
[Federal Register Volume 76, Number 116 (Thursday, June 16, 2011)]
[Notices]
[Pages 35249-35256]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14895]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[[Release No. IC-29693; File No. 812-13821]


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

June 10, 2011.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order approving the substitution 
of certain securities 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.

-----------------------------------------------------------------------

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 PIMCO Equity Series VIT (the ``PIMCO EqS VIT'' 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 the 
securities of the PIMCO EqS Pathfinder Portfolio for the securities of 
the Mutual Global Discovery Securities Fund (the ``Substitution) held 
by Allianz Account A, Allianz Account B, or Allianz Account C 
(collectively, the ``Separate Accounts'' or ``Separate Account 
Applicants'') to support certain individual 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 from Section 
17(a) of the Act 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 September 14, 2010, and 
amended on October 6, 2010, October 12, 2010 and May 26, 2011.
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 and PIMCO EqS VIT with a copy of the 
request, personally or by mail. Hearing requests should be received by 
the Commission by 5:30 p.m. on July 5, 2011, and should be accompanied 
by proof of service on Applicants and PIMCO EqS VIT 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, 
Allianz Life Variable Account A, and Allianz Life Variable Account B, 
5701 Golden Hills Dr., Minneapolis, MN 55416-1297; Allianz Life 
Insurance Company of New York, and Allianz Life of NY Variable Account 
C, One Chase Manhattan Plaza, 37th Floor, New York, NY 10005-1423; and 
PIMCO Equity Series VIT, 840 Newport Center Drive, Newport Beach, CA 
92660.

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 via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
    Applicants' and PIMCO EqS VIT's Representations:
    1. The Applicants propose to substitute certain classes of shares 
of the PIMCO EqS Pathfinder Portfolio (the ``Replacement Fund'') for 
the corresponding class of shares of the Mutual Global Discovery 
Securities Fund (the ``Replaced Fund'') currently held by the Separate 
Accounts, as shown in the table below:

                                   The Replacement Fund and the Replaced Fund
                                [Each a ``Fund'' and collectively the ``Funds'']
----------------------------------------------------------------------------------------------------------------
   Replacement Fund  (investment                             Replaced Fund  (investment
              adviser)                    Share classes               adviser)                Share classes
----------------------------------------------------------------------------------------------------------------
PIMCO EqS Pathfinder Portfolio \TM\  Institutional Class...  Mutual Global Discovery     Class 1
(Pacific Investment Management       Advisor Class *.......   Securities Fund (Franklin  Class 2*
 Company LLC or ``PIMCO'').                                   Mutual Advisers, LLC).
----------------------------------------------------------------------------------------------------------------
* A distribution (12b-1) 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.

    2. The Replacement Fund is a series of the PIMCO EqS VIT, a 
Delaware statutory trust. The PIMCO EqS VIT is registered as an open-
end management investment company under the 1940 Act (File No. 811-
22376) and its shares are registered as securities under the Securities 
Act of 1933, as amended (the ``1933 Act'') (File No. 333-164078).
    3. Shares of the Replacement Fund are sold to separate accounts of 
Allianz Life and Allianz NY for the purpose of

[[Page 35250]]

funding variable annuity contracts and variable life insurance 
policies. The Replacement Fund is managed by PIMCO, an affiliate of the 
Insurance Company Applicants.
    4. The Replaced Fund is a series of Franklin Templeton Variable 
Insurance Products Trust (``FTVIPT''), a Delaware statutory trust. 
FTVIPT is registered as an open-end management investment company under 
the 1940 Act (File No. 811-05583), and its shares are registered as 
securities under the 1933 Act (File No. 033-23493). The Replaced Fund 
is managed by Franklin Mutual Advisers, LLC, which is not an affiliate 
of the Insurance Company Applicants.
    5. The following table shows the inception date and net assets at 
December 31, 2010, for each class of shares of the Replaced Fund:

------------------------------------------------------------------------
                                                       Net assets at
         Replaced Fund            Inception date     December 31,  2010
------------------------------------------------------------------------
Mutual Global Discovery
 Securities Fund:
    Class 1...................  Nov. 8, 1996.....  $84.2 million*
    Class 2...................  Jan. 6, 1999.....  1.35 billion**
------------------------------------------------------------------------
* As of December 31, 2010, approximately 99.9% of the assets in Class 1
  of the Replaced Fund would have been transferred to Institutional
  Class of the Replacement Fund.
** As of December 31, 2010, approximately 36.4% of the assets in Class 2
  of the Replaced Fund would have been transferred to Advisor Class of
  the Replacement Fund.

    6. The following table shows the inception date and net assets at 
December 31, 2010, for each class of shares of the Replacement Fund:

------------------------------------------------------------------------
                                                        Net assets at
        Replacement Fund           Inception date     December 31,  2010
------------------------------------------------------------------------
PIMCO EqS Pathfinder
 Portfolio\TM\
    Institutional Class........  April 14, 2010....  $3.3 million.
    Advisor Class..............  April 14, 2010....  2.5 million.
------------------------------------------------------------------------

    7. Subaccounts investing in Class 1 shares of the Replaced Fund and 
Institutional Class shares of the Replacement Fund are 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 shares of 
subaccounts investing in Class 1 shares of the Replaced Fund on the 
date of the Substitution with Institutional Class shares of the 
Replacement Fund.
    8. Subaccounts investing in Class 2 shares of the Replaced Fund and 
Advisor Class shares of the Replacement Fund are available to owners of 
various Contracts, including Contracts that are no longer offered for 
sale and Contracts currently offered for sale by the Insurance Company 
Applicants. Pursuant to the proposed Substitution, the Insurance 
Company Applicants will replace shares of subaccounts investing in 
Class 2 shares of the Replaced Fund on the date of the Substitution 
with Advisor Class shares of the Replacement Fund.
    9. It is currently anticipated that the Substitution will occur on 
or about July 22, 2011, or as soon thereafter as may be practicable 
following receipt of the requested Order of the Commission (the 
``Substitution Date''). Following the Substitution, the Replaced Fund 
will no longer be offered under any Contract issued by Allianz Life or 
Allianz NY.
    10. Allianz Life is a stock life insurance company organized under 
the laws of the state of Minnesota in 1896. Allianz Life offers fixed 
and variable annuities and individual life insurance. Allianz Life is 
licensed to do direct business in 49 states and the District of 
Columbia. Allianz Life is a subsidiary of Allianz SE, a ``Societas 
Europaea'' or European stock corporation.
    11. Allianz NY is a stock life insurance company organized under 
the laws of the state of New York on September 21, 1982. Allianz NY 
offers fixed and variable annuities. Allianz NY is licensed to do 
direct business in six states, including New York and the District of 
Columbia.
    12. 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 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''). Allianz Account A is registered as a unit 
investment trust under the 1940 Act (File No. 811-04965).
    13. 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 and reflects the investment performance of a specific 
Investment Option. Allianz Account B is registered as a unit investment 
trust under the 1940 Act (File No. 811-05618).
    14. 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 and reflects the investment performance of a specific 
Investment Option. Allianz Account C is registered as a unit investment 
trust under the 1940 Act (File No. 811-05716).
    15. The table below shows current and effective registration 
statements with the Commission for Contracts funded by Allianz Account 
B that offer the Replaced Fund as an Investment Option:

[[Page 35251]]



----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                                                                                                     Investment
          Separate account            Registration       Contract name         Type of contract       Options
                                           No.                                                        (total/
                                                                                                   unaffiliated)
----------------------------------------------------------------------------------------------------------------
Allianz Account B..................       333-82329  Allianz Alterity       Variable Deferred             67/25
                                                      \(2)\.                 Annuity.
Allianz Account B..................      333-145866  Allianz Connections    Variable Deferred             52/11
                                                      \(2)\.                 Annuity.
Allianz Account B..................       333-90260  Allianz High Five      Variable Deferred             61/24
                                                      \(2)\.                 Annuity.
Allianz Account B..................      333-120181  Allianz High Five      Variable Deferred             57/20
                                                      L.\(2)\.               Annuity.
Allianz Account B..................       333-95729  Allianz Rewards \(2)\  Variable Deferred             66/25
                                                                             Annuity.
Allianz Account B..................      333-139701  Allianz Vision \(2)\.  Variable Deferred             52/11
                                                                             Annuity.
Allianz Account B..................        33-23035  Valuemark II \(1)\...  Variable Deferred             62/25
                                                                             Annuity.
Allianz Account B..................       333-06709  Valuemark IV \(1)\...  Variable Deferred             62/25
                                                                             Annuity.
----------------------------------------------------------------------------------------------------------------
\(1)\ Only Class 1 shares are available through this contract.
\(2)\ Only Class 2 shares are available through this contract.

    16. In addition, Allianz Life has the following registration 
statements that are no longer updated for eleven Contracts funded by 
Allianz Account A and Allianz Account B (the ``A and B Great Wested 
Contracts''). Although the A and B Great Wested Contracts are no longer 
offered for sale, they do offer the Replaced Fund as an Investment 
Option:

----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                                                                                                     Investment
          Separate account            Registration       Contract name         Type of contract       Options
                                           No.                                                        (Total/
                                                                                                   unaffiliated)
----------------------------------------------------------------------------------------------------------------
Allianz Account B..................      333-126217  Allianz Custom Income  Variable Deferred              28/8
                                                      \(2)\.                 Annuity.
Allianz Account B..................      333-134267  Allianz Elite \(2)\..  Variable Deferred             49/13
                                                                             Annuity.
Allianz Account A..................        33-11158  Allianz ValueLife      Flexible Premium              32/17
                                                      \(1)\.                 Variable Universal
                                                                             Life.
Allianz Account B..................      333-111049  Allianz High Five      Variable Deferred             57/20
                                                      Bonus \(2)\.           Annuity.
Allianz Account B..................       333-63719  USAllianz Charter      Variable Deferred             42/23
                                                      \(2)\.                 Annuity.
Allianz Account B..................      333-101812  USAllianz Charter II   Variable Deferred             46/22
                                                      \(2)\.                 Annuity.
Allianz Account B..................       333-47886  USAllianz Dimensions   Variable Deferred             38/22
                                                      \(2)\.                 Annuity.
Allianz Account A..................       333-60206  USAllianz LifeFund     Flexible Premium              44/22
                                                      \(2)\.                 Variable Universal
                                                                             Life.
Allianz Account B..................        33-72046  Valuemark III \(1)\..  Variable Deferred             62/25
                                                                             Annuity.
Allianz Account B..................        33-76190  Valuemark Income Plus  Variable Immediate            54/23
                                                      \(1)\.                 Annuity.
Allianz Account A..................        33-15464  Valuemark Life \(1)\.  Single Premium                32/17
                                                                             Variable Life.
----------------------------------------------------------------------------------------------------------------
\(1)\ Only Class 1 shares are available through this contract.
\(2)\ Only Class 2 shares are available through this contract.

    17. Currently Allianz NY has the following current and effective 
registration statement with the Commission for one Contract funded by 
Allianz Account C that offers the Replaced Fund as an Investment 
Option:

----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                                                                                                     Investment
          Separate account            Registration       Contract name         Type of contract       Options
                                           No.                                                        (Total/
                                                                                                   Unaffiliated)
----------------------------------------------------------------------------------------------------------------
Allianz Account C..................      333-143195  Allianz Vision NY-     Variable Deferred             52/11
                                                      (Only Class 2 shares   Annuity.
                                                      available).
----------------------------------------------------------------------------------------------------------------

    18. In addition, Allianz NY has the following registration 
statements that are no longer updated for six Contracts funded by 
Allianz Account C (the ``C Great Wested Contracts''). Although the C 
Great Wested Contracts are no longer offered for sale, they do offer 
the Replaced Fund as an Investment Option:

----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                                                                                                     Investment
          Separate account            Registration       Contract name         Type of contract       Options
                                           No.                                                        (Total/
                                                                                                   Unaffiliated)
----------------------------------------------------------------------------------------------------------------
Allianz Account C..................       333-19699  Allianz Advantage NY   Variable Deferred             65/25
                                                      \(2)\.                 Annuity.
Allianz Account C..................      333-105274  Allianz Charter II NY  Variable Deferred             61/21
                                                      \(2)\.                 Annuity.
Allianz Account C..................      333-124767  Allianz High Five NY   Variable Deferred             57/20
                                                      \(2)\.                 Annuity.
Allianz Account C..................       333-75718  Allianz Opportunity    Variable Deferred             65/25
                                                      NY \(2)\.              Annuity.

[[Page 35252]]

 
Allianz Account C..................        33-26646  Valuemark II NY \(1)\  Variable Deferred             32/17
                                                                             Annuity.
Allianz Account C..................       333-19699  Valuemark IV NY \(1)\  Variable Deferred             47/23
                                                                             Annuity.
----------------------------------------------------------------------------------------------------------------
\(1)\ Only Class 1 shares are available through this contract.
\(2)\ Only Class 2 shares are available through this contract.

    19. Of the Contracts that offer the Replaced Fund as an Investment 
Option, only Allianz Vision and Allianz Vision New York currently are 
offered for sale.
    20. 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 for the Contracts 
also contain disclosure of these rights.
    21. The proposed Substitution is due primarily to the fact that the 
Replacement Fund, which has the same investment objective and 
substantially similar investment strategies as the Replaced Fund, is 
managed by the same portfolio managers who previously managed the 
Replaced Fund. The Replacement Fund's portfolio is jointly managed by 
Anne Gudefin and Charles Lahr. Ms. Gudefin and Mr. Lahr were hired by 
PIMCO at the end of 2009, to manage the Replacement Fund on its 
inception in April, 2010; they previously served as the co-lead 
portfolio managers of the Replaced Fund since 2007. As a result, the 
Replacement Fund now is managed by the same portfolio managers, and 
with substantially the same mandate and value-oriented style, as the 
Replaced Fund prior to the transition. The Replaced Fund, on the other 
hand, now is managed by a new portfolio management team.
    22. The proposed Substitution also 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. Having added the Replacement Fund as 
an Investment Option to retain the ability for Contract holders to 
invest in a value-oriented fund managed by Ms. Gudefin and Mr. Lahr, 
the Insurance Company Applicants believe that it would enhance 
operational and administrative efficiency to replace the Replaced Fund, 
which, with the same mandate and value-oriented style as the 
Replacement Fund, is a largely redundant Investment Option.
    23. For these reasons and the reasons discussed below, the 
Applicants believe that substituting the Replacement Fund for the 
Replaced Fund is appropriate and in the best interests of the contract 
owners.
    24. The Insurance Company Applicants believe that the Replacement 
Fund is an appropriate replacement for the Replaced Fund because its 
investment objective is the same (both funds seek capital appreciation) 
and its principal investment strategies are substantially the same as 
those of the Replaced Fund. In addition, because the principal 
investment risks of the Replaced Fund and the Replacement Fund are 
substantially the same, the risk expectations of those contract owners 
with interests in the Replaced Fund will continue to be met after the 
Substitution. Comparisons of the investment objectives, principal 
investment policies and principal investment risks of the Funds are set 
forth in the application.
    25. The following chart compares the management fees and the total 
annual fund operating expenses (before and after any waivers and 
reimbursements) for the year ended December 31, 2010, expressed as an 
annual percentage of average daily net assets, of the Replaced Fund and 
the Replacement Fund.

----------------------------------------------------------------------------------------------------------------
                                                    Mutual Global Discovery           PIMCO EqS Pathfinder
                                                  Securities Fund  (Replaced    Portfolio\TM\ (Replacement Fund)
                                                       Fund)  (percent)                     (percent)
                                               -----------------------------------------------------------------
                                                                                 Institutional
                                                    Class 1         Class 2          class        Advisor class
----------------------------------------------------------------------------------------------------------------
Management Fee................................            0.80            0.80       \(1)\ 0.75       \(1)\ 0.75
Distribution (12b-1) Fees.....................  ..............            0.25  ...............             0.25
Other Expenses................................            0.20            0.20             0.04             0.02
Acquired Fund Fees and Expenses...............  ..............  ..............             0.02             0.02
Supervision and Administration Fee............  ..............  ..............       \(2)\ 0.35       \(2)\ 0.35
                                               -----------------------------------------------------------------
    Total Annual Fund Operating Expenses......            1.00            1.25             1.16             1.39
Fee Waiver/Expense Reimbursement..............  ..............  ..............     \(3)\ (0.13)     \(3)\ (0.13)
                                               -----------------------------------------------------------------
    Total Annual Fund Operating Expenses After  ..............  ..............             1.03             1.26
     Fee Waiver/Expense Reimbursement.........
----------------------------------------------------------------------------------------------------------------
\(1)\ Pursuant to an Investment Advisory Contract, dated March 30, 2010, PIMCO acts as investment adviser to the
  Replacement Fund and receives, as compensation from the fund, an investment advisory fee of 0.75%.

[[Page 35253]]

 
\(2)\ Pursuant to a Supervision and Administration Agreement, dated March 30, 2010, PIMCO also acts as the
  administrator to the Replacement Fund and is responsible both for providing various supervisory and
  administrative services and for paying the expenses of various other services (such as audits, transfer agent,
  registrar, custodial services, shareholder meetings, ordinary legal fees, and fidelity bond/insurance
  premiums). As compensation for these services, PIMCO receives a supervisory and administrative fee of 0.35%.
  In its prospectus, the Replacement Fund discloses this fee together with the investment advisory fee as a
  combined management fee of 1.10%. The expenses incurred by the Replaced Fund for similar administrative
  services are included under Other Expenses.
\(3)\ PIMCO has contractually agreed, through May 1, 2012, to reduce its advisory fee by 0.13% of the average
  daily net assets of the Portfolio. This Fee Limitation Agreement renews annually unless terminated by PIMCO
  upon at least 30 days' prior notice to the end of the contract term. Under certain conditions, PIMCO may
  recoup amounts reduced in future periods, not exceeding three years.

    26. The assets and performance of the Funds for the years ending 
December 31, 2009 and December 31, 2010 are set forth in the 
application.
    27. Applicants hereby request the Commission's approval to effect 
the substitution of shares of the Replacement Fund for shares of the 
Replaced Fund as follows: Institutional Class shares of the PIMCO EqS 
Pathfinder Portfolio for Class 1 shares of the Mutual Global Discovery 
Securities Fund; and Advisor Class shares of the PIMCO EqS Pathfinder 
Portfolio for Class 2 shares of the Mutual Global Discovery Securities 
Fund.
    28. 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 or in cash, or a combination thereof, 
and apply the proceeds of such redemptions to the purchase of shares of 
the Replacement Fund. Thus, after the Substitution, each subaccount of 
the Separate Accounts previously holding shares of the Replaced Fund 
will hold shares of the Replacement Fund.
    29. 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 
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 PIMCO. 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 dollar value 
of his or her investment in the applicable Separate Account.
    30. 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 they may have under the Contracts to impose 
additional restrictions on transfers.\1\
---------------------------------------------------------------------------

    \1\ 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.
---------------------------------------------------------------------------

    31. The Insurance Company Applicants represent that PIMCO and the 
Replacement Fund will enter into a written contract agreeing that 
during the 24 months following the Substitution Date, the total annual 
fund operating expenses, net of any acquired fund fees and expenses, of 
the Replacement Fund (taking into account applicable fee waivers and 
expense reimbursements) will not exceed the total annual fund operating 
expenses, net of any acquired fund fees and expenses, of the Replaced 
Fund for the fiscal year ended December 31, 2010; this contractual 
expense limitation will be set at 1.00% for Institutional Class shares 
and 1.25% for Advisor Class shares. In addition, for the 24 months 
following the Substitution Date, the Insurance Company Applicants will 
not increase separate account fees and charges for the Contracts 
outstanding on the Substitution Date. Thereafter, total annual fund 
operating expenses for the Replacement Fund will vary from year to year 
and may exceed those of the Replaced Fund.
    32. Contract owners have been notified of the application by means 
of a Notice of Substitution sent on May 25, 2011, stating that the 
Applicants filed the initial application and seek approval for the 
Substitution. The Notice of Substitution set forth the anticipated 
Substitution Date and advised affected contract owners that on the 
Substitution Date contract values allocated to subaccounts investing in 
shares of the Replaced Fund will be transferred to subaccounts 
investing in shares of the Replacement Fund, without charge (including 
sales charges or surrender charges) and without being counted toward 
the number of transfers that may be permitted without charge.
    33. The Notice of Substitution also stated that, from the date of 
the Notice (May 25, 2011) 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 Replacement Fund (after the 
Substitution) to one or more Investment Options available pursuant to 
the Contracts, subject to any Investment Option allocation restrictions 
under their Contract, without charge and without assessing transfer 
fees. Such a transfer 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. Further, prior to the 
Substitution, all affected contract owners will receive a copy of the 
most recent prospectus for the Replacement Fund.
    34. Within five days following the Substitution, the Insurance 
Company Applicants will send a Post-Substitution notice to affected 
contract owners stating that the Substitution was carried out and 
reiterating the information set forth in the Notice, including a 
reminder that the Free Transfer Period will continue through the date 
30 days after the Substitution.

[[Page 35254]]

Applicants' Legal Analysis and Conditions

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) of 
the Act was intended to guard against and is consistent with the 
protection of investors and the purposes fairly intended by the 1940 
Act. The Substitution is consistent with contract owners' objectives 
and risk expectations because the investment objective, principal 
investment strategies and risks of the Replacement Fund are 
substantially similar to those of the Replaced Fund. In addition, the 
total annual fund operating expenses of the Replacement Fund will be no 
higher than those of the Replaced Fund, after applicable fee waivers 
and expense reimbursements that will be in place for the Replacement 
Fund, for a period of at least 24 months following the Substitution.
    2. Applicants represent that for a period of 24 months from the 
date of the Substitution, the PIMCO EqS Pathfinder Portfolio will be 
subject to an expense cap (1.00% for Institutional Class shares; 1.25% 
for Advisor Class shares) limiting its total annual fund operating 
expenses, net of any acquired fund fees and expenses, to an amount not 
to exceed the total annual fund operating expenses of the Mutual Global 
Discovery Securities Fund, net of any acquired fund fees and expenses, 
for the fiscal year ended December 31, 2010. In addition, for the 24 
months following the Substitution Date, the Insurance Company 
Applicants will not increase separate account fees and charges for the 
Contracts outstanding on the Substitution Date
    3. Owners of Contracts who are beneficial shareholders of the 
Replaced Fund have been provided with appropriate Notice of the 
Substitution and Free Transfer Period. No 12b-1 fees are assessed to 
Class 1 shares of the Replaced Fund or the Institutional Class shares 
of the Replacement Fund. Identical 12b-1 fees of 0.25% of average daily 
net assets are assessed to Class 2 shares of the Replaced Fund and the 
Advisor Class shares of the Replacement Fund.
    4. Applicants submit that the investment objectives are the same 
and the investment strategies are substantially the same for both 
Funds; both primarily invest in equity securities (and securities 
convertible into, or that the adviser expects to be exchanged for, 
common or preferred stock) of issuers that the manager believes are 
undervalued. The risks are similar for both Funds and are consistent 
with the risks generally applicable to the types of securities (such as 
value-oriented equity securities, arbitrage securities and distressed 
companies and foreign securities) in which both funds invest.
    5. In addition to identical investment objectives and substantially 
similar principal investment strategies and risks, as well as total 
annual fund operating expenses that are expected to be no higher (after 
waivers), the advisory services that are provided to the Replacement 
Fund by its investment adviser are comparable to the types of advisory 
services provided to the Replaced Fund by its investment adviser. The 
investment advisory fee paid to PIMCO by the Replacement Fund (0.75%) 
is slightly lower than the investment advisory fee paid to Franklin 
Mutual Advisers by the Replaced Fund (0.80%).
    6. 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: (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 
Replacement 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 PIMCO, 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 of contract 
owners under the Contracts; and (5) the Substitution will in no way 
alter the tax benefits to contract owners.
    7. The Applicants, on the basis of the facts and circumstances 
described above and in the application, have determined that it is in 
the best interests of contract owners to substitute shares of the 
Replaced Fund with shares of the Replacement Fund.
    8. Applicants submit 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 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 Allianz 
Life and Allianz NY to carry out the Substitution by redeeming shares 
of the Replaced Fund in kind and using such proceeds to purchase shares 
of the Replacement Fund.
    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. Applicants may be considered affiliates of the Replacement Fund 
based upon the definition of ``affiliated person'' in Section 2(a)(3) 
of the 1940 Act. Shares of the Replacement Fund are held 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 
shares of the Replacement Fund. Further, PIMCO, which is an affiliated 
person of the Replacement Fund by virtue of Section 2(a)(3)(E) of the 
1940 Act, is, like Allianz Life and Allianz NY, a wholly owned 
subsidiary of Allianz SE. For these reasons, the Replacement Fund is 
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 
Replacement Fund is 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 Replacement 
Fund. Similarly, if the Replacement Fund is under the control of 
Allianz Life and Allianz NY, then the Replacement Fund is an affiliated 
person of Allianz Life and Allianz NY, and of any persons that control 
Allianz Life and Allianz NY or are under

[[Page 35255]]

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, or a combination thereof, and use the proceeds of such 
redemptions to purchase shares of the Replacement Fund, with each 
subaccount of the applicable Separate Account investing the proceeds of 
its redemption from the Replaced Fund in the Replacement 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 Replacement Fund with the portfolio securities and/or 
cash 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 Replacement Fund, and could 
therefore be viewed as being prohibited by Section 17(a) of the l940 
Act. Accordingly, the 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.\2\
---------------------------------------------------------------------------

    \2\ Any in-kind redemptions from the Replaced Fund will be 
effected in accordance with the conditions set forth in the 
Commission's no-action letter issued to the Signature Financial 
Group (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 strategies of the Replaced Fund and the 
Replacement Fund. PIMCO 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 Replacement Fund in the 
overall context of the Replacement Fund's investment objective and 
strategies and consistent with PIMCO's management of the Replacement 
Fund. PIMCO will accept only those securities as consideration for 
shares that it would have acquired for the Replacement Fund in a cash 
transaction. The Section 17 Applicants submit that these portfolio 
securities will be of the type and quality that the Replacement 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 
Replacement Fund to effect the contemplated in-kind purchases of shares 
will be valued based on valuation procedures adopted by the board of 
the PIMCO EqS VIT. 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 Replacement Fund in connection with the in-kind 
transactions. If PIMCO declines to accept particular portfolio 
securities of the Replaced Fund for purchase in-kind of shares of the 
Replacement Fund, those positions will be liquidated by the Replaced 
Fund and shares of the Replacement 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) of the l940 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.
    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 transactions cannot be effected at a price that 
is disadvantageous to either the Replaced Fund or the Replacement 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 PIMCO EqS VIT has adopted procedures, as 
required by paragraph (e)(1) of Rule 17a-7 under the 1940 Act, pursuant 
to which the Replacement 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 under the Act and the Replacement Fund's policies and 
procedures relating to Rule 17a-7 under the Act, 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 Replacement Fund 
the same degree of protection from overreaching that Rule 17a-7 under 
the Act provides to the Replacement 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 Replacement 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 under the Act, 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 board of the 
PIMCO EqS VIT will conduct its review of the transactions in the same 
manner that it normally would follow in accordance with Rule 17a-7 
under the l940 Act.
    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 Replacement Fund. In addition, contract owners will have the 
opportunity to make a free transfer from the Replacement Fund to any 
other available Investment Option offered under their Contract, subject 
to any Investment Option allocation

[[Page 35256]]

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 Replacement 
Fund as recited in the current registration statement and reports filed 
under the 1940 Act.
    12. In addition, the 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 Replacement Fund to effect the 
contemplated in-kind purchases of shares will be valued in accordance 
with the requirements of Rule 17a-7 under the l940 Act. 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 and in the 
application, the Applicants and the Section 17 Applicants believe that 
the requested order meets the standards set forth in Section 26(c) of 
the Act and Section 17(b) of the Act, respectively, and should 
therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14895 Filed 6-15-11; 8:45 am]
BILLING CODE 8011-01-P


