[Federal Register Volume 65, Number 93 (Friday, May 12, 2000)]
[Notices]
[Pages 30646-30650]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 00-11959]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24447: File No. 812-12006]
Allianz Life Insurance Company of North America, et al.; Notice
of Application
May 8, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under Section 6(c) of the
Investment Company Act of 1940, as amended (the ``1940 Act'' or
``Act'') granting exemptions from the provisions of Sections 2(a)(32),
22(c), and 27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder to
permit the recapture of bonus amounts applied to purchase payments made
under certain deferred variable annuity contracts.
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Summary of Application. Applicants seek an order under Section 6(c)
of the Act to the extent necessary to permit the issuance and, under
specified circumstances, the subsequent recapture of unvested bonuses
applied to purchase payment made under (i) certain deferred variable
annuity contracts that Allianz Life Insurance Company of North America
(``Allianz Life'') will issue through Allianz Life Variable Account B
(``Variable Account B'') (the contracts, including certain contract
data pages, endorsements and riders, are collectively referred to
herein as the ``Contracts''), and (ii) contracts that Allianz Life may
issue in the future through Variable Account B or any Future Accounts
that are substantially similar in all material respects to the
Contracts (the ``Future Contracts''). Applicants also request that the
order being sought extend to any other National Association of
Securities Dealers, Inc. (``NASD'') member broker-dealer controlling or
controlled by, or under common control with, Allianz Life, whether
existing or created in the future, that serves as a distributor or
principal underwriter for the Contracts or Future Contracts
(collectively ``Allianz Life Broker-Dealers'').
Applicants: Allianz Life Insurance Company of North America,
Allianz Life Variable Account B, any other separate account established
by Allianz Life in the future to support certain deferred variable
annuity contracts issued by Allianz Life (``Future Accounts'') and
USAllianz Investor Services, LLC (``USAIS'') (collectively,
``Applicants'').
Filing Date: The application was filed on February 29, 2000.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
persons may request a hearing by writing to the SEC's Secretary and
serving Applicants with a copy of the request, in person or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on June 2,
2000, and should be accompanied by proof of service on the Applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer'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 SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, c/o Lynn Stone,
Esq., Blazzard, Grodd & Hasenauer, P.C., 943 Post Road East, Westport,
CT 06880.
FOR FURTHER INFORMATION CONTACT: Keith A. O'Connell, Senior Counsel, or
Keith E. Carpenter, Branch Chief, Office of Insurance Products,
Division of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth St., NW, Washington, DC 20549-
0102 (tel. (202) 942-8090).
Applicant's Representations
1. Allianz Life was organized under the laws of the state of
Minnesota in 1896. Allianz Life offers fixed and variable life
insurance and annuities and group life, accident and health insurance.
Allianz Life is licensed to do business in 49 states and the District
of Columbia. Allianz Life is a wholly-owned subsidiary of Allianz
Verischerungs-AG Holding. Allianz Life serves as depositor for Variable
Account B. Allianz Life may in the future establish one or more Future
Accounts for which it will serve as depositor.
Variable Account B is a segregated asset account of Allianz Life.
Variable Account B is registered with the Commission as a unit
investment trust under the Act. Variable Account B filed a Form N-8A
Notification of Registration under the 1940 Act on July 13, 1988.
Variable Account B will fund the variable benefits available under the
Contracts funded through it. Units of interest in Variable Account B
will be registered under the Securities Act of 1933 (the ``1933 Act'').
In that regard, Variable Account B filed a Form N-4 Registration
Statement on January 31, 2000 under the 1933 Act relating to the
Contracts. Allianz Life may in the future
[[Page 30647]]
issue Future Contracts through Variable Account B or through Future
Accounts. That portion of the assets of Variable Account B that is
equal to the reserves and other Contract liabilities with respect to
Variable Account B is not chargeable with liabilities arising out of
any other business of Allianz Life. Any income, gains or losses,
realized or unrealized, from assets allocated to Variable Account B
are, in accordance with Variable Account B's Contracts, credited to or
charged against Variable Account B, without regard to other income,
gains or losses of Allianz Life.
3. USAIS (formerly NALAC Financial Plans, LLC) is a wholly-owned
subsidiary of Allianz Life and will act as the distributor of the
Contracts funded through Variable Account B. USAIS is registered with
the Commission as a broker-dealer under the Securities Exchange Act of
1934 (the ``1934 Act'') and is a member of the NASD. The Contracts will
be offered through unaffiliated broker-dealers who have entered into
agreements with USAIS. All such unaffiliated broker-dealers will be
registered broker-dealers under the 1934 Act and NASD members. USAIS,
or any successor entity, may act as principal underwriter for any
Future Accounts and distributor for any Future Contracts issued by
Allianz Life.
4. The Contract is a flexible purchase payment variable deferred
annuity contract with a fixed account option. The Contract may be
issued under a qualified plan, or as a non-qualified contract. The
Contract is designed to provide for the accumulation of assets during
the accumulation phase through investment in various investment
choices, and income during the payout phase. Contract Owners may make
purchase payments at any time during the accumulation phase. The
minimum initial purchase payment is $15,000. The maximum amount of
purchase payments that Allianz Life will accept from a Contract Owner
without prior approval is $1,000,000. Additional purchase payments of
at least $250 can be made ($100 under the automatic investment plan).
5. The Contract provides that a Contract Owner may cancel the
Contract within 10 days after receipt (or for a longer period in states
where required). This is referred to as the ``Free Look Period.''
Allianz Life will refund the Contract Owner's Contract value (less any
Bonus payments) as of the date it receives the request for
cancellation. In certain states, or if the Contract is purchased as an
Individual Retirement Annuity, Allianz Life will refund purchase
payments made by the Contract Owner.
6. Contract owners can allocate purchase payments to sub-accounts
of Variable Account B and to a fixed account (``Fix Account''), where
available, offered by Allianz Life.
7. Contract owners can currently allocate money to 37 sub-accounts
of Variable Account B. Each sub-account will invest in shares of a
corresponding fund or portfolio of various underlying investment
companies (``Funds''). The sub-accounts and the Fixed Account will
comprise the initial investment options under the Contract.
8. The Variable Account B sub-accounts currently invest in shares
of the following Funds: AIM Variable Insurance Funds, Inc., advised by
A I M Advisors, Inc.; The Alger American Fund, advised by Fred Alger
Management, Inc.; Davis Variable Account Fund, Inc., advised by Davis
Selected Advisers, LP; Franklin Templeton Variable Insurance Products
Trust, advised by Franklin Advisers Inc., Franklin Mutual Advisers,
LLC, Franklin Advisory Services, LLC, Templeton Asset Management Ltd.,
and Templeton Global Advisors Limited (depending upon the portfolio);
JP Morgan Series Trust II, advised by J.P. Morgan Investment Management
Inc.; Oppenheimer Variable Account Funds, advised by Oppenheimer Funds,
Inc.; PIMCO Variable Insurance Trust, advised by Pacific Investment
Management Company; Seligman Portfolios, Inc., advised by J & W
Seligman & Co. Incorporated; USAllianz Variable Insurance Products
Trust, advised by Allianz of America, Inc.; and Van Kampen Life
Investment Trust, advised by Van Kampen Asset Management Inc. The Funds
are registered under the 1940 Act and the shares are registered under
the 1933 Act. The Fixed Account is not registered with the Commission.
9. Allianz Life, at a later date, may determine to create
additional sub-accounts of Variable Account B to invest in any
additional underlying portfolios or other investments as may now or in
the future be available. Similarly, sub-accounts of Variable Account B
may be discontinued, combined or eliminated from time to time.
10. The Contract provides for transfer privileges among investment
options, dollar cost averaging, flexible rebalancing, asset allocation
and other features. The following charges are assessed under the
Contract: (i) Annual asset-based charges as follows: 1.50% for
mortality and expense risks if the Owner selects the traditional death
benefit and 1.70% if the Owner selects the enhanced death benefit, plus
.15% for administration expenses; (ii) a contingent deferred sales
charge with starts at 8.5% in the first year, and declines thereafter
to 0% after 10 years with a 10% of purchase payments free surrender
option; (iii) a $40 contract maintenance charge; (iv) a transfer fee of
$25 for each transfer in excess of 12 in a Contract year; and (v) a
commutation fee assessed against liquidations when certain annuity
options are selected which starts at 7% in the first year following the
income date and declines to 1% after 6 years following the income date.
The Funds also impose management fees and operating expenses that vary
depending upon which portfolio is selected.
11. The Contract offers a selection of death benefits--a Contract
Owner can select the traditional death benefit or the enhanced death
benefit. The traditional death benefit is equal to the greater of: (1)
The Contract value determined as of the end of the business day on
which due proof of death and an election of payment method is received
by Allianz Life; or (2) the guaranteed minimum death benefit which is
equal to the total of all purchase payments made reduced
proportionately by the percentage of Contract value surrendered,
including any contingent deferred sales charge. If selected, the
enhanced death benefit is equal to the greater of: (1) The Contract
value determined as of the end of the business day on which due proof
of death and an election of payment method is received by Allianz Life;
or (2) the guaranteed minimum death benefit which is equal to the
greater of: (a) The total of all purchase payments made reduced
proportionately by the percentage of the Contract value surrendered,
including any contingent deferred sales charge assessed; or (b) the
greatest anniversary value which is equal to the Contract value on a
Contract anniversary, increased by additional purchase payments and
reduced proportionately by the percentage of the Contract value
surrendered, including any contingent deferred sales charge assessed,
since that Contract anniversary. Contract anniversaries occurring on or
after the Contract Owner's 81st birthday of date of death will not be
taken into consideration in determining the enhanced death benefit.
12. Prior to the Contract Owner's/joint owner's 81st birthday,
Allianz Life will credit each purchase payment made with a bonus
(``Bonus''). The amount of the Bonus rate is based on the total amount
of purchase payments made at the time of the contribution, less any
surrenders and applicable contingent
[[Page 30648]]
deferred sales charges. The Bonus rates are: 4% of the purchase payment
with total purchase payments (less surrenders and related contingent
deferred sales charges) of less than $25,000; 5% of the purchase
payment with total purchase payments (less surrenders and related
contingent deferred sales charges) of $25,000-$99,9999; 6% of the
purchase payment with total purchase payments (less surrenders and
related contingent deferred sales charges) of $100,000-$999,999; 7% of
the purchase payment with total purchase payments (less surrenders and
related contingent deferred sales charges) of $1,000,000-$4,999,999; 8%
of the purchase payment with total purchase payments (less surrenders
and related contingent deferred sales charges ) of $5,000,000 or
greater. Allianz Life will fund the Bonus from its general account
assets and will allocate the Bonus to the Fixed Account and/or the sub-
accounts of Variable Account B in the same proportion as the purchase
payment. Allianz Life reserves the right to increase the Bonus rights,
up to 10% of the purchase payment. In addition, Allianz Life reserves
the right to vary the break points amounts relating to the Bonus rates.
13. A Contract Owner has access to funds by making either a partial
or complete surrender, or by electing to receive annuity payments. A
beneficiary will have access to the money in the Contract when a death
benefit is paid. Any partial surrender must be for at least $500
(except under the Minimum Distribution Program). A Contract Owner may
elect to receive annuity payments under the six available annuity
options. An Owner may not annuitize until three years after the issue
date.
14. Bonus amounts are available for surrender, annuitization,
payment of death benefits (which will never be less than the minimum
guaranteed death benefit) only when such amounts become vested. Allianz
Life will recapture any unvested Bonus upon surrender, annuitization or
payment of a death benefit (if Contract value is the greater of the
values). Bonuses vest as follows: 0%--up through 12 completed months
from the date of purchase payment; 35%--at least 12 and through 24
completed months from date of purchase payment; 70%--at least 24 months
and through 36 completed months from date of purchase payment; 100%--at
least 36 completed months from date of purchase payment. Regardless of
whether the Bonus is vested, all gains or losses attributable to such
Bonus are part of the Owner's Contract value and are always 100%
vested. All Bonuses, and any gains or losses attributable to a Bonus
are treated as earnings under the Contract for tax purposes.
15. Applicants seek exemption pursuant to Section 6(c) from
Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1
thereunder to the extent necessary to permit Allianz Life to issue
Contracts and Future Contracts that provide for the recapture of any
unvested Bonus in the following instances: (i) When the Contract that
provide for the recapture of any unvested Bonus in the following
instances: (i) when the Contract Owner makes either a partial or full
surrender (including during the Free-Lock Period) within 36 complete
months after a purchase payment is made, Allianz Life will recapture
the unvested Bonus (according to the vesting schedule set forth above);
(ii) if an Owner annutizes within 36 complete months after a purchase
payment is made, Allianz Life will recapture the unvested Bonus
(according to the vesting schedule set forth above) before the Contract
value is applied to an annuity option; and (iii) when a death benefit
becomes payable within 36 complete months of a purchase payment,
Allianz Life will recapture the unvested Bonus (according to the
vesting schedule set forth above) from the Contract value used in the
death benefit calculation (in no event will the death benefit be less
than the guaranteed minimum death benefit).
16. Partial surrenders in excess of the 10% of purchase payments
free surrender option (``Partial Surrender Privilege'') will reduce
unvested Bonuses by such excess amount's percentage of the Contract
value at the time of the surrender. This percentage is determined by
dividing the amount of the partial surrender (including any contingent
deferred sales charge) in excess of the Partial Surrender Privilege
amount by the Contract value. If there are multiple bonuses applied to
a Contract, Allianz Life will reduce the oldest unvested bonus first.
Applicants' Legal Analysis
1. Section 6(c) of the Act authorizes the Commission to exempt any
person, security or transaction, or any class or classes of persons,
securities or transactions from the provisions of the Act and rules
promulgated thereunder if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. Applicants request that the Commission,
pursuant to Section 6(c) of the Act grant the exemptions requested
below with respect to the Contract, and any Future Contracts funded by
Variable Account B that are issued by Allianz Life and underwritten or
distributed by USAIS or Allianz Life Broker-Dealers. Applicants
undertake the Future Contracts funded by Variable Account B or any
Future Account will be substantially similar in all material respects
to the Contract. Applicants believe that the requested exemptions are
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
2. Applicants represent that it is not administratively feasible to
track the Bonus in Variable Account B after the Bonus is applied.
Accordingly, the asset-based charges applicable to Variable Account B
will be assessed against the entire amount held in Variable Account B,
including the Bonus during the 36-month period following a purchase
payment preceding certain events (i.e., surrender, annuitization and
payment of a death benefit). As a result, the aggregate asset-based
charges assessed will be higher than those that would be charged if the
Contract Owner's Contract value did not include the Bonus.
3. Subsection (i) of Section 27 provides that Section 27 does not
apply to any registered separate account funding variable insurance
contracts, or to the sponsoring insurance company and principal
underwriter of such account, except as provided in paragraph (2) of the
subsection. Paragraph (2) provides that it shall be unlawful for such a
separate account or sponsoring insurance company to sell a contract
funded by the registered separate account unless ``(A) such contract is
a redemable security.'' Section 2(a)(32) defines '' ``redeemable
security'' as any security, other than short-term paper, under the
terms of which the holder, upon presentation to the issuer, is entitled
to receive approximately his proportionate share of the issuer's
current net assets, or the cash equivalent thereof.
4. Applicants submit that the Bonus recapture provisions described
in this application would not deprive a Contract Owner of his or her
proportionate share of the issuer's current net assets. A Contract
Owner's interest in the Bonus allocated to his or her Contract value
upon receipt of a purchase payment is not 100% vested until the
completion of 36 months following a purchase payment. Until or unless
the Bonus is vested, Allianz Life retains the right and interest in the
[[Page 30649]]
Bonus, although not in the earnings attributable to that amount. Thus,
when Allianz Life recaptures any unvested Bonus it is simply retrieving
its own assets, and because a Contract Owner's interest in the Bonus is
not 100% vested until the completion of 36 months, the Contract Owner
has not been deprived of a proportionate share of Variable Account B
assets, i.e., a share of Variable Account B's assets proportionate to
the Contract Owner's Contract value (including the Bonus).
5. With respect to the recapture of the Bonus upon the exercise of
the Free-Look privilege, it would be patently unfair to allow a
Contract Owner exercising that privilege to retain the Bonus under a
Contract that has been returned for a refund after a period of only a
few days. If Allianz Life could not recapture the Bonus, individuals
could purchase a Contract with no intention of retaining it, and simply
return it for a quick profit. Furthermore, the recapture of the
unvested Bonus relating to a surrender, annuitization or payment of a
death benefit is designed to protect Allianz Life against Contract
Owners making large purchase payments within 36 months of certain
events. It would provide Allianz Life with insufficient time to recover
the cost of the Bonus, to its financial detriment. Again, the amounts
recaptured equal the unvested Bonus provided by Allianz Life from its
own general account assets and any gain would remain part of the
Contract value.
6. Applicants represent that the Bonus will be attractive to and in
the interest of investors because it will permit Contract Owners to put
between 104-108% of their purchase payments to work for them in the
selected sub-accounts and the Fixed Account. Also, any earnings
attributable to the Bonus will be retained by Contract Owners and the
principal amount of the Bonus will be retained if the contingencies set
forth in the application are satisfied.
7. Applicants state that Allianz Life's right to recapture unvested
Bonus amounts applied to purchase payments made within 36 months of the
payment of a surrender, annuitization or death benefit protects it
against the risk that owners will contribute larger amounts as they
approach certain events (if forseeable) to obtain the Bonus, while
avoiding Contract charges over the long terms. With respect to refunds
paid upon the return of Contract within the Free-Look Period, the
amount payable by Allianz Life must be reduced by the allocated Bonus
payment. Otherwise, Applicants state that purchasers could apply for
contracts for the sole purpose of exercising the free-look provision
and making a quick profit.
8. Applicants submit that the provisions for recapture of any
applicable unvested Bonus under the Contracts do not, and any such
Future Contract provisions will not, violate Section 2(a)(32) and
27(i)(2)(A) of the Act. Nevertheless, to avoid any uncertainties,
Applicants request an exemption from those Sections, to the extent
deemed necessary, to permit the recapture of any unvested Bonus under
the circumstances summarized herein with respect to the Contracts and
any Future Contracts, without the loss of the relief from Section 27
provided by Section 27(i).
9. Section 22(c) of the 1940 Act authorizes the Commission to make
rules and regulations applicable to registered investment companies and
to principal underwriters of, and dealers in, the redeemable securities
of any registered investment company, whether or not members of any
securities association, to the same extent, covering the same subject
matter, and for the accomplishment of the same ends as prescribed in
Section 22(a) in respect of the rules which may be made by a registered
securities association governing its members. Rule 22c-1 thereunder
prohibits a registered investment company issuing any redeemable
security, a person designated in such issuer's prospectus as authorized
to consummate transactions in any such security, and a principal
underwriter of, or dealer in, such security, from selling, redeeming,
or repurchasing any such security except at a price based on the
current net asset value of such security which is next computed after
receipt of a tender of such security for redemption or of an order to
purchase or sell such security.
10. Arguably, Allianz Life's recapture of the unvested Bonus might
be viewed as resulting in the redemption of redeemable securities for a
price other than one based on the current net asset value of Variable
Account B. Applicants contend, however, that recapture of the unvested
Bonus is not violative of Section 22(c) and Rule 22c-1. Applicants
argue that the recapture does not involve either of the evils that Rule
22c-1 was intended to eliminate or reduce, namely: (i) The dilution of
the value of outstanding redeemable securities of registered investment
companies through their sale at a price below net asset value or their
redemption or repurchase at a price above it, and (ii) other unfair
results including speculative trading practices. See Adoption of Rule
22c-1 under the 1940 Act, Investment Company Release No. 5519 (Oct. 16,
1968). To effect a recapture of an unvested Bonus, Allianz Life will
redeem interests in an Owner's Contract value at a price determined on
the basis of current net asset value of Variable Account.
B. The amount captured will equal the amount of the unvested Bonus
that Allianz Life paid out of its general account assets. Although
Owners will be entitled to retain any investment gain attributable to
the Bonus, the amount of such gain will be determined on the basis of
the current net asset value of Variable Account B. Thus, no dilution
will occur upon the recapture of the unvested Bonus. Applicants also
submit that the second harm that Rule 22c-1 was designed to address,
namely, speculative trading practices calculated to take advantage of
backward pricing, will not occur as a result of the recapture of the
unvested Bonus. However, to avoid any uncertainty as to full compliance
with the Act, Applicants request an exemption from the provisions of
Section 22(c) and Rule 22c-1 to the extent deemed necessary to permit
them to recapture the unvested Bonus under the Contracts and Future
Contracts.
Conclusion
Applicants submit that their request for an order is appropriate in
the public interest. Applicants state that such an order would promote
competitiveness in the variable annuity market eliminating the need to
file redundant exemptive applications, thereby reducing administrative
expenses and maximizing the efficient use of Applicants' resources.
Applicants argue that investors would not receive any benefit or
additional protection by requiring Applicants to repeatedly seek
exemptive relief that would present no issue under the Act that has not
already been addressed in their application described herein.
Applicants submit that having them file additional applications would
impair their ability effectively to take advantage of business
opportunities as they arise. Further, Applicants state that if they
were required repeatedly to seek exemptive relief with respect to the
same issues addressed in the application described herein, investors
would not receive any benefit or additional protection thereby.
Applicants submit, based on the grounds summarized above, that
their exemptive request meets the standards set out in Section 6(c) of
the Act, namely, that the exemptions requested are necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes
[[Page 30650]]
fairly intended by the policy and provisions of the Act, and that,
therefore, the Commission should grant the requested order.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-11959 Filed 5-11-00; 8:45 am]
BILLING CODE 8010-01-M