FR Doc E8-20398

[Federal Register: September 3, 2008 (Volume 73, Number 171)]
[Notices]
[Page 51536-51545]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03se08-137]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28369; File No. 812-13451]

Allianz Life Insurance Company of North America, et al.

August 28, 2008.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of application for an order of approval pursuant to
Section 26(c) of the Investment Company Act of 1940, as amended (the
``1940 Act''), and an order of exemption pursuant to Section 17(b) of
the Act from Section 17(a) of the Act.

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Applicants: Allianz Life Insurance Company of North America (``Allianz
Life''), Allianz Life Variable Account A (``Allianz Account A''),
Allianz Life Variable Account B (``Allianz Account B''), Allianz Life
Insurance Company of New York (``Allianz NY'' and together with Allianz
Life, ``Insurance Company Applicants''), and Allianz Life of NY
Variable Account C (``Allianz Account C'', and together with Allianz
Account A and Allianz Account B, ``Separate Accounts'' and,
collectively with Insurance Company Applicants, ``Applicants''), and
Allianz Variable Insurance Products Trust (``VIP Trust'' and
collectively with Applicants, ``Section 17 Applicants'').

Summary of Application: Applicants seek an order pursuant to Section
26(c) of the 1940 Act, approving the substitutions of certain
securities (the ``Substitutions'') issued by certain management
investment companies and held by Separate Accounts to support certain
variable annuity contracts and variable life insurance contracts (the
``Contracts'') issued by Insurance Company Applicants. Section 17
Applicants seek an order pursuant to Section 17(b) of the 1940 Act
exempting them to the extent necessary to permit Insurance Company
Applicants to carry out the Substitutions.

Filing Date: The application was originally filed on November 19, 2007,
and amended on August 27, 2008.

Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on September 18, 2008, and should be
accompanied by proof of service on Applicants and VIP Trust in the form
of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the requester's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Secretary of the Commission. ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
Applicants and VIP Trust, Allianz Life Insurance Company of North
America, 5701 Golden Hills Dr., Minneapolis, MN 55416-1297; Allianz
Life Insurance Company of New York, One Chase Manhattan Plaza, 37th
Floor, New York, NY 10005-1423; Allianz Variable Insurance Products
Trust, 5701 Golden Hills Dr., Minneapolis, MN 55416-1297.

FOR FURTHER INFORMATION CONTACT: Craig Ruckman, Law Clerk, at (202)
551-6753 or Harry Eisenstein, Branch Chief, Office of Insurance
Products, Division of Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Public Reference Branch of the Commission, 100 F Street, NE.,
Washington, DC 20549 (202-551-8090).

[[Page 51537]]

Applicants' Representations

1. Allianz Life is a stock life insurance company organized under
the laws of the state of Minnesota. Allianz NY is a stock life
insurance company organized under the laws of the state of New York.
2. Allianz Account A is registered as a unit investment trust under
the 1940 Act (File No. 811-04965) and is used to fund certain variable
life insurance policies issued by Allianz Life. Allianz Account A is
divided into a number of subaccounts, each of which invests in and
reflects the investment performance of a specific underlying registered
investment company or portfolio thereof (each an ``Investment
Option''). Three variable life insurance contracts funded by Allianz
Account A are affected by this application.
Allianz Account B is registered as a unit investment trust under
the 1940 Act (File No. 811-05618) and is used to fund certain variable
annuity contracts issued by Allianz Life. Allianz Account B is divided
into a number of subaccounts, each of which invests in and reflects the
investment performance of a specific Investment Option. Fourteen
variable annuity contracts funded by Allianz Account B are affected by
this application.
Allianz Account C is registered as a unit investment trust under
the 1940 Act (File No. 811-05716) and is used to fund certain variable
annuity contracts issued by Allianz NY. Allianz Account C is divided
into a number of subaccounts, each of which invests in and reflects the
investment performance of a specific Investment Option. Six variable
annuity contracts funded by Allianz Account C are affected by this
application.
3. For purposes of the 1940 Act, Allianz Life is the depositor and
sponsor of Allianz Account A and Allianz Account B, and Allianz NY is
the depositor and sponsor of Allianz Account C, as those terms have
been interpreted by the Commission with respect to variable annuity and
variable life insurance separate accounts. Each Separate Account meets
the definition of a ``separate account'' in Rule 0-1(e) under the 1940
Act.
4. The Contracts allow contractowners to allocate premium payments
and transfer Contract value among the various subaccounts of the
Separate Accounts. Of the 12 Contracts with effective and updated
registration statements, eight offer all 78 Investment Options that are
available under the Separate Accounts, two offer 74 Investment Options,
one offers 73 Investment Options, and one offers 64 Investment Options.
Two of these Contracts (known as Allianz Alterity and Allianz Rewards)
have restrictions on the allocations that contractowners may make to
the Investment Options if they select the optional Prime Plus Benefit.
Under these Contracts, when certain risk or volatility limits are
exceeded, allocations and transfers to certain Investment Options,
including each of the Replaced Funds (as defined below), are limited or
prohibited. The limits on allocations and transfers to the Replacement
Funds (as defined below) under the Prime Plus Benefits are, and will
be, no more restrictive than on the associated Replaced Funds.
In most instances, up to 12 transfers may be made during each year
free of charge (the year is measured by the date of issuance of the
Contract). Under these Contracts, Insurance Company Applicants have
reserved the right to charge a $25 fee (or the lesser of $25 or 2% of
the amount transferred for certain Contracts) for each transfer in
excess of 12 per Contract year. Since the Contracts are not designed
for professional market timing organizations, or other persons using
programmed, large, or frequent transfers, Insurance Company Applicants
have reserved the right to restrict transfer activity that they
determine to be excessive or inappropriate.
5. Under the Contracts, Insurance Company Applicants reserve the
right, subject to regulatory approval, to substitute one of the
Investment Options with another Investment Option after appropriate
notice. Moreover, the Contracts permit Insurance Company Applicants to
limit allocation of purchase payments to one or more subaccounts that
invest in an Investment Option. The prospectuses or statements of
additional information for the Contracts also contain appropriate
disclosure of these rights. Thus, subject to regulatory approval, the
Contracts permit Insurance Company Applicants to stop accepting
purchase payments into one or more Investment Options and/or to
substitute the shares representing an Investment Option held in a
subaccount for the shares representing another Investment Option.
6. The Contracts are variable annuity contracts and variable life
insurance policies. Allianz Life currently issues individual deferred
variable annuity contracts and has previously issued immediate variable
annuity contracts and variable life insurance policies. Allianz NY
issues individual deferred variable annuity contracts offered for sale
in New York.
7. Currently, Allianz Life has the following registration
statements which are effective and updated with the Commission for
Contracts sponsored by Allianz Account B that offer the Replaced Funds
as Investment Options:

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Separate account Registration No. Contract name Type of contract
----------------------------------------------------------------------------------------------------------------
Allianz Account B............... 333-82329 Allianz Alterity.. Variable Deferred Annuity.
Allianz Account B............... 333-90260 Allianz High Five. Variable Deferred Annuity.
Allianz Account B............... 333-111049 Allianz High Five Variable Deferred Annuity.
Bonus.
Allianz Account B............... 333-120181 Allianz High Five Variable Deferred Annuity.
L.
Allianz Account B............... 333-95729 Allianz Rewards... Variable Deferred Annuity.
Allianz Account B............... 33-23035 Valuemark II...... Variable Deferred Annuity.
Allianz Account B............... 33-72046 Valuemark III..... Variable Deferred Annuity.
Allianz Account B............... 333-06709 Valuemark IV...... Variable Deferred Annuity.
----------------------------------------------------------------------------------------------------------------

8. In addition, Allianz Life has the following registration
statements that are effective, but no longer updated, for older
Contracts sponsored by Allianz Account A and Allianz Account B that are
no longer offered for sale and offer the Replaced Funds as Investment
Options:

[[Page 51538]]

Allianz Account A............. 33-11158 Allianz ValueLife Flexible Premium Variable Universal Life.
Allianz Account B............. 333-63719 USAllianz Charter Variable Deferred Annuity.
Allianz Account B............. 333-101812 USAllianz Charter Variable Deferred Annuity.
II.
Allianz Account B............. 333-47886 USAllianz Variable Deferred Annuity.
Dimensions.
Allianz Account A............. 333-60206 USAllianz Flexible Premium Variable Universal Life.
LifeFund.
Allianz Account B............. 33-76190 Valuemark Income Variable Immediate Annuity.
Plus.
Allianz Account A............. 33-15464 Valuemark Life... Single Premium Variable Life.
----------------------------------------------------------------------------------------------------------------

9. Currently Allianz NY has the following registration statements
which are effective and updated with the Commission for Contracts
sponsored by Allianz Account C that offer the Replaced Funds as
Investment Options:

10. In addition, Allianz NY has the following registration
statements that are effective, but no longer updated, for older
Contracts sponsored by Allianz Account C that are no longer offered for
sale and offer the Replaced Funds as Investment Options:

11. Applicants propose to substitute certain classes of shares of
the AZL Jennison 20/20 Focus Fund, AZL S&P 500 Index Fund, and AZL
Small Cap Stock Index Fund (each a ``Replacement Fund'' and
collectively the ``Replacement Funds'') for certain classes of shares
of the corresponding funds listed in the table below (each a ``Replaced
Fund'' and collectively the ``Replaced Funds'') currently held by the
Separate Accounts.

----------------------------------------------------------------------------------------------------------------
Replaced fund (adviser/
Replacement fund (subadviser) Share class(es) subadviser) Share class(es)
----------------------------------------------------------------------------------------------------------------
AZL Jennison 20/20 Focus Fund Class 2.................. Jennison 20/20 Focus Class 2.
(Jennison Associates LLC). Portfolio (Prudential
Investments LLC/
Jennison Associates
LLC).
AZL S&P 500 Index Fund (The Class 1.................. Dreyfus Stock Index Initial Service.
Dreyfus Corporation). Class 2.................. Fund, Inc. (The Dreyfus
Corporation).
AZL Small Cap Stock Index Fund Class 2.................. Dreyfus Investment Service.
(The Dreyfus Corporation). Portfolios Small Cap
Stock Index Portfolio
(The Dreyfus
Corporation).
----------------------------------------------------------------------------------------------------------------

12. Each Replacement Fund is a series of the VIP Trust, a Delaware
business trust. The VIP Trust is registered as an open-end management
investment company under the 1940 Act (File No. 811-9491) and its
shares are registered as securities under the Securities Act of 1933,
as amended (the ``1933 Act'') (File No. 333-83423).
13. Each of the Replacement Funds, as well as all other funds
offered by the VIP Trust, is managed by Allianz Investment Management
LLC (``AZIM''), a wholly owned subsidiary of Allianz Life. AZIM is
registered as an investment adviser with the Commission pursuant to the
Investment Advisers Act of 1940 (File No. 801-60167).
14. The AZL Jennison 20/20 Focus Fund is assessed a 12b-1 fee at an
annual rate of 0.25% of average daily net assets, which is the maximum
12b-1 fee permitted under its distribution plan. Class 1 shares of the
AZL S&P 500 Index Fund are not assessed a 12b-1 fee, while Class 2
shares of the AZL S&P 500 Index Fund are assessed a 12b-1 fee at an
annual rate of 0.25% of average daily net assets attributable to Class
2 shares, which is the maximum 12b-1 fee permitted under its
distribution plan. The AZL Small Cap Stock Index Fund is assessed a
12b-1 fee at an annual rate of 0.25% of average daily net assets, which
is the maximum 12b-1 fee permitted under its distribution plan.
15. Under the terms of a ``manager of managers'' exemptive order
issued by the Commission pursuant to Section 6(c) of the 1940 Act,
Investment Company Act Release No. 25734 (September 17, 2002), AZIM
selects and manages subadvisers for the various series of the VIP
Trust, subject to the oversight of the Board of Trustees of the VIP
Trust, without obtaining shareholder approval (the ``Manager of
Managers Order''). The relief granted in the Manager of Managers Order
extends to all of the Replacement Funds. The Replacement Funds are
offered to contractowners via prospectuses containing disclosure (1)
describing the existence, substance, and effect of the Manager of
Managers Order; (2) holding the Replacement Funds out to the public as
employing the management structure described in the application for the
Manager of Managers Order; and (3) explaining that AZIM has the
ultimate responsibility (subject to oversight by the Board of Trustees
of the

[[Page 51539]]

VIP Trust) to oversee the subadvisers and recommend their hiring,
termination, and replacement. The Replacement Funds' prospectuses will
be provided to each affected contractowner prior to the Substitutions.
16. The Dreyfus Investment Portfolios Small Cap Stock Index
Portfolio (``Dreyfus IP Small Cap Stock Index Portfolio'') is a series
of Dreyfus Investment Portfolios (``Dreyfus IP''). Service shares of
the Dreyfus IP Small Cap Stock Index Portfolio are assessed a 12b-1 fee
at an annual rate of 0.25% of average daily net assets, which is the
maximum 12b-1 fee permitted under its distribution plan.
Initial shares of the Dreyfus Stock Index Fund, Inc. are not
assessed a 12b-1 fee, while Service shares of the Dreyfus Stock Index
Fund, Inc. are assessed a 12b-1 fee at an annual rate of 0.25% of
average daily net assets attributable to Service shares, which is the
maximum 12b-1 fee permitted under its distribution plan. The Jennison
20/20 Focus Portfolio is a series of the Prudential Series Fund (the
``Prudential Series''). Class 2 shares are assessed a 12b-1 fee at an
annual rate of 0.25% of average daily net assets, which is the maximum
12b-1 fee permitted under its distribution plan.
17. The following chart summarizes the advisers, investment
objective, principal investment strategies, principal investment risks,
and asset size of the Jennison 20/20 Focus Portfolio and the AZL
Jennison 20/20 Focus Fund, as stated in their respective prospectuses
and statements of additional information.

------------------------------------------------------------------------
Replaced fund Replacement fund
------------------------------------------------------------------------
Fund Name................... Jennison 20/20 Focus AZL Jennison 20/20
Portfolio. Focus Fund.
------------------------------------------------------------------------
Adviser/Subadviser.......... Prudential AZIM/Jennison
Investments LLC/ Associates LLC.
Jennison Associates
LLC.
------------------------------------------------------------------------
Investment Objective........ Long-term growth of The investment
capital. objective of the
AZL Jennison 20/20
Focus Fund is long-
term growth of
capital. This means
that the Subadviser
seeks investments
whose prices will
increase over
several years.
------------------------------------------------------------------------
Principal Investment Invest in up to 40 The Fund normally
Strategies. equity and equity- invests at least
related securities 80% of its total
of U.S. companies assets in
that are selected approximately 40
by the Portfolio's (which may range up
two portfolio to 45) equity and
managers (up to 20 equity-related
by the value and 20 securities of
by the growth companies that the
portfolio manager) Subadviser believes
as having strong have strong capital
capital appreciation
appreciation potential. The
potential. Fund's strategy is
to combine the
efforts of two
portfolio managers
with different
styles (value and
growth).
------------------------------------------------------------------------
Principal Risks............. Company Market
risk. Risk.
Derivatives Selection
risk. Risk.
Foreign Focused
investment risk. Investment Risk.
[cir] Currency Value
risk. Stocks Risk.
[cir] Emerging Growth
market risk. Stocks Risk.
[cir] Foreign Initial
market risk. Public Offerings
Risk.
[cir] Information Frequent
risk. Trading.
[cir] Liquidity Foreign
risk. Risk.
[cir] Political Convertible
developments. Securities Risk.
[cir] Political Derivatives
risk. Risk.
[cir] Regulatory Real Estate
risk. Investments Risk.
Leveraging Credit
risk. Risk.
Management Interest
risk. Rate Risk.
Market Liquidity
risk. Risk.
------------------------------------------------------------------------
Fund Asset Level as of 12/31/ $379.9 million \1\.. $383.2 million.
07.
------------------------------------------------------------------------
\1\ Assets held in the Separate Accounts on December 31, 2007, were
$112.7 million.

18. The following chart compares the management fees and the total
operating expenses (before and after any waivers and reimbursements)
for the year ended December 31, 2007, expressed as an annual percentage
of average daily net assets, of the Jennison 20/20 Focus Portfolio and
the AZL Jennison 20/20 Focus Fund. As noted below, the Net Total
Operating Expenses are less for the AZL Jennison 20/20 Focus Fund than
for the Jennison 20/20 Focus Portfolio.

[In percent]
----------------------------------------------------------------------------------------------------------------
Replaced fund Replacement fund
----------------------------------------------------------------------------------------------------------------
Fund Name................... Jennison 20/20 Focus Portfolio AZL Jennison 20/20 Focus Fund
Management Fee.............. 0.75 0.77
12b-1 Fees.................. 0.25 0.25
Other Expenses.............. 0.22 0.10
Acquired Fund Fees & 0.00 0.00
Expenses.
Total Annual Fund Operating 1.22 1.12
Expenses.

[[Page 51540]]

Fee Waiver.................. 0.00 0.00
Net Annual Fund Operating 1.22 1.12
Expenses.
----------------------------------------------------------------------------------------------------------------

19. The following chart summarizes the advisers, investment
objective, principal investment strategies, principal investment risks,
and asset size of the Dreyfus Stock Index Fund, Inc., and the AZL S&P
500 Index Fund, as stated in their respective prospectuses and
statements of additional information.

20. The following chart compares the management fees and the total
operating expenses (before and after any waivers and reimbursements)
for the year ended December 31, 2007, expressed as an annual percentage
of average daily net assets, of the Dreyfus Stock Index Fund, Inc. and
the AZL S&P 500 Index Fund. As noted below, an expense cap will be in
place for the AZL S&P 500 Index Fund for two years from the date of the
Substitution so that the Net Total Operating Expenses for the AZL S&P
500 Index Fund are expected to be no greater than for the Dreyfus Stock
Index Fund, Inc.

[In percent]
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Replaced fund
Replacement fund
-------------------------------------------------------------------------------
Fund Name....................... Dreyfus Stock Index Fund, Inc.
AZL S&P 500 Index Fund
-------------------------------------------------------------------------------
Initial Class Service Class Class 1 Class 2
----------------------------------------------------------------------------------------------------------------
Management Fee.................. 0.25 0.25 0.17 0.17
12b-1 Fees...................... 0.00 0.25 0.00 0.25
Other Expenses.................. 0.02 0.02 0.31 0.31
Acquired Fund Fees & Expenses... 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------
Total Annual Fund Operating 0.27 0.52 0.48 0.73
Expenses.
Fee Waiver...................... 0.00 0.00 0.24 0.24
-------------------------------------------------------------------------------
Net Annual Fund Operating 0.27 0.52 *0.24 * 0.49
Expenses.
----------------------------------------------------------------------------------------------------------------
* Net Annual Fund Operating Expenses will be capped by the Fund's manager at 0.24% and 0.49%, net of Acquired
Fund Fees and Expenses, for Class 1 and Class 2 shares respectively for two years from the date of the
Substitution.

[[Page 51541]]

21. The following chart summarizes the advisers, investment
objective, principal investment strategies, principal investment risks,
and asset size of the Dreyfus IP Small Cap Stock Index Portfolio and
the AZL Small Cap Stock Index Fund, as stated in their respective
prospectuses and statements of additional information.
---------------------------------------------------------------------------

\2\ Includes $2.7 billion for initial shares and $532.7 million
for Service shares. Assets held in the Separate Accounts on December
31, 2007 were $20.1 million for Initial shares, $315.0 million for
Service shares.
\3\ Class 1 and Class 2 combined.

------------------------------------------------------------------------
Replaced fund Replacement fund
------------------------------------------------------------------------
Fund Name................... Dreyfus IP Small Cap AZL Small Cap Stock
Stock Index Index Fund.
Portfolio.
------------------------------------------------------------------------
Adviser/Subadviser.......... The Dreyfus AZIM/The Dreyfus
Corporation. Corporation.
------------------------------------------------------------------------
Investment Objective........ The portfolio seeks The AZL Small Cap
to match the Stock Index Fund
performance of the seeks to match the
Standard & Poor's performance of the
(S&P) SmallCap 600 Standard & Poor's
Index[supreg]. (S&P) Small Cap 600
Index[supreg].
------------------------------------------------------------------------
Principal Investment To pursue this goal, To pursue this goal
Strategies. the portfolio the Fund's
invests in a subadviser, The
representative Dreyfus Corporation
sample of stocks (``Dreyfus''),
included in the S&P invests in a
SmallCap 600 Index, representative
and in futures sample of stocks
whose performance included in the S&P
is related to the SmallCap 600
index, rather than Index[supreg] and
attempt to in futures whose
replicate the index. performance is
related to the
index, rather than
attempting to
replicate the
index.
------------------------------------------------------------------------
Principal Risks............. Market Market
Risk. Risk.
Issuer Indexing
Risk. Strategy Risk.
Small and
midsize company Capitalization
Risk. Risk.
Indexing Issuer
Strategy Risk. Risk.
Derivatives Derivatives
Risk. Risk.
License
Termination Risk.
------------------------------------------------------------------------
Fund Asset Level as of 12/31/ $373.4 million \4\.. $22.1 million. \5\
07.
------------------------------------------------------------------------

22. The following chart compares the management fees and the total
operating expenses (before and after any waivers and reimbursements)
for the year ended December 31, 2007, expressed as an annual percentage
of average daily net assets, of the Dreyfus IP Small Cap Stock Index
Portfolio and the AZL Small Cap Stock Index Fund. As noted below, an
expense cap will be in place for the AZL Small Cap Stock Index for two
years from the date of the Substitution so that the Net Total Operating
Expenses for the AZL Small Cap Stock Index Fund are expected to be no
greater than for the Dreyfus IP Small Cap Stock Index Portfolio.
---------------------------------------------------------------------------

\4\ Assets held in Separate Accounts on December 31, 2007 were
$227.1 million.
\5\ The fund commenced operations on May 1, 2007.

[In percent]
------------------------------------------------------------------------
Replaced fund Replacement fund
------------------------------------------------------------------------
Fund Name................... Dreyfus IP Small Cap AZL Small Cap Stock
Stock Index Index Fund
Portfolio
Management Fee.............. 0.35 0.26
12b-1 Fees.................. 0.25 0.25
Other Expenses.............. 0.01 0.36
Acquired Fund Fees & 0.00 0.00
Expenses.
Total Annual Fund Operating 0.61 0.87
Expenses.
Fee Waiver.................. 0.00 0.29
Net Annual Fund Operating 0.61 0.58
Expenses.
------------------------------------------------------------------------

23. As a result of the Substitutions, the number of Investment
Options under each Contract will either not be decreased, or, in those
cases where the number of Investment Options is being reduced, continue
to offer a significant number of alternative Investment Options.
Specifically, the number of Investment Options is currently expected to
range in number from 29 to 75 after the Substitutions versus 29 to 78
before the Substitutions.
24. At the close of business on the day of the Substitution (the
``Substitution Date''), Insurance Company Applicants will each redeem
shares of the Replaced Funds held by their Separate Accounts in kind
and apply the proceeds of such redemptions to the purchase shares of
the corresponding Replacement Funds. Thus, after the Substitutions,
each subaccount of the Separate Accounts previously holding shares of a
Replaced Fund will hold shares of the corresponding Replacement Fund.
25. Redemption requests and purchase orders will be placed
simultaneously so that redemption of Replaced Fund shares and purchase
of Replacement Fund shares will both occur at the price for such shares
computed as of the close of business on the Substitution Date in a
manner consistent with Rule 22c-1 under the 1940 Act. As a result, the
full net asset value of the Replaced Fund shares held by the Separate
Accounts will be reflected in the contractowners' Contract values
following the Substitutions, without reduction for brokerage or other
such fees or charges. All expenses incurred in connection with the
Substitutions, including legal, accounting, transactional, and other
fees and expenses, including brokerage

[[Page 51542]]

commissions, will be paid by Insurance Company Applicants, or the
manager of the Replacement Funds. Accordingly, Contract value
attributable to contractowners then invested in the Replaced Funds will
remain fully invested at all times, and the Substitutions will take
place at relative net asset value with no change in the amount of any
contractowner's Contract value, death benefit, or in the dollar value
of his or her investments in the applicable Separate Account.
26. Affected contractowners will not incur any fees or charges in
connection with the Substitutions so that the net asset value of
redeemed shares of the Replaced Funds held by the Separate Accounts
will be reflected in the contractowners' Contract values following the
Substitutions. Moreover, neither the obligations of the respective
Insurance Company Applicants under the Contracts nor the rights of
contractowners will be altered in any way by the Substitutions. The
Substitutions will not impose any tax liability or have any adverse tax
consequences on contractowners. The Substitutions will not cause
Contract fees and charges currently being paid by existing owners of
Contracts to be greater after the Substitutions than they were before
the Substitutions. For a period of at least 30 days following the
Substitutions, Insurance Company Applicants will not exercise any right
it may have under the Contracts to impose restrictions on transfers
except pursuant to any Investment Option allocation restrictions under
the Contracts.6
27. From the date that notice of the Substitutions was provided to
affected contractowners by means of a prospectus supplement (the ``Pre-
Substitution Supplement'') through the date 30 days after the
Substitution (the ``Free Transfer Period''), the respective Insurance
Company Applicants will allow the affected contractowners to make one
transfer of Contract value held in each subaccount investing in the
Replaced Funds (before the Substitutions) or Replacement Fund (after
the Substitutions) to one or more Investment Options available pursuant
to the Contracts without charge and without assessing transfer fees.
Such a transfer also will not be counted as a transfer request under
any contractual provisions of the Contracts that limit the number of
transfers that may be made without charge.
28. Under the Manager of Managers Order, subject to the approval of
the Board of Trustees of the VIP Trust, AZIM may retain one or more
subadvisers for any fund of the VIP Trust without the approval of
shareholders of the fund. However, after the Substitution Date,
Insurance Company Applicants represent that AZIM will not retain any
new subadviser for the AZL S&P 500 Index Fund and the AZL Small Cap
Stock Index Fund, or otherwise rely on the Manager of Managers Order in
connection with AZL S&P 500 Index Fund and the AZL Small Cap Stock
Index Fund, without first obtaining shareholder approval of either: (1)
the new subadviser, or (2) the fund's ability to rely on the Manager of
Managers Order.
29. Notice of the Substitutions and Free Transfer Period has been
given to all affected contractowners by means of the Pre-Substitution
Supplement for each of the Contracts stating that Applicants have filed
the application and seek approval of the Substitutions. The Pre-
Substitution Supplement sets forth the anticipated Substitution Date
and advises affected contractowners that Contract values allocated to
subaccounts investing in shares of the Replaced Funds will be
transferred to subaccounts investing in shares of the Replacement
Funds, without charge (including sales charges or surrender charges)
and without counting toward the number of transfers that may be
permitted without charge, on the Substitution Date. The Pre-
Substitution Supplement states that, during the Free Transfer Period,
affected contractowners may make one transfer of Contract value from
each subaccount investing in a Replaced Fund (before the Substitutions)
or a Replacement Fund (after the Substitutions) to one or more other
subaccount(s), subject to any Investment Option allocation restrictions
under their Contract, without charge and without the transfer counting
against any limitations on transfers. Further, prior to the
Substitutions, all affected contractowners will receive a copy of the
most recent prospectus for the Replacement Funds.
30. Within five days following the Substitutions, Insurance Company
Applicants will send a written notice to affected contractowners
stating that the Substitutions were carried out and reiterating the
information set forth in the Pre-Substitution Supplement.
31. For those who were contractowners on the date of the proposed
Substitutions, Insurance Company Applicants will reimburse, on the last
business day of each fiscal period (not to exceed a fiscal quarter)
during the 24 months following the Substitution Date, those
contractowners whose subaccount invests in any Replacement Fund such
that the sum of such Replacement Fund's (a) operating expenses (taking
into account fee waivers and expense reimbursements), net of any
acquired fund fees and expenses, and (b) asset-based fees and charges
for the Contracts for such period will not exceed, on an annualized
basis, the sum of the corresponding Replaced Fund's operating expenses
(taking into account any fee waiver or expense reimbursement) and
subaccount expenses for the fiscal year ended December 31, 2007.
Thereafter, expenses for the Replacement Funds will vary from year to
year and may exceed those of the corresponding Replaced Funds.

Applicants' Legal Analysis

1. Applicants represent that Section 26(c) of the 1940 Act makes it
unlawful for any depositor or trustee of a registered unit investment
trust holding the security of a single issuer to substitute another
security for such security unless the Commission approves the
substitution. Applicants note that the Commission will approve such a
substitution if the evidence establishes that it is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
2. Applicants note the legislative history makes clear that
Congress intended Section 26(c) of the 1940 Act to provide the
Commission scrutiny of proposed substitutions that could otherwise, in
effect, force shareholders dissatisfied with the substituted security
to redeem their shares, thereby possibly incurring either a loss of the
sales load deducted from initial purchase payments, an additional sales
load upon reinvestment of the proceeds of redemption, or both.
3. Applicants assert that Section 26(c) of the 1940 Act would not
appear to have been designed to prohibit transactions like the
Substitutions, in which a number of customer protections are provided,
including the fact that the applicable unit investment trusts (the
Separate Accounts) offer in excess of 63 different Investment Options.
4. Applicants claim that the purposes, terms, and conditions of the
Substitutions are consistent with the principles and purposes of
Section 26(c) of the 1940 Act and do not entail any of the abuses that
Section 26(c) of the 1940 Act is designed to prevent. Contractowners
will not be assessed charges in connection with the Substitutions and
their annual fund net total operating expenses are expected to remain
the same or decrease. In addition, to the extent a contractowner does
not wish to participate in the

[[Page 51543]]

Substitutions, he or she is free to make one transfer to any other
option available under the relevant Contract at any time prior to the
date of the Substitutions or during the 30-day period following the
date of the Substitutions without any transfer fee and without that
transfer counting as a transfer request under any contractual
provisions of the Contracts that limit the number of transfers that may
be made without charge. Moreover, the Contracts have features that
Applicants believe provide adequate protection to contractowners. These
features include:
(1) A significant number of different Investment Options;
(2) Investment Options that are reasonably diversified;
(3) Investment Options that are reasonably seasoned;
(4) Reasonable transferability between Investment Options;
(5) Investment choices that include an option that is intended to
reduce or eliminate fluctuation of principal; and
(6) Reasonable liquidity in the form of free partial withdrawal
rights.
5. In addition, contractowners will be substituted into Replacement
Funds whose investment objectives, principal investment policies, and
risks Applicants believe will be substantially similar or virtually
identical to those of the corresponding Replaced Funds, with net total
operating expenses that are anticipated to be equal to or less than
those of their corresponding Replaced Funds. Like the Replaced Funds
which are not assessed a 12b-1 fee, their corresponding Replacement
Funds will not be assessed a 12b-1 fee.
6. In addition to substantially similar or virtually identical
investment objectives, principal investment policies, and risks, as
well as anticipated equal or lower net total operating expenses,
Applicants maintain that the types of investment advisory and
administrative services that will be provided to the Replacement Funds
by their subadvisers will be comparable to the types of investment
advisory and administrative services currently provided to the Replaced
Funds by their respective investment advisers. Contractowners who
become beneficial owners of the Replacement Funds as a result of the
proposed Substitutions will enjoy continuity of their asset manager.
These Replacement Funds will be managed by AZIM, but the asset
management activity will be handled by the subadviser that currently
manages the corresponding Replaced Fund.
7. Moreover, because the Replacement Funds operate pursuant to the
Manager of Managers Order, Applicants believe that the proposed
Substitutions will provide protection to contractowners by giving AZIM
the flexibility to change the subadvisers of the Replacement Funds
should such a change become warranted or advisable. Thus, Applicants
will provide contractowners with investment vehicles following the
Substitutions that will be substantially similar to those offered prior
to the Substitutions.
8. In further support of their contention that the Substitutions do
not present the type of costly forced redemption or other harms that
Section 26(c) of the 1940 Act was intended to guard against and are
consistent with the protection of investors and the purposes fairly
intended by the 1940 Act, Applicants note that the Substitutions will
be subject to the following terms and conditions:
(1) A contractowner may request that his or her Contract value be
reallocated to another Investment Option, subject to any Investment
Option allocation restrictions under their Contract, at any time during
the Free Transfer Period without charge. The Free Transfer Period
provides sufficient time for contractowners to reconsider their
Investment Options;
(2) The Substitutions will be at net asset value of the respective
shares, without the imposition of any transfer, brokerage or similar
charge;
(3) Neither the contractowners, the Replaced Funds, nor the
Replacement Funds will bear any costs of the Substitutions, and all
legal, accounting, and transactional costs and any brokerage or other
costs incurred in the Substitutions will be paid by Insurance Company
Applicants or the managers to the Replacement Funds, and accordingly,
the Substitutions will have no impact on the contractowners' Contract
values;
(4) The Substitutions will in no way alter the contractual
obligations of Insurance Company Applicants or the rights and
privileges of contractowners under the Contracts; and
(5) The Substitutions will in no way alter the tax benefits to
contractowners.
9. Applicants request an order of the Commission pursuant to
Section 26(c) of the 1940 Act approving the Substitutions on the terms
set forth in this Application. Applicants believe, for all of the
reasons stated above, that each Substitution is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the 1940 Act.
10. Section 17 Applicants also request that the Commission issue an
order pursuant to Section 17(b) of the 1940 Act exempting them from
Section 17(a) of the 1940 Act to the extent necessary to permit
Insurance Company Applicants to carry out the Substitutions by
redeeming shares of the Replaced Funds in kind and using the proceeds
to purchase shares of the Replacement Funds.
11. Section 17(a)(1) of the 1940 Act prohibits any affiliated
person of a registered investment company, or an affiliated person of
an affiliated person, acting as principal, from selling any security or
other property to such registered investment company. Section 17(a)(2)
of the 1940 Act prohibits any of the persons described above, acting as
principal, from purchasing any security or other property from such
registered investment company. Section 2(a)(3) of the 1940 Act defines
the term ``affiliated person'' of another person in relevant part as:

(A) Any person directly or indirectly owning, controlling, or
holding with power to vote, five per centum or more of the
outstanding voting securities of such other person; (B) any person
five per centum or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to
vote, by such other person; (C) any person directly or indirectly
controlling, controlled by, or under common control with, such other
person; (D) any officer, director, partner, copartner, or employee
of such other person; (E) if such other person is an investment
company, any investment adviser thereof or any member of an advisory
board thereof; and (F) if such other person is an unincorporated
investment company not having a board of directors, the depositor
thereof.

12. Applicants may be considered affiliates of each of the
Replacement Funds based upon the definition of ``affiliated person'' in
Section 2(a)(3) of the 1940 Act. Shares of the funds of the VIP Trust
are held solely by Separate Accounts. Because shares held by a separate
account of an insurance company are legally owned by the insurance
company, Insurance Company Applicants, and their affiliates
collectively, own of record all of the shares of the funds of the VIP
Trust, including the Replacement Funds. Further, AZIM, an affiliated
person of the VIP Trust by virtue of Section 2(a)(3) (E) of the 1940
Act, is a wholly owned subsidiary of Allianz Life. For these reasons,
the VIP Trust and the Replacement Funds are arguably under the control
of Insurance Company Applicants notwithstanding the fact that
contractowners may be considered the beneficial owners of those shares
held in the Separate Accounts. If the VIP Trust and the Replacement
Funds are under the control of Insurance Company Applicants, then
Insurance Company Applicants, or any person controlling

[[Page 51544]]

Insurance Company Applicants, or any person under common control with
Insurance Company Applicants, is an affiliated person of the VIP Trust
and the Replacement Funds. Similarly, if the VIP Trust and the
Replacement Funds are under the control of Insurance Company
Applicants, then the VIP Trust and the Replacement Funds are affiliated
persons of Insurance Company Applicants, and of any persons that
control Insurance Company Applicants or are under common control with
Insurance Company Applicants.
At the close of business on the Substitution Date, Insurance
Company Applicants will redeem shares of the Replaced Funds either in
kind or in cash and use the proceeds of such redemptions to purchase
shares of the corresponding Replacement Funds, with each subaccount of
the applicable Separate Account investing the proceeds of its
redemption from the Replaced Funds in the applicable Replacement Funds.
Thus, the proposed transactions may involve a transfer of portfolio
securities by the Replaced Funds to Insurance Company Applicants;
immediately thereafter, Insurance Company Applicants would purchase
shares of the Replacement Funds with the portfolio securities received
from the Replaced Funds. This aspect of the Substitutions may be deemed
to involve one or more sales by Insurance Company Applicants of
securities or other property to the Replacement Funds. Accordingly,
this aspect of the Substitutions could be viewed as being prohibited by
Section 17(a) of the 1940 Act. Accordingly, Section 17 Applicants seek
relief from Section 17(a) of the 1940 Act for the in-kind purchases and
sales of the Replacement Fund shares.
13. Section 17 Applicants assert that any in-kind redemptions and
purchases for purposes of the Substitutions will be effected in a
manner consistent with the investment objectives and policies of the
Replacement Funds. Subject to the oversight of AZIM, the subadvisers of
each of the Replacement Funds will review the securities holdings of
their corresponding Replaced Fund and determine which of the Replaced
Fund holdings would be suitable investments for the corresponding
Replacement Fund in the overall context of that Replacement Fund's
investment objective and policies and consistent with their management
of the Replacement Fund, and will accept only those securities as
consideration for shares that it would have acquired for each such fund
in a cash transaction. Section 17 Applicants submit that these
portfolio securities will be of the type and quality that the
Replacement Funds would each have acquired with the proceeds from share
sales had the shares been sold for cash.
14. Section 17 Applicants state that any securities to be paid out
as redemption proceeds and subsequently contributed to the Replacement
Funds to effect the contemplated in-kind purchases of shares will be
valued in accordance with the normal valuation procedures of the
redeeming and purchasing portfolios. The redeeming and purchasing
values will be the same. Consistent with Rule 17a-7(d) under the 1940
Act, no brokerage commissions, fees, or other remuneration will be paid
by the Replaced Funds or the Replacement Funds in connection with the
in-kind transactions. If AZIM declines to accept particular portfolio
securities of any of the Replaced Funds for purchase of in-kind shares
of any of the Replacement Funds, those positions will be liquidated by
the applicable Replaced Fund, and shares of the corresponding
Replacement Fund will be purchased with cash.
15. Section 17(b) of the 1940 Act provides that the Commission may,
upon application, grant an order exempting any transaction from the
prohibitions of Section 17(a) of the 1940 Act if the evidence
establishes that: (1) The terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and
do not involve overreaching on the part of any person concerned; (2)
the proposed transaction is consistent with the policy of each
registered investment company concerned, as recited in its registration
statement and records found under the 1940 Act; and (3) the proposed
transaction is consistent with the general purposes of the 1940 Act.
16. Section 17 Applicants submit that the terms of the
Substitutions, including the consideration to be paid and received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned principally because the transactions will conform with
all but one of the conditions enumerated in Rule 17a-7 under the 1940
Act. The use of in-kind transactions will not cause contractowner
interests to be diluted. The proposed transactions will take place at
relative net asset value in conformity with the requirements of Section
22(c) of the 1940 Act and Rule 22c-1 thereunder with no change in the
amount of any contractowner's Contract value or death benefit or in the
dollar value of his or her investment in any of the Separate Accounts.
Contractowners will not suffer any adverse tax consequences as a result
of the Substitutions. Fees and charges under the Contracts will not
increase because of the Substitutions. Even though they may not rely on
Rule 17a-7 under the 1940 Act, Section 17 Applicants submit that the
Rule's conditions outline the type of safeguards that result in
transactions that are fair and reasonable to registered investment
company participants and preclude overreaching in connection with an
investment company by its affiliated persons.
17. The board of the VIP Trust has adopted procedures, as required
by paragraph (e)(1) of Rule 17a-7 under the 1940 Act (the ``17a-7
Procedures''), pursuant to which the Replacement Funds may purchase and
sell securities to and from their affiliates. Section 17 Applicants
will carry out the proposed in-kind purchases in conformity with all of
the conditions of Rule 17a-7 and the 17a-7 Procedures, except that the
consideration paid for the securities being purchased or sold may not
be entirely cash. Nevertheless, the circumstances surrounding the
proposed Substitutions will be such as to offer to each Replacement
Fund the same degree of protection from overreaching that Rule 17a-7
provides to them generally in connection with their purchase and sale
of securities under that Rule in the ordinary course of their business.
In particular, Insurance Company Applicants (or any of their
affiliates) cannot effect the proposed transactions at a price that is
disadvantageous to any of the Replacement Funds. Although the
transactions may not be entirely for cash, each will be effected based
upon (1) the independent market price of the portfolio securities
valued as specified in paragraph (b) of Rule 17a-7, and (2) the net
asset value per share of each fund involved, valued in accordance with
the procedures disclosed in its respective registration statement and
as required by Rule 22c-1 under the 1940 Act. No brokerage commission,
fee, or other remuneration will be paid to any party in connection with
the proposed transactions. The transactions will be reviewed by the
Chief Compliance Officer of the VIP Trust, or his agents, and will be
reported to the VIP Trust's Board of Trustees in the same manner as any
other 17a-7 transaction by any of the Replacement Funds would be
reported.
18. Section 17 Applicants also submit that the in-kind portfolio
security transactions are consistent with the policies of the
Replacement Funds and the VIP Trust as recited in the current
registration statements and reports filed by each under the 1940 Act.

[[Page 51545]]

19. In addition, Section 17 Applicants submit that the proposed in-
kind portfolio security transactions are consistent with the general
purposes of the 1940 Act as stated in the Findings and Declaration of
Policy in Section 1 of the 1940 Act. The proposed transactions do not
present any of the conditions or abuses that the 1940 Act was designed
to prevent. Further, Section 17 Applicants note that securities to be
paid out as redemption proceeds and subsequently contributed to the
Replacement Funds to effect the contemplated in-kind purchases of
shares will be valued based on the normal valuation procedures of the
redeeming Replaced Funds and purchasing Replacement Funds. Therefore,
there will be no change in value to any contractowner as a result of
the Substitutions.

Conclusion

Applicants assert that for the reasons summarized above that the
proposed Substitutions and related transactions meet the standards of
Section 26(c) of the Act and are consistent with the standards of
Section 17(b) of the Act and that the requested orders should be
granted.

For the Commission, by the Division of Investment Management
pursuant to delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-20398 Filed 9-2-08; 8:45 am]

BILLING CODE 8010-01-P