
[Federal Register: November 5, 2008 (Volume 73, Number 215)]
[Notices]               
[Page 65892-65900]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05no08-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28480; File No. 812-13474]

 
Allianz Life Insurance Company of North America, et al; Notice of 
Application

October 30, 2008.
AGENCY: Securities and Exchange Commission (``SEC'' or ``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'' or ``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'') and Allianz Life Insurance Company of New York (``Allianz NY'') 
(together the ``Insurance Company Applicants''), their respective 
separate accounts Allianz Life Variable Account A (``Allianz Account 
A''), Allianz Life Variable Account B (``Allianz Account B''), and 
Allianz Life of NY Variable Account C (``Allianz Account C'') 
(collectively with the Insurance Company Applicants, the 
``Applicants''), and Allianz Variable Insurance Products Trust (the 
``VIP Trust'' and collectively with the Applicants, the ``Section 17 
Applicants'').

Summary of Application: The Applicants seek an order pursuant to 
section 26(c) of the 1940 Act, approving the substitution of certain 
securities (the ``Substitution'') issued by the Franklin Templeton 
Variable Insurance Products Trust (``FTVIPT'') and held by Allianz 
Account A, Allianz Account B, or Allianz Account C (collectively, the 
``Separate Accounts'') to support certain variable annuity contracts 
and variable life insurance contracts (the ``Contracts'') issued by 
Allianz Life and Allianz NY. The section 17 Applicants seek an order 
pursuant to section 17(b) of the 1940 Act exempting them to the extent 
necessary to permit them to engage in certain in-kind transactions in 
connection with the Substitution.

Filing Date: The application was filed on January 11, 2008 and amended 
on October 30, 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 should be received by the 
Commission by 5:30 p.m. on November 24, 2008, and should be accompanied 
by proof of service on Applicants 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, SEC, 100 F Street, NE., Washington, DC 20549-
1090. Applicants, Allianz Life Insurance Company of North America, 5701 
Golden Hills Dr., Minneapolis, MN 55416-1297.

FOR FURTHER INFORMATION CONTACT: Sally Samuel, Senior Counsel, or Joyce 
M. Pickholz, 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 SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549 (tel. (202) 551-8090).

Applicants' and VIP Trust's Representations

    1. The Applicants propose to substitute certain classes of shares 
of the AZL Schroder Emerging Markets Equity Fund (the ``New Fund'') for 
the corresponding class of shares of the Templeton Developing Markets 
Securities Fund (the ``Replaced Fund'') currently held by the Separate 
Accounts. The following table shows the share classes of the New Fund 
and the Replaced Fund (each, a ``Fund'' and collectively, the 
``Funds'') involved in the Substitution:

[[Page 65893]]



----------------------------------------------------------------------------------------------------------------
                                                                   Replaced fund
 New fund (adviser/subadviser)           Share classes               (adviser)              Share classes
----------------------------------------------------------------------------------------------------------------
AZL Schroder Emerging Markets    Class 1                        Templeton           Class 1.
 Equity Fund (Allianz            Class 2.*                       Developing         Class 2.*
 Investment Management LLC/                                      Markets
 Schroder Investment Management                                  Securities Fund
 North America Inc.) **.                                         (Templeton Asset
                                                                 Management Ltd.).
----------------------------------------------------------------------------------------------------------------
\*\ A distribution fee is assessed against assets attributable to this class of shares at the annual rate of
  0.25% of the average daily net assets attributable to the class.
\**\ Prior to December 10, 2007, the AZL Schroder Emerging Markets Equity Fund was subadvised by
  OppenheimerFunds, Inc. and was known as the AZL Oppenheimer Developing Markets Fund. Effective December 10,
  2007, pursuant to an exemptive order issued to the VIP Trust on September 17, 2002, the VIP Trust replaced
  OppenheimerFunds, Inc. with Schroder Investment Management North America Inc. as subadviser to the Fund.

    2. The New Fund is a series of the VIP Trust, a Delaware statutory 
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).
    3. Shares of the VIP Trust are sold to separate accounts of Allianz 
Life and Allianz NY for the purpose of funding variable annuity 
contracts and variable life insurance policies. The New Fund, 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 that was formerly known as Allianz Life Advisers, LLC.
    4. The following table shows the inception date and net assets at 
December 31, 2007 for each class of shares of the New Fund:

------------------------------------------------------------------------
                                                 Net assets at December
           New fund            Inception date           31, 2007
------------------------------------------------------------------------
AZL Schroder Emerging Markets
 Equity Fund
    Class 1..................          5/6/07  $359,359.
    Class 2..................          5/1/06  $249.2 million.
------------------------------------------------------------------------

    5. Class 1 and Class 2 shares are substantially identical, except 
that Class 1 shares are not assessed a 12b-1 fee while Class 2 shares 
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 the New Fund's Distribution Plan. Class 1 shares 
are currently available to owners of certain Contracts that are no 
longer offered for sale. Class 2 shares are currently available to 
owners of certain Contracts that are currently offered for sale. Both 
Class 1 and Class 2 shares are included in the proposed Substitution.
    6. Prior to December 10, 2007, the New Fund was subadvised by 
OppenheimerFunds, Inc. and was known as the AZL Oppenheimer Developing 
Markets Fund. Effective December 10, 2007, the VIP Trust replaced 
OppenheimerFunds, Inc. with Schroder Investment Management North 
America Inc. (``SIMNA'') as the subadviser to the New Fund.
    7. The Replaced Fund is a series of FTVIPT. Shares of FTVIPT are 
registered as securities under the 1933 Act (File No. 033-23493). The 
Replaced Fund is managed by Templeton Asset Management Ltd., which is 
not an affiliate of the Insurance Company Applicants.
    8. The following table shows the inception date and net assets at 
December 31, 2007, for each class of shares of the Replaced Fund:

------------------------------------------------------------------------
                                                 Net assets at December
        Replaced fund          Inception date           31, 2007
------------------------------------------------------------------------
Templeton Developing Markets
 Securities Fund
    Class 1..................          1/1/97  $753.8 million.
    Class 2..................          5/1/97  $1.1 billion.
------------------------------------------------------------------------

    9. Class 1 and Class 2 shares of the Replaced Fund are currently 
available under certain Contracts issued by the Insurance Company 
Applicants. Class 1 and Class 2 shares are substantially identical, 
except that Class 1 shares are not assessed a 12b-1 fee while Class 2 
shares are assessed a 12b-1 fee at an annual rate of 0.25% of average 
daily net assets attributable to Class 2 shares. Class 1 shares are 
currently available to owners of certain Contracts that are no longer 
offered for sale. Class 2 shares are currently available to owners of 
certain Contracts that are currently offered for sale. Both Class 1 and 
Class 2 shares are included in the proposed Substitution.
    10. Pursuant to a ``manager of managers'' exemptive order issued by 
the Commission pursuant to section 6(c) of the 1940 Act providing an 
exemption from section 15(a) of the 1940 Act and Rule 18f-2 under the 
1940 Act (Order No. 25734, dated 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 the New 
Fund. The New Fund is offered to contract owners via a prospectus 
containing disclosure (1) describing the existence, substance, and 
effect of the Manager of Managers Order; (2) holding the New Fund 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 VIP Trust) to oversee the subadvisers and recommend 
their hiring, termination, and replacement. The New Fund's

[[Page 65894]]

prospectus will be provided to each affected contract owner prior to 
the Substitution.
    11. Subaccounts investing in Class 1 shares of the Replaced Fund 
and Class 1 shares of the New Fund are currently available only to 
owners of certain Contracts that are no longer offered for sale by the 
Insurance Company Applicants. Pursuant to the proposed Substitution, 
the Insurance Company Applicants will replace Class 1 shares of the 
Replaced Fund held in its subaccounts on the date of the Substitution 
with Class 1 shares of the New Fund.
    12. Subaccounts investing in Class 2 shares of the Replaced Fund 
and Class 2 shares of the New Fund are currently available to owners of 
certain Contracts currently offered for sale by the Insurance Company 
Applicants. Pursuant to the proposed Substitution, the Insurance 
Company Applicants will replace Class 2 shares of the Replaced Fund 
held in its subaccounts on the date of the Substitution with Class 2 
shares of the New Fund.
    13. It is currently anticipated that the Substitution will occur as 
soon as practicable following receipt of the Order of the Commission 
requested herein (the ``Substitution Date''). After the Substitution 
Date, subaccounts investing in the Replaced Fund will no longer be 
available under the Contracts to any contract owner.
    14. Allianz Life is a stock life insurance company organized under 
the laws of the state of Minnesota in 1896. Allianz NY is a stock life 
insurance company organized under the laws of the state of New York on 
September 21, 1982. Allianz Life and Allianz NY are subsidiaries of 
Allianz SE, a ``Societas Europaea'' or European stock corporation 
headquartered in Munich, Germany.
    15. 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. Each of the Separate Account Applicants meets the 
definition of a ``separate account'' in Rule 0-1(e) under the 1940 Act.
    16. Allianz Account A is a segregated asset account of Allianz 
Life. Allianz Account A was established by Allianz Life on May 31, 
1985, under Minnesota insurance laws. Allianz Account A is used to fund 
certain variable life insurance policies issued by Allianz Life. 
Allianz Account A is currently divided into a number of subaccounts, 
each of which invests in a specific underlying registered investment 
company or portfolio thereof (each an ``Investment Option''). Allianz 
Account A is registered as a unit investment trust under the 1940 Act 
(File No. 811-04965). Allianz Life does not currently issue any new 
Contracts that allow contract owners to invest in any of the 
subaccounts of Allianz Account A.
    17. Allianz Account B is a segregated asset account of Allianz 
Life. Allianz Account B was established by Allianz Life on May 31, 
1985, under Minnesota insurance laws. Allianz Account B 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 a specific Investment Option. Allianz Account B is 
registered as a unit investment trust under the 1940 Act (File No. 811-
05618).
    18. Allianz Account C is a segregated asset account of Allianz NY. 
Allianz Account C was established by Allianz NY on February 26, 1988, 
under New York insurance laws. Allianz Account C 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 a specific Investment Option. Allianz Account C is 
registered as a unit investment trust under the 1940 Act (File No. 811-
05716).
    19. 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.
    20. Allianz Life Financial Services, LLC (``Allianz Life 
Financial''), a Minnesota limited liability company and a wholly owned 
subsidiary of Allianz Life, serves as the principal underwriter of the 
Contracts. Allianz Life Financial is registered as a broker dealer with 
the Commission under the Securities Exchange Act of 1934 (the ``1934 
Act'') as well as with the securities commissions in the states in 
which it operates. 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 for the sale of the Contracts. These selling firms include third 
party broker/dealers and Questar Capital Corporation, an affiliated 
broker/dealer.
    21. Currently, Allianz Life has no effective registration 
statements for Contracts sponsored by Allianz Account A. The table 
below shows effective registration statements with the Commission for 
Contracts sponsored by Allianz Account B that offer the Replaced Fund 
as an Investment Option:

----------------------------------------------------------------------------------------------------------------
           Separate account              Registration No.         Contract name             Type of contract
----------------------------------------------------------------------------------------------------------------
Allianz Account B.....................           333-82329  Allianz Alterity (Class 2  Variable Deferred
                                                             shares).                   Annuity.
Allianz Account B.....................           333-90260  Allianz High Five (Class   Variable Deferred
                                                             2 shares).                 Annuity.
Allianz Account B.....................          333-111049  Allianz High Five Bonus    Variable Deferred
                                                             (Class 2 shares).          Annuity.
Allianz Account B.....................          333-120181  Allianz High Five L        Variable Deferred
                                                             (Class 2 shares).          Annuity.
Allianz Account B.....................           333-95729  Allianz Rewards (Class 2   Variable Deferred
                                                             shares).                   Annuity.
Allianz Account B.....................            33-23035  Valuemark II (Class 1      Variable Deferred
                                                             shares).                   Annuity.
Allianz Account B.....................            33-72046  Valuemark III (Class 1     Variable Deferred
                                                             shares).                   Annuity.
Allianz Account B.....................           333-06709  Valuemark IV (Class 1      Variable Deferred
                                                             shares).                   Annuity.
----------------------------------------------------------------------------------------------------------------

    22. In addition, Allianz Life has the following registration 
statements that are effective, but no longer updated, for Contracts 
sponsored by Allianz Account A and Allianz Account B that are no longer 
offered for sale (the ``A and B Great Wested Contracts'') but which 
offer the Replaced Fund as an Investment Option:

----------------------------------------------------------------------------------------------------------------
           Separate account              Registration No.         Contract Name             Type of contract
----------------------------------------------------------------------------------------------------------------
Allianz Account A.....................            33-11158  Allianz ValueLife (Class   Flexible Premium Variable
                                                             1 shares).                 Universal Life.

[[Page 65895]]


Allianz Account B.....................           333-63719  USAllianz Charter (Class   Variable Deferred
                                                             2 shares).                 Annuity.
Allianz Account B.....................          333-101812  USAllianz Charter II       Variable Deferred
                                                             (Class 2 shares).          Annuity.
Allianz Account B.....................           333-47886  USAllianz Dimensions       Variable Deferred
                                                             (Class 2 shares).          Annuity.
Allianz Account A.....................           333-60206  USAllianz LifeFund (Class  Flexible Premium Variable
                                                             2 shares).                 Universal Life.
Allianz Account B.....................            33-76190  Valuemark Income Plus      Variable Immediate
                                                             (Class 1 shares).          Annuity.
Allianz Account A.....................            33-15464  Valuemark Life (Class 1    Single Premium Variable
                                                             shares).                   Life.
----------------------------------------------------------------------------------------------------------------

    23. Currently Allianz NY has the following effective registration 
statements with the Commission for Contracts sponsored by Allianz 
Account C that offer the Replaced Fund as an Investment Option:

----------------------------------------------------------------------------------------------------------------
           Separate account              Registration No.         Contract name             Type of contract
----------------------------------------------------------------------------------------------------------------
Allianz Account C.....................           333-19699  Allianz Advantage NY       Variable Deferred
                                                             (Class 2 shares).          Annuity.
Allianz Account C.....................          333-105274  Allianz Charter II NY      Variable Deferred
                                                             (Class 2 shares).          Annuity.
Allianz Account C.....................           333-75718  Allianz Opportunity NY     Variable Deferred
                                                             (Class 2 shares).          Annuity.
----------------------------------------------------------------------------------------------------------------

    24. In addition, Allianz NY has the following registration 
statements that are effective, but no longer updated, for Contracts 
sponsored by Allianz Account C (the ``C Great Wested Contracts'') that 
are no longer offered for sale but which offer the Replaced Fund as an 
Investment Option:

----------------------------------------------------------------------------------------------------------------
           Separate account              Registration No.         Contract name             Type of contract
----------------------------------------------------------------------------------------------------------------
Allianz Account C.....................            33-26646  Valuemark II NY (Class 1   Variable Deferred
                                                             shares).                   Annuity.
Allianz Account C.....................           333-19699  Valuemark IV NY (Class 1   Variable Deferred
                                                             shares).                   Annuity.
----------------------------------------------------------------------------------------------------------------

    25. The Contracts allow contract owners to allocate premium and 
contract value among the subaccounts investing in a large number of 
Investment Options in a wide variety of asset categories that are 
managed by a large number of asset managers. The exact number of 
Investment Options available varies somewhat from Contract to Contract, 
depending on when the Contracts were first offered, whether the 
Contracts are currently offered for sale, which separate account issued 
the Contract, product design, and other similar factors. All of the 
Contracts that are currently offered for sale offer 75 Investment 
Options. Both the A and B Great Wested Contracts and the C Great Wested 
Contracts offer a minimum of 34 Investment Options. The number of 
Investment Options available in the Contracts affected by the 
Substitution is shown in the Application.
    26. Under the Contracts, the 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 the 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 the 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.
    27. The proposed Substitution is part of an overall business plan 
of the Insurance Company Applicants to make their respective products 
more efficient to monitor and administer and more competitive (both in 
terms of new sales and the retention of existing business). The 
Insurance Company Applicants believe that more concentrated and 
streamlined operations for Investment Options will result in increased 
operational and administrative efficiencies and economies of scale for 
the Insurance Company Applicants. In particular, the Insurance Company 
Applicants feel that concentrating the number of non-affiliated asset 
managers that advise or subadvise the Investment Options available 
through the Contracts will simplify the administration of the Contracts 
with regard to communications with asset managers and contract owners, 
and simplify the preparation of various reports and disclosure 
documents. Furthermore, the Insurance Company Applicants feel that by 
reducing the number of non-affiliated asset managers that manage 
Investment Options underlying their Contracts and increasing the 
Investment Options for which AZIM serves as the investment manager, 
they will increase their ability to effectively manage the Investment 
Options available to contract owners. Because AZIM operates pursuant to 
the Manager of Managers Order, the replacement of portfolio managers or 
subadvisers when appropriate could be effected more efficiently and the 
need for fund changes that may affect contract owners may be reduced, 
thereby facilitating appropriate long-term strategic planning for 
contract owners.
    28. For these reasons and the reasons discussed below, the 
Applicants believe that substituting the New Fund for the Replaced Fund 
is appropriate and in the best interests of the contract owners.
    29. The Insurance Company Applicants believe that the New Fund is 
an appropriate replacement for the Replaced Fund because its investment 
objective and principal investment policies are substantially similar 
to those of the Replaced Fund. In addition, the principal investment 
risks of the Replaced Fund and the New Fund are substantially similar. 
Comparisons of the investment objectives, principal investment policies 
and principal investment risks of the Funds are set forth in the 
Application.

[[Page 65896]]

    30. 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 Replaced Fund and the New Fund.

----------------------------------------------------------------------------------------------------------------
                                                   Templeton developing markets    AZL schroder emerging markets
                                                          securities fund                   equity fund
                                                 ---------------------------------------------------------------
                                                      Class 1         Class 2         Class 1         Class 2
                                                     (percent)       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Management Fee..................................            1.23            1.23          * 1.23          * 1.23
Distribution (12b-1) Fees.......................            0.00            0.25            0.00            0.25
Other Expenses..................................            0.25            0.25            0.48            0.48
Acquired Fund Fees and Expenses.................            0.00            0.00            0.00            0.00
Total Annual Fund Operating Expenses............            1.48            1.73            1.71            1.96
Fee Waiver......................................            0.00            0.00         ** 0.31         ** 0.31
Net Annual Fund Operating Expenses..............            1.48            1.73         ** 1.40        ** 1.65
----------------------------------------------------------------------------------------------------------------
* AZIM and the Fund have entered into a written agreement whereby AZIM has voluntarily reduced the management
  fee to 0.95% through April 30, 2009.
** AZIM and the AZL Schroder Emerging Markets Equity Fund have entered into a written contract limiting
  operating expenses to 1.40% and 1.65% for Class 1 and Class 2 shares, respectively through April 30, 2009.
  AZIM and the AZL Schroder Emerging Markets Equity Fund have agreed to limit Fund operating expenses, net of
  acquired fund fees and expenses, to an amount not greater than 1.48% and 1.73% for Class 1 and Class 2 shares
  respectively for 24 months from the date of the Substitution.

    31. The following table shows the assets and performance of the 
Funds for the years shown:

----------------------------------------------------------------------------------------------------------------
                                                                          Net assets (M)
                                                 ---------------------------------------------------------------
                                                       At December 31, 2007            At December 31, 2006
                                                 ---------------------------------------------------------------
                                                      Class 1         Class 2         Class 1         Class 2
----------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund....          $753.8        $1,090.6          $749.1          $857.5
AZL Schroder Emerging Markets Equity Fund *.....         (1) 0.4           249.2         (1) N/A        (2) 93.7
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                       Annual total returns
                                                 ---------------------------------------------------------------
                                                               2007                            2006
                                                 ---------------------------------------------------------------
                                                      Class 1         Class 2         Class 1         Class 2
                                                     (percent)       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund....           29.09           28.78           28.43           28.09
AZL Schroder Emerging Markets Equity Fund *.....   (1) (3) 19.23           30.32         (1) N/A   (2) (4) 8.65
----------------------------------------------------------------------------------------------------------------
* Prior to December 10, 2007, the AZL Schroder Emerging Markets Equity Fund was subadvised by OppenheimerFunds,
  Inc. and was known as the AZL Oppenheimer Developing Markets Fund.
\1\ Class 1 shares of the AZL Schroder Emerging Markets Equity Fund commenced operations on May 6, 2007.
\2\ Class 2 shares of the AZL Schroder Emerging Markets Equity Fund commenced operations on May 1, 2006.
\3\ Annualized for the period from commencement of operations on May 6, 2007, through December 31, 2007.
\4\ Annualized for the period from commencement of operation on May 1, 2006, through December 31, 2006.

    32. Applicants hereby request the Commission's approval to effect 
the substitution of shares of the New Fund for shares of the Replaced 
Fund as follows:
     Class 1 shares of the AZL Schroder Emerging Markets Equity 
Fund for Class 1 shares of the Templeton Developing Markets Securities 
Fund; and
     Class 2 shares of the AZL Schroder Emerging Markets Equity 
Fund for Class 2 shares of the Templeton Developing Markets Securities 
Fund.
    33. At the close of business on the Substitution Date, Allianz Life 
and Allianz NY will each redeem shares of the Replaced Fund held by 
their Separate Accounts in kind and apply the proceeds of such 
redemptions to the purchase of shares of the New Fund. Thus, after the 
Substitution, each subaccount of the Separate Accounts previously 
holding shares of the Replaced Fund will hold shares of the New Fund.
    34. Redemption requests and purchase orders will be placed 
simultaneously so that redemption of Replaced Fund shares and purchase 
of New 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 
Account Applicants will be reflected in the contract owners' contract 
values following the Substitution, without reduction for brokerage or 
other such fees or charges. All expenses incurred in connection with 
the Substitution, including legal, accounting, transactional, and other 
fees and expenses, including brokerage commissions, will be paid by 
Allianz Life, Allianz NY, or the manager of the New Fund. Accordingly, 
contract value attributable to contract owners then invested in the 
Replaced Fund will remain fully invested at all times, and the 
Substitution will take place at relative net asset value with no change 
in the amount of any contract owner's contract value, death benefit, or 
in the

[[Page 65897]]

dollar value of his or her investment in the applicable Separate 
Account.
    35. Affected contract owners will not incur any fees or charges in 
connection with the Substitution so that the net asset value of 
redeemed shares of the Replaced Fund held by the Separate Account 
Applicants will be reflected in the contract owners' contract values 
following the Substitution. Moreover, neither the obligations of the 
respective Insurance Company Applicants under the Contracts nor the 
rights of contract owners will be altered in any way by the 
Substitution. The Substitution will not impose any tax liability or 
have any adverse tax consequences on contract owners. The Substitution 
will not cause Contract fees and charges currently being paid by 
existing owners of Contracts to be greater after the Substitution than 
they were before the Substitution. For a period of at least 30 days 
following the Substitution, neither Allianz Life nor Allianz NY will 
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. One exception to this 
would be restrictions that Allianz Life or Allianz NY may impose to 
deter or prevent ``market timing'' activities by owners of Contracts or 
their agents.
    36. The Insurance Company Applicants and VIP Trust represent that 
AZIM and the VIP Trust have entered into a written contract whereby 
during the 24 months following the Substitution Date, the annualized 
total net operating expenses, net of any acquired fund fees and 
expenses, of the New Fund (taking into account applicable fee waivers 
and expense reimbursements) will not exceed the total net operating 
expenses, net of any acquired fund fees and expenses, of the Replaced 
Fund for the fiscal year ended December 31, 2007. In addition, for the 
24 months following the Substitution Date, the Insurance Company 
Applicants will not increase asset-based fees and charges for the 
Contracts outstanding on the Substitution Date. Thereafter, expenses 
for the New Fund will vary from year to year and may exceed those of 
the Replaced Fund.
    37. The Insurance Company Applicants mailed a Notice of 
Substitution (the ``Notice'') to affected contract owner stating that 
during the period from the date of the Notice through the date 30 days 
after the Substitution (the ``Free Transfer Period''), the respective 
Insurance Company Applicants will allow the affected contract owners to 
make one transfer of contract value held in each subaccount investing 
in the Replaced Fund (before the Substitution) or New Fund (after the 
Substitution) 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.
    38. Under the Manager of Managers Order, subject to the approval of 
its Board of Trustees, the VIP Trust may retain one or more subadvisers 
for any of its Funds without the approval of shareholders of the Fund. 
However, after the Substitution Date, Applicants and VIP Trust 
represent that the VIP Trust will not retain any new subadviser for the 
New Fund, or otherwise rely on the Manager of Managers Order in 
connection with the New Fund, without first obtaining shareholder 
approval of either: (1) The new subadviser or (2) the New Fund's 
ability to rely on the Manager of Managers Order.
    39. The Notice was mailed to all affected owners on August 11-12, 
2008. The Notice informed contract owners of each of the Contracts that 
the Applicants have filed the Application seeking approval of the 
Substitution. The Notice set forth the anticipated Substitution Date 
and advised affected contract owners that contract values allocated to 
subaccounts investing in shares of the Replaced Fund will be 
transferred to subaccounts investing in shares of the New Fund, 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 Notice also stated that, during 
the Free Transfer Period, affected contract owners may make one 
transfer of contract value from each subaccount investing in the 
Replaced Fund (before the Substitution) or the New Fund (after the 
Substitution) 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 Substitution, all affected contract 
owners will receive a copy of the most recent prospectus for the New 
Fund.
    40. Within five days following the Substitution, the Insurance 
Company Applicants will send a written notice to affected contract 
owners stating that the Substitution was carried out and reiterating 
the information set forth in the Notice.

Applicants' Legal Analysis

    1. Section 26(c) of the 1940 Act provides as follows: It shall be 
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 shall have approved 
such substitution. The Commission shall issue an order approving such 
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 this title.
    2. The purposes, terms, and conditions of the Substitution are 
consistent with the principles and purposes of section 26(c) and do not 
entail any of the abuses that section 26(c) is designed to prevent. 
Contract owners will not be assessed charges in connection with the 
Substitution and their annual fund net total operating expenses are 
expected to remain the same or decrease. In addition, to the extent a 
contract owner does not wish to participate in the Substitution, 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 Substitution 
or during the 30-day period following the date of the Substitution 
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 provide adequate protection 
to contract owners. 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.
    3. In addition, contract owners will be substituted into the New 
Fund whose investment objective, principal investment policies, and 
risks will be substantially similar to those of the Replaced Fund, with 
net total operating expenses that are anticipated to be equal to or 
less than those of the Replaced Fund after applicable fee waivers and 
expense reimbursements. Like the Class 1 shares of the Replaced Fund 
which are not assessed a 12b-1 fee, the corresponding Class 1 shares of 
the New Fund will not be assessed a 12b-1 fee.

[[Page 65898]]

    4. The following chart summarizes the similarities and differences 
between the Replaced Fund and the New Fund:

------------------------------------------------------------------------
                                       Templeton         AZL Schroder
                                  developing markets   emerging markets
                                    securities fund       equity fund
------------------------------------------------------------------------
Net Total Operating Expenses (12/ 1.48% (Class 1)...  1.40% (Class 1).
 31/2007).                        1.73% (Class 2)...  1.65% (Class 2).
Investment Objectives...........  Long-term capital   Capital
                                   appreciation.       Appreciation.
Investment Policies (summary)...  The Fund invests    The Fund invests
                                   at least 80% of     at least 80% of
                                   its net assets in   its net assets,
                                   emerging market     plus any
                                   investments.        borrowings for
                                                       investment
                                                       purposes, in
                                                       equity securities
                                                       of companies the
                                                       Fund's subadviser
                                                       believes to be
                                                       ``emerging
                                                       market'' issuers.
Risks...........................  Stock Risk; Value   Market Risk;
                                   Style Investing;    Selection Risk;
                                   Foreign             Capitalization
                                   Securities;         Risk; Foreign
                                   Smaller and         Risk; Emerging
                                   Midsize             Markets Risk;
                                   Companies;          Currency Risk;
                                   Country, Sector     Market Risk;
                                   or Industry         Derivatives Risk;
                                   Focus; Liquidity.   Convertible
                                                       Securities Risk;
                                                       Investments in
                                                       Pooled Vehicles
                                                       Risk; Liquidity
                                                       Risk; Initial
                                                       Public Offerings
                                                       Risk.
Type of Advisory Services.......  Managed by          Subadvised by
                                   Templeton Asset     Schroder
                                   Management Ltd.     Investment
                                                       Management North
                                                       America Inc.
Total Annual Return for period
 ended December 31, 2007
    Class 1.....................  29.09%............  19.23% *.
    Class 2.....................  28.78%............  30.32%.
Assets Under Management at Dec.
 31, 2007
    Class 1.....................  $753.8 million **.  $0.4 million ****.
    Class 2.....................  $1.1 billion **...  $249.2 million.
------------------------------------------------------------------------
* Annualized for the period from commencement of operations on May 1,
  2007 through December 31, 2007.
** Assets held in the Separate Accounts on December 31, 2007, were $85.3
  million for Class 1 shares and $268.3 million for Class 2 shares.
*** Class 1 shares of the AZL Schroder Emerging markets Equity Fund
  commenced operations on May 6, 2007.

    5. For a period of 24 months from the date of the Substitution, the 
New Fund ( AZL Schroder Emerging Markets Equity Fund)) will be subject 
to an expense cap limiting the net total operating expenses for the New 
Fund to a maximum of 1.48% for Class 1 shares and 1.73% for Class 2 
shares, respectively. These expense caps are equal to the net total 
operating expenses for Class 1 and Class 2 shares of the Replaced Fund 
(Templeton Developing Markets Securities Fund) for the fiscal year 
ended December 31, 2007. No 12b-1 fees are assessed to Class 1 shares 
of either the Replaced Fund or the New Fund. Identical 12b-1 fees of 
0.25% of average daily net assets are assessed to Class 2 shares of 
both the Replaced Fund and the New Fund.
    6. The investment objectives and policies are substantially similar 
for both Funds since both generally invest in common stocks of 
companies in emerging markets. The risks listed are very similar for 
both Funds and are consistent with the risks generally applicable to 
investing in emerging market equity funds.
    7. In addition to substantially similar investment objectives, 
principal investment policies and risks, as well as anticipated equal 
or lower net total operating expenses, the advisory services that are 
provided to the New Fund by its subadviser are comparable to the types 
of advisory services currently provided to the Replaced Fund by its 
investment adviser. Moreover, because the New Fund operates pursuant to 
the Manager of Managers Order, Applicants believe that the proposed 
Substitution will provide protection to contract owners by giving AZIM 
the flexibility to change the subadviser of the New Fund should such a 
change become warranted or advisable, provided that subsequent to the 
Substitution, AZIM first obtains shareholder approval of either: (1) 
The new subadviser or (2) the New Fund's ability to rely on the Manager 
of Managers Order.

Terms and Conditions of Section 26(c) Relief

    1. Applicants submit that the Substitution does not present the 
type of costly forced redemption or other harms that section 26(c) was 
intended to guard against and is consistent with the protection of 
investors and the purposes fairly intended by the 1940 Act. As noted 
above, the Substitution is consistent with contract owners' objectives 
and risk expectations because the investment objective, principal 
investment policies and risks of the New Fund are substantially similar 
to those of the Replaced Fund. In addition, the net total operating 
expenses of the New Fund are anticipated to be equal to or less than 
those of the Replaced Fund, after applicable fee waivers and expense 
reimbursements that will be in place for the New Fund for a period of 
24 months following the Substitution.
    2. As noted above, the Contracts contain features that provide 
adequate protection to contract owners in the event of a substitution. 
Moreover, the Substitution will be subject to the following terms and 
conditions: (1) A contract owner 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 contract owners to reconsider their 
Investment Options; (2) the Substitution will be at the net asset value 
of the respective shares, without the imposition of any transfer, 
brokerage or similar charge; (3) neither the contract owners, the 
Replaced Fund, nor the New Fund will bear any costs of the 
Substitution, and all legal, accounting, and transactional costs and 
any brokerage or other costs incurred in the Substitution will be paid 
by the Insurance Company Applicants or the manager of the New Fund, and 
accordingly, the Substitution will have no impact on the contract 
owners' contract values; (4) the Substitution will in no way alter the 
contractual obligations of the Insurance Company Applicants or the 
rights and privileges

[[Page 65899]]

of contract owners under the Contracts; and (5) the Substitution will 
in no way alter the tax benefits to contract owners.
    3. The Applicants, on the basis of the facts and circumstances 
described herein, have determined that it is in the best interests of 
contract owners to substitute shares of the Replaced Fund with shares 
of the New Fund.
    4. Applicants request an Order of the Commission pursuant to 
Section 26(c) of the 1940 Act approving the Substitution on the terms 
set forth in this Application. Applicants believe, for all of the 
reasons stated above, that the Substitution is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the 1940 Act.

Section 17(b) Relief

    1. The 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 them to 
carry out the Substitution through in-kind purchases and sales of the 
New Fund shares.
    2. 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.
    3. The Section 17 Applicants may be considered affiliates of the 
New Fund 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 the Separate Accounts. Because shares held by a separate 
account of an insurance company are legally owned by the insurance 
company, Allianz Life and Allianz NY and their affiliates collectively 
own of record all of the shares of the funds of the VIP Trust, 
including the New Fund. 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 New Fund are arguably under the control of Allianz Life and Allianz 
NY notwithstanding the fact that contract owners may be considered the 
beneficial owners of those shares held in the Separate Accounts. If the 
VIP Trust and the New Fund are under the control of Allianz Life and 
Allianz NY, then each of Allianz Life and Allianz NY, or any person 
controlling Allianz Life and Allianz NY, or any person under common 
control with Allianz Life and Allianz NY, is an affiliated person of 
the VIP Trust and the New Fund. Similarly, if the VIP Trust and the New 
Fund are under the control of Allianz Life and Allianz NY, then the VIP 
Trust and the New Fund are affiliated persons of Allianz Life and 
Allianz NY, and of any persons that control Allianz Life and Allianz NY 
or are under common control with Allianz Life and Allianz NY.
    4. At the close of business on the Substitution Date, the Insurance 
Company Applicants will redeem shares of the Replaced Fund either in-
kind or in cash and use the proceeds of such redemptions to purchase 
shares of the New Fund, with each subaccount of the applicable Separate 
Account investing the proceeds of its redemption from the Replaced Fund 
in the New Fund. Thus, the proposed transactions may involve a transfer 
of portfolio securities by the Replaced Fund to Allianz Life and 
Allianz NY. Immediately thereafter, Allianz Life and Allianz NY would 
purchase shares of the New Fund with the portfolio securities received 
from the Replaced Fund. This aspect of the Substitution may be deemed 
to involve one or more sales by Allianz Life or Allianz NY of 
securities or other property to the New Fund, and could therefore be 
viewed as being prohibited by section 17(a). Accordingly, the section 
17 Applicants seek relief from section 17(a) for the in-kind purchases 
and sales of the New Fund shares. The section 17 Applicants do not 
believe that the redemption of shares of the Replaced Fund in 
connection with the Substitution would involve a transaction with a 
registered investment company of which it is an affiliated person. The 
redemption of shares of the Replaced Fund will be carried out in 
accordance with the Signature Financial Group no-action letter 
(publicly available December 28, 1999).
    5. Any in-kind redemptions and purchases for purposes of the 
Substitution will be effected in a manner consistent with the 
investment objectives and policies of the Replaced Fund and the New 
Fund. Subject to the oversight of AZIM, the subadviser of the New Fund 
will review the securities holdings of the Replaced Fund and determine 
which of the Replaced Fund's portfolio holdings would be suitable 
investments for the New Fund in the overall context of the New Fund's 
investment objective and policies and consistent with its management of 
the New Fund, and will accept only those securities as consideration 
for shares that it would have acquired for each such Fund in a cash 
transaction. The section 17 Applicants represent that these portfolio 
securities will be of the type and quality that the New Fund would have 
acquired with the proceeds from share sales had the shares been sold 
for cash.
    6. The section 17 Applicants state that any securities to be paid 
out as redemption proceeds and subsequently contributed to the New Fund 
to effect the contemplated in-kind purchases of shares will be valued 
based on the procedures established by the board of VIP Trust. 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 Fund or the New Fund in 
connection with the in-kind transactions. If AZIM declines to accept 
particular portfolio securities of the Replaced Fund for purchase in-
kind of shares of the New Fund, those positions will be liquidated by 
the Replaced Fund and shares of the New Fund will be purchased with 
cash.
    7. 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) 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.
    8. The section 17 Applicants submit that the terms of the 
Substitution, 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 contract owner 
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 contract owner's contract value or death benefit or in 
the dollar value of his or her investment in any of the Separate 
Accounts. The proposed transaction

[[Page 65900]]

cannot be effected at a price that is disadvantageous to either the 
Replaced Fund or the New Fund. Contract owners will not suffer any 
adverse tax consequences as a result of the Substitution. Fees and 
charges under the Contracts will not increase because of the 
Substitution. Even though they may not rely on Rule 17a-7 under the 
1940 Act, the 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.
    9. The board of the VIP Trust has adopted procedures, as required 
by paragraph (e)(1) of Rule 17a-7 under the 1940 Act, pursuant to which 
the New Fund may purchase and sell securities to and from its 
affiliates. The section 17 Applicants will carry out the proposed in-
kind purchases in conformity with all of the conditions of Rule 17a-7 
and the New Fund's procedures thereunder, except that the consideration 
paid for the securities being purchased or sold may not be entirely 
cash. Nevertheless, the circumstances surrounding the proposed 
Substitution will be such as to offer to the New Fund the same degree 
of protection from overreaching that Rule 17a-7 provides to the New 
Fund generally in connection with its purchase and sale of securities 
under that Rule in the ordinary course of its business. In particular, 
Allianz Life and Allianz NY (or any of their affiliates) cannot effect 
the proposed transactions at a price that is disadvantageous to the New 
Fund. 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. Further, the 
transactions will be reviewed by the Chief Compliance Officer of the 
VIP Trust on behalf of the VIP Trust's Board of Trustees and will be 
reported to VIP Trust's Board of Trustees in the same manner as any 
other Rule 17a-7 transaction involving the New Fund would be reported.
    10. The proposed transactions also are reasonable and fair in that 
they will be effected in a manner consistent with the public interest 
and the protection of investors. Contract owners will be fully informed 
of the terms of the Substitution and they will be provided a prospectus 
for the New Fund. In addition, contract owners will have the 
opportunity to make a free transfer from the New Fund to any other 
available Investment Option offered under their Contract, subject to 
any Investment Option allocation restrictions under their Contract, 
during the Free Transfer Period.
    11. The section 17 Applicants also submit that the Substitution is 
consistent with the policies of the Replaced Fund and the VIP Trust as 
recited in the current registration statement and reports filed under 
the 1940 Act.
    12. In addition, section 17 Applicants submit that the proposed 
Substitution is 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. 
Securities to be paid out as redemption proceeds from the Replaced Fund 
and subsequently contributed to the New Fund to effect the contemplated 
in-kind purchases of shares will be valued in accordance with the 
requirements of Rule 17(a)-7. Therefore, there will be no change in 
value to any contract owner as a result of the Substitution.

Conclusion

    For the reasons and upon the facts set forth above, the Applicants 
and the section 17 Applicants believe that the requested order meets 
the standards set forth in section 26(c) and section 17(b), 
respectively, and should therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-26390 Filed 11-4-08; 8:45 am]

BILLING CODE 8011-01-P
