputs. Prices obtained from third parties are Level 2, modeled and matrix priced are Level 3.

Real estate held for sale was transferred from held for investment in December 2012. The real estate has been adjusted to the lower of cost or fair value, less cost to sell. The real estate is classified as Level 2 because a purchase agreement from athird-party market participant exists for its sale. The purchase agreement is considered an observable market input.

Other invested assets relate to an investment in FHLB stock, certain loan receivables, and miscellaneous partnership investments. The loan receivables and partnership investments are carried at cost, and are classified as Level 3 because there is no active market and the fair value is not readily determinable. The FHLB investment is carried at cost, which approximates fair value and is classified as Level 3 due to transfer restrictions and lack of liquidity. The Company held FHLB stock of $30,000 and $10,000 at December 31, 2013 and 2012, respectively.

Investment contracts include certain reserves related to deferred annuity products. These reserves are included in the account balances and future policy benefit on the Consolidated Balance Sheets. The fair values of the 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 noncapital market inputs. During 2013, the Company entered into a funding agreement with a balance of $500,000 and collateral of $598,671 at December 31, 2013.

The fair value of mortgage notes payable is the sum of the outstanding balance of the note payable plus the expected prepayment penalty due to the lender if the Company were to prepay the mortgage. The Company believes this approximates fair value, as the calculation of the prepayment penalty is based on current market interest rates and represents lost interest to the lender. The penalty is based on specific provisions provided by the lender, which is an unobservable input; therefore, the liability is classified as Level 3.

Changes in market conditions subsequent toyear-end may cause fair values calculated subsequent toyear-end to differ from the amounts presented herein.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(7) Financing Receivables

The Company’s financing receivables comprise mortgage loans, nontrade receivables, and loans to affiliates. Mortgage loans consist of the unpaid balance of mortgage loans on real estate. Nontrade receivables are amounts for policy or contract premiums due from the agents andbroker-dealers, or amounts due from reinsurers. Loans to affiliates are loans that are intended to meet certain financial objectives of the Company, AZOA, and Allianz SE. The mortgage loans are evaluated on a collective basis for impairment unless circumstances arise that warrant individual evaluation. The nontrade receivables include some receivables evaluated on a collective basis, and some evaluated individually. The loans to affiliates are evaluated individually and do not require an allowance to be recorded as of December 31, 2013. For additional information, see note 2 for nontrade receivables, note 4 for mortgage loans, and note 17 for loans to affiliates.

Rollforward of Allowance for Credit Losses

The allowances for credit losses and recorded investment in financing receivables as of December 31 are shown below:

	Mortgage			Nontrade
	loans			receivables			Total
2013:
Allowance for credit losses:
Beginning balance	$	85,250			6,892			92,142
Benefit		(18,500	)		(675	)		(19,175	)
Ending balance		66,750			6,217			72,967
Ending balance individually evaluated for impairment		26,750			1,505			28,255
Ending balance collectively evaluated for impairment	$	40,000			4,712			44,712
Financing receivables:
Ending balance	$	6,201,275			28,789			6,230,064
Ending balance individually evaluated for impairment		116,750			1,505			118,255
Ending balance collectively evaluated for impairment	$	6,084,525			27,284			6,111,809

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

	Mortgage		Nontrade
	loans		receivables			Total
2012:
Allowance for credit losses:
Beginning balance	$	75,018		8,871			83,889
Provision (benefit)		10,232		(1,979	)		8,253
Ending balance		85,250		6,892			92,142
Ending balance individually evaluated for impairment		40,250		1,361			41,611
Ending balance collectively evaluated for impairment	$	45,000		5,531			50,531
Financing receivables:
Ending balance	$	6,130,584		22,377			6,152,961
Ending balance individually evaluated for impairment		116,750		1,361			118,111
Ending balance collectively evaluated for impairment	$	6,013,834		21,016			6,034,850

Credit Quality Indicators

The Company analyzes certain financing receivables for credit risk by using specific credit quality indicators.

The Company has determined theloan-to-value ratio and the debt service coverage ratio are the most reliable indicators in analyzing the credit risk of its mortgage loan portfolio. Theloan-to-value ratio is based on the Company’s internal valuation methodologies, including discounted cash flow analysis and comparative sales, depending on the characteristics of the property being evaluated. The debt service coverage ratio analysis is normalized to reflect a 25 year amortization schedule.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Theloan-to-value analysis as of December 31 is shown below:

	Commercial				Residential				Total
2013:
Less than 50%	$	2,025,011	32.7	%	$	578	100.0	%	$	2,025,589	32.7	%
50% – 60%		1,668,987	26.9			—	—			1,668,987	26.9
60% – 70%		1,622,171	26.2			—	—			1,622,171	26.2
70% – 80%		477,096	7.7			—	—			477,096	7.7
80% – 90%		168,964	2.7			—	—			168,964	2.7
90% – 100%		—	—			—	—			—	—
Greater than 100%		238,468	3.8			—	—			238,468	3.8
Total	$	6,200,697	100.0	%	$	578	100.0	%	$	6,201,275	100.0	%

	Commercial				Residential				Total
2012:
Less than 50%	$	1,735,242	28.3	%	$	1,042	100.0	%	$	1,736,284	28.3	%
50% – 60%		1,859,780	30.3			—	—			1,859,780	30.3
60% – 70%		1,124,262	18.3			—	—			1,124,262	18.3
70% – 80%		960,158	15.7			—	—			960,158	15.7
80% – 90%		205,356	3.4			—	—			205,356	3.3
90% – 100%		95,890	1.6			—	—			95,890	1.6
Greater than 100%		148,854	2.4			—	—			148,854	2.5
Total	$	6,129,542	100.0	%	$	1,042	100.0	%	$	6,130,584	100.0	%

The debt service coverage ratio as of December 31 is shown below:

	2013		2012
Debt service coverage ratio:
Greater than 1.4x	$	4,103,809		4,156,144
1.2x – 1.4x		955,230		776,303
1.0x – 1.2x		858,438		752,588
Less than 1.0x		283,220		444,507
Total commercial mortgage loans	$	6,200,697		6,129,542

The Company’s nontrade receivables are analyzed for credit risk based upon the customer classification of agent or reinsurer. The nontrade receivable and allowance for credit losses by customer classification as of December 31 are shown below:

	2013									2012
	Agent			Reinsurer			Total			Agent			Reinsurer			Total
Nontrade receivables	$	9,681			19,108			28,789			9,008			13,369			22,377
Allowance for credit losses		(4,712	)		(1,505	)		(6,217	)		(5,531	)		(1,361	)		(6,892	)
Net nontrade receivables	$	4,969			17,603			22,572			3,477			12,008			15,485

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Past-Due Aging Analysis

Aging analysis ofpast-due financing receivables as of December 31 is shown below:

					Greater than
	31–60		61–90		90 days		Total
	past due		past due		past due		past due		Current (1)		Total
2013:
Mortgage loans	$	—		—		—		—		6,201,275		6,201,275
Nontrade receivables		6,657		3,457		8,715		18,829		9,960		28,789
Total	$	6,657		3,457		8,715		18,829		6,211,235		6,230,064

(1) Current amount includes all receivables 30 days or less past due.

					Greater than
	31–60		61–90		90 days		Total
	past due		past due		past due		past due		Current (1)		Total
2012:
Mortgage loans	$	—		—		—		—		6,130,584		6,130,584
Nontrade receivables		5,841		2,283		8,070		16,194		6,183		22,377
Total	$	5,841		2,283		8,070		16,194		6,136,767		6,152,961

(1) Current amount includes all receivables 30 days or less past due.

As of December 31, 2013 and 2012, the Company’s financing receivables did not include any balances, which are on a nonaccrual status, classified as a troubled debt restructuring, or impaired without a corresponding allowance for credit loss.

(8) Goodwill

There were no impairments to goodwill in 2013 or 2012. Goodwill is reviewed on an annual basis and impairment considerations are made depending on economic market conditions.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(9) Value of Business Acquired and Other Intangible Assets

VOBA at December 31 and the changes in the balance for the years then ended are as follows:

	2013			2012			2011
Balance, beginning of year	$	—			—			853
Interest		439			573			771
Amortization		(4,327	)		(5,218	)		(3,755	)
Change in shadow VOBA		3,888			4,645			2,131
Balance, end of year	$	—			—			—

The net amortization of the VOBA in each of the next five years is expected to be as follows:

2014	$	2,834
2015		2,251
2016		1,703
2017		803
2018		830

Intangible assets at December 31 and the changes in the balance for the years then ended are as follows:

	2013			2012			2011
Balance, beginning of year	$	3,271			3,435			4,173
Amortization		(1,151	)		(164	)		(738	)
Balance, end of year	$	2,120			3,271			3,435

Amortization of intangible assets in each of the next five years is expected to be as follows:

2014	$	70
2015 and beyond		—

In 2013, the Company determined it is not likely to recover any value from a subsidiary trade name. Intangible amortization of $1,050 was recognized to fully impair this asset. During 2012 and 2011, there were no events or changes in circumstances that warranted recoverability testing for intangible assets.

Accumulated amortization of VOBA and other intangible assets are $249,210 and $243,732 as of December 31, 2013, and 2012, respectively.

(10) Deferred Acquisition Costs

DAC at December 31 and the changes in the balance for the years then ended are as follows:

	2013			2012			2011
Balance, beginning of year	$	2,603,307			4,858,136			5,352,713
Capitalization (1)		812,006			737,390			952,734
Interest		186,157			222,229			205,772
Amortization		(1,204,862	)		(1,643,969	)		(423,355	)
Change in shadow DAC		2,423,607			(1,570,479	)		(1,229,728	)
Balance, end of year	$	4,820,215			2,603,307			4,858,136

(1) Reflects prospective adoption, in 2012, of new acquisition cost guidance. See note 2 for adoption impact.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The change in shadow DAC balances are impacted by movements in unrealized gains and losses as a result of market conditions.

The Company reviews its best estimate assumptions each year and records “unlocking” as appropriate. These reviews are based on recent changes in the organization and businesses of the Company and actual and expected performance ofin-force policies. The reviews include all assumptions, including mortality, lapses, expenses, and separate account returns. The revised best estimate assumptions were applied to the currentin-force policies to project future gross profits.

The pretax impact on the Company’s assets and liabilities as a result of the unlocking during 2013, 2012, and 2011 is as follows:

	2013			2012			2011
Assets:
DAC	$	(82,082	)		(63,616	)		34,334
DSI		(20,860	)		(14,512	)		(23,621	)
VOBA		116			(1,012	)		4,651
Total assets (decrease) increase		(102,826	)		(79,140	)		15,364
Liabilities:
Account balances and future policy benefit reserves		(224,074	)		86,596			(69,519	)
Unearned premiums		2,439			96			22,885
Total liabilities (decrease) increase		(221,635	)		86,692			(46,634	)
Net increase (decrease)		118,809			(165,832	)		61,998
Deferred income tax expense (benefit)		41,583			(58,041	)		21,700
Net increase (decrease)	$	77,226			(107,791	)		40,298

(11) Deferred Sales Inducements

DSI at December 31 and the changes in the balance for years then ended are as follows:

	2013			2012			2011
Balance, beginning of year	$	673,944			1,167,736			1,161,568
Capitalization		131,127			161,828			299,368
Amortization		(242,605	)		(289,641	)		(93,621	)
Interest		38,936			43,279			38,892
Change in shadow DSI		475,128			(409,258	)		(238,471	)
Balance, end of year	$	1,076,530			673,944			1,167,736

The change in shadow DSI balances are impacted by movements in unrealized gains and losses as a result of market conditions.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(12) 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):

	2013						2012
	Account		Net amount		Weighted		Account		Net amount		Weighted
	value		at risk		age (years)		value		at risk		age (years)
GMDB:
Return of premium	$	22,290,541		36,832		63.0	$	19,474,339		101,609		63.3
Ratchet and return of premium		5,388,868		25,638		66.5		4,961,385		70,064		66.6
Ratchet and rollup		4,861,539		397,864		69.2		4,675,427		706,453		69.1
Ratchet and earnings protection rider		4,107		1,588		80.2		3,760		2,133		79.1
Reset		109,406		616		76.1		104,916		1,257		76.1
Earnings protection rider		308,789		29,115		67.0		293,886		19,861		65.9
Total	$	32,963,250		491,653			$	29,513,713		901,377
GMIB:
Return of premium	$	141,847		506		71.3	$	144,503		930		71.2
Ratchet and return of premium		3,110,426		8,818		68.0		3,837,990		59,369		67.2
Ratchet and rollup		6,407,108		595,389		65.6		6,111,691		1,034,193		65.2
Total	$	9,659,381		604,713			$	10,094,184		1,094,492
GMAB:
Five years	$	4,660,325		14,165		66.2	$	5,550,209		85,207		65.3
Ten years		4,353		17		78.9		4,004		48		76.8
Target date retirement-7 year		813,148		1,852		61.5		777,294		4,139		60.6
Target date retirement-10 year		303,807		1,516		58.0		286,796		3,157		57.2
Target date with management levers		3,402,746		6,573		59.6		2,467,417		5,411		59.0
Total	$	9,184,379		24,123			$	9,085,720		97,962
GMWB:
No living benefit	$	546,725		—		68.9	$	365,274		3,306		69.4
Life benefit with optional reset		1,145,784		103,611		66.6		1,080,566		166,027		65.9
Life benefit with automatic reset		1,712,815		61,791		62.7		1,596,848		112,563		61.9
Life benefit with 8% rollup		36,826		2,348		67.6		33,956		2,955		66.6
Life benefit with 10% rollup		1,289,866		152,152		62.1		1,214,821		172,500		61.3
Life benefit with management levers		10,128,398		455,998		59.7		7,656,036		463,131		59.3
Total	$	14,860,414		775,900			$	11,947,501		920,482

The net amount at risk has decreased in 2013 due to an increase in market performance, which has caused decreases in certain guaranteed benefits. A significant portion of the reduction in GMAB net amount at risk is due to these benefits being paid in 2013. Account values have increased due to the growth in new business. Weighted age for GMAB and GMWB as of December 31, 2012 were adjusted to be consistent with the current year presentation.

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

At December 31, variable annuity account balances were invested in separate account funds with the following investment objectives. Balances are presented at fair value:

Investment type	2013		2012
Mutual funds:
Bond	$	3,832,071		4,117,903
Domestic equity		15,076,444		11,756,004
International equity		2,125,261		1,812,473
Specialty		8,814,913		7,025,112
Total mutual funds		29,848,689		24,711,492
Money market funds		800,839		868,706
Other		98,249		90,477
Total	$	30,747,777		25,670,675

The following table summarizes the liabilities for variable contract guarantees that are reflected in the general account and shown in account balances and future policy benefit reserves on the Consolidated Balance Sheets:

	GMDB			GMIB			GMAB			GMWB			Totals
Balance as of December 31, 2011	$	80,537			277,775			623,016			1,016,987			1,998,315
Incurred guaranteed benefits		14,880			(25,017	)		33,658			(59,122	)		(35,601	)
Paid guaranteed benefits		(19,376	)		(6,366	)		(310,971	)		—			(336,713	)
Balance as of December 31, 2012		76,041			246,392			345,703			957,865			1,626,001
Incurred guaranteed benefits		4,608			(75,489	)		(166,884	)		(912,093	)		(1,149,858	)
Paid guaranteed benefits		(12,712	)		(4,570	)		(70,846	)		—			(88,128	)
Balance as of December 31, 2013	$	67,937			166,333			107,973			45,772			388,015

(13) Mortgage Notes Payable

In 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 2006 and combined with the existing mortgage. As of December 31, 2013 and 2012, the combined loan had a balance of $99,210 and $105,858, 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 amake-whole provision. The proceeds of this mortgage were used to pay off a floating rate construction loan that the Company used to finance the acquisition of property for, and construction of, the Company’s headquarters.

Interest expense for all loans is $5,649, $6,007, and $6,346 in 2013, 2012, and 2011, respectively, and is presented in general and administrative expenses on the Consolidated Statements of Operations.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

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Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The future principal payments required under the Northwestern loan are as follows:

2014	$	7,026
2015		7,424
2016		7,844
2017		8,288
2018		8,758
2019 and beyond		59,870
Total	$	99,210

(14) 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 reevaluations of such reserves. While management believes that reserves as of December 31, 2013, 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 could significantly impact the Company’s future reported earnings.

Activity in the accident and health claim reserves is summarized as follows:

	2013			2012			2011
Balance at January 1, net of reinsurance recoverables of $221,718, $188,089, and $156,294, respectively	$	107,410			91,813			78,904
Adjustment related to the reclassification of reserves from prior years		—			—			417
Adjustment primarily related to commutation and assumption reinsurance on blocks of business		(70	)		(272	)		(216	)
Incurred related to:
Current year		54,096			42,876			32,157
Prior years		5,359			8,119			5,752
Total incurred		59,455			50,995			37,909
Paid related to:
Current year		3,519			3,001			2,931
Prior years		35,871			32,125			22,270
Total paid		39,390			35,126			25,201
Balance at December 31, net of reinsurance recoverables of $259,829, $221,718, and $188,089, respectively	$	127,405			107,410			91,813

Prior year incurred for 2013 reflects unfavorable claim development within the individuallong-term care line of business, partially offset by favorable development within the group marketing line of business. The unfavorable development withinlong-term care is partially due to an update to claim continuance assumptions. Prior year incurreds for 2012 reflect unfavorable claim development in the Lloyd’s of London market (NALU) and the individual LTC line of business. Prior year incurreds for 2011 reflect unfavorable claim development primarily within the individuallong-term care line of business.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

225

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(15) Reinsurance

The Company primarily enters into reinsurance agreements to manage risk resulting from its life, annuity, 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. The Company may also enter into coinsurance agreements for the purpose of preserving capital. The Company generally retained between $1,000 and $5,000 coverage per individual life depending on the type of policy for the years ended December 31, 2013 and 2012, respectively.

The Company monitors the financial exposure to the reinsurers, as well as evaluates the financial strength of the reinsurers on an ongoing basis. The Company attempts to mitigate risk by arranging trust accounts or letters of credit with certain reinsurers. Reinsurance recoverables and receivables at December 31, 2013 and 2012 are covered by collateral of $3,441,677 and $3,703,239, respectively.

Reinsurance recoverables at December 31, 2013 and 2012 of $2,439,060 and $2,411,817, respectively, are due to reinsurance agreements the Company became party to during the 1999 acquisition of Life USA Holding, Inc.

(16) Income Taxes

(a) Income Tax (Benefit) Expense

Total income tax (benefit) expense for the years ended December 31 is as follows:

	2013			2012			2011
Income tax expense (benefit) attributable to operations:
Current tax expense (benefit)	$	42,854			280,018			(63,316	)
Deferred tax expense (benefit)		160,438			(324,977	)		5,441
Total income tax expense (benefit) attributable to net income		203,292			(44,959	)		(57,875	)
Income tax effect on equity:
Income tax (benefit) expense allocated to stockholder’s equity:
Attributable to unrealized (losses) gains on investments		(661,574	)		192,353			489,768
Attributable to unrealized (losses) gains on postretirement obligation		(127	)		95			(19	)
Attributable to unrealized (losses) gains on foreign exchange		(889	)		325			(291	)
Total income tax effect on equity	$	(459,298	)		147,814			431,583

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

226

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(b) Components of Income Tax Expense (Benefit)

Income tax expense (benefit) computed at the statutory rate of 35% varies from income tax expense (benefit) reported on the Consolidated Statements of Operations for the respective years ended December 31 as follows:

	2013			2012			2011
Income tax expense (benefit) computed at the statutory rate	$	260,567			(30,570	)		(2,443	)
Dividends-received deductions and tax-exempt interest		(32,037	)		(20,015	)		(21,415	)
State income tax		(2,049	)		6,559			4,128
Release AZLPF tax		(5,829	)		—			(39,365	)
Accrual of tax contingency reserve		2,571			2,223			2,573
Foreign tax, net		(12,209	)		(4,551	)		(268	)
Corporate-owned life insurance		(12,933	)		(6,894	)		(790	)
Penalties		6,376			5,377			—
Other		(1,165	)		2,912			(295	)
Income tax expense (benefit) as reported	$	203,292			(44,959	)		(57,875	)

(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 other liabilities, respectively, on the Consolidated Balance Sheets, at December 31 are as follows:

	2013			2012
Deferred tax assets:
Policy reserves	$	1,995,228			2,441,364
Coinsurance deferred income		1,935			3,906
Expense accruals		143,170			141,817
Other-than-temporarily impaired assets		16,468			37,186
Investment income		236,478			4,270
Provision for postretirement benefits		20,984			13,988
Other		781			1,651
Total deferred tax assets		2,415,044			2,644,182
Deferred tax liabilities:
Deferred acquisition costs		(1,346,290	)		(391,805	)
Depreciation and amortization		(47,147	)		(41,130	)
Deferred intercompany gain		(3,710	)		(4,234	)
Net unrealized gains on investments and foreign exchange		(1,301,256	)		(2,992,467	)
Total deferred tax liabilities		(2,698,403	)		(3,429,636	)
Net deferred tax liabilities	$	(283,359	)		(785,454	)

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

227

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

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 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 paid (recovered) by the Company were $74,460, $287,491, and $(16,601) in 2013, 2012, and 2011, respectively. At December 31, 2013 and 2012, respectively, the Company had a tax payable to AZOA of $73,372 and $103,300, reported in other liabilities on the Consolidated Balance Sheets.

At December 31, 2013 and 2012, the Company had a tax receivable separate from the agreement with AZOA in the amount of $167 and $10, respectively. These amounts are for foreign taxes and taxes on amajority-owned subsidiary.

The Company’s federal income tax return is consolidated with its parent, AZOA. The Company is no longer subject to U.S. federal, state, and local, ornon-U.S. income tax examinations by tax authorities for years prior to 2007. The IRS recently conducted an examination of the consolidated returns filed by AZOA for the 2008 and 2009 tax years. The examination report was approved by the Joint Committee on Taxation in the fourth quarter of 2013, thus the examination has now concluded. There were no adjustments as a result of the examination that materially affected the Company. AZOA has not received notice from the IRS of its intent to examine any subsequent tax periods.

In accordance with the Income Taxes Topic of the Codification, the Company recognizes liabilities for certain unrecognized tax benefits. Reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2013			2012
Balance at January 1	$	81,012			92,337
Additions based on tax positions related to the current year		680			193
Amounts released related to tax positions taken in prior years		(11,518	)		(11,518	)
Balance at December 31	$	70,174			81,012

The balance at December 31, 2013 consists of tax positions for which the deductibility is more likely than not; however, there is uncertainty with respect to the timing of the deduction. Due to 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, 2013, 2012, and 2011, the Company recognized expenses of $2,571, $2,223, and $2,573, respectively, in interest and penalties. The Company had $9,952 and $7,381 for the payment of interest and penalties accrued at December 31, 2013 and 2012, respectively.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

228

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(17)Related-Party Transactions

(a) Loans to Affiliates

The Company heldrelated-party invested assets of $1,191,170 and $28,725 at December 31, 2013 and 2012, respectively, representing 1.58% and 0.04% of total invested assets for the respective years. The 2013 balance comprises the investment in the Cash Pool as discussed in note 6. 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 S&P rating of AA.

In 2003, the Company entered into an agreement to lend Allianz SE $350,000. In 2004, the Company transferred, in the form of a dividend, a portion of the loan to AZOA with a carrying value of $90,000. In 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 $0 and $28,725 at December 31, 2013 and 2012, respectively. Repayment of this loan started in 2009 withyear-to-date principal payments received through December 31, 2013 and 2012, in the amount of $28,725 and $27,293, respectively. The interest rate is 5.18%. Interest of $1,029, $2,466, and $2,040 was earned during 2013, 2012, and 2011, respectively, and is included in interest and similar income, net on the Consolidated Statements of Operations.

(b) Real Estate

The Company has real estate investment properties leased to affiliates. The Company reported $1,462, $1,045, and $1,113 in 2013, 2012, and 2011, respectively, for rental income, which is included in interest and similar income, net on the Consolidated Statements of Operations. This property was sold in 2013. The Company has agreements to sublease office space to related parties, wholly owned by the same parent company, AZOA. The Company received rental income of $1,502, $881, and $865 in 2013, 2012, and 2011, respectively, which is included in other revenue on the Consolidated Statements of Operations. 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 $29, $26, and $26 in 2013, 2012, and 2011, respectively, which is included in general and administrative expenses on the Consolidated Statements of Operations.

(c) Service Fees

The Company incurred fees for services provided by affiliated companies of $40,096, $35,713, and $35,755 in 2013, 2012, and 2011, respectively. The Company’s liability for these expenses was $7,054 and $10,758 at December 31, 2013 and 2012, 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 earned revenues for various services provided to affiliated companies of $7,827, $5,666, and $6,410 in 2013, 2012, and 2011, respectively. The receivable (prepayment received) for these expenses was $(676) and $391 at December 31, 2013 and 2012, respectively, and is included in receivables on the Consolidated Balance Sheets. 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 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 options managed by PIMCO. The agreement with AGID was terminated effective December 31, 2010. Income

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

229

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

recognized by the Company from these affiliates for distribution andin-force related costs as a result of providing investment options to the contractholders was $16,516, $15,233, and $11,341 during 2013, 2012, and 2011, respectively, which is included in fee and commission revenue on the Consolidated Statements of Operations. At December 31, 2013 and 2012, $2,780 and $2,684, respectively, were included for these fees in receivables on the Consolidated Balance Sheets. Expenses incurred to these affiliates for management of subadvised investment options were $1,060, $1,513, and $1,713 during 2013, 2012, and 2011, respectively, which are included in general and administrative expenses on the Consolidated Statements of Operations. The related payable to these affiliates was $69 and $131 at December 31, 2013 and 2012, respectively, which is included in other policyholder funds on the Consolidated Balance Sheets.

(d) Capital Contributions and Dividends

The Company paid cash dividends to AZOA of $650,000 and 150,000 in 2013 and 2012, respectively. The Company paid a dividend via forgiveness of debt to AZOA in 2011 of $50,000.

(e) Reinsurance

On October 1, 2010, the Company created a subsidiary named Allianz Annuity Company of Missouri (AAMO), a captive reinsurance entity domiciled in Missouri with a $250 capital contribution. On December 22, 2010, an additional capital contribution was made for $288,234 to AAMO. On December 31, 2010, the Company ceded to AAMO, on a combined funds withheld coinsurance basis and modified coinsurance basis, a 20% quota share of the Company’s net liability of certain variable annuity policies written directly by the Company. The impact of this reinsurance agreement is eliminated through consolidation.

On September 29, 2009, the Company created a subsidiary named Allianz Life of Missouri, LLC (AZLMO), a captive reinsurance entity domiciled in Missouri with a $250 capital contribution. On December 31, 2009, the Company ceded to AZLMO, on a coinsurance basis and modified coinsurance basis, a 100% quota share of the Company’s net liability of level term life insurance policies and certain universal life insurance policies written directly by the Company. A letter of credit was issued under an existing letter of credit facility in which Allianz SE is the applicant and the face amount of the letter of credit is in a qualifying trust established by AZLMO. On December 31, 2009, an additional capital contribution was made for $282,000 to AZLMO. The impact of this reinsurance agreement is eliminated through consolidation. During 2010, the Company created a subsidiary named Allianz Life Insurance Company of Missouri, which was merged with AZLMO. There was no financial impact to the Company’s consolidated financial statements as a result of the merger.

The Company has reinsurance recoverables and receivables due to reinsurance agreements with other affiliated entities. Total affiliated reinsurance recoverables and receivables were $233 and $311 as of December 31, 2013 and 2012, respectively, and are included in reinsurance recoverables and receivables on the Consolidated Balance Sheets.

(f) Line of Credit Agreement

In 2013, the Company entered into aline-of-credit agreement with its subsidiary, Allianz Life Insurance Company of New York, to provide liquidity, as needed. The Company’s lending capacity under the agreement is limited to 5% of the General Account admitted assets of Allianz Life Insurance Company of New York as of the precedingyear-end. As of December 31, 2013, there are no amounts outstanding under the line of credit agreement.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

230

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(18) Employee Benefit Plans

The Company participates in the Allianz Asset Accumulation Plan (AAAP), a defined contribution plan sponsored by Allianz of America Corporation (AZOAC). Eligible employees are immediately enrolled in the AAAP on their first day of employment. The AAAP will accept participants’ pretax, Roth 401(k), and/orafter-tax contributions up to 80% of the participants’ eligible compensation, although contributions remain subject to annual limitations set by the IRS. In 2013, 2012, and 2011, the Company matched up to a maximum of 7.5% of the employees’ eligible compensation, respectively. Participants are 100% vested in the Company’s matching contribution after three years of service.

The AAAP administration expenses and the trust fund, including trustee fees, investment manager fees, and audit fees, are payable from the trust fund but may, at the Company’s discretion, be paid by the Company. Any legal 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 $11,657, $11,827, and $11,582 in 2013, 2012, and 2011, respectively, toward the AAAP matching contributions and administration expenses.

A defined group of highly compensated employees is eligible to participate in the AZOAC 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 vested. Participants and the Company share the administrative fee. The accrued liability of $14,160 and $9,959 as of December 31, 2013 and 2012, 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 $19,822 and $12,798 as of December 31, 2013 and 2012, respectively, is recorded in other liabilities on the Consolidated Balance Sheets.

The Company participates in astock-based compensation plan sponsored by Allianz SE, which awards certain employees 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 $8,152, $5,653, and $1,107 was recorded in 2013, 2012, and 2011, respectively, and is included in general and administrative expenses on the Consolidated Statements of Operations. The related liability of $15,840 and $8,797 as of December 31, 2013 and 2012, respectively, is recorded in other liabilities on the Consolidated Balance Sheets.

The Company participates in the Employee Stock Purchase Plan sponsored by AZOAC that is designed to provide eligible employees with an opportunity to purchase American Depository Shares (ADSs) of Allianz SE at a discounted price. An aggregate amount of 250,000 Ordinary Shares is 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 aone-year period following the purchase settlement date. Effective October 26, 2009, the ADSs were delisted from the New York Stock Exchange and started trading on the U.S.over-the-counter market through the OTCQX (which is an online trading platform). The difference between the market price and the discount price, or the discount, is paid by the Company and amounted to $482, $426, and $379 in 2013, 2012, and 2011, respectively, and is recorded in other liabilities on the Consolidated Balance Sheets. The discount is reflected as taxable income in the year of purchase to employees.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

231

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Company participates in the AZOAC Severance Allowance Plan. Under the AZOAC Severance Allowance Plan, all employees who are involuntarily terminated due to job elimination or reduction in force are eligible to receive benefits. The Company expensed $753, $3,571, and $601 in 2013, 2012, and 2011, respectively, toward severance payments.

The Company offers a life insurance benefit to eligible employees who retired on or before December 31, 1988, or who were hired before December 31, 1988, and who have at least 10 years of service when they reach age 55. The Company’s plan obligation at December 31, 2013 and 2012, was $1,054 and $1,034, respectively. This liability is included in other liabilities on the Consolidated Balance Sheets.

The Company’s plan assets, held in a Welfare Benefit Trust, at December 31, 2013 and 2012 were $537 and $3,711, respectively. The assets in this trust are used to prefund the Company’sself-insured medical plan.

(19) 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, account balances and future policy benefit reserves calculated for statutory reporting do not include provisions for withdrawals.

The Company’s statutory capital and surplus reported in the statutory annual statement filed with the State of Minnesota as of December 31, 2013 and 2012, was $4,426,168 and $5,332,410, respectively.

The Company is required to meet minimum statutory capital and surplus requirements. The Company’s statutory capital and surplus as of December 31, 2013 and 2012 were significantly in excess of 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 pay from its surplus cash dividends of not more than the greater of 10% of itsbeginning-of-the-year statutory surplus, or the net gain from operations of the insurer, not including realized gains, for the12-month period ending the 31st day of the next preceding year. Based on these limitations, ordinary dividends of $442,617 can be paid in 2014 without prior approval of the Commissioner of Commerce.

RegulatoryRisk-Based Capital

An insurance enterprise’s state of domicile imposes minimumrisk-based capital requirements that were developed by the NAIC. The formulas for determining the amount ofrisk-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 levelrisk-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 significantly exceeds required minimum thresholds as of December 31, 2013 and 2012.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

232

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(20) Commitments and Contingencies

The Company and its subsidiaries are named as defendants in various pending or threatened legal proceedings on an ongoing basis, including four putative and certified class action proceedings, arising from the conduct of business. Two of the class action lawsuits, Negrete v. Allianz Life Insurance Company of North America (CV05-6838 CAS) and Healey v. Allianz Life Insurance Company of North America (CV05-8908 CAS) have been certified as class actions, and have been consolidated in the United State District Court, Central District of California, Western Division. One of the other putative class action lawsuits, Jones v. Allianz Life Insurance Company of North America (CV00000145 SWW), is pending in the United States District Court, Eastern District of Arkansas, and has been stayed. The other putative class action lawsuit, Smith v. Questar Capital Corporation and Allianz Life Insurance Company of North America(12-CV-02669 SRN/TNL) is pending in the United States District Court for the District of Minnesota. The Company intends to vigorously contest the lawsuits, but is or may pursue settlement negotiations in some cases, if appropriate. The outcome of these cases is uncertain at this time, and there can be no assurance that such litigation, or any future litigation, will not have a material adverse effect on the Company and/or its subsidiaries The Company recognizes legal costs for defending itself as incurred. When evaluating litigation, claims, and assessments, management considers the nature of the litigation, progress of the case, opinions, or views of legal counsel, as well as prior experience in similar cases. Management uses this information to assess whether the amount of loss can be reasonably estimated prior to making any accruals.

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 funds, variable and fixed annuities, life insurance, distribution companies, andbroker-dealers, is subject to close scrutiny by regulators, legislators, and the media.

Federal and state regulators, such as state insurance departments, state securities departments, the SEC, the Financial Industry Regulatory Authority (FINRA) and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning various selling practices, including suitability reviews, product exchanges, sales to seniors, and compliance with, among other things, insurance laws and securities laws. State regulators have also been investigating various practices relating to unclaimed property. In certain instances, these investigations have led to regulatory enforcement proceedings. The Company is subject to ongoing market conduct examinations and investigations by regulators, which may have a material adverse effect on the Company. Management assesses whether a loss is probable and if the amount can be reasonably estimated prior to making any accruals.

In December 2008, the SEC adopted a rule (Rule 151A) having the effect of categorizing mostfixed-indexed annuity products as securities. This rule, if it had become fully operational, would subject issuers offixed-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 registeredbroker-dealers. In October 2010, several months after the Federal Court of Appeals for the District of Columbia Circuit vacated Rule 151A, the SEC withdrew the rule. As a result, issuers offixed-indexed annuity products will not be under the SEC’s purview, rather they will remain subject to state insurance regulation as long as insurers comply with the provisions of the Harkin Amendment, passed as part of theDodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It can be expected that annuity product design and sales practices will be an ongoing source of regulatory scrutiny and enforcement actions, litigation, and rulemaking. Similarly, private litigation regarding sales practices is ongoing against a number of insurance companies.

Allianz Index Advantage^SM Prospectus – May 1, 2014

Appendix C

233

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

This could result in legal precedents and newindustry-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. Management assesses whether the amount can be reasonably estimated prior to making any accruals.

The Company holds a minority equity interest in a certain field marketing organization. Certain provisions within the stockholder’s agreement require the Company to purchase all of the stock in the entity if and when principals of the field marketing organization choose to exercise certain available options. The exercise period for the put option is the first 120 days of each calendar year commencing on January 1, 2011, and expiring on April 30, 2014. If the put option was exercised, requiring the Company to purchase all of the stock in the entity, the total purchase price that would be paid by the Company based on current calculations would be $7,503.

The Company has private placement investments that may require a commitment of capital within the next year. The Company had capital commitments of $84,000 and $0 at December 31, 2013 and 2012, respectively.

The Company has commercial mortgage loan investments that require additional commitments of capital within the next year. The Company had capital commitments for new mortgage loans of $364,400 and $215,000 at December 31, 2013 and 2012, respectively.

The Company leases office space and certain furniture and equipment pursuant to operating leases with some leases containing renewal options and escalation clauses. Expense for all operating leases was $2,760, $2,569, and $3,065 in 2013, 2012, and 2011, respectively. The future minimum lease payments required under operating leases are as follows:

2014	$	1,333
2015		924
2016		684
2017		565
2018		580
2019 and beyond		1,116
Total	$	5,202

The Company had capital leases to finance furniture and equipment for the Company’s headquarters. These leases were all terminated in 2010 and new leases were entered into in 2011. No new leases were entered into in 2012 or 2013. The cost and accumulated depreciation of the financed assets were $2,976 and $1,613 at December 31, 2013, and $2,976 and $868 at December 31, 2012, respectively, and are included in other assets. Depreciation on the financed assets was $745, $868, and $0 in 2013, 2012, and 2011, respectively.

The future minimum lease payments and present value of the net minimum lease payments are as follows:

2014	$	939
2015		783
2016		—
2017		—
2018		—
2019 and beyond		—
Total	$	1,722

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234

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Company has a service agreement (the agreement) with certainbroker-dealers for a marketing support program related to the distribution of select variable insurance products. Under the agreement, the Company pays a base service fee of 0.10% on the amount of variable insurance products under management at the commencement of the agreement. An additional service fee of 0.15% is calculated on the total variable insurance products under management held in excess of this base amount. The fee is calculated on a monthly basis and is paid quarterly. Either party may terminate the agreement with a90-day notice. Upon termination, the service fee continues to be paid from the date of termination for a period of ten years provided that thebroker-dealer is not in material breach of the contract. In the event of termination, the Company has calculated its total commitment at December 31, 2013, to be $5,795 annually with a total commitment of $57,952. The calculation was based on the total variable insurance products under management as of December 31, 2013, due to the variability in estimating future assets under management (such as sales, lapse rate, and fund performance). Total expense under the agreement amounted to $5,980, $5,095, and $4,298 in 2013, 2012, and 2011, respectively.

(21) 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

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.

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235

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

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 BOD. 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 17, the Company carried out various capital transactions with related parties during 2013, 2012, and 2011.

(22) Foreign Currency Translation

An analysis of foreign currency translation, net of tax for the respective years ended December 31 is as follows:

	2013			2012			2011
Beginning amount of cumulative translation adjustments	$	13,993			13,389			13,930
Aggregate adjustment for the period resulting from translation adjustments		(2,539	)		929			(832	)
Amount of income tax expense (benefit) for the period related to aggregate adjustment		889			(325	)		291
Net aggregate translation included in equity		(1,650	)		604			(541	)
Ending amount of cumulative translation adjustments	$	12,343			13,993			13,389
Canadian foreign exchange rate at end of year		0.94120			1.00432			0.98208

(23) Segment Information

The Company has organized its principal operations into the following segments: Individual Annuities, Life, Questar, and Legacy products.

The Individual Annuities segment consists of fixed,fixed-indexed, and variable annuities that are provided through independent distribution channels made up of agents and registered representatives. Revenues for the Company’s fixed annuity products are primarily earned as net investment income on invested assets supporting fixed account balances, with profitability driven by the spread between net investment income earned and interest credited to account balances. Revenues for the Company’s variable annuity products are primarily earned as management and expense fees charged on underlying account balances.

The Life segment issuesfixed-indexed universal life insurance products, as well as maintains term and whole lifein-force blocks that the Company no longer sells or distributes. In 2013, the Company identified this segment as an emerging focus. The primary sources for revenue for this segment are premiums, fees, and charges that the Company receives to assume insurance related risk, in addition to earning a spread on net investment income on invested assets.

The Questar segment consists of two wholly owned subsidiaries, Questar Capital Corporation (Questar Capital) and Questar Asset Management, Inc. (QAM). Questar Capital is registered as abroker-dealer under the Securities Exchange Act of 1934 and operates as a retailbroker-dealer. QAM provides portfolio management for clients and revenue is driven by fees received based on assets under management. Questar Capital distributes a full range of securities products, including mutual funds and variable life insurance and annuity contracts. Questar Capital also processes general securities transactions through a clearing arrangement with Pershing, LLC.

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236

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

The Legacy business consists of closed blocks of LTC and Special Markets products. The Special Markets products include individual and group annuity and life products, including universal life and term life insurance. Although Legacy products are part of the consolidated results, the Company does not allocate additional resources to these areas other than to maintain the operational support to its current customers.

The Company does not maintain segregated investment portfolios for each segment. All interest and similar income, net and realized investment gains, net are allocated to the segments. Assets are only monitored at the total company level, and as such, asset disclosures by segment are not included herein.

Income and expense related to assets backing policyholder reserves are allocated to the segments based on policyholder reserve levels. The results of the Individual Annuity, Life, and Legacy segments also reflect allocation of income and expense related to assets backing surplus. Income and expense related to assets backing surplus are allocated to the segments based on required capital levels for each segment and are excluded from estimated gross profits used in reserve and DAC model projections.

Unconsolidated segment results are reconciled to consolidated statement of operations amounts in the tables below:

	Year ended December 31, 2013
	Individual								Legacy
	annuities		Life			Questar			products		Eliminations			Consolidated
Revenue:
Net premiums and policy fees	$	1,050,072		104,715			—			133,586		—			1,288,373
Interest and similar income, net		3,464,951		71,125			(16	)		56,057		—			3,592,117
Change in fair value of assets and liabilities		843,121		77,920			—			224		—			921,265
Realized investment gains, net		172,940		2,227			8			13,122		—			188,297
Fee, commission, and other revenue		239,692		583			93,485			6,207		(33,188	)		306,779
Total revenue (loss)		5,770,776		256,570			93,477			209,196		(33,188	)		6,296,831
Benefits and expenses:
Net benefits and expenses		3,378,366		180,923			—			144,730		—			3,704,019
General and administrative and commission		1,408,107		136,417			110,633			19,666		(33,188	)		1,641,635
Change in deferred acquisition costs, net		264,068		(71,632	)		—			14,263		—			206,699
Total benefits and expenses		5,050,541		245,708			110,633			178,659		(33,188	)		5,552,353
Pretax (loss) income	$	720,235		10,862			(17,156	)		30,537		—			744,478

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237

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

	Year ended December 31, 2012
	Individual									Legacy
	annuities			Life			Questar			products			Eliminations			Consolidated
Revenue:
Net premiums and policy fees	$	821,192			93,795			—			134,170			—			1,049,157
Interest and similar income, net		3,514,953			67,509			(20	)		49,964			—			3,632,406
Change in fair value of assets and liabilities		(169,234	)		12,125			—			(170	)		—			(157,279	)
Realized investment gains, net		225,246			1,387			—			1,068			—			227,701
Fee, commission, and other revenue		189,120			295			72,917			7,594			(29,220	)		240,706
Total revenue (loss)		4,581,277			175,111			72,897			192,626			(29,220	)		4,992,691
Benefits and expenses:
Net benefits and expenses		2,656,502			92,872			—			140,829			—			2,890,203
General and administrative and commission		1,300,668			118,602			90,580			24,849			(29,220	)		1,505,479
Change in deferred acquisition costs, net		729,277			(58,368	)		—			13,441			—			684,350
Total benefits and expenses		4,686,447			153,106			90,580			179,119			(29,220	)		5,080,032
Pretax (loss) income	$	(105,170	)		22,005			(17,683	)		13,507			—			(87,341	)
	Year ended December 31, 2011
	Individual									Legacy
	annuities			Life			Questar			products			Eliminations			Consolidated
Revenue:
Net premiums and policy fees	$	705,258			84,421			—			136,516			—			926,195
Interest and similar income, net		3,418,279			58,941			(39	)		42,835			—			3,520,016
Change in fair value of assets and liabilities		(198,571	)		(6,490	)		—			(506	)		—			(205,567	)
Realized investment gains, net		110,814			1,537			—			1,042			—			113,393
Fee, commission, and other revenue		149,516			55			69,951			8,215			(5,552	)		222,185
Total revenue (loss)		4,185,296			138,464			69,912			188,102			(5,552	)		4,576,222
Benefits and expenses:
Net benefits and expenses		3,535,771			74,599			—			114,422			—			3,724,792
General and administrative and commission		1,418,280			74,851			87,050			18,934			(5,552	)		1,593,563
Change in deferred acquisition costs, net		(729,330	)		(22,646	)		—			16,825			—			(735,151	)
Total benefits and expenses		4,224,721			126,804			87,050			150,181			(5,552	)		4,583,204
Pretax (loss) income	$	(39,425	)		11,660			(17,138	)		37,921			—			(6,982	)

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238

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

(24) Changes in and Reclassifications from Accumulated Other Comprehensive Income (AOCI)

Changes in AOCI by component consist of the following:

	Year ended December 31, 2013
							Net gain
	Net						(loss)			Foreign			Pension and
	unrealized			OTTI			on cash flow			currency			postretirement
	gain on			losses in			hedging			translation			plan
	securities			OCI			instruments			adjustments			adjustments			Total AOCI
Beginning balance	$	2,206,473			11,313			1,463			13,993			(337	)		2,232,905
OCI before reclassifications		(1,151,346	)		(6,431	)		(443	)		(1,650	)		189			(1,159,681	)
Amounts reclassified from AOCI		(74,350	)		3,932			—			—			(22	)		(70,440	)
Net OCI		(1,225,696	)		(2,499	)		(443	)		(1,650	)		167			(1,230,121	)
Ending balance	$	980,777			8,814			1,020			12,343			(170	)		1,002,784
	Year ended December 31, 2012
							Net gain
	Net						(loss)			Foreign			Pension and
	unrealized			OTTI			on cash flow			currency			postretirement
	gain on			losses in			hedging			translation			plan
	securities			OCI			instruments			adjustments			adjustments			Total AOCI
Beginning balance	$	1,871,918			3,533			3,226			13,389			(111	)		1,891,955
OCI before reclassifications		484,260			8,671			(1,763	)		604			(210	)		491,562
Amounts reclassified from AOCI		(149,705	)		(891	)		—			—			(16	)		(150,612	)
Net OCI		334,555			7,780			(1,763	)		604			(226	)		340,950
Ending balance	$	2,206,473			11,313			1,463			13,993			(337	)		2,232,905

Allianz Index Advantage^SM Prospectus – May 1, 2014

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239

ALLIANZ LIFE INSURANCE COMPANY OF

NORTH AMERICA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(In thousands, except share data and security holdings quantities)

(Continued)

Reclassifications from AOCI consist of the following:

	Amount Reclassified from AOCI						Affected line item
	December 31,						in the consolidated
AOCI	2013			2012			statement of operations
Net unrealized gain on securities:
Available-for-sale securities	$	114,385			230,316		Realized investment gains, net
		(40,035	)		(80,611	)	Income tax expense (benefit)
		74,350			149,705		Net income (loss)
OTTI Losses in OCI:
Other than temporary impairments		(6,049	)		1,371		Realized investment gains, net
		2,117			(480	)	Income tax expense (benefit)
		(3,932	)		891		Net income (loss)
Pension and other postretirement plan adjustments		34			25		General and administrative expenses
Amortization of actuarial gains (losses)		(12	)		(9	)	Income tax expense (benefit)
		22			16		Net income (loss)
Total amounts reclassified from AOCI	$	70,440			150,612		Total net income (loss)

(25) Subsequent Events

No material subsequent events have occurred since December 31, 2013 through March 25, 2014 that require adjustment to the financial statements.

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240

Schedule I

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Summary of Investments – Other than Investments in Related Parties

December 31, 2013

(In thousands)

Type of investment	Cost(1)		Fair value		Amount at which shown in the consolidated balance sheets
Fixed-maturity securities:
Fixed-maturity securities, available-for-sale:
U.S. government	$	1,103,739		1,158,859		1,158,859
Agencies not backed by the full faith and credit of the U.S. government		480,981		511,829		511,829
States and political subdivisions		4,916,086		4,958,360		4,958,360
Foreign government		341,223		365,234		365,234
Public utilities		4,692,512		5,136,210		5,136,210
Corporate securities		39,446,124		41,676,852		41,676,852
Mortgage-backed securities		11,668,499		12,525,293		12,525,293
Collateralized mortgage obligations		12,557		14,212		14,212
Collateralized debt obligations		44,687		56,873		56,873
Securities held under forward commitments		—		—		—
Total fixed-maturity securities, available-for-sale		62,706,408		66,403,722		66,403,722
Fixed-maturity securities, trading:
U.S. government		—		—		—
Agencies not backed by the full faith and credit of the U.S. government		—		—		—
States and political subdivisions		—		—		—
Foreign government		—		—		—
Public utilities		—		—		—
Corporate securities		—		—		—
Mortgage-backed securities		—		—		—
Total fixed-maturity securities, trading		—		—		—
Fixed-maturity securities, held-to-maturity:
Collateralized debt obligations		220,642		219,387		220,642
Corporate securities		110		129		110
Total fixed-maturity securities, held-to-maturity		220,752		219,516		220,752
Total fixed-maturity securities		62,927,160		66,623,238		66,624,474
Equity securities:
Equity securities, available-for-sale:
Common stocks:
Industrial and miscellaneous		29,112		29,112		29,112
Equity securities, trading:
Common stocks:
Industrial and miscellaneous		209,978		227,822		227,822
Total equity securities		239,090	$	256,934		256,934
Other investments:
Mortgage loans on real estate, net		6,134,525				6,134,525
Short-term securities		7,547				7,547
Derivatives		831,707				831,707
Real estate		—				—
Loans to affiliates		1,191,170				1,191,170
Policy loans		158,217				158,217
Acquired loans		205,131				205,131
Other invested assets		50,046				50,046
Total other investments		8,578,343				8,578,343
Total investments	$	71,744,593			$	75,459,751

⁽¹⁾  Original cost of equity securities and, as to fixed-maturities, original cost reduced by repayments and adjusted for amortization of premiums, accrual discounts, or impairments.

See accompanying report of independent registered public accounting firm

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241

Schedule II

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Supplementary Insurance Information

As of and for the years ended December 31, 2013, 2012, and 2011

(In thousands)

	December 31
					Account
					balances
					and
	Deferred		Deferred		future policy				Policy and
	acquisition		sales		benefit		Unearned		contract
	costs		inducements		reserves		premiums		claims
2013:
Annuities	$	4,415,572		1,072,742		72,954,916		24,392		—
Life		345,008		3,788		1,843,616		57,647		3,220
Questar		—		—		—		—		—
Legacy		59,635		—		3,326,680		53,600		412,889
	$	4,820,215		1,076,530		78,125,212		135,639		416,109
2012:
Annuities	$	2,289,260		670,988		70,534,455		294		—
Life		240,192		2,956		1,493,372		32,327		3,913
Questar		—		—		—		—		—
Legacy		73,855		—		3,182,713		56,262		354,819
	$	2,603,307		673,944		75,210,540		88,883		358,732
2011:
Annuities	$	4,559,208		1,165,125		70,651,879		872		682
Life		211,633		2,611		1,289,507		27,569		3,886
Questar		—		—		—		—		—
Legacy		87,295		—		3,056,520		57,586		289,441
	$	4,858,136		1,167,736		74,997,906		86,027		294,009

	Year ended December 31
								Net change			Net change
			Interest and					in deferred			in policy			Other
	Net premium		similar			Net		sales			acquisition			operating
	and policy fees		income, net			benefits		inducements*			costs**			expenses
2013:
Annuities	$	1,050,072		3,464,952			3,304,991		73,375			264,068			1,374,919
Life		104,715		71,125			181,756		(833	)		(71,632	)		136,417
Questar		—		(16	)		—		—			—			110,633
Legacy		133,586		56,056			144,730		—			14,263			19,666
	$	1,288,373		3,592,117			3,631,477		72,542			206,699			1,641,635
2012:
Annuities	$	821,192		3,514,953			2,571,623		84,879			729,277			1,278,880
Life		93,795		67,509			93,390		(518	)		(58,368	)		111,170
Questar		—		(20	)		—		—			—			90,580
Legacy		134,170		49,964			140,829		—			13,441			24,849
	$	1,049,157		3,632,406			2,805,842		84,361			684,350			1,505,479
2011:
Annuities	$	705,258		3,418,279			3,778,871		(243,100	)		(729,330	)		1,418,231
Life		84,421		58,941			76,137		(1,538	)		(22,646	)		69,361
Questar		—		(39	)		—		—			—			87,037
Legacy		136,516		42,835			114,422		—			16,825			18,934
	$	926,195		3,520,016			3,969,430		(244,638	)		(735,151	)		1,593,563

* 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.

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242

Schedule III

ALLIANZ LIFE INSURANCE COMPANY

OF NORTH AMERICA AND SUBSIDIARIES

Reinsurance

Years ended December 31, 2013, 2012, and 2011

(In thousands)

											Percentage
			Ceded			Assumed					of amount
	Direct		to other			from other			Net		assumed
Years ended	amount		companies			companies			amount		to net
December 31, 2013:
Life insurance in force	$	26,107,972		17,815,125			80,931			8,373,778		1.0	%
Premiums and policy fees:
Life	$	149,803		42,857			606			107,552		0.6	%
Annuities		1,046,313		(1,966	)		(468	)		1,047,811		—
Accident and health		184,288		78,876			27,598			133,010		20.7
Total premiums and policy fees	$	1,380,404		119,767			27,736			1,288,373		2.2	%
December 31, 2012:
Life insurance in force	$	24,257,515		16,420,252			91,346			7,928,609		1.2	%
Premiums and policy fees:
Life	$	138,180		42,900			851			96,131		0.9	%
Annuities		819,359		27			(318	)		819,014		—
Accident and health		189,659		81,257			25,610			134,012		19.1
Total premiums and policy fees	$	1,147,198		124,184			26,143			1,049,157		2.5	%
December 31, 2011:
Life insurance in force	$	22,944,148		14,794,998			94,733			8,243,883		1.1	%
Premiums and policy fees:
Life	$	129,223		42,649			878			87,452		1.0	%
Annuities		701,350		(2,116	)		(442	)		703,024		(0.1	)
Accident and health		204,838		91,457			22,338			135,719		16.5
Total premiums and policy fees	$	1,035,411		131,990			22,774			926,195		2.5	%

The Life and Annuities categories above are prescribed splits based on product and will differ from the results of the Life and Individual Annuity segments.

See accompanying report of independent registered public accounting firm.

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243

FOR SERVICE OR MORE INFORMATION

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 (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

OUR SERVICE CENTER

If you need customer service (for Contract changes, information on Contract Values, requesting a withdrawal or transfer, changing your allocation instructions, etc.) please contact our Service Center at(800) 624-0197.

To send an application, a check for an additional Purchase Payment, or for general customer service, please mail to the appropriate address as follows:

Send an application or additional Purchase Payment with a check:	Send an application or general customer service without a check:
REGULAR MAIL	REGULAR MAIL
Allianz Life Insurance Company of North America	Allianz Life Insurance Company of North America
NW5989	P.O. Box 561
P.O. Box 1450	Minneapolis, MN 55440-0561
Minneapolis, MN 55485-5989
OVERNIGHT, CERTIFIED, OR REGISTERED MAIL	OVERNIGHT, CERTIFIED, OR REGISTERED MAIL
Allianz Life Insurance Company of North America	Allianz Life Insurance Company of North America
NW5989	5701 Golden Hills Drive
1801 Parkview Drive	Golden Valley, MN 55416-1297
Shoreview, MN 55126

NOTE: Checks sent to the wrong address for applications or additional Purchase Payments are forwarded to the 1801 Parkview Drive address listed above, which may delay processing.

To send information by email, please use this address: variableannuity@send.allianzlife.com. To send information over the web, please upload to your account on our website at: www.allianzlife.com. If you have questions about whether you can submit certain information by email or over the web, please contact our Service Center.

Until May 1, 2015, all dealers that effect transactions in these securities may be required to deliver a prospectus.

Allianz Index Advantage^SM Prospectus – May 1, 2014

244

PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Securities and Exchange Commission Registration Fee	$	40,920
Estimated Printing and Filing Costs:	$	30,000
Estimated Accounting Fees:	$	75,000
Estimated Legal Fees:	$	175,000
Estimated Miscellaneous Fees:	$	N/A

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

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 15. RECENT SALES OF UNREGISTERED SECURITIES.

NOT APPLICABLE.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

1. (a)	Principal Underwriter Agreement by and between North American Life and Casualty Company on behalf of NALAC Financial Plans, Inc. dated September 14, 1988 incorporated by reference as exhibit EX-99.B3.a. from Pre-Effective Amendment No.1 to Form N-4 (File Nos. 333-06709 and 811-05618), electronically filed on December 13, 1996. (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)	Broker-Dealer Agreement (amended and restated) between Allianz Life Insurance Company of North America and Allianz Life Financial Services, LLC, dated June 1, 2010 incorporated by reference as exhibit EX-99B3b. from Pre-Effective Amendment No. 1 to Form N-4 (File Nos. 333-166408 and 811-05618), electronically filed on September 24, 2010.
(c)	The current specimen of the selling agreement between Allianz Life Financial Services, LLC, the principal underwriter for the Contracts, and retail brokers which offer and sell the Contracts to the public is incorporated by reference as exhibit EX-99.B3.b. from the initial filing on Form N-4 (File Nos. 333-134267 and 811-05618), electronically filed on May 19, 2006.The underwriter has executed versions of the agreement with approximately 2,100 retail brokers.
2.	Not applicable
3.	(a) Articles of Incorporation, as amended and restated August 1, 2006, of Allianz Life Insurance Company of North America, filed on January 3, 2013 as Exhibit 3(a) to Registrant’s initial registration on Form S-1 (File No. 333-185864), is incorporated by reference.
(b)	Bylaws, as amended and restated August 1, 2006, of Allianz Life Insurance Company of North America, filed on January 3, 2013 as Exhibit 3(b) to Registrant’s initial registration on Form S-1 (File No. 333-185864), is incorporated by reference.

4.(a)	Individual Variable Annuity Contract-L40538 incorporated by reference as Exhibit 4(a) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
(b)	Contract Schedule Pages-S40875, S40876, S40877 incorporated by reference as Exhibit 4(b) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
(c)	Application for Ind. Var. Annuity Contract-F40538 incorporated by reference as Exhibit 4(c) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
(d)	Index Performance Strategy Crediting Rider-S40878 incorporated by reference as Exhibit 4(d) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
(e)	Index Protection Strategy Crediting Rider-S40879 incorporated by reference as Exhibit 4(e) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
(f)	Traditional Death Benefit Rider-S40880 incorporated by reference as Exhibit 4(f) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
5.	Opinion re Legality – not applicable
8.	Opinion re Tax Matters – not applicable
9.	Not applicable
10.	Material Contracts – not applicable
11.	Not applicable
12.	Not applicable
15.	Not applicable
16.	Not applicable
21.	Not applicable
23. (a)*	Consent of Independent Registered Public Accounting Firm – KPMG
(b)*	Consent of Counsel
24. (a)	Powers of Attorney, filed on January 3, 2013 as Exhibit 24(a) to Registrant’s initial registration on Form S-1 (File No. 333-185864), is incorporated by reference.
(b)	Board Resolution, effective December 11, 2012, of the Board of Directors of Allianz Life Insurance Company of North America, filed on January 3, 2013 as Exhibit 24(b) to Registrant’s initial registration on Form S-1 (File No. 333-185864), is incorporated by reference.
(c)	Powers of Attorney for Ronald M. Clark and David L. Conway, filed on January 10, 2014 as Exhibit 24(c) to Registrant’s Post-Effective Amendment No. 1 to Form S-1 (File No. 333-185864), is incorporated by reference.
(d)	Form of Board Resolution of the Board of Directors of Allianz Life Insurance Company of North America, effective April 14, 2014, filed on April 14, 2014 as Exhibit 24(d) to Registrant’s Post-Effective Amendment No. 2 to Form S-1 (File No. 333-185864), is incorporated by reference.
25.	Not applicable
26.	Not applicable
99. (a)	Alternative Minimum Value Exhibit, incorporated by reference as Exhibit 99(a) from Pre-Effective Amendment No. 1 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on April 17, 2013.
(b)	Appendix B Exhibit – Daily Adjustment Calculation, incorporated by reference as Exhibit 99(b) from Pre-Effective Amendment No. 2 to Registrant’s Form S-1 (File No. 333-185864), electronically filed on May 10, 2013.
(c)	Risk Factors Exhibit, filed on April 14, 2014 as Exhibit 99(c) to Registrant’s Post-Effective Amendment No. 2 to Registrant’s Form S-1 (File No. 333-185864), is incorporated by reference.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Labels Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

(b) Financial Statement Schedules

All required financial statement schedules of Allianz Life Insurance Company of North America are included in Part I of this registration statement.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes pursuant to Item 512 of Regulation S-K:

(1)	To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
	(i)	To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
	(ii)	To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
	(iii)	To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2)	That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)	To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)	That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)	That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
	(i)	Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
	(ii)	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
	(iii)	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
	(iv)	Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6)	Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the registrant 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 is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the

registrant 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 registrant 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.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on this 27th day of April, 2014.

ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
By:	/S/ Walter R. White*
	Walter R. White Chief Executive Officer, President, and Director

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 April 27, 2014.

Signature	Title
Gary C. Bhojwani*	Director and Chairman of the Board
Walter R. White*	Director, President & Chief Executive Officer
Giulio Terzariol*	Director, Senior Vice President and Chief Financial Officer
Marna C. Whittington*	Director
Ronald M. Clark**	Director
David L. Conway**	Director

* By Powers of Attorney, filed on January 3, 2013 as Exhibit 24(a) to Registrant’s initial registration on Form S-1 (File No. 333-185864), is incorporated by reference.

** By Powers of Attorney filed on January 10, 2014 as Exhibit 24(c) to Registrant’s Post-Effective Amendment No. 1 to Form S-1 (File No. 333-185864), is incorporated by reference.

BY:	/s/ Stewart D. Gregg
	Stewart D. Gregg Senior Counsel

PRE-EFFECTIVE AMENDMENT NO. 1

TO

FORM S-1

ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA

INDEX TO EXHIBITS

Exhibit	Description of Exhibit
23.a	Consent of Independent Registered Public Accounting Firm – KPMG
23.b	Consent of Counsel
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Labels Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase