[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Rules and Regulations]
[Pages 31101-31103]
[FR Doc No: 2021-12228]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2019-0113; Product Identifier 2017-SW-140-AD; Amendment
39-21584; AD 2021-11-22]
RIN 2120-AA64

Airworthiness Directives; Airbus Helicopters Deutschland GmbH
Helicopters

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: The FAA is superseding Airworthiness Directive (AD) 2016-11-21
for Airbus Helicopters Deutschland GmbH (Airbus Helicopters) Model
EC135P1, EC135P2, EC135P2+, EC135T1, EC135T2, and EC135T2+ helicopters.
AD 2016-11-21 required revising the life limit of certain parts and
removing each part that has reached its life limit. This AD continues
to require revising the life limits for certain parts and removing each
part that has reached or exceeded its life limit and expands the
applicability to include Model EC135P3 and EC135T3 helicopters. This AD
was prompted by the certification of new helicopter models since AD
2016-11-21 was issued. The FAA is issuing this AD to address the unsafe
condition on these products.

DATES: This AD is effective July 16, 2021.
    The Director of the Federal Register approved the incorporation by
reference of a certain publication listed in this AD as of July 16,
2021.

ADDRESSES: For service information identified in this final rule,
contact Airbus Helicopters, 2701 N Forum Drive, Grand Prairie, TX
75052; telephone<PHONE_NUMBER> or<PHONE_NUMBER>; fax<PHONE_NUMBER>; or at
https://www.airbus.com/helicopters/services/technical-support.html. You
may view this service information at the FAA, Office of the Regional
Counsel, Southwest Region, 10101 Hillwood Pkwy., Room 6N-321, Fort
Worth, TX 76177. For information on the availability of this material
at the FAA, call<PHONE_NUMBER>. It is also available at https://www.regulations.gov by searching for and locating Docket No. FAA-2019-
0113.

Examining the AD Docket

    You may examine the AD docket at https://www.regulations.gov by
searching for and locating Docket No. FAA-2019-0113; or in person at
Docket Operations between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket contains this final rule, the
European Aviation Safety Agency (now European Union Aviation Safety
Agency) (EASA) AD, any service information that is incorporated by
reference, any comments received, and other information. The address
for Docket Operations is U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE, Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Matt Fuller, AD Program Manager,
Operational Safety Branch, Airworthiness Products Section, General
Aviation & Rotorcraft Unit, FAA, 10101 Hillwood Pkwy., Fort Worth, TX
76177; telephone<PHONE_NUMBER>; email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Background

    The FAA issued a notice of proposed rulemaking (NPRM) to amend 14
CFR part 39 to supersede AD 2016-11-21, Amendment 39-18548 (81 FR
36137, June 6, 2016), (AD 2016-11-21) which applied to Airbus
Helicopters Model EC135P1, EC135P2, EC135P2+, EC135T1, EC135T2, and
EC135T2+ helicopters. The NPRM published in the Federal Register on
March 8, 2021 (86 FR 13237). In the NPRM, the FAA proposed to require,
before further flight, establishing a life limit for the tail rotor hub
body of 27,400 hours time-in-service (TIS) or using Airbus Helicopters
service information if the history of the tail rotor hub body is not
known or cannot be identified. The NPRM also proposed to require
establishing life limits for certain swashplate and mixing lever gear
unit parts in the Airworthiness Limitations Section (ALS) of the
existing maintenance manual for your helicopter, and recording the
revised life limit on the component history card or equivalent record.
Additionally, the NPRM proposed to require continuing to record the
life limit of certain parts that have not reached their life limit.
Finally, the NPRM proposed to require removing from service any part
that reached or exceeded its life limit.
    The NPRM was prompted by EASA AD 2017-0243, dated December 6, 2017
(EASA AD 2017-0243), issued by EASA, which is the Technical Agent for
the Member States of the European Union, to correct an unsafe condition
Airbus Helicopters Model EC135P1, EC135P2, EC135P2+, EC135P3, EC135T1,
EC135T2, EC135T2+, EC135T3, EC635P2+, EC635P3, EC635T1, EC635T2+, and
EC635T3 helicopters. EASA AD 2017-0243 superseded EASA AD 2013-0178,
dated August 7, 2013 (EASA AD 2013-0178), which was prompted by Airbus
Helicopters revising the airworthiness limitations for the Model EC135
and EC635 helicopters' type design as published in the Master Servicing
Manual (MSM) EC135 Chapter 04--ALS documents. Revision 14 of the MSM
contains these new airworthiness limitations. EASA stated that failure
to comply with these limitations could result in failure of a critical
part, which could result in loss of control of the helicopter.
Accordingly, EASA AD 2013-0178 required revising the ALS to include the
new life limits and replacing each part that has reached its life
limit. Superseding EASA AD 2017-0243 expands the applicability to
include Airbus Helicopters Model EC135P3, EC135T3, EC635P3, and EC635T3
helicopters. New life limits were also added for some parts.

Comments

    The FAA received comments from one commenter. The following
presents the comments received on the NPRM and the FAA's response.
    The individual commented that the NPRM sets the life limit for the
hinged support part number (P/N) L671M7003210 at 8,400 hours TIS but
that the life limit of this component is at 19,000 hours per ALS Rev 01
chapter 04-10-00. The individual also commented that the NPRM sets the
life limit for the bolt P/N L671M7001220 at 8,400 hours TIS but that
the life limit of this component is at 19,000 hours per ALS Rev 01
chapter 04-10-00. The FAA agrees and has changed this AD to the revise
the life limit to 19,000 hours TIS for the hinged support and the bolt.

Conclusion

    These helicopters have been approved by EASA and are approved for
operation in the United States. Pursuant to the FAA's bilateral
agreement with the European Union, EASA has notified the FAA about the
unsafe condition described in its AD. The FAA reviewed the relevant
data, considered the comments received, and determined that air safety
requires adopting this AD as proposed except for increasing the life
limit for the hinged support and bolt. These changes will neither
increase the scope of the AD nor increase the economic burden on any
operator. Accordingly, the FAA is issuing this AD to address the unsafe
condition on these helicopters.

Related Service Information Under 1 CFR Part 51

    The FAA reviewed Airbus Helicopters Alert Service Bulletin ASB
EC135-04A-012, Revision 0, dated September 11, 2017, which specifies
incorporating life limits for the tail rotor hub body into the tail
rotor hub log card and into the list of life-limited parts. Airbus
Helicopters reports the addition of the tail rotor hub body into the
tail rotor hub log card was prompted by a new, recently manufactured,
serial-numbered hub.
    This service information is reasonably available because the
interested parties have access to it through their normal course of
business or by the means identified in the ADDRESSES section.

Differences Between This AD and the EASA AD

    The EASA AD applies to Model EC635P2+, EC635P3, EC635T2+, and
EC635T3 helicopters, whereas this AD does not because these model
helicopters are not FAA type-certificated. The EASA AD requires
revising the Aircraft Maintenance Program with new or revised life
limitations within 12 months after the EASA AD's effective date. This
AD requires revising the life limit for certain parts in the ALS of the
existing maintenance manual for your helicopter before further flight.

Costs of Compliance

    The FAA estimates that this AD affects 272 helicopters of U.S.
Registry. The FAA estimates that operators may incur the following
costs in order to comply with this AD. Labor costs are estimated at $85
per work-hour.
    Revising the component history card or equivalent record will take
about 2 work-hours, for an estimated cost of $170 per helicopter and
$46,240 for the U.S. fleet.

Authority for This Rulemaking

    Title 49 of the United States Code specifies the FAA's authority to
issue rules on aviation safety. Subtitle I, Section 106, describes the
authority of the FAA Administrator. Subtitle VII, Aviation Programs,
describes in more detail the scope of the Agency's authority.
    The FAA is issuing this rulemaking under the authority described in
Subtitle VII, Part A, Subpart III, Section 44701: General requirements.
Under that section, Congress charges the FAA with promoting safe flight
of civil aircraft in air commerce by prescribing regulations for
practices, methods, and procedures the Administrator finds necessary
for safety in air commerce. This regulation is within the scope of that
authority because it addresses an unsafe condition that is likely to
exist or develop on products identified in this rulemaking action.

Regulatory Findings

    This AD will not have federalism implications under Executive Order
13132. This AD will not have a substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government.
    For the reasons discussed above, I certify that this AD:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866,
    (2) Will not affect intrastate aviation in Alaska, and
    (3) Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.

The Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA amends 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

0
1. The authority citation for part 39 continues to read as follows:

    Authority:  49 U.S.C. 106(g), 40113, 44701.

Sec.  39.13  [Amended]

0
2. The FAA amends Sec.  39.13 by:
0
a. Removing Airworthiness Directive (AD) 2016-11-21, Amendment 39-18548
(81 FR 36137, June 6, 2016); and
0
b. Adding the following new AD:

2021-11-22 Airbus Helicopters Deutschland GmbH: Amendment 39-21584;
Docket No. FAA-2019-0113; Product Identifier 2017-SW-140-AD.

(a) Applicability

    This airworthiness directive (AD) applies Airbus Helicopters
Deutschland GmbH Model EC135P1, EC135P2, EC135P2+, EC135P3, EC135T1,
EC135T2, EC135T2+, and EC135T3 helicopters, certificated in any
category.

(b) Unsafe Condition

    The FAA is issuing this AD to prevent certain parts from
remaining in service beyond their fatigue life, resulting in failure
of the part and subsequent loss of control of the helicopter.

(c) Affected ADs

    This AD replaces AD 2016-11-21, Amendment 39-18548 (81 FR 36137,
June 6, 2016).

(d) Effective Date

    This AD is effective July 16, 2021.

(e) Compliance

    You are responsible for performing each action required by this
AD within the specified compliance time unless it has already been
accomplished prior to that time.

(f) Required Actions

    (1) Before further flight, establish a life limit for the tail
rotor hub body (hub body), part number (P/N) L642A2003102, of 27,400
hours time-in-service (TIS). If you cannot determine the hub body's
TIS, follow the instructions in Table 1, Examples and Calculations,
Effectivity: The history of the hub body is not known or can't be
identified, in Airbus Helicopters Alert Service Bulletin ASB EC135-
04A-012, Revision 0, dated September 11, 2017, except where the
service information specifies that you contact the manufacturer, you
are required to remove the part from service instead.
    (2) Before further flight, revise the life limit for each part
listed in paragraphs (f)(2)(i) and (ii) of this AD in the
Airworthiness Limitations Section (ALS) of the existing maintenance
manual for your helicopter and record the revised life limit on the
component history card or equivalent record as follows:
    (i) For swashplate parts:
    (A) The life limit for the ring (control ring), P/N
L623M2001213, is 10,700 hours TIS.
    (B) The life limit for the cardan ring (two-part), P/N
L623M2005205, is 14,300 hours TIS.
    (C) The life limit for the bolt (control ring), P/N
L671M7001215, is 14,300 hours TIS.
    (D) The life limit for the bolt (sliding sleeve), P/N
L623M2006206 and P/N L623M2006213, is 14,300 hours TIS.
    (ii) For mixing lever gear unit parts:
    (A) The life limit for the forked lever assembly, P/N
L671M3012102, is 10,400 hours TIS.
    (B) The life limit for the hinged support, P/N L671M7003210, is
19,000 hours TIS.
    (C) The life limit for the bolt, P/N L671M7001220, is 19,000
hours TIS.
    (3) Before further flight, remove from service any part listed
in paragraphs (f)(1) and (2) of this AD that has reached or exceeded
its revised life limit.
    (4) Thereafter, for any part listed in paragraphs (f)(1) and (2)
of this AD that has not reached or exceeded its life limit, continue
to record the life limit of the part on its component history card
or equivalent record and remove any part listed in paragraphs (f)(1)
and (2) of this AD from service before the part has reached or
exceeded its revised life limit.

(g) Special Flight Permits

    Special flight permits are limited to a onetime flight to a
maintenance facility to replace a part that has reached its life
limit.

(h) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, International Validation Branch, FAA, has the
authority to approve AMOCs for this AD, if requested using the
procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19,
send your request to your principal inspector or local Flight
Standards District Office, as appropriate. If sending information
directly to the manager of the International Validation Branch, send
it to the attention of the person identified in paragraph (i)(1) of
this AD. Information may be emailed to<EMAIL_ADDRESS>    (2) Before using any approved AMOC, notify your appropriate
principal inspector, or lacking a principal inspector, the manager
of the local flight standards district office/certificate holding
district office.

(i) Additional Information

    (1) For more information about this AD, contact Matt Fuller, AD
Program Manager, Operational Safety Branch, Airworthiness Products
Section, General Aviation & Rotorcraft Unit, FAA, 10101 Hillwood
Pkwy., Fort Worth, TX 76177; telephone<PHONE_NUMBER>; email
<EMAIL_ADDRESS>    (2) The subject of this AD is addressed in European Aviation
Safety Agency (now European Union Aviation Safety Agency) (EASA) AD
2017-0243, dated December 6, 2017. You may view the EASA AD at
https://www.regulations.gov in Docket No. FAA-2019-0113.

(j) Subject

    Joint Aircraft Service Component (JASC) Code: 6400, Tail Rotor
System.

(k) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the
incorporation by reference of the service information listed in this
paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
    (2) You must use this service information as applicable to do
the actions required by this AD, unless the AD specifies otherwise.
    (i) Airbus Helicopters Alert Service Bulletin ASB EC135-04A-012,
Revision 0, dated September 11, 2017.
    (ii) [Reserved]
    (3) For Airbus Helicopters service information identified in
this AD, contact Airbus Helicopters, 2701 N Forum Drive, Grand
Prairie, TX 75052; telephone<PHONE_NUMBER> or<PHONE_NUMBER>; fax 972-
641-3775; or at https://www.airbus.com/helicopters/services/technical-support.html.
    (4) You may view this service information at the FAA, Office of
the Regional Counsel, Southwest Region, 10101 Hillwood Pkwy., Room
6N-321, Fort Worth, TX 76177. For information on the availability of
this material at the FAA, call<PHONE_NUMBER>.
    (5) You may view this service information that is incorporated
by reference at the National Archives and Records Administration
(NARA). For information on the availability of this material at
NARA, email<EMAIL_ADDRESS>or go to: https://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued on May 21, 2021.
Gaetano A. Sciortino,
Deputy Director for Strategic Initiatives, Compliance & Airworthiness
Division, Aircraft Certification Service.
[FR Doc. 2021-12228 Filed 6-10-21; 8:45 am]
BILLING CODE 4910-13-P


Memorandum
August 8, 2017
To: 		Docket EPA-R09-OAR-2017-0377
From: 		Ashley Graham, U.S. EPA Region 9, Air Planning Office
Subject: 	Technical note regarding emissions inventories in Arizona's San Manuel SO2 2[nd] 10-year Maintenance Plan
EPA performed additional analyses and data review to examine the relative impact of inconsistencies in population and land area values on emissions inventories presented in Arizona's "San Manuel Sulfur Dioxide Maintenance Plan Renewal, 1971 Sulfur Dioxide National Ambient Air Quality Standards". EPA's analysis found that the inconsistencies in Arizona's submittal have only a minor impact, or in some cases no impact, on the emissions estimates derived. In cases where discrepancies did have a minor impact on emissions estimates, the EPA found that they led to an overestimate in SO2 emissions and thus do not alter Arizona's findings that emissions through 2028 are projected to be well below the 2005 attainment inventory emissions and that emissions estimates demonstrate continued attainment of the 1971 SO2 NAAQS in the San Manuel maintenance area.
Attachment: Technical Note Regarding Arizona's San Manuel SO2 2[nd] Maintenance Plan

Technical Note Regarding Arizona's San Manuel SO2 2[nd] Maintenance Plan
Arizona's "San Manuel Sulfur Dioxide Maintenance Plan Renewal, 1971 Sulfur Dioxide National Ambient Air Quality Standards" demonstrates maintenance of the 1971 primary SO2 NAAQS, in part, by showing that current and projected future emissions of SO2 do not exceed the level of the attainment inventory. The plan compares emissions inventories representing current emissions for 2014 and projected emissions for three years extending through the end of the second maintenance period (2019, 2023, and 2028) to a 2005 attainment year inventory for sources in the San Manuel maintenance area.
The San Manuel maintenance area includes portions of Pima and Pinal counties. ADEQ relied on the EPA's 2014 NEIv1 data as the basis for estimating 2014 SO2 emissions for nonpoint sectors and the EPA's Motor Vehicle Emission Simulator (MOVES) model for estimating mobile source SO2 emissions in Pima and Pinal counties. County level data were allocated to the San Manuel Maintenance Area by applying population, land area, airport activity, and rail line length allocation factors (see Appendix A San Manuel SO2 Emission Inventory Technical Support Document Section A3.2). Future year emissions were estimated by applying growth factors to 2014 base year emissions.
During the EPA's review of Arizona's submittal, we identified several inconsistencies in the 2014 population, land area, and interim emission year values reported. First, Tables A-3 and A-25 indicate that data for 2024 are presented, whereas elsewhere in the submittal, ADEQ indicates that 2023 was used as the interim year. ADEQ confirmed that references to 2024 are typos and that values presented are for a 2023 interim year.
In Section A1.4 Population, the submittal indicates that the 2014 populations for Pima and Pinal counties were 980,263 and 375,770 persons, respectively (see Table 1). However, Table A-9: Population indicates that the 2014 populations for Pima and Pinal counties were 1,007,162 and 396,237, respectively. Values in Table A-9 were used to allocate county-level emissions to the maintenance area. The EPA reviewed the Arizona Department of Administration's (ADOA) "July 1, 2014 Population Estimates for Arizona's Counties, Incorporated Places and Unincorporated Balance of Counties" and found that the values in Table A-9 and used in ADEQ's analysis are consistent with those reported by ADOA. Therefore, the incorrect values presented in Section A1.4 did not affect ADEQ's analysis results.
Table 1. 2014 County-Level Population

                            Section A1.4 Population
                            Table A-9: Population*
 Pima County
                                    980,263
                                   1,007,162
 Pinal County
                                    375,770
                                    396,237
* Values in Table A-9: Population are consistent with the July 1, 2014 Population Estimates for Arizona's Counties, Incorporated Places and Unincorporated Balance of Counties (https://population.az.gov/sites/default/files/documents/files/pop-estimates2014-04pla.pdf) released by the Arizona Department of Administration.
Another inconsistency among values reported in Arizona's submittal was for the 2014 population for the Pinal County portion of the maintenance area. Table 1.3 Population Distribution, Selected Years, 2010-2028 and Table A-2: Geographic Location and Population indicate that the 2014 population of the Pinal County portion of the maintenance area was 9,981, whereas Table A-9 Population indicates that the population was 9,480. The EPA calculated nonpoint emissions for the relevant emission sectors (i.e., emissions sectors for which ADEQ used population to allocate emissions from the county level to the maintenance area) using each of the population estimates and found that ADEQ's nonpoint emission inventory (see Table A-6) was derived using the higher, more conservative population estimate of 9,981. Furthermore, the EPA found that the difference between nonpoint emissions for 2014 estimated using the two different population estimates is small (~0.1 tpy SO2). Given that ADEQ's analysis used the higher population estimate for the Pinal County portion of the maintenance area and that the relative impact on the emissions estimates is small, the EPA finds that the inconsistency in values reported has a negligible effect on ADEQ's analysis results for the purposes of demonstrating continued attainment of the 1971 SO2 NAAQS in the San Manuel maintenance area.
Finally, the EPA identified some inconsistencies in Arizona's submittal related to the land area values reported for the Pima and Pinal County portions of the San Manuel maintenance area (see Table 2). Table A-2: Geographic Location and Population indicates that the area of the Pinal County portion of the maintenance area is 494.5 mi[2], which is larger than the area reported in the same table for the entire maintenance area of 382 mi[2]. Furthermore, the area of 494.5 mi[2] for the Pinal County portion of the maintenance area is inconsistent with the area reported in Table A-11: Land Area of 347 mi[2]. Both Tables A-2 and A-11 report that the area for the Pima County portion of the maintenance area is 102 mi[2]. ADEQ used the values reported in Table A-11 to calculate land area allocation factors. Using the 1971 SO2 nonattainment area shapefile from the EPA's Green Book (https://www.epa.gov/green-book/green-book-gis-download), the EPA estimates that the area of the San Manuel maintenance area is 382 mi[2], the area of the Pima County portion of the maintenance area is 36 mi[2], and the area of the Pinal County portion of the maintenance area is 347 mi[2]. Using these values, the land area allocation factor for Pima County would be lower than the value used by Arizona to estimate 2014 fire emissions. ADEQ assumed the 2014 wildfire emissions remained constant when projecting emissions into the future. Thus, fire emissions are expected to be lower in 2014 and in future years than estimated by Arizona.
Table 2. Land area in square miles.

                 Table A-2: Geographic Location and Population
                             Table A-11: Land Area
                               EPA's Analysis*
San Manuel Maintenance Area (MA)
                                      382
                                       -
                                      382
Pima County portion of the MA
                                     102.0
                                      102
                                      36
Pinal County portion of the MA
                                     494.5
                                      347
                                      347
*EPA Green Book shapefiles (https://www.epa.gov/green-book/green-book-gis-download).

EPA shared the results of these analyses with ADEQ during a teleconference call on July 11, 2017. Following the call, ADEQ recalculated the affected emissions inventory values using the correct land area and population values and confirmed that the numbers presented in the SIP represent an overestimation. A summary of ADEQ's analysis findings was provided in an email from E. Toon to A. Graham on July 26, 2017 and is included in the docket for EPA's action on ADEQ's submittal (Docket EPA-R09-OAR-2017-0377).
In summary, the inconsistencies the EPA identified in the population and land area values presented in Arizona's submittal have only a minor impact, or in some cases no impact, on the emissions estimates derived. In cases where discrepancies did have a minor impact on emissions estimates, the EPA found that they led to an overestimate in SO2 emissions and thus do not alter Arizona's findings that emissions through 2028 are projected to be well below the 2005 attainment inventory emissions and that emissions estimates demonstrate continued attainment of the 1971 SO2 NAAQS in the San Manuel maintenance area.


[Federal Register Volume 84, Number 248 (Friday, December 27, 2019)]
[Notices]
[Pages 71482-71488]
[FR Doc No: 2019-27917]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33721; File No. 812-14722]

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

December 20, 2019.
AGENCY: Securities and Exchange Commission (``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 (``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'') \1\ and Allianz Life Insurance Company of New York (``Allianz
NY'') \2\ (together the ``Insurance Company Applicants''); their
respective separate accounts, Allianz Life Variable Account A
(``Allianz Account A''),\3\ Allianz Life Variable Account B (``Allianz
Account B''),\4\ and Allianz Life of NY Variable Account C (``Allianz
Account C'') \5\ (collectively, the ``Separate Accounts'' and together
with the Insurance Company Applicants, the ``Section 26 Applicants'');
and Allianz Variable Insurance Products Trust (the ``VIP Trust''),
Allianz Variable Insurance Products Fund of Funds Trust (the ``FOF
Trust''), and the PIMCO Variable Insurance Trust (the ``PIMCO VIT'')
(collectively with the Section 26 Applicants, the ``Section 17
Applicants'').
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    \1\ Allianz Life is a stock life insurance company organized
under the laws of the state of Minnesota. 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 an indirect, wholly-owned subsidiary of
Allianz SE, a European stock corporation.
    \2\ Allianz NY is a stock life insurance company organized under
the laws of the state of New York. Allianz NY offers fixed and
variable annuities. Allianz NY is licensed to do direct business in
six states and the District of Columbia. Allianz NY is a wholly-
owned subsidiary of Allianz Life, and an indirect, wholly-owned
subsidiary of Allianz SE.
    \3\ Allianz Account A is a segregated asset account of Allianz
Life established 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 subaccounts, each of
which invests in and reflects the investment performance of a
specific underlying registered open-end investment company or
portfolio thereof (each an ``Investment Option''). Allianz Account A
is registered as a unit investment trust under the Act.
    \4\ Allianz Account B is a segregated asset account of Allianz
Life established 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 subaccounts, each of which
invests in and reflects the investment performance of a specific
Investment Option. Allianz Account B is registered as a UIT under
the Act.
    \5\ Allianz Account C is a segregated asset account of Allianz
NY established 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 subaccounts, each of which
invests in and reflects the investment performance of a specific
Investment Option. Allianz Account C is registered as a UIT under
the Act.

Summary of Application:  The Section 26 Applicants seek an order
pursuant to section 26(c) of the Act, approving the substitution of
shares issued by certain investment portfolios of registered investment
companies (the ``Target Funds'') for the shares of certain investment
portfolios of registered investment companies (the ``Destination
Funds''), held by the Separate Accounts as investment options for
certain variable life insurance policies and variable annuity contracts
(such policies and contracts, the ``Contracts'') issued by Allianz Life
and Allianz NY (the ``Substitutions''). The Section 17 Applicants seek
an order pursuant to section 17(b) of the 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
---------------------------------------------------------------------------
Substitutions.

Filing Dates:  The application was filed on December 7, 2016 and
amended on May 31, 2017, August 4, 2017, May 31, 2019 and August 13,
2019.

Hearing or Notification of Hearing:  An order granting the requested
relief

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 January 14, 2020, and should be accompanied
by proof of service on applicants in the form of an affidavit or, for
lawyers, a certificate of service. Pursuant to rule 0-5 under the Act,
hearing requests should state the nature of the requester's interest,
any facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to
Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-1090. Applicants: Allianz Life
Insurance Company of North America, Allianz Life Variable Account A,
Allianz Life Variable Account B, Allianz Variable Insurance Products
Trust, and Allianz Variable Insurance Products Fund of Funds Trust,
5701 Golden Hills Drive, Minneapolis, MN 55416-1297; Allianz Life
Insurance Company of New York and Allianz Life of NY Variable Account
C, 28 Liberty Street, 38th Floor, New York, NY 10005-1423; and PIMCO
Variable Insurance Trust, 650 Newport Center Drive, Newport Beach, CA
92660.

FOR FURTHER INFORMATION CONTACT:  Jennifer O. Palmer, Senior Counsel,
David J. Marcinkus, Branch Chief, Daniele Marchesani, Assistant Chief
Counsel, or Nadya B. Roytblat, Assistant Chief Counsel, at (202) 551-
6825 (Chief Counsel's Office, Division of Investment Management).

SUPPLEMENTARY INFORMATION:  The following is a summary of the
application. The complete application may be obtained via the
Commission's website 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<PHONE_NUMBER>.

Applicants' Representations

    1. Variable insurance contracts (variable annuities and variable
life insurance policies) are issued by insurance companies and
typically have a two-tier structure. The top tier is a separate account
of the insurance company, registered under the Act as a unit investment
trust (``UIT''). The separate account, in turn, has subaccounts that
invest in numerous (sometimes hundreds of) underlying mutual funds
(open-end management investment companies registered under the Act) and
exchange-traded funds. Contract holders allocate their assets across
these various underlying funds available through the separate account.
    2. Allianz Life and Allianz NY offer Contracts issued by the
Separate Accounts with one or more of the Target Funds included as an
Investment Option.\6\ Under the Contracts, the Insurance Company
Applicants reserve the right, subject to Commission approval and
compliance with applicable laws, to substitute Investment Options with
other Investment Options after appropriate notice. The Contracts also
permit the Insurance Company Applicants to limit the manner in which a
Contract owner may allocate purchase payments to the subaccounts that
invest in an Investment Option.\7\
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    \6\ The number of Investment Options currently available under
the affected Contracts ranges from 13 to 50.
    \7\ In addition to registering with the Commission as an
investment company under the Act, each Separate Account has
registered with the Commission its securities under the Securities
Act of 1933 (``1933 Act''). In doing so, each Separate Account has
filed a registration statement with the Commission that includes a
prospectus describing the Contracts offered by the Separate Account
and a copy of the form of such Contracts.
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    3. Each Insurance Company Applicant, on behalf of itself and its
Separate Account(s), proposes to replace shares of the Target Funds
that are held in subaccounts of their Separate Accounts with shares of
the corresponding Destination Funds, as shown in the table below.\8\
The Insurance Company Applicants state that the proposed Substitutions
are part of an ongoing effort to make their Contracts more attractive
to existing and prospective Contract owners and to make the Contracts
more efficient to administer. Additional information for each Target
Fund and the corresponding Destination Fund, including investment
objectives, principal investment strategies, principal risks, and
performance, as well as the fees and expenses of each Target Fund and
its corresponding Destination Fund, can be found in the application.
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    \8\ The Destination Funds are all series of the VIP Trust, FOF
Trust, or PIMCO VIT, each a Delaware statutory trust registered as
an open-end management investment company under the Act and whose
shares are registered under the 1933 Act. Shares of the VIP Trust
and the FOF 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 Destination Funds offered by
the VIP Trust and FOF Trust are managed by Allianz Investment
Management LLC (``AIM''), an affiliate of the Insurance Company
Applicants. AIM is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act''). Shares of the
PIMCO VIT are sold to separate accounts of Allianz Life and Allianz
NY, as well as other insurance companies, for the purpose of funding
variable annuity contracts and variable life insurance policies. The
Destination Funds offered by the PIMCO VIT are managed by Pacific
Investment Management Company LLC (``PIMCO''), an affiliate of
Insurance Company Applicants. PIMCO is registered as an investment
adviser under the Advisers Act.

------------------------------------------------------------------------
      Substitution             Target fund           Destination fund
------------------------------------------------------------------------
1......................  Fidelity VIP             AZL Balanced Index
                          FundsManager 50%         Strategy Fund, Class
                          Portfolio, Service       1.
                          Class 2.
2......................  Templeton Growth VIP     AZL MSCI Global Equity
                          Fund, Class 1.           Index Fund, Class 1.
                         Templeton Growth VIP     AZL MSCI Global Equity
                          Fund, Class 2.           Index Fund, Class 2.
3......................  BlackRock Global         AZL Moderate Index
                          Allocation V.I. Fund,    Strategy Fund, Class
                          Class III.               1.
4......................  Fidelity VIP             AZL Moderate Index
                          FundsManager 60%         Strategy Fund, Class
                          Portfolio, Service       1.
                          Class 2.
5......................  Franklin Allocation VIP  AZL Moderate Index
                          Fund, Class 2.           Strategy Fund, Class
                                                   1.
6......................  Franklin Income VIP      AZL Fidelity
                          Fund, Class 1.           Institutional Asset
                                                   Management Multi-
                                                   Strategy Fund, Class
                                                   1.
                         Franklin Income VIP      AZL Fidelity
                          Fund, Class 2.           Institutional Asset
                                                   Management Multi-
                                                   Strategy Fund, Class
                                                   2.
7......................  PIMCO All Asset          AZL Fidelity
                          Portfolio,               Institutional Asset
                          Administrative Class.    Management Multi-
                                                   Strategy Fund, Class
                                                   2.
8......................  Franklin Strategic       AZL Fidelity
                          Income VIP Fund, Class   Institutional Asset
                          2.                       Management Total Bond
                                                   Fund, Class 2.
9......................  Franklin Mutual Shares   AZL Russell 1000 Value
                          VIP Fund, Class 1.       Index Fund, Class 1.
                         Franklin Mutual Shares   AZL Russell 1000 Value
                          VIP Fund, Class 2.       Index Fund, Class 2.
10.....................  BNY Mellon VIF           AZL S&P 500 Index
                          Appreciation             Fund, Class 2.
                          Portfolio, Service
                          Class.

11.....................  PIMCO Global Multi-      PIMCO Balanced
                          Asset Managed            Allocation Portfolio,
                          Allocation Portfolio,    Administrative Class.
                          Administrative Class.
12.....................  PIMCO Global Bond        PIMCO Global Core Bond
                          Opportunities            (Hedged) Portfolio,
                          Portfolio (Unhedged),    Administrative Class.
                          Administrative Class.
13.....................  PIMCO Dynamic Bond       PIMCO Total Return
                          Portfolio,               Portfolio,
                          Administrative Class.    Administrative Class.
------------------------------------------------------------------------

    4. The proposed Substitutions will be described in supplements to
the applicable prospectuses for the Contracts filed with the Commission
(``Supplements'') and delivered to all affected Contract owners at
least 30 days before the date the proposed Substitution is effected
(``Substitution Date''). The Supplements, among other things, will
advise Contract owners that, for a period beginning at least 30 days
before the Substitution Date through at least 30 days following the
Substitution Date, Contract owners are permitted to transfer all of or
a portion of their Contract value out of any subaccount investing in a
Target Fund to any other available subaccounts offered under their
Contract without any transfer charge or limitation and without the
transfer being counted as a transfer for purposes of transfer
limitations and fees that would otherwise be applicable under the terms
of the Contracts.
    5. The Section 26 Applicants will send the Supplements to all
existing Contract owners. Prospective purchasers and new purchasers of
Contracts will be provided with a Contract prospectus and the
Supplements, as well as prospectuses and supplements for the
Destination Funds.
    6. In addition to the Supplements distributed to Contract owners,
within five business days after the Substitution Date, the Insurance
Company Applicants will send Contract owners a written confirmation of
the completed proposed Substitutions in accordance with rule 10b-10
under the Securities Exchange Act of 1934. The confirmation statement
will include or be accompanied by a statement that reiterates the free
transfer rights disclosed in the Supplements. The Insurance Company
Applicants also will send each Contract owner current prospectuses for
the Destination Funds involved to the extent that they have not
previously received a copy.
    7. Each Substitution will take place at the applicable Target and
Destination Funds' relative per share net asset values (``NAV'')
determined on the Substitution Date in accordance with section 22 of
the Act and rule 22c-1 thereunder. Each Substitution will be effected
by having each Target Fund subaccount redeem its Target Fund shares in
cash and/or in-kind on the Substitution Date at NAV per share and
purchase shares of the appropriate Destination Fund at NAV per share
calculated on the same date.\9\
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    \9\ The process for accomplishing the transfer of assets from
each Target Fund to its corresponding Destination Fund will be
determined on a case-by-case basis. In some cases, it is expected
that the Substitutions will be effected by redeeming shares of a
Target Fund for cash and using the cash to purchase shares of the
Destination Fund. In other cases, it is expected that the
Substitutions will be effected by redeeming the shares of a Target
Fund in-kind; those assets will then be contributed in-kind to the
corresponding Destination Fund to purchase shares of that fund.
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    8. The Insurance Company Applicants or an affiliate will pay all
expenses and transaction costs reasonably related to the proposed
Substitutions. No costs of the Substitutions will be borne directly or
indirectly by Contract owners. Contract owners will not incur any fees
or charges as a result of the Substitutions, nor will their rights or
the obligations of the Insurance Company Applicants under the Contracts
be altered in any way. The proposed Substitutions will not cause the
fees and charges under the Contracts currently being paid by Contract
owners to be greater after the proposed Substitutions than before the
proposed Substitutions. The charges for optional living benefit riders
may change from time to time and any such changes would be unrelated to
the proposed Substitutions.
    9. The Section 26 Applicants state that the benefits offered by the
guarantees under the Contracts will be the same immediately before and
after the Substitutions. The Section 26 Applicants further state that
the effect Substitutions may have on the value of the benefits offered
by the Contract guarantees would depend, among other things, on the
relative future performance of the Target Funds and Destination Funds,
which the Section 26 Applicants cannot predict. The Section 26
Applicants further note that, at the time of the Substitutions, the
Contracts will offer a comparable variety of Investment Options with as
broad a range of risk/return characteristics.
    10. The Section 26 Applicants further state that they will cause
AIM or PIMCO, as applicable, as the investment adviser of each
Destination Fund, to enter into a written contract with the applicable
Destination Funds, whereby, during the two (2) years following the
Substitution Date, the annual net operating expenses of each such
Destination Fund will not exceed, on an annualized basis, the annual
net operating expenses of any corresponding Target Fund for fiscal year
2018. The Section 26 Applicants further represent that separate account
charges for any Contract owner on the Substitution Date will not be
increased at any time during the two-year period following the
Substitution Date.

Legal Analysis--Section 26(c) of the Act

    1. The Section 26 Applicants request that the Commission issue an
order pursuant to section 26(c) of the Act approving the Substitutions.
Section 26(c) of the Act prohibits any depositor or trustee of a UIT
holding the security of a single issuer from substituting the
securities of another issuer without the approval of the Commission.
Section 26(c) provides that such approval shall be granted by order of
the Commission if the evidence establishes that the substitution is
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. Applicants state that
Congress' concern underlying section 26(c) related to the lack of
recourse and potentially additional fees experienced by investors in a
single-security UIT in the case of a substitution.
    2. Applicants submit that each of the Substitutions is consistent
with the protection of investors and the purposes fairly intended by
the policy and provisions of the Act. In particular, Applicants point
to the following:
    (a) The contracts permit the substitutions, subject to Commission
approval and compliance with applicable laws, upon appropriate notice;
    (b) the prospectuses or statements of additional information for
the Contracts contain appropriate disclosure of these rights;
    (c) the Substitutions will be described in the Supplements
delivered to all affected Contract owners at least 30 days before the
Substitution Date;
    (d) the Supplements also will advise Contract owners that, for a
period beginning at least 30 days before the Substitution Date through
at least 30

days following the Substitution Date, Contract owners are permitted to
transfer all of or a portion of their Contract value out of any
subaccount investing in a Target Fund to any other available
subaccounts offered under their Contract without any transfer charge or
limitation and without the transfer being counted as a transfer for
purposes of transfer limitations and fees that would otherwise be
applicable under the terms of the Contracts;
    (e) each Destination Fund and its corresponding Target Fund have
similar or substantially similar investment objectives, principal
investment strategies, and principal risks; \10\ and
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    \10\ Applicants note that prior Commission orders under section
26(c) for similar substitutions provide guidance as to the funds
that may be viewed as comparable.
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    (f) the total net operating expenses of each Destination Fund will
be the same or lower than those of the corresponding Target Fund for at
least two years following the Substitution Date.
    Applicants assert that, based on the terms noted above, and subject
to the conditions set forth below, the proposed Substitutions do not
raise the concerns underlying section 26(c) of the Act.

Opposition to Certain of the Proposed Substitutions

    3. As shown in the chart above, some of the Target Funds are
advised by Franklin Advisers, Inc. or one of its affiliates
(``Franklin''). Franklin has submitted several letters to the
Commission opposing the application and stating its intent to request a
hearing should the Commission issue a notice on the application without
resolving Franklin's concerns.\11\
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    \11\ See letters from Franklin to Sara Crovitz, dated May 10,
2017, June 8, 2017, and August 22, 2017, and to Dalia Blass, dated
September 12, 2019, submitted by Morgan Lewis, and letter from the
independent trustees of the Franklin Templeton Variable Insurance
Products Trust to Sara Crovitz, dated August 18, 2017, submitted by
Schiff Hardin (the ``Franklin Letters''), available at https://www.sec.gov/rules/icreleases.shtml#insprodfundsub. Allianz submitted
two letters, dated August 4, 2017 and September 24, 2019, responding
to the Franklin Letters.
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    4. The Franklin Letters assert that the proposed Substitutions do
not meet the standard for an order under section 26(c) for the
following reasons: \12\
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    \12\ The Franklin Letters also argue that the proposed
Substitutions are joint transactions and thus require an order under
section 17(d) of the Act and rule 17d-1, which the application fails
to request.
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    (a) The Commission should approve substitutions under section 26(c)
only when the insurance company seeks to replace a fund due to
unforeseen circumstances, such as impairment of the fund or fraud, and
not in other circumstances when the substitution would benefit the
insurance company;
    (b) the proposed Substitutions would, for the most part, replace
actively managed funds with index funds that have lower performance, so
that Contract owners will suffer a diminution in the value of the
guarantees purchased by the contract holders, to the detriment of the
contract holders and to the benefit of the Insurance Company
Applicants; and
    (c) as argued in a letter from the independent trustees of the
Franklin-advised Target Funds, the shareholders remaining in these
funds after the Substitutions would be harmed because the Substitutions
would cause significant redemptions of shares of the Franklin-advised
Target Funds, which could impact the ability of such funds to follow
their current investment strategies and would likely increase costs to
remaining shareholders.

The Application Satisfies the Standards in Section 26(c)

    5. The Commission has considered these arguments. As noted above,
section 26(c) states that ``The Commission shall issue an order
approving a substitution if the evidence establishes that it is
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of [the Act].''

A. The Allianz Application Is Consistent With Investor Protection

i. Protective Conditions
    6. Since the early 1980s, the Commission has issued nearly 200
substitution orders under section 26(c) involving variable insurance
contract UIT subaccounts replacing their underlying mutual funds. The
terms and conditions of these orders \13\ and of the Allianz
application \14\ are designed to address investor protection on the two
points expressly addressed in the legislative history of Section 26(c).
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    \13\ As orders are subject to the terms and conditions set forth
in the related applications, a reference to the terms and conditions
of an order includes the terms and conditions described in the
related application.
    \14\ In this regard, the September 12, 2019 Franklin Letter
stated that ``We have done a preliminary analysis, and the effect of
the proposed substitutions is that some of the [Destination] [F]unds
would experience an increase in their total operating expense ratios
and one fund would also lose the benefit of fee breakpoints.'' Among
other things, the terms and conditions require that the total net
operating expenses of each replacement fund will be the same or
lower than those of the corresponding target fund for at least two
years following the substitution date.
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ii. Consideration of Impact on Value of Guarantees Not Required
    7. The Franklin Letters argue that in reviewing a substitution
application under section 26(c), the Commission also should be
concerned about any diminution in the value of the variable insurance
contracts' guarantees as the underlying actively-managed mutual funds
are being replaced with index mutual funds, to the benefit of the
insurance company. Because typically the benefit base used for variable
contracts' living and death benefit guarantees is reset periodically by
reference to the contract's account value, contract holders are
disadvantaged by the replacement of actively-managed fund options that
seek to ``beat, rather than just meet, a benchmark.'' \15\ The
Commission believes that this argument should be rejected for several
reasons.
---------------------------------------------------------------------------

    \15\ Franklin Letter, dated May 10, 2017, submitted by Morgan
Lewis, at p. 3.
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    8. First, consistent with prior substitution orders, the proposed
Destination Funds are substantially similar to the Target Funds in the
application.\16\ Second, it is not a foregone conclusion that replacing
an actively-managed fund with an index fund will lead to a diminution
in the value of the variable insurance contract's guarantee. The
application states that ``[w]hat effect the proposed [s]ubstitutions
may have on the value of the benefits offered by the Contract
guarantees would depend, among other things, on the relative future
performance of the [Target Funds] and [Destination Funds], which
[Applicants] cannot predict. Nevertheless, [Applicants] note that at
the time of the proposed Substitutions, the Contracts will offer a
comparable variety of investment options with as broad a range of risk/
return characteristics.'' Finally, if the consideration of the impact
of substitutions on changes in the value of contracts' guarantees were
to factor into the Commission's review of substitution applications
under section 26(c), the Commission would be tasking itself with
calculating how

substitutions would affect the value of variable insurance contract
guarantees in the context of hundreds, if not thousands, of funds. Such
calculations would be complex and rely on numerous assumptions and
other factors, including estimates of the future performance of the
funds involved over varying time frames, and the impact of future
performance on the benefit base used to set the insurance guarantees.
---------------------------------------------------------------------------

    \16\ See, e.g., AXA Equitable Life Ins. Co., et al., Rel. Nos.
IC-33201 (Aug. 15, 2018) (Notice) and IC-33224 (Sep. 11, 2018)
(Order), File No. 812-14831; The Guardian Ins. & Annuity Co., Inc.,
et al., Rel. Nos. IC-32967 (Jan. 10, 2018) (Notice) and IC-33003
(Feb. 7, 2018) (Order), File No. 812-14714; Commonwealth Annuity and
Life Ins. Co., et al., Rel. Nos. IC-32615 (Apr. 27, 2017) (Notice)
and IC-32644 (May 23, 2017) (Order), File No. 812-14646;
Transamerica Advisors Life Ins. Co., et al., Rel. Nos. IC-32571
(Mar. 24, 2017) (Notice) and IC-32606 (Apr. 19, 2017) (Order), File
No. 812-14487; Allianz Life Ins. Co. of North America, et al., Rel.
Nos. IC-32207 (Aug. 3, 2016) (Notice) and IC-32242 (Aug. 29, 2016)
(Order), File No. 812-14580.
---------------------------------------------------------------------------

B. The Application Is Consistent With the Purposes Fairly Intended by
the Policy and Provisions of the Act

i. Section 26(c) of the Act
    9. The purposes intended by section 26(c) of the Act, as discussed
above, were to protect the UIT's shareholders from having no recourse
when the single portfolio security of the UIT is replaced and incurring
additional fees in reinvesting any redemption proceeds. For the reasons
discussed above, the terms and conditions of the application satisfy
these investor protection purposes.
ii. Section 1(b)(2) of the Act
    10. Another potentially relevant purpose of the Act is set forth in
Section 1(b)(2) of the Act. It states, in relevant part, that the
national public interest and the interest of investors are adversely
affected when the portfolio securities of investment companies are
selected in the interest of ``persons engaged in other lines of
business, rather than in the interest of all classes of such companies'
security holders.'' In a substitution application (including the
Allianz application), the portfolio securities (the underlying mutual
funds) of the separate account UIT arguably are being selected in the
interest of the insurance company that had issued the variable
insurance contract. The Franklin Letters argue that the Commission
should permit substitutions under section 26(c) only under exceptional
or unforeseen circumstances, such as when the existing fund is impaired
or in cases of fraud, and not in other circumstances when the
substitution would benefit the insurance company. Although the Franklin
Letters do not specifically refer to section 1(b)(2) of the Act in the
context of this argument, we believe their argument may echo the
concern reflected in that section.
    11. To interpret section 26(c) as allowing Commission approval of
substitutions only in unforeseen or exceptional circumstances would be
in conflict with section 26(c), its legislative history, and the
purposes of the Act more broadly. It also would be a significant
departure from prior practice.\17\ Further, the Commission believes any
section 1(b)(2) concern is addressed by the standard terms and
conditions of the substitution orders under section 26(c), including
those in the Allianz application. These terms and conditions serve as a
check on the insurance company's actions in replacing the mutual funds
underlying its separate account UIT, and are designed to help investor
protection. The Commission notes that insurance companies have offered
separate account UITs with numerous investment options with the
expectation and understanding that they would have the ability to make
changes among the investment options in appropriate circumstances.\18\
The variable insurance contracts expressly permit such substitutions.
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    \17\ Id.
    \18\ See, e.g., letter dated Jan. 21, 2017 from Sutherland on
behalf of the Hartford Life Insurance Company, et al. to the
Commission in response to the hearing requests of the American
Funds, among others, on the Hartford Substitution Application, at 3
(stating ``[i]nsurance companies are not able to offer the
significant benefits of various variable insurance contracts
unconditionally. They can be responsibly offered only with certain
unilateral insurer conditions, e.g., limitations on initial and
subsequent premium amounts; restricting access to certain underlying
funds; age limitations for benefit availability; and, perhaps most
vital to insurers, the ability to add, delete, merge, close and
substitute fund offerings. Insurance companies use these contractual
rights to manage operational expenses and insurance risks over the
long life of their guarantees, and to manage contract owners'
changing needs over those same durations''), available at https://www.sec.gov/comments/812-14446/81214446-1523020-130992.pdf.
---------------------------------------------------------------------------

iii. Section 12(d)(1)(E) of the Act
    12. The Commission also has considered the concern expressed by the
independent directors of the Franklin-advised Target Funds about the
loss of assets in those funds as a result of the Substitutions. There
is no indication in the legislative history of section 26(c) that
Congress was concerned with the impact of the substitution on the
company in which the UIT was invested.\19\ The application involves
subaccounts of UITs that invest in the Target Funds in reliance on
section 12(d)(1)(E) of the Act.\20\ The requirements of that section,
which excepts certain fund-of-funds arrangements from the prohibitions
in section 12(d)(1)(A), (B) and (C), are concerned with protecting the
shareholders of both the investing UIT and the underlying fund.\21\ The
Commission has considered the concerns underlying section 12(d)(1)(E)
as they might relate to the Franklin-advised Target Funds with respect
to whether the Substitutions are consistent with ``the purposes fairly
intended by the policy and provisions'' of the Act. The Commission
believes the fact that the Franklin-advised funds could lose assets due
to the Substitutions is not a concern under section 12(d)(1)(E), which
does not limit a UIT's ability to redeem its shares from an underlying
fund. A more relevant concern would be if the insurance company,
through its separate account UIT, was trying to somehow engage in
overreaching with respect to the Franklin-advised funds through the
threat of redemption. No allegation has been made that Allianz is
engaged in an attempt to overreach the Target Funds through a threat of
redemption, and the Commission is not aware of any overreaching
behavior.
---------------------------------------------------------------------------

    \19\ Legislative history indicates that Congress's concern in
enacting section 26(c) was the protection of the contract holder.
See Senate Report, supra note 10 (stating ``[t]he proposed amendment
recognizes that in the case of a unit investment trust holding the
securities of a single issuer notification to share holders does not
provide adequate protection since the only relief available to the
shareholders, if dissatisfied, would be to redeem their shares. A
shareholder who redeems and reinvests the proceeds in another unit
investment trust or in an open-end company would under most
circumstances be subject to a new sales load'').
    \20\ Section 12(d)(1)(E) is a conditional exemption from the
restrictions in section 12(d)(1), which limit so-called ``fund-of-
funds'' arrangements in which one mutual fund invests in the shares
of another. Section 12(d)(1)(E) exempts a fund acquiring shares of
another fund from the 12(d)(1) limits if, among other things, the
acquired shares are the only security owned by the acquiring fund.
This exemption is relied upon by, among others, most insurance
company separate accounts, which are organized as UITs and divided
into subaccounts, each of which invests proceeds from the sale of
interests in variable annuity and variable life insurance contracts
in shares of a mutual fund.
    \21\ We note that section 12(d)(1)(E)(iii)(bb) requires section
26(c)-type Commission approval of substitutions in the fund-of-funds
context only where the acquiring fund is not registered under the
Act.
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iv. Section 17(d) of the Act
    13. Finally, the Commission has considered the argument in the
Franklin Letters that the Substitutions require an order under section
17(d) of the Act and rule 17d-1. These provisions generally prohibit an
affiliated person of a registered investment company from participating
in or effecting a joint transaction in which the registered investment
company is a participant, without first obtaining an order of the
Commission.\22\ The Franklin Letters

have not articulated why the proposed Substitutions would involve a
joint transaction, including what would be the joint transaction and
how an affiliated person of the funds involved, acting as principal, is
participating in the transaction. In addition, we believe the
Substitutions are similar to other transactions involving two-tier
structures that are permitted under section 12(d)(1)(E) where relief
from section 17(d) and rule 17d-1 is not necessary, regardless of
whether the underlying fund is an affiliate of the top-tier fund.\23\
As with those other structures, relief from section 17(a) is necessary
for in-kind transactions between the top-tier fund and underlying
fund.\24\
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    \22\ Section 17(d) states: ``It shall be unlawful for any
affiliated person of [. . .] a registered investment company [. .
.], or any affiliated person of such a person [. . .], acting as
principal to effect any transaction in which such registered
company, or a company controlled by such registered company, is a
joint or a joint and several participant with such person [. . .],
or affiliated person, in contravention of such rules and regulations
as the Commission may prescribe for the purpose of limiting or
preventing participation by such registered or controlled company on
a basis different from or less advantageous than that of such other
participant.'' Rule 17d-1 prohibits such joint arrangements,
``unless an application regarding such joint enterprise, arrangement
or profit-sharing plan has been filed with the Commission and has
been granted by an order entered prior to the submission of such
plan or modification to security holders for approval, or prior to
such adoption or modification if not so submitted [. . .].'' Rule
17d-1 further states that, ``[i]n passing upon such applications,
the Commission will consider whether the participation of such
registered or controlled company in such joint enterprise, joint
arrangement or profit-sharing plan on the basis proposed is
consistent with the provisions, policies and purposes of the Act and
the extent to which such participation is on a basis different from
or less advantageous than that of other participants.''
    \23\ See supra note 20. Section 12(d)(1)(E) is also relied upon
by master-feeder fund arrangements, in which one or more funds pool
their assets by investing in a single fund with the same investment
objective.
    \24\ See discussion of sections 17(a)(1) and 17(a)(2) of the Act
infra pp. 17-18.
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Legal Analysis--Section 17(a) of the Act

    14. The Section 17 Applicants request that the Commission issue an
order pursuant to section 17(b) of the Act exempting them from section
17(a)(1) and (2) of the Act to the extent necessary to permit them to
carry out the Substitutions by redeeming shares issued by each
applicable Target Fund in-kind and using the securities distributed as
redemption proceeds to purchase shares issued by the applicable
Destination Funds (the ``In-Kind Transactions'').
    Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or an affiliated
person of such person, acting as principal, knowingly from selling any
security or other property to such registered investment company.
Section 17(a)(2) of the Act, in relevant part, prohibits any affiliated
person of a registered investment company, or an affiliated person of
such person, acting as principal, knowingly from purchasing any
security or other property from such registered investment company.
``Affiliated person'' is defined in section 2(a)(3) of the Act.\25\
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    \25\ Section 2(a)(3) defines affiliated person as ``(A) any
person directly or indirectly owning, controlling, or holding with
power to vote, 5 per centum or more of the outstanding voting
securities of such other person; (B) any person 5 per centum or more
of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other person;
(C) any person directly or indirectly controlling, controlled by, or
under common control with, such other person; (D) any officer,
director, partner, copartner, or employee of such other person; (E)
if such other person is an investment company, any investment
adviser thereof or any member of an advisory board thereof; and (F)
if such other person is an unincorporated investment company not
having a board of directors, the depositor thereof.''
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    15. At the close of business on the Substitution Date, the
Insurance Company Applicants will redeem shares of each Target Fund
either in-kind or in cash, or a combination thereof, and use the
proceeds of such redemptions to purchase shares of the corresponding
Destination Fund, with each subaccount of the applicable Separate
Account investing the proceeds of its redemption from the Target Fund
in the corresponding Destination Fund. Thus, the proposed transactions
may involve a transfer of portfolio securities by each Target Fund to
Allianz Life and Allianz NY. Immediately thereafter, Allianz Life and
Allianz NY would purchase shares of the corresponding Destination Fund
with the portfolio securities and/or cash received from the applicable
Target Fund. This aspect of the Substitution may be considered to
involve one or more sales by Allianz Life or Allianz NY of securities
or other property to the applicable Destination Fund. Based on the
affiliations detailed in the application, these in-kind transactions
may be prohibited by section 17(a)(1) and (2) of the Act.
    16. Section 17(b) of the Act, in relevant part, provides that,
notwithstanding subsection (a), any person may file with the Commission
an application for an order exempting a proposed transaction from one
or more provisions of section 17(a). Pursuant to section 17(b), the
Commission shall grant such application and issue such order of
exemption if evidence establishes that: 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; the proposed transaction is consistent with the
policy of each registered investment company concerned, as recited in
its registration statement and reports filed under the Act; and the
proposed transaction is consistent with the general purposes of the
Act.
    17. Accordingly, the Section 17 Applicants seek relief under
section 17(b) from section 17(a) for the in-kind purchases and sales of
the Destination Fund shares. The Section 17 Applicants submit that the
In-Kind Transactions satisfy the standards for an order under section
17(b) because: (i) The terms of the proposed In-Kind Transactions,
including the consideration to be paid and received, are reasonable and
fair and do not involve overreaching on the part of any person
concerned because the proposed In-Kind Transactions will comply with
rule 17a-7 under the Act, other than the requirement relating to cash
consideration (because the In-Kind Transactions will involve portfolio
securities of the Target Funds and shares issued by the Destination
Funds); \26\ (ii) the In-Kind Transactions will be consistent with the
policies of each Target Fund and corresponding Destination Fund as
stated in their respective registration statements and reports filed
with the Commission; and (iii) the In-Kind Transactions are consistent
with the general purposes of the Act because they do not raise any
investor protection concerns.
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    \26\ Rule 17a-7 is a conditional exemption from section 17(a) of
the Act that permits purchase and sale transactions among affiliated
investment companies, or between an investment company and a person
that is affiliated solely by reason of having a common (or
affiliated) investment adviser, common directors, and/or common
officers. In the adopting release to the original Rule 17a-7, the
Commission stated that the purpose of the rule was to ``eliminate
filing and processing applications under circumstances where there
appears to be no likelihood that the statutory finding for a
specific exemption under Section 17(b) of the Act could not be
made'' and that the conditions of the rule ``are designed to limit
the exemption to those situations where the Commission, upon the
basis of its experience, considers that there is no likelihood of
overreaching of the investment companies participating in the
transaction.'' Inv. Co. Act Rel. No. 4697 (Sep. 8, 1966) at 2-4.
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Applicants' Conditions

    The Section 26 Applicants agree that any order granting the
requested relief will be subject to the following conditions:
    1. The proposed Substitutions will not be effected unless the
Insurance Company Applicants determine that: (a) The Contracts allow
the substitution of shares of registered open-end investment companies
in the manner contemplated by the application; (b) the proposed
Substitutions can be consummated as described in the application under
applicable insurance laws; and (c) any regulatory requirements in each
jurisdiction where the Contracts are qualified for sale have

been complied with to the extent necessary to complete the proposed
Substitutions.
    2. The Insurance Company Applicants or their affiliates will pay
all expenses and transaction costs of the proposed Substitutions,
including legal and accounting expenses, any applicable brokerage
expenses and other fees and expenses. No fees or charges will be
assessed to the Contract owners to effect the proposed Substitutions.
The proposed Substitutions will not cause the fees and charges under
the Contracts currently being paid by Contract owners to be greater
after the proposed Substitution than before the proposed Substitution.
For each Substitution, the combined current management fee and Rule
12b-1 fee of the Destination Fund at all asset levels will be no higher
than that of the corresponding Target Fund at corresponding asset
levels.
    3. The proposed Substitutions will be effected at the relative net
asset values of the respective shares in conformity with section 22(c)
of the Act and rule 22c-1 thereunder without the imposition of any
transfer or similar charges by the Section 26 Applicants. The proposed
Substitutions will be effected without change in the amount or value of
any Contracts held by affected Contract owners.
    4. The proposed Substitutions will in no way alter the tax
treatment of affected Contract owners in connection with their
Contracts, and no tax liability will arise for affected Contract owners
as a result of the proposed Substitutions.
    5. The rights or obligations of the Insurance Company Applicants
under the Contracts of affected Contract owners will not be altered in
any way.
    6. Affected Contract owners will be permitted to make at least one
transfer of Contract value from the subaccount investing in the Target
Fund (before the Substitution Date) or the Destination Fund (after the
Substitution Date) to any other available Investment Option under the
Contract without charge for a period beginning at least 30 days before
the Substitution Date through at least 30 days following the
Substitution Date. Except as described in any market timing/short-term
trading provisions of the relevant prospectus, the Insurance Company
Applicants will not exercise any right they may have under the Contract
to impose restrictions on transfers between the subaccounts under the
Contracts, including limitations on the future number of transfers, for
a period beginning at least 30 days before the Substitution Date
through at least 30 days following the Substitution Date.
    7. All affected Contract owners will be notified, at least 30 days
before the Substitution Date about: (a) The intended Substitution of
the Target Funds with the Destination Funds; (b) the intended
Substitution Date; and (c) information with respect to transfers as set
forth in Condition 6 above. In addition, Insurance Company Applicants
will deliver to all affected Contract owners, at least 30 days before
the Substitution Date, a prospectus for each applicable Destination
Fund.
    8. Insurance Company Applicants will deliver to each affected
Contract owner within five (5) business days of the Substitution Date a
written confirmation which will include: (a) A confirmation that the
proposed Substitutions were carried out as previously notified; (b) a
restatement of the information set forth in the Supplements; and (c)
before and after account values.
    9. The Section 26 Applicants will cause AIM or PIMCO, as
applicable, as the investment adviser of each Destination Fund, to
enter into a written contract with the applicable Destination Funds,
whereby, during the two (2) years following the Substitution Date, the
annual net operating expenses of each such Destination Fund will not
exceed, on an annualized basis, the annual net operating expenses of
any corresponding Target Fund for fiscal year 2018. The Section 26
Applicants further agree that separate account charges for any Contract
owner on the Substitution Date will not be increased at any time during
the two-year period following the Substitution Date.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27917 Filed 12-26-19; 8:45 am]
 BILLING CODE 8011-01-P