Pacific Life Insurance Company, et al., 17503-17510 [E6-5016]
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Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Notices
Filing Date: The application was filed
on March 1, 2006.
Applicant’s Address: First Trust
Portfolios, L.P., 1001 Warrenville Rd.,
Suite 300, Lisle, IL 60532.
Muni California Intermediate Duration
Fund, Inc. [File No. 811–21347]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. Applicant has
never made a public offering of its
securities and does not propose to make
a public offering or engage in business
of any kind.
Filing Dates: The application was
filed on January 3, 2006, and amended
on March 8, 2006.
Applicant’s Address: 800 Scudders
Mill Rd., Plainsboro, NJ 08543–9011.
Global Capital and Income Strategies
Fund, Inc. [File No. 811–21578]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. Applicant has
never made a public offering of its
securities and does not propose to make
a public offering or engage in business
of any kind.
Filing Dates: The application was
filed on January 3, 2006, and amended
on March 8, 2006.
Applicant’s Address: 800 Scudders
Mill Rd., Plainsboro, NJ 08543–9011.
sroberts on PROD1PC70 with NOTICES
Fidelity Government Securities Fund
[File No. 811–2869]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On November 28,
1997, applicant transferred its assets to
a corresponding series of the Fidelity
Income Fund, based on net asset value.
Expenses of approximately $12,000
incurred in connection with the
reorganization were paid by applicant.
Filing Dates: The application was
filed on November 30, 2005, and
amended on February 22, 2006.
Applicant’s Address: 82 Devonshire
St., Boston, MA 02109.
Hillview Investment Trust II [File No.
811–9901]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On November 25,
2005, applicant made a liquidating
distribution to its shareholders, based
on net asset value. Expenses of $3,000
incurred in connection with the
liquidation were paid by applicant and
Hillview Capital Advisors, LLC,
applicant’s investment adviser.
Filing Dates: The application was
filed on January 25, 2006, and amended
on March 3, 2006.
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19:52 Apr 05, 2006
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Applicant’s Address: c/o PFPC Inc.,
400 Bellevue Parkway, Wilmington, DE
19809.
TD Waterhouse Trust [File No. 811–
9519]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On July 8, 2005,
applicant’s six series transferred their
assets to corresponding series of T.
Rowe Price Index Trust, Inc., T. Rowe
Price International Index Fund, Inc., or
T. Rowe Price U.S. Bond Index Fund,
Inc., based on net asset value. Expenses
of $534,576 incurred in connection with
the reorganization were paid by TD
Waterhouse Investor Services, Inc., an
affiliate of applicant’s investment
adviser.
Filing Dates: The application was
filed on November 29, 2005, and
amended on March 6, 2006.
Applicant’s Address: 100 Wall St.,
New York, NY 10005.
Variable Life Account C of ING Life
Insurance and Annuity Company [File
No. 811–9665]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. Prior to April 30,
2003, each existing group life certificate
was surrendered and the amount of
insurance in effect was converted to a
substantially comparable flexible
premium general account life insurance
policy. Expenses of $4,000 incurred in
connection with the liquidation were
paid by ING Life Insurance and Annuity
Company.
Filing Dates: The application was
filed on February 6, 2006 and amended
on March 13, 2006.
Applicant’s Address: 151 Farmington
Avenue, Hartford, CT 06156.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–5006 Filed 4–5–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–27276; File No. 812–13187]
Pacific Life Insurance Company, et al.
March 30, 2006.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order pursuant to Section 26(c) of the
Investment Company Act of 1940
AGENCY:
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17503
(‘‘1940 Act’’) approving a substitution of
securities.
Pacific Life Insurance
Company (‘‘Pacific Life’’); Separate
Account A of Pacific Life (‘‘Pacific
Separate Account A’’); Separate
Account B of Pacific Life (‘‘Pacific
Separate Account B’’); Pacific Select
Variable Annuity Separate Account of
Pacific Life (‘‘PSVA Separate Account’’);
Pacific Select Exec Separate Account of
Pacific Life (‘‘Pacific PSE Separate
Account’’); Pacific Life & Annuity
Company (‘‘PL&A’’); Separate Account
A of PL&A (‘‘PL&A Separate Account
A’’); Pacific Select Exec Separate
Account of PL&A (‘‘PL&A PSE Separate
Account’’) (Pacific Separate Account A,
Pacific Separate Account B, PSVA
Separate Account, Pacific PSE Separate
Account, PL&A Separate Account A and
PL&A PSE Separate Account, are
collectively referred to herein as the
‘‘Separate Accounts’’); and Pacific
Select Fund (‘‘Select Fund’’) (Pacific
Life, PL&A, the Separate Accounts and
Select Fund are collectively referred to
herein as the ‘‘Applicants’’)
SUMMARY OF APPLICATION: Applicants
request an order pursuant to section
26(c) of the 1940 Act to permit the
substitution of shares of the American
Funds Growth-Income Portfolio of
Select Fund (‘‘Growth-Income Portfolio’’
or ‘‘Substitute Portfolio’’) for shares of
the Equity Income Portfolio of Select
Fund (‘‘Equity Income Portfolio’’ or
‘‘Replaced Portfolio’’) held by each
Separate Account (‘‘Substitution’’).
FILING DATES: The application was filed
with the Commission on April 29, 2005.
Applicants have agreed to file a final
amendment during the notice period,
the substance of which is reflected in
this notice.
HEARING OR NOTIFICATION: An order
granting the Application will be issued
unless the Commission orders a hearing.
Interested persons may request a
hearing by writing to the Commission’s
secretary 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 April 24, 2006, and should be
accompanied by proof of service on
Applicants, in the form of an affidavit,
or, for lawyers, a certificate of service.
Hearing requests should state the nature
of the 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
Commission.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
APPLICANTS:
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Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Notices
NE., Washington, DC 20549–1090.
Applicants, 700 Newport Center Drive,
Newport Beach, CA 92660.
FOR FURTHER INFORMATION CONTACT:
Michael Kosoff, Staff Attorney, at (202)
551–6754 or Harry Eisenstein, Branch
Chief, Office of Insurance Products,
Division of Investment Management, at
(202) 551–6795.
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Room,
100 F Street, NE., Room 1580,
Washington, DC 20549 (202–551–8090).
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Applicants’ Representations
1. Pacific Life is a life insurance
company that is domiciled in Nebraska.
Along with subsidiaries and affiliates,
Pacific Life’s operations include life
insurance, annuities, pension and
institutional products, mutual funds,
group employee benefits, broker/dealer
operations and investment advisory
services. Pacific Life and PL&A issue
variable annuity contracts and variable
life insurance policies, including those
currently funded by a Separate Account
(each, a ‘‘Variable Contract’’ and
collectively, the ‘‘Variable Contracts’’).
2. Pacific Separate Account A was
established on September 7, 1994, as a
segregated asset account of Pacific Life
and is registered with the Commission
as a unit investment trust. Pacific
Separate Account A currently funds the
variable benefits available under various
variable annuity contracts issued by
Pacific Life. Interests in Pacific Separate
Account A under each Variable Contract
funded by Pacific Separate Account A
are registered under the Securities Act
of 1933, as amended (the ‘‘1933 Act’’).1
Pacific Life is the legal owner of the
assets in Pacific Separate Account A.
Assets of Pacific Separate Account A
attributable to the reserves and other
liabilities under the outstanding
Variable Contracts funded by Pacific
Separate Account A may not be charged
with liabilities arising from other Pacific
Life business.
3. Pacific Separate Account B was
established on September 25, 1996, as a
segregated asset account of Pacific Life
and is registered with the Commission
as a unit investment trust. Pacific
Separate Account B currently funds the
variable benefits available under various
variable annuity contracts issued by
1 Pacific Life and Pacific Separate Account A
have filed Form N–4 Registration Statements under
the 1933 Act registering the various Variable
Contracts funded by Pacific Separate Account A
(File Nos. 333–60833, 33–88460, 33–88458, 33–
88458, 333–93059, 333–93059, 333–53040 and 811–
08946).
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Pacific Life. Interests in Pacific Separate
Account B under each Variable Contract
funded by Pacific Separate Account B
are registered under the 1933 Act.2
Pacific Life is the legal owner of the
assets in Pacific Separate Account B.
Assets of Pacific Separate Account B
attributable to the reserves and other
liabilities under the outstanding
Variable Contracts funded by Pacific
Separate Account B may not be charged
with liabilities arising from other Pacific
Life business.
4. PSVA Separate Account was
established on November 30, 1989, as a
segregated asset account of Pacific Life
and is registered with the Commission
as a unit investment trust. PSVA
Separate Account currently funds the
variable benefits available under a
variable annuity contract designated as
Pacific Select Variable Annuity
(‘‘PSVA’’). PSVA Separate Account
interests in PSVA are registered under
the 1933 Act.3 Pacific Life is the legal
owner of the assets in PSVA Separate
Account. Assets of PSVA Separate
Account attributable to the reserves and
other liabilities under the Variable
Contracts funded by PSVA Separate
Account may not be charged with
liabilities arising from any other Pacific
Life business.
5. Pacific PSE Separate Account was
established on May 12, 1988, as a
segregated asset account of Pacific Life
and is registered with the Commission
as a unit investment trust. Pacific PSE
Separate Account currently funds the
variable benefits available under various
flexible premium variable life insurance
policies. Interests in Pacific PSE
Separate Account under each Variable
Contract funded by Pacific PSE Separate
Account are registered under the 1933
Act.4 Pacific Life is the legal owner of
the assets in Pacific PSE Separate
Account. Assets of Pacific PSE Separate
Account attributable to the reserves and
other liabilities under the outstanding
Variable Contracts funded by Pacific
PSE Separate Account may not be
2 Pacific Life and Pacific Separate Account B have
filed a Form N–4 Registration Statement under the
1933 Act relating to the Variable Contracts funded
by Pacific Separate Account B (File Nos. 333–14131
and 811–07859).
3 Pacific Life and PSVA Separate Account have
filed a Form N–4 Registration Statement under the
1933 Act relating to the Variable Contracts funded
by PSVA Separate Account (File Nos. 33–32704 and
811–05980).
4 Pacific Life and Pacific PSE Separate Account
have filed Form N–6 Registration Statements under
the 1933 Act relating to the various Variable
Contracts funded by Pacific PSE Separate Account
(File Nos. 33–21754, 33–57908, 333–01713, 333–
20355, 333–60461, 333–61135, 333–102902, 333–
106969, 333–118913 and 811–05563).
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charged with liabilities arising from
other Pacific Life business.
6. PL&A is a life insurance company
domiciled in Arizona. It is a whollyowned subsidiary of Pacific Life.
PL&A’s operations include life
insurance, annuity and institutional
products, group life and health
insurance and various other insurance
products and services. PL&A also issues
Variable Contracts. PL&A is authorized
to conduct life insurance and annuity
business in Arizona, New York and
certain other states.
7. PL&A Separate Account A was
established on January 25, 1999, as a
segregated asset account of PL&A and is
registered with the Commission as a
unit investment trust. PL&A Separate
Account A currently funds the variable
benefits available under various variable
annuity contracts issued by PL&A.
Interests in PL&A Separate Account A
under each Variable Contract funded by
PL&A Separate Account A are registered
under the 1933 Act.5 PL&A is the legal
owner of the assets in PL&A Separate
Account A. Assets of PL&A Separate
Account A attributable to the reserves
and other liabilities under the
outstanding Variable Contracts funded
by PL&A Separate Account A may not
be charged with liabilities arising from
other PL&A business.
8. PL&A PSE Separate Account was
established on September 24, 1998, as a
segregated asset account of PL&A and is
registered with the Commission as a
unit investment trust. PL&A PSE
Separate Account currently funds the
variable benefits available under various
flexible premium variable life insurance
policies. Interests in PL&A PSE Separate
Account under each Variable Contract
funded by PL&A PSE Separate Account
are registered under the 1933 Act.6
PL&A is the legal owner of the assets in
PL&A PSE Separate Account. Assets of
PL&A PSE Separate Account
attributable to the reserves and other
liabilities under the outstanding
Variable Contracts funded by PL&A PSE
Separate Account may not be charged
with liabilities arising from other PL&A
business.
9. Select Fund is a registered openend management investment company
that currently offers 34 separate
5 PL&A and PL&A Separate Account A have filed
Form N–4 Registration Statements under the 1933
Act relating to the various Variable Contracts
funded by PL&A Separate Account A (File Nos.
333–71081, 333–100907, 333–107571 and 811–
09203).
6 PL&A and PL&A PSE Separate Account have
filed Form N–6 Registration Statements under the
1933 Act relating to the various Variable Contracts
funded by PL&A PSE Separate Account (File Nos.
333–62446, 333–80825, 333–106653, 333–106721
and 811–09389).
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portfolios. Shares of Select Fund
currently are offered only to the
Separate Accounts for the purpose of
serving as an investment vehicle for
variable annuity contracts and variable
life insurance policies offered or
administered by Pacific Life and PL&A
(collectively, the ‘‘PL Insurers’’).
Pursuant to an Advisory Agreement,
Pacific Life serves as the investment
adviser of Select Fund.
10. Select Fund began offering shares
of the Equity-Income Portfolio
(‘‘Replaced Portfolio’’) on January 2,
2002. Putnam Investment Management,
LLC serves as the Portfolio Manager to
the Replaced Portfolio. As of December
31, 2005, the Replaced Portfolio had
approximately $160.9 million in assets.
11. Since May 1, 2005, Select Fund
has offered shares of the Growth-Income
Portfolio (‘‘Substitute Portfolio’’). The
Substitute Portfolio does not invest
directly in securities but instead invests
all of its assets in Class 2 shares of the
American Funds Growth-Income Fund
(the ‘‘Master Fund’’). The Master Fund
is a series of American Funds Insurance
Series and invests directly in
securities. Capital Research and
Management Company serves as
investment adviser to the Master Fund.
As of December 31, 2005, the Substitute
Portfolio had $783.9 million in assets.
12. The PL Insurers and the Board of
Trustees of Select Fund made a strategic
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Replaced Portfolio (Equity Income Portfolio)
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determination to replace the sub-adviser
of the Replaced Portfolio, which subadvised two other portfolios in addition
to the Replaced Portfolio. This decision
was based primarily on the concerns of
potential effects of recent regulatory
events respecting such sub-adviser.
With respect to the Replaced Portfolio,
the PL Insurers and the Board of
Trustees have determined that this
Substitution is an appropriate means to
effectively replace the sub-adviser.
13. The following chart sets out the
investment objectives and certain
policies of each Portfolio as stated in the
Fund’s most recent post-effective
amendment to its registration statement.
Substitute Portfolio (Growth-Income Portfolio)
Investment Goal: Seeks current income; capital growth is of secondary
importance.
Main Investments: The Replaced Portfolio invests primarily in common
stocks of large U.S. companies, with a focus on value stocks that
offer the potential for current income and may also offer the potential
for capital growth. Value stocks are those that the manager believes
are currently undervalued by the market. To determine whether to
buy or sell investments, Putnam Investment Management, LLC, the
portfolio manager, will consider, among other factors, a company’s financial strength, competitive position in its industry, projected future
earnings, cash flows and dividends. The Replaced Portfolio will normally invest at least 80% of its assets in common stocks and other
equity investments. The manager may invest up to 20% of its assets
in foreign securities that are principally traded outside the U.S. including emerging market securities (American Depositary Receipts
(ADRs) are excluded from this limit), preferred stocks, convertible securities, and fixed income securities, including high yield (junk)
bonds. The Replaced Portfolio may invest up to 20% of its net assets in lower-rated high-yield (junk) bonds. The manager may use
derivatives (such as options, futures contracts, swaps and warrants)
to try to increase returns, for hedging purposes, as a substitute for
securities, or to otherwise help achieve the Replaced Portfolio’s investment goal. The manager may use foreign currency contracts or
derivatives to hedge against changes in currency exchange rates.
Principal risks:
• price volatility risk—the Replaced Portfolio principally invests in equity securities, which tend to go up or down in value, sometimes rapidly and unpredictably. The prices of equity securities change in response to many factors, including a company’s historical and prospective earnings, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. The
Replaced Portfolio may invest in small and medium-sized companies, which may be riskier and more susceptible to greater price
swings than large companies because they may have fewer financial
resources, limited product and market diversification, greater potential volatility in earnings and business prospects, and many are dependent on a few key managers.
• foreign investment risk—foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, lack of
adequate and timely company information, differences in the way securities markets operate, relatively lower market liquidity, less stringent financial reporting and accounting standards and controls, less
secure foreign banks or securities depositories than those in the
U.S., foreign taxation issues and foreign controls on investment.
• interest rate risk—the value of bonds and short-term money market
instruments may fall when interest rates rise. Bonds with longer durations tend to be more sensitive to changes in interest rates, making
them more volatile than bonds with shorter durations or money market instruments.
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Investment Goal: Seeks long-term growth of capital and income.
Main Investments: The Substitute Portfolio invests all of its assets in
Class 2 shares of the Master Fund. In turn, the Master Fund seeks
to make shareholders’ investments grow and to provide income over
time by investing primarily in common stocks or other securities
which demonstrate the potential for appreciation and/or dividends.
The Master Fund is designed for investors seeking both long-term
growth of capital and income.
The Master Fund may invest up to 15% of its assets in equity securities of issuers domiciled outside the U.S. and Canada and not included in S&P 500 Index.
The Master Fund may invest up to 5% of its assets in nonconvertible
debt securities rated Ba or below by Moody’s and BB or below by
S&P or in unrated securities that are determined to be of equivalent
quality (junk bonds).
The Master Fund currently does not intend to purchase and sell currencies to facilitate securities transactions and enter into forward currency contracts to protect against changes in currency exchange
rates other than to facilitate the settlement of trades.
Principal risks:
• price volatility risk—the Master Fund principally invests in equity securities, which may go up or down in value, sometimes rapidly and
unpredictably. The Master Fund invests in companies that the portfolio counselors think have the potential for above average growth,
which may give the Master Fund a higher risk of price volatility than
a portfolio that invests principally in equities that are ‘‘undervalued.’’
The Master Fund may also invest in small and medium-sized companies, which may be more susceptible to greater price swings than
larger companies because they may have fewer financial resources,
limited product and market diversification, greater potential volatility
in earnings and business prospects and many are dependent on a
few key managers.
• foreign investment risk—foreign investments may be riskier than
U.S. investments for many reasons, including changes in currency
exchange rates, unstable political and economic conditions, lack of
adequate and timely company information, differences in the way securities markets operate, relatively lower market liquidity, less stringent financial reporting and accounting standards and controls, less
secure foreign banks or securities depositories than those in the
U.S., foreign taxation issues and foreign controls on investment.
• interest rate risk—the value of bonds and short-term money market
instruments may fall when interest rates rise. Bonds with longer durations tend to be more sensitive to changes in interest rates, making them more volatile than bonds with shorter durations or money
market instruments.
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Substitute Portfolio (Growth-Income Portfolio)
• credit risk—a fixed income security’s issuer may not be able to meet
its financial obligations and go bankrupt. High-yield/high-risk bonds,
i.e., low credit ratings by Moody’s (Ba and lower) or Standard &
Poor’s (BB and lower), or no rating, but are of comparable quality,
are especially subject to credit risk during periods of economic uncertainty or during economic downturns and are considered to be
mostly speculative in nature. Not all U.S. government securities are
backed or guaranteed by the U.S. Some are supported only by the
credit of the issuing agency, which depend entirely on their own resources to repay their debt, and are subject to the risk of default.
• emerging countries—investments in emerging market countries (such
as many in Latin America, Asia, the Middle East, Eastern Europe
and Africa) may be riskier than in developed markets, for many reasons, including smaller market capitalizations, greater price volatility,
less liquidity, higher degree of political and economic instability, less
governmental regulation of the financial industry and markets, and
less stringent financial reporting and accounting standards and controls. Such investments may also involve risk of loss resulting from
problems in share registration and custody, especially in Eastern European countries such as Russia.
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Replaced Portfolio (Equity Income Portfolio)
• credit risk—a fixed income security’s issuer may not be able to meet
its financial obligations and go bankrupt. High-yield/high-risk bonds,
i.e., low credit ratings by Moody’s (Ba and lower) or Standard &
Poor’s (BB and lower), or no rating, but are of comparable quality,
are especially subject to credit risk during periods of economic uncertainty or during economic downturns and are considered to be
mostly speculative in nature. Not all U.S. government securities are
backed or guaranteed by the U.S. Some are supported only by the
credit of the issuing agency, which depend entirely on their own resources to repay their debt, and are subject to the risk of default.
• master/feeder mutual fund structure—the Substitute Portfolio operates as a ‘‘feeder portfolio’’ which means it invests all of its assets in
the Master Fund. The Substitute Portfolio has a similar investment
objective and the same limitations as the master fund in which it invests. The Substitute Portfolio does not buy investment securities directly. The Master Fund, on the other hand, invests directly in portfolio securities.
Under the master/feeder structure, the Substitute Portfolio may withdraw its investment in the Master Fund if approved by the Board of
Trustees. Prior to any such withdrawal, the Board would consider
what action might be taken, including the investment of all the assets
of the Substitute Portfolio in another pooled investment entity having
the same or similar investment objective as the Substitute Portfolio,
request Pacific Life to manage the Substitute Portfolio directly or hire
another portfolio manager to manage the Substitute Portfolio, or take
other action.
Because the Substitute Portfolio invests all of its assets in the Master
Fund, the Substitute Portfolio will bear the fees and expenses of the
Substitute Portfolio and the Master Fund in which it invests. The
Substitute Portfolio’s expenses may be higher than those of other
mutual funds which invest directly in securities. The master/feeder
structure is different from that of most of the other portfolios of Select
Fund and many other investment companies. The Master Fund may
have other shareholders, each of whom will pay their proportionate
share of the Master Fund’s expenses. The Master Fund may change
its investment objectives, policies, managers, expense limitation
agreements and other matters relating to the Master Fund without
approval of the Substitute Portfolio or the Substitute Portfolio’s
Board.
• derivatives and forward contracts—derivatives (such as futures and
options contracts) derive their value from the value of an underlying
security, a group of securities or an index. Synthetics are artificially
created by using a collection of other assets whose combined features replicate the economic characteristics of a direct investment.
The Replaced Portfolio’s use of derivatives, synthetics, forward commitments and currency transactions could reduce returns, increase
portfolio volatility, may not be liquid, and may not correlate precisely
to the underlying securities or index. All of these investments, including repurchase agreements, are particularly sensitive to counterparty
risk.
Although both the Master Fund and
the Replaced Portfolio are permitted to
invest in high yield bonds, derivative
instruments and emerging markets
securities, neither the Master Fund nor
the Replaced Portfolio held significant
investments in these categories as of
December 31, 2005. Both the Master
Fund and the Replaced Portfolio are
considered to be ‘‘Large Value’’ funds by
Morningstar, Inc., a leading provider of
independent investment research.
14. Pacific Life, as investment adviser
to the Substitute Portfolio, is
responsible for monitoring the
performance and continued
appropriateness of the Master Fund for
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the Substitute Portfolio. Pacific Life may
recommend to the Substitute Portfolio’s
Board (or the Board may, on its own
determine) that the Substitute Portfolio
should withdraw its assets from the
Master Fund, upon appropriate notice to
the Master Fund. Investment in the
Master Fund is not a fundamental
policy of the Substitute Portfolio,
consequently, the Board may authorize
the Substitute Portfolio’s withdrawal
from the Master Fund without a
shareholder vote.
15. The following chart compares the
advisory fees, 12b–1 fees (if any),
operating expenses and total expenses
expressed as an annual percentage of
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average daily net assets, both before and
after giving effect to fee waivers and
expense reimbursements. The figures for
the Substitute Portfolio set forth the fees
and expenses at both the master and
feeder levels. The fees and expenses
quoted for the Replaced Portfolio,
Master Fund and Substitute Portfolio
are for the year ended December 31,
2005. As the chart demonstrates, while
the Replaced Portfolio has the same
total expenses as the Substitute Portfolio
has before giving effect to fee waivers,
the Substitute Portfolio is expected to
have lower total net expenses than the
Replaced Portfolio after giving effect to
fee waivers.
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Replaced Portfolio
Substitute Portfolio
Advisory Fees 0.95% ...............................................................................
Other Expenses 0.06% ............................................................................
Total Expenses of Replaced Portfolio 1.01% ..........................................
Pursuant to the Investment Advisory
Agreement between Pacific Life and
Select Fund with respect to the
Substitute Portfolio, Pacific Life’s
advisory fee will be 0.95% minus the
annual rates of any advisory and 12b–
1 fees paid by a master fund in which
the Substitute Portfolio invests in a
master/feeder arrangement. In the event
that the Master Fund level advisory fees
and 12b–1 fees exceed 95 basis points,
Pacific Life will subsidize any fees in
excess of this amount for the life of the
Substitute Portfolio or until the fee is
changed pursuant to a shareholder vote.
The Advisory Fee Waiver, with
respect to the Feeder Fund Level
expenses, shown in the chart above is
put into place through an Advisory Fee
Waiver Agreement between Select Fund
and Pacific Life (‘‘Waiver Agreement’’).
Under the terms of the Waiver
Agreement, Pacific Life agrees to limit
its total advisory fee to 0.36% annually
17507
Feeder Fund Level
Advisory Fees 7 0.42%
Other Expenses 0.03%
Total Expenses of Feeder Fund 0.45%
Advisory Fee Waiver 8 (0.06%)
Total Net Expenses of Feeder Fund 0.39%
Master Fund Level
Advisory Fees 9 0.28%
12b–1 Fees 0.25%
Other Expenses 0.01%
Total Expenses of Master Fund 10 0.54%
Total Expenses of Master and Feeder
Total Expenses 0.99%
Less Advisory Fee Waiver (0.06%)
Total Net Expenses 0.93%
during the term of the agreement. The
Waiver Agreement has an initial term
ending on the earlier of May 1, 2007, or
such time as the Substitute Portfolio no
longer invests substantially all of its
assets in the Master Fund.
In addition to the Waiver Agreement,
Pacific Life has contractually committed
to waive that portion of its advisory fee
and/or reimburse expenses with respect
to the Substitute Portfolio such that the
net fees and expenses, considering both
the master and feeder levels, paid by
shareholders invested in the Substitute
Portfolio will not exceed an annual rate
of 1.01% of the Substitute Portfolio’s
average daily net assets. In order to
effectuate this commitment, Pacific Life
and Select Fund have entered into an
Expense Limitation Agreement. Under
the terms of the Expense Limitation
Agreement, Pacific Life will reimburse
the Substitute Portfolio an amount
necessary to ensure that portfolio net
Replaced Portfolio
operating expenses do not exceed an
annual rate of 1.01% during the term of
the Expense Limitation Agreement. The
Expense Limitation Agreement has an
initial term of two years from the date
the Substitution requested by the
Application occurs (the ‘‘Effective
Date’’). Separate Account expenses also
will not be increased during this twoyear period for Contractholders that
invest in the Replaced Portfolio on the
Effective Date of the substitution (the
‘‘Affected Contractholders’’).
16. The following chart compares the
historical performance of the Replaced
Portfolio to the historical performance
of the Master Fund for the periods
shown. The Master Fund’s historical
performance has been adjusted to reflect
the estimated expenses of the Substitute
Portfolio at the feeder fund level, as if
the Substitute Portfolio had invested in
the Master Fund for the periods
presented.
Substitute Portfolio
Calendar Year Ended:
2005
5.63%
2004
12.19%
2003
26.24%
2002*
(13.54)%
Average Annual Total Return as of December 31, 2005:
1 year
5.63%
3 years
14.37%
5 years
N/A
10 years
N/A
Calendar Year Ended:
2005
5.43%
2004
9.98%
2003
32.04%
2002
(18.73)%
Average Annual Total Return as of December 31, 2004:
1 year
5.44%
3 years
15.26%
5 years
4.92%
10 years
10.17%
*Inception date 1/2/02.
sroberts on PROD1PC70 with NOTICES
17. Applicants will effect the
Substitution as soon as practicable
following the issuance of the requested
order. As of the Effective Date, shares of
the Replaced Portfolio will be redeemed
for cash. The PL Insurers, on behalf of
the subaccount of each relevant
Separate Account investing in the
Replaced Portfolio, will simultaneously
place a redemption request with the
Replaced Portfolio and a purchase order
with the Substitute Portfolio so that the
7 Under an addendum to the amended and
restated advisory agreement between the Substitute
Portfolio and Pacific Life, advisory fees are payable
to Pacific Life, as investment adviser to the
Substitute Portfolio, at an annual rate of 0.95%
reduced by the sum of the annual rates of any
investment advisory fees and 12b–1 fees paid by the
Master Fund.
8 This waiver reflects the terms of an advisory fee
waiver agreement described below.
9 CRMC, the Adviser to the Master Fund, began
waiving 5% of its advisory fees on September 1,
2004. Beginning April 1, 2005, this waiver
increased to 10% and will continue at this level
until further review by CRMC. Total Expenses of
the Master Fund do not reflect this waiver.
10 The Total Expenses of the Master Fund do not
include a non-contractual advisory fee waiver of
0.02%.
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purchase of the Substitute Portfolio
shares will be for the exact amount of
the redemption proceeds, and thus
Variable Contract values will remain
fully invested at all times. The proceeds
of such redemptions will then be used
to purchase the appropriate number of
shares of the Substitute Portfolio.
Following the Substitution, the
Replaced Portfolio will no longer be
offered through the Variable Contracts.
18. The Substitution will take place at
relative net asset value (in accordance
with Rule 22c–1 under the 1940 Act)
with no change in the amount of any
Affected Contractholder’s accumulation
value or death benefit or in dollar value
of his or her investment in the
applicable Separate Account. No
brokerage commissions, fees or other
remuneration will be paid by either the
Replaced Portfolio or the Substitute
Portfolio or by Affected Contractholders
in connection with the Substitution.
The transactions comprising the
Substitution will be consistent with the
policies of each investment company
involved and with the general purposes
of the 1940 Act.
19. Affected Contractholders will not
incur any fees or charges as a result of
the Substitution nor will their rights or
the relevant PL Insurer’s obligations
under the Variable Contracts be altered
in any way. The PL Insurers or their
affiliates will pay all expenses and
transaction costs of the Substitution,
including legal and accounting
expenses, any applicable brokerage
expenses, and other fees and expenses.
In addition, the Substitution will not
impose any tax liability on Affected
Contractholders. The Substitution will
not cause the Variable Contract fees and
charges currently being paid by Affected
Contractholders to be greater after the
Substitution than before the
Substitution.
20. Currently, each Affected
Contractholder is subject to transfer
limitations which are stated in the
applicable prospectus. Generally, an
Affected Contractholder may not make
more than twenty-five (25) transfers per
calendar year and may only make one
‘‘safe harbor’’ transfer into the Money
Market Portfolio once the 25 transfer
limit is reached. Additionally, an
Affected Contractholder may not make
more than two transfers per calendar
month involving international
portfolios. Multiple transfers among the
portfolios on the same day count as one
transfer. Transfers to or from a portfolio
cannot be made before the seventh
calendar day following the last transfer
to or from the same portfolio. If the
seventh calendar day is not a business
day, then a transfer may not occur until
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19:52 Apr 05, 2006
Jkt 208001
the next business day. The day of the
last transfer is not considered a calendar
day for purposes of meeting this
requirement. Currently, there are no fees
imposed for transfers among the
investment options, but a transfer fee of
up to $15 per transfer may be imposed
in the future for transfers in excess of
fifteen (15) in any contract year. The
above transfer restrictions are referred to
as ‘‘Frequent Trading Policies.’’
However, as described more fully
below, for a 60 day period commencing
30 days prior to the Effective Date and
ending 30 days after the Effective Date
(‘‘Free Transfer Period’’), Affected
Contractholders may reallocate to any
other investment options available
under their Variable Contract their
accumulation value allocated to each
subaccount invested in the Replaced
Portfolio (‘‘Replaced Subaccount’’) and
each subaccount invested in the
Substitute Portfolio (together with the
Replaced Subaccounts, the ‘‘Affected
Subaccounts’’) without incurring any
administrative costs or allocation
(transfer) charges and such reallocation
will not count toward the Frequent
Trading Policies. In effect, each transfer
by Affected Contractholders from the
Affected Subaccounts during the Free
Transfer Period will be a ‘‘free transfer;’’
if Affected Contractholders reallocate
accumulation value in the Affected
Subaccounts only during the Free
Transfer Period, there will be no charge
for the entire reallocation of
accumulated value from that Affected
Subaccount and the entire reallocation
will not be counted toward the total
number of reallocations made within
the calendar year or Variable Contract
year for purposes of determining the
number of reallocations that may be
made pursuant to the Frequent Trading
Policies with respect to the Affected
Subaccounts, or that may be made
without incurring any potential future
administrative or transfer fees, if any,
under the relevant Variable Contract.
The PL Insurers will not exercise any
right they may have under the Variable
Contracts to impose additional
restrictions or fees on the free transfer
from the Affected Subaccounts under
the Variable Contracts during the Free
Transfer Period.
21. All Affected Contractholders have
been or will be sent notification of this
Application by means of supplements to
the prospectuses for the Variable
Contracts on or shortly before or after
the date that this Application is filed.
Among other information regarding the
proposed Substitution, the supplements
will inform Affected Contractholders
that the PL Insurers will not exercise
any rights reserved by them under the
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Variable Contracts to impose additional
restrictions or fees on transfers from the
Affected Subaccounts during the Free
Transfer Period. Following the date the
order requested by this Application is
issued, but before the Effective Date, PL
Insurers will send Affected
Contractholders a notice (the
‘‘Substitution Notice’’) setting forth the
scheduled Effective Date as well as the
commencement date and precise
duration of the Free Transfer Period.
The Substitution Notice will advise
Affected Contractholders of their right,
if they choose, at any time during the
Free Transfer Period, to reallocate to any
other investment options available
under their Variable Contract their
accumulation value allocated to each
Affected Subaccount 30 days prior to
and after the Effective Date without
incurring any administrative costs or
allocation (transfer) charges and such
reallocation will not count toward
determining the number of reallocations
that may be made pursuant to the
Frequent Trading Policies (a ‘‘free
transfer’’). Any additional transfers
beyond the ‘‘free transfer’’ must be made
in accordance with the terms and
conditions of the Variable Contracts.
22. Within five (5) business days after
the Effective Date, Affected
Contractholders will be sent a notice
(‘‘Post-Substitution Confirmation’’)
showing that each Affected
Contractholder’s interest in the Affected
Subaccount invested the Replaced
Portfolio has been transferred in
exchange for units of the Subaccounts
that invest in the Substitute Portfolio,
and confirming the transactions effected
on behalf of the respective Affected
Contractholder with regard to the
Substitution. All current
Contractholders will have been sent a
Select Fund prospectus containing a
description of the Substitute Portfolio
before the Effective Date.
Applicants’ Legal Analysis
1. Section 26(c) of the 1940 Act
prohibits any depositor or trustee of a
unit investment trust that invests
exclusively in the securities 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 protections of
investors and the purposes fairly
intended by the policy and the
provisions of the 1940 Act.
2. Section 26(c) of the 1940 Act was
enacted as part of the Investment
Company Act Amendments of 1970.
Prior to the enactment of these
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amendments, a depositor or a unit
investment trust could substitute new
securities for those held by the trust by
notifying the trust’s security holders of
the substitution within five days of the
substitution. In 1966, the Commission,
concerned with the high sales charges
then common to most unit investment
trusts and the disadvantageous position
in which such charges placed investors
who did not want to remain invested in
the substituted fund, recommended that
Section 26 be amended to require that
a proposed substitution of the
underlying investments of a trust
receive prior Commission approval.
3. Applicants assert that the proposed
Substitution appears to involve a
substitution of securities within the
meaning of section 26(c) of the 1940
Act. The Applicants therefore request an
order from the Commission pursuant to
Section 26(c) approving the proposed
Substitution.
4. Applicants contend that although
not identical, the investment objective
of the Substitute Portfolio is compatible
with that of the Replaced Portfolio. In
addition, Applicants believe that the
investment policies of the Substitute
Portfolio are substantially similar to
those of the Replaced Portfolio and
assure that the investment objectives of
Affected Contractholders can continue
to be met.
5. Applicants note that the
Commission has previously granted
Section 26(c) orders to permit the
substitution of one fund for another
where the investment policies or
restrictions or both were not exactly the
same. In addition to the foregoing,
Applicants generally submit that the
Substitution meets the standards that
the Commission and its staff have
applied to similar substitutions that
have been approved in the past.
6. Applicants state that the expenses
of the Substitute Portfolio will be
slightly lower than those experienced by
the Replaced Portfolio, after giving
effect to applicable fee waivers. The
total net annualized expenses of the
Replaced Portfolio, expressed as a
percentage of net assets, is 1.01%. The
total net annualized expenses of the
Substitute Portfolio (including the net
fees and expenses incurred by the
Master Fund), expressed as a percentage
of net assets, is expected to be 0.93%.
Pursuant to the Expense Limitation
Agreement with respect to the
Substitute Portfolio, the total net
annualized expenses are limited to
1.01% of the Substitute Portfolios
average daily net assets for a period not
less than two years from the Effective
Date.
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19:52 Apr 05, 2006
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7. Applicants state that the
Substitution will take place at relative
net asset value (in accordance with Rule
22c–1 under the 1940 Act) with no
change in the amount of any Affected
Contractholder’s accumulation value or
death benefit or in dollar value of his or
her investment in the Separate
Accounts. Affected Contractholders will
not incur any fees or charges as a result
of the Substitution, nor will their rights
or the PL Insurer’ obligations under the
affected Variable Contracts be altered in
any way. In addition, the Substitution
will not impose any tax liability on
Affected Contractholders. The PL
Insurers or their affiliates will pay all
expenses incurred with the
Substitution, including legal,
accounting, and other fees and
expenses.
8. Applicants also note that the
Substitution will not cause the affected
Variable Contract fees and charges
currently being paid by Affected
Contractholders to be greater after the
Substitution than before the
Substitution. In addition, while the PL
Insurers do not anticipate increasing
Variable Contract fees and/or charges
paid by any current Contractholders, the
PL Insurers have agreed not to increase
the Variable Contract fees and charges
specified in the Variable Contracts for a
period of at least two years following
the Substitution.
9. Applicants note that each Affected
Contractholder will be sent a copy of:
(1) A supplement informing
shareholders of the proposed
substitution; (2) a Substitution Notice
setting forth the Effective Date and
advising Affected Contractholders of
their right to reconsider the Substitution
and, if they so choose, any time during
the Free Transfer Period, to withdraw or
reallocate accumulation value under the
affected Variable Contract; and (3)
within five business days of the
Effective Date, a Post-Substitution
Confirmation.
10. Applicants note that each of the
Variable Contracts reserves to the PL
Insurers the right, subject to compliance
with applicable law, to substitute shares
of another open end management
investment company for shares of an
open end management investment
company held by a subaccount of a
Separate Account. The prospectuses for
the Variable Contracts and the Separate
Accounts contain appropriate disclosure
of this right. The PL Insurers reserve
this right of substitution to address
situations where continued investment
in an underlying investment option
becomes unsuitable or unavailable.
11. Applicants assert that unlike
traditional unit investment trusts where
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17509
a depositor could only substitute an
investment security in a manner which
permanently affected all the investors in
the trust, the Variable Contracts provide
each Contractholder with the right to
exercise his or her own judgment and
transfer accumulation values into other
subaccounts. Moreover, the Variable
Contracts will offer Contractholders the
opportunity to transfer amounts out of
the affected subaccounts into any of the
remaining subaccounts without cost or
other disadvantage. The Substitution,
therefore, will not result in the type of
costly forced redemption which Section
26(c) was designed to prevent.
12. Applicants also contend that the
Substitution also is unlike the type of
substitution which Section 26(c) was
designed to prevent in that by
purchasing a Variable Contract,
Contractholders select much more than
a particular investment company in
which to invest their account values.
They also select the specific type of
death benefit and other optional benefits
offered by the PL Insurers in their
Variable Contracts as well as numerous
other rights and privileges set forth in
the Variable Contracts. Contractholders
may also have considered the PL
Insurers’ size, financial condition, and
reputation for service in selecting their
Variable Contract. The Applicant states
that these factors will not change as a
result of the Substitution.
13. Applicants contend that the
Substitution will not result in the type
of costly forced redemption that Section
26(c) was intended to guard against and
is consistent with the protection of
investors and the purposes fairly
intended by the 1940 Act, because of
what the Applicants consider to be the
significant terms of the Substitution.
These terms include:
(a) The Replaced Portfolio has
investment objectives that Applicants
believe are compatible with and policies
and risks substantially similar to those
of the Substitute Portfolio so that the
objective of the Affected
Contractholders can continue to be met.
(b) For two years following the
implementation of the Substitution
described herein, the net operating
expenses of the Substitute Portfolio
(including the net fees and expenses
incurred by the Master Fund) will not
exceed an annual rate of 1.01% of its
average daily net assets.
(c) Affected Contractholders may
reallocate accumulation value in the
Affected Subaccounts during the sixtyday Free Transfer Period, with no
charge for the reallocations of
accumulated value from each Affected
Subaccount. The reallocations will not
be counted toward the total number of
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reallocations made within the calendar
year or Variable Contract year for
purposes of determining whether the
number of reallocations that may be
made pursuant to the Frequent Trading
Policies has been exceeded, or that may
be made without incurring
administrative or transfer fees, if any,
under the relevant Variable Contract.
Alternately, Affected Contractholders
may withdraw amounts held in any
Affected Subaccount at any time during
the Free Transfer Period in accordance
with the terms and conditions of the
relevant Variable Contract. The Free
Transfer Period commences upon a date
declared in the Substitution Notice
(which will be thirty days prior to the
Effective Date) and will last for 30 days
after the Effective Date.
(d) The Substitution will be effected
at the net asset value of the shares in
conformity with Section 22(c) of the
1940 Act and Rule 22c–1 thereunder,
without the imposition of any transfer
or similar charge by Applicants.
(e) The Substitution will take place at
relative net asset value without change
in the amount or value of any Variable
Contract held by Affected
Contractholders. Affected
Contractholders will not incur any fees
or charges as a result of the Substitution,
nor will their rights or the obligations of
the PL Insurers under such Variable
Contracts be altered in any way. In
addition, the PL Insurers will not
increase the Variable Contract fees and
charges specified in the Variable
Contracts for a period of at least two
years following the Substitution.
(f) The Substitution will be effected in
such a manner that Applicants believe
will continue to fulfill Affected
Contractholders’ objectives and risk
expectations, because, according to
Applicants, the investment objectives of
the Substitute Portfolio are substantially
similar to those of the Replaced
Portfolio.
(g) No brokerage commissions, fees or
other remuneration will be paid by the
Replaced Portfolio or the Substitute
Portfolio or Affected Contractholders in
connection with the Substitution.
(h) The Substitution will not alter in
any way the annuity, life or tax benefits
afforded under the Variable Contracts
held by any Affected Contractholder.
(i) The PL Insurers will send to their
Affected Contractholders within five (5)
business days of the Effective Date a
copy of the Post-Substitution
Confirmation confirming the
transactions effected on behalf of the
respective Affected Contractholder with
regard to the Substitution.
Conditions:
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19:52 Apr 05, 2006
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Applicants agree that the proposed
Substitution and related transaction will
not be completed unless all of the
following conditions are met:
1. The Commission shall have issued
an order approving the Substitution
under Section 26(c) of the 1940 Act.
2. Each Affected Contractholder will
have been sent a copy of (i) a
supplement informing shareholders of
this Application; (ii) a prospectus for
the Substitute Portfolio, (iii) a
Substitution Notice setting forth the
scheduled Effective Date and advising
Affected Contractholders of their right,
if they so choose, to reallocate or
withdraw amounts allocated to the
Affected Subaccount under their
Variable Contract at any time during the
sixty-day Free Transfer Period, in
accordance with the terms and
conditions of their Variable Contract;
and (iv) within five business days of the
Effective Date, a Post-Substitution
Confirmation confirming the
transactions effected on behalf of the
respective Affected Contractholder with
regard to the Substitution.
3. The PL Insurers shall have satisfied
themselves that (i) the Variable
Contracts allow the substitution of
investment company shares in the
manner contemplated by the
Substitution and related transactions
described herein; (ii) the transactions
can be consummated as described in
this Application under applicable
insurance laws; and (iii) any regulatory
requirements in each jurisdiction where
the Variable Contracts are qualified for
sale, have been complied with to the
extent necessary to complete the
transactions.
4. Pacific Life and Select Fund have
entered into an Expense Limitation
Agreement, with respect to the
Substitute Portfolio, whereby Pacific
Life will reimburse the Substitute
Portfolio an amount necessary to ensure
that net operating expenses do not
exceed an annual rate of 1.01% during
a two-year period from the date the
Substitution occurs. Separate Account
expenses will not be increased during
this two-year period for Affected
Contractholders.
5. Pacific Life will amend its advisory
agreement with the Substitute Portfolio
to reflect that in the event that the
Master Fund level advisory fees and
12b–1 fees exceed 95 basis points,
Pacific Life will subsidize any fees in
excess of this amount for the life of the
Substitute Portfolio or until the fee is
changed pursuant to a shareholder vote.
Conclusion:
Applicants submit that, for all reasons
stated above, the proposed Substitution
is consistent with the protection of
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investors and the purposes fairly
intended by the policy and provisions of
the 1940 Act, and that the requested
order should be granted.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–5016 Filed 4–5–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53582; File No. SR–Amex–
2005–127]
Self-Regulatory Organizations;
American Stock Exchange LLC; Order
Approving Proposed Rule Change and
Amendment Nos. 1 and 2 Thereto
Relating to the Listing and Trading of
Units of the United States Oil Fund, LP
March 31, 2006.
I. Introduction
On December 6, 2005, the American
Stock Exchange LLC (‘‘Amex’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
On January 20, 2006, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 On February 15, 2006, the
Exchange filed Amendment No. 2 to the
proposed rule change.4 The proposed
rule change, as amended by
Amendment Nos. 1 and 2, was
published for comment in the Federal
Register on February 24, 2006.5 The
Commission received no comments on
the proposal. This order approves the
proposed rule change, as amended by
Amendment Nos. 1 and 2.
II. Description of the Proposal
The Exchange proposes to add new
Rules 1500 et seq. to permit the listing
and trading of units in a partnership
that is a commodity pool under the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Partial Amendment dated, January 20, 2006
(‘‘Amendment No. 1’’). In Amendment No. 1, the
Amex made clarifying changes to the ‘‘purpose’’
section of the proposed rule change.
4 See Partial Amendment dated, February 15,
2006 (‘‘Amendment No. 2’’), which made technical
and clarifying changes to the ‘‘purpose’’ section of
the proposed rule change.
5 See Securities Exchange Act Release No. 53324
(February 16, 2006), 71 FR 9614 (February 24,
2006)(‘‘USOF Notice’’).
2 17
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]]>Agencies
[Federal Register Volume 71, Number 66 (Thursday, April 6, 2006)]
[Notices]
[Pages 17503-17510]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-5016]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27276; File No. 812-13187]
Pacific Life Insurance Company, et al.
March 30, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order pursuant to Section 26(c)
of the Investment Company Act of 1940 (``1940 Act'') approving a
substitution of securities.
-----------------------------------------------------------------------
Applicants: Pacific Life Insurance Company (``Pacific Life''); Separate
Account A of Pacific Life (``Pacific Separate Account A''); Separate
Account B of Pacific Life (``Pacific Separate Account B''); Pacific
Select Variable Annuity Separate Account of Pacific Life (``PSVA
Separate Account''); Pacific Select Exec Separate Account of Pacific
Life (``Pacific PSE Separate Account''); Pacific Life & Annuity Company
(``PL&A''); Separate Account A of PL&A (``PL&A Separate Account A'');
Pacific Select Exec Separate Account of PL&A (``PL&A PSE Separate
Account'') (Pacific Separate Account A, Pacific Separate Account B,
PSVA Separate Account, Pacific PSE Separate Account, PL&A Separate
Account A and PL&A PSE Separate Account, are collectively referred to
herein as the ``Separate Accounts''); and Pacific Select Fund (``Select
Fund'') (Pacific Life, PL&A, the Separate Accounts and Select Fund are
collectively referred to herein as the ``Applicants'')
Summary of Application: Applicants request an order pursuant to section
26(c) of the 1940 Act to permit the substitution of shares of the
American Funds Growth-Income Portfolio of Select Fund (``Growth-Income
Portfolio'' or ``Substitute Portfolio'') for shares of the Equity
Income Portfolio of Select Fund (``Equity Income Portfolio'' or
``Replaced Portfolio'') held by each Separate Account
(``Substitution'').
Filing Dates: The application was filed with the Commission on April
29, 2005. Applicants have agreed to file a final amendment during the
notice period, the substance of which is reflected in this notice.
Hearing Or Notification: An order granting the Application will be
issued unless the Commission orders a hearing. Interested persons may
request a hearing by writing to the Commission's secretary 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 April
24, 2006, and should be accompanied by proof of service on Applicants,
in the form of an affidavit, or, for lawyers, a certificate of service.
Hearing requests should state the nature of the 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 Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
[[Page 17504]]
NE., Washington, DC 20549-1090. Applicants, 700 Newport Center Drive,
Newport Beach, CA 92660.
FOR FURTHER INFORMATION CONTACT: Michael Kosoff, Staff Attorney, at
(202) 551-6754 or Harry Eisenstein, Branch Chief, Office of Insurance
Products, Division of Investment Management, at (202) 551-6795.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Room, 100 F Street, NE., Room 1580,
Washington, DC 20549 (202-551-8090).
Applicants' Representations
1. Pacific Life is a life insurance company that is domiciled in
Nebraska. Along with subsidiaries and affiliates, Pacific Life's
operations include life insurance, annuities, pension and institutional
products, mutual funds, group employee benefits, broker/dealer
operations and investment advisory services. Pacific Life and PL&A
issue variable annuity contracts and variable life insurance policies,
including those currently funded by a Separate Account (each, a
``Variable Contract'' and collectively, the ``Variable Contracts'').
2. Pacific Separate Account A was established on September 7, 1994,
as a segregated asset account of Pacific Life and is registered with
the Commission as a unit investment trust. Pacific Separate Account A
currently funds the variable benefits available under various variable
annuity contracts issued by Pacific Life. Interests in Pacific Separate
Account A under each Variable Contract funded by Pacific Separate
Account A are registered under the Securities Act of 1933, as amended
(the ``1933 Act'').\1\ Pacific Life is the legal owner of the assets in
Pacific Separate Account A. Assets of Pacific Separate Account A
attributable to the reserves and other liabilities under the
outstanding Variable Contracts funded by Pacific Separate Account A may
not be charged with liabilities arising from other Pacific Life
business.
---------------------------------------------------------------------------
\1\ Pacific Life and Pacific Separate Account A have filed Form
N-4 Registration Statements under the 1933 Act registering the
various Variable Contracts funded by Pacific Separate Account A
(File Nos. 333-60833, 33-88460, 33-88458, 33-88458, 333-93059, 333-
93059, 333-53040 and 811-08946).
---------------------------------------------------------------------------
3. Pacific Separate Account B was established on September 25,
1996, as a segregated asset account of Pacific Life and is registered
with the Commission as a unit investment trust. Pacific Separate
Account B currently funds the variable benefits available under various
variable annuity contracts issued by Pacific Life. Interests in Pacific
Separate Account B under each Variable Contract funded by Pacific
Separate Account B are registered under the 1933 Act.\2\ Pacific Life
is the legal owner of the assets in Pacific Separate Account B. Assets
of Pacific Separate Account B attributable to the reserves and other
liabilities under the outstanding Variable Contracts funded by Pacific
Separate Account B may not be charged with liabilities arising from
other Pacific Life business.
---------------------------------------------------------------------------
\2\ Pacific Life and Pacific Separate Account B have filed a
Form N-4 Registration Statement under the 1933 Act relating to the
Variable Contracts funded by Pacific Separate Account B (File Nos.
333-14131 and 811-07859).
---------------------------------------------------------------------------
4. PSVA Separate Account was established on November 30, 1989, as a
segregated asset account of Pacific Life and is registered with the
Commission as a unit investment trust. PSVA Separate Account currently
funds the variable benefits available under a variable annuity contract
designated as Pacific Select Variable Annuity (``PSVA''). PSVA Separate
Account interests in PSVA are registered under the 1933 Act.\3\ Pacific
Life is the legal owner of the assets in PSVA Separate Account. Assets
of PSVA Separate Account attributable to the reserves and other
liabilities under the Variable Contracts funded by PSVA Separate
Account may not be charged with liabilities arising from any other
Pacific Life business.
---------------------------------------------------------------------------
\3\ Pacific Life and PSVA Separate Account have filed a Form N-4
Registration Statement under the 1933 Act relating to the Variable
Contracts funded by PSVA Separate Account (File Nos. 33-32704 and
811-05980).
---------------------------------------------------------------------------
5. Pacific PSE Separate Account was established on May 12, 1988, as
a segregated asset account of Pacific Life and is registered with the
Commission as a unit investment trust. Pacific PSE Separate Account
currently funds the variable benefits available under various flexible
premium variable life insurance policies. Interests in Pacific PSE
Separate Account under each Variable Contract funded by Pacific PSE
Separate Account are registered under the 1933 Act.\4\ Pacific Life is
the legal owner of the assets in Pacific PSE Separate Account. Assets
of Pacific PSE Separate Account attributable to the reserves and other
liabilities under the outstanding Variable Contracts funded by Pacific
PSE Separate Account may not be charged with liabilities arising from
other Pacific Life business.
---------------------------------------------------------------------------
\4\ Pacific Life and Pacific PSE Separate Account have filed
Form N-6 Registration Statements under the 1933 Act relating to the
various Variable Contracts funded by Pacific PSE Separate Account
(File Nos. 33-21754, 33-57908, 333-01713, 333-20355, 333-60461, 333-
61135, 333-102902, 333-106969, 333-118913 and 811-05563).
---------------------------------------------------------------------------
6. PL&A is a life insurance company domiciled in Arizona. It is a
wholly-owned subsidiary of Pacific Life. PL&A's operations include life
insurance, annuity and institutional products, group life and health
insurance and various other insurance products and services. PL&A also
issues Variable Contracts. PL&A is authorized to conduct life insurance
and annuity business in Arizona, New York and certain other states.
7. PL&A Separate Account A was established on January 25, 1999, as
a segregated asset account of PL&A and is registered with the
Commission as a unit investment trust. PL&A Separate Account A
currently funds the variable benefits available under various variable
annuity contracts issued by PL&A. Interests in PL&A Separate Account A
under each Variable Contract funded by PL&A Separate Account A are
registered under the 1933 Act.\5\ PL&A is the legal owner of the assets
in PL&A Separate Account A. Assets of PL&A Separate Account A
attributable to the reserves and other liabilities under the
outstanding Variable Contracts funded by PL&A Separate Account A may
not be charged with liabilities arising from other PL&A business.
---------------------------------------------------------------------------
\5\ PL&A and PL&A Separate Account A have filed Form N-4
Registration Statements under the 1933 Act relating to the various
Variable Contracts funded by PL&A Separate Account A (File Nos. 333-
71081, 333-100907, 333-107571 and 811-09203).
---------------------------------------------------------------------------
8. PL&A PSE Separate Account was established on September 24, 1998,
as a segregated asset account of PL&A and is registered with the
Commission as a unit investment trust. PL&A PSE Separate Account
currently funds the variable benefits available under various flexible
premium variable life insurance policies. Interests in PL&A PSE
Separate Account under each Variable Contract funded by PL&A PSE
Separate Account are registered under the 1933 Act.\6\ PL&A is the
legal owner of the assets in PL&A PSE Separate Account. Assets of PL&A
PSE Separate Account attributable to the reserves and other liabilities
under the outstanding Variable Contracts funded by PL&A PSE Separate
Account may not be charged with liabilities arising from other PL&A
business.
---------------------------------------------------------------------------
\6\ PL&A and PL&A PSE Separate Account have filed Form N-6
Registration Statements under the 1933 Act relating to the various
Variable Contracts funded by PL&A PSE Separate Account (File Nos.
333-62446, 333-80825, 333-106653, 333-106721 and 811-09389).
---------------------------------------------------------------------------
9. Select Fund is a registered open-end management investment
company that currently offers 34 separate
[[Page 17505]]
portfolios. Shares of Select Fund currently are offered only to the
Separate Accounts for the purpose of serving as an investment vehicle
for variable annuity contracts and variable life insurance policies
offered or administered by Pacific Life and PL&A (collectively, the
``PL Insurers''). Pursuant to an Advisory Agreement, Pacific Life
serves as the investment adviser of Select Fund.
10. Select Fund began offering shares of the Equity-Income
Portfolio (``Replaced Portfolio'') on January 2, 2002. Putnam
Investment Management, LLC serves as the Portfolio Manager to the
Replaced Portfolio. As of December 31, 2005, the Replaced Portfolio had
approximately $160.9 million in assets.
11. Since May 1, 2005, Select Fund has offered shares of the
Growth-Income Portfolio (``Substitute Portfolio''). The Substitute
Portfolio does not invest directly in securities but instead invests
all of its assets in Class 2 shares of the American Funds Growth-Income
Fund (the ``Master Fund''). The Master Fund is a series of American
Funds Insurance Series[reg] and invests directly in securities. Capital
Research and Management Company serves as investment adviser to the
Master Fund. As of December 31, 2005, the Substitute Portfolio had
$783.9 million in assets.
12. The PL Insurers and the Board of Trustees of Select Fund made a
strategic determination to replace the sub-adviser of the Replaced
Portfolio, which sub-advised two other portfolios in addition to the
Replaced Portfolio. This decision was based primarily on the concerns
of potential effects of recent regulatory events respecting such sub-
adviser. With respect to the Replaced Portfolio, the PL Insurers and
the Board of Trustees have determined that this Substitution is an
appropriate means to effectively replace the sub-adviser.
13. The following chart sets out the investment objectives and
certain policies of each Portfolio as stated in the Fund's most recent
post-effective amendment to its registration statement.
------------------------------------------------------------------------
Replaced Portfolio (Equity Income Substitute Portfolio (Growth-
Portfolio) Income Portfolio)
------------------------------------------------------------------------
Investment Goal: Seeks current income; Investment Goal: Seeks long-
capital growth is of secondary term growth of capital and
importance. income.
Main Investments: The Replaced Main Investments: The
Portfolio invests primarily in common Substitute Portfolio invests
stocks of large U.S. companies, with a all of its assets in Class 2
focus on value stocks that offer the shares of the Master Fund. In
potential for current income and may turn, the Master Fund seeks to
also offer the potential for capital make shareholders' investments
growth. Value stocks are those that grow and to provide income
the manager believes are currently over time by investing
undervalued by the market. To primarily in common stocks or
determine whether to buy or sell other securities which
investments, Putnam Investment demonstrate the potential for
Management, LLC, the portfolio appreciation and/or dividends.
manager, will consider, among other The Master Fund is designed
factors, a company's financial for investors seeking both
strength, competitive position in its long-term growth of capital
industry, projected future earnings, and income.
cash flows and dividends. The Replaced The Master Fund may invest up
Portfolio will normally invest at to 15% of its assets in equity
least 80% of its assets in common securities of issuers
stocks and other equity investments. domiciled outside the U.S. and
The manager may invest up to 20% of Canada and not included in S&P
its assets in foreign securities that 500 Index.
are principally traded outside the The Master Fund may invest up
U.S. including emerging market to 5% of its assets in
securities (American Depositary nonconvertible debt securities
Receipts (ADRs) are excluded from this rated Ba or below by Moody's
limit), preferred stocks, convertible and BB or below by S&P or in
securities, and fixed income unrated securities that are
securities, including high yield determined to be of equivalent
(junk) bonds. The Replaced Portfolio quality (junk bonds).
may invest up to 20% of its net assets The Master Fund currently does
in lower-rated high-yield (junk) not intend to purchase and
bonds. The manager may use derivatives sell currencies to facilitate
(such as options, futures contracts, securities transactions and
swaps and warrants) to try to increase enter into forward currency
returns, for hedging purposes, as a contracts to protect against
substitute for securities, or to changes in currency exchange
otherwise help achieve the Replaced rates other than to facilitate
Portfolio's investment goal. The the settlement of trades.
manager may use foreign currency
contracts or derivatives to hedge
against changes in currency exchange
rates.
Principal risks: Principal risks:
price volatility risk--the price volatility risk--
Replaced Portfolio principally invests the Master Fund principally
in equity securities, which tend to go invests in equity securities,
up or down in value, sometimes rapidly which may go up or down in
and unpredictably. The prices of value, sometimes rapidly and
equity securities change in response unpredictably. The Master Fund
to many factors, including a company's invests in companies that the
historical and prospective earnings, portfolio counselors think
the value of its assets, general have the potential for above
economic conditions, interest rates, average growth, which may give
investor perceptions and market the Master Fund a higher risk
liquidity. The Replaced Portfolio may of price volatility than a
invest in small and medium-sized portfolio that invests
companies, which may be riskier and principally in equities that
more susceptible to greater price are ``undervalued.''
swings than large companies because The Master Fund may also invest
they may have fewer financial in small and medium-sized
resources, limited product and market companies, which may be more
diversification, greater potential susceptible to greater price
volatility in earnings and business swings than larger companies
prospects, and many are dependent on a because they may have fewer
few key managers. financial resources, limited
product and market
diversification, greater
potential volatility in
earnings and business
prospects and many are
dependent on a few key
managers.
foreign investment risk-- foreign investment
foreign investments may be riskier risk--foreign investments may
than U.S. investments for many be riskier than U.S.
reasons, including changes in currency investments for many reasons,
exchange rates, unstable political and including changes in currency
economic conditions, lack of adequate exchange rates, unstable
and timely company information, political and economic
differences in the way securities conditions, lack of adequate
markets operate, relatively lower and timely company
market liquidity, less stringent information, differences in
financial reporting and accounting the way securities markets
standards and controls, less secure operate, relatively lower
foreign banks or securities market liquidity, less
depositories than those in the U.S., stringent financial reporting
foreign taxation issues and foreign and accounting standards and
controls on investment. controls, less secure foreign
banks or securities
depositories than those in the
U.S., foreign taxation issues
and foreign controls on
investment.
interest rate risk--the value interest rate risk--
of bonds and short-term money market the value of bonds and short-
instruments may fall when interest term money market instruments
rates rise. Bonds with longer may fall when interest rates
durations tend to be more sensitive to rise. Bonds with longer
changes in interest rates, making them durations tend to be more
more volatile than bonds with shorter sensitive to changes in
durations or money market instruments. interest rates, making them
more volatile than bonds with
shorter durations or money
market instruments.
[[Page 17506]]
credit risk--a fixed income credit risk--a fixed
security's issuer may not be able to income security's issuer may
meet its financial obligations and go not be able to meet its
bankrupt. High-yield/high-risk bonds, financial obligations and go
i.e., low credit ratings by Moody's bankrupt. High-yield/high-risk
(Ba and lower) or Standard & Poor's bonds, i.e., low credit
(BB and lower), or no rating, but are ratings by Moody's (Ba and
of comparable quality, are especially lower) or Standard & Poor's
subject to credit risk during periods (BB and lower), or no rating,
of economic uncertainty or during but are of comparable quality,
economic downturns and are considered are especially subject to
to be mostly speculative in nature. credit risk during periods of
Not all U.S. government securities are economic uncertainty or during
backed or guaranteed by the U.S. Some economic downturns and are
are supported only by the credit of considered to be mostly
the issuing agency, which depend speculative in nature. Not all
entirely on their own resources to U.S. government securities are
repay their debt, and are subject to backed or guaranteed by the
the risk of default. U.S. Some are supported only
by the credit of the issuing
agency, which depend entirely
on their own resources to
repay their debt, and are
subject to the risk of
default.
emerging countries-- master/feeder mutual
investments in emerging market fund structure--the Substitute
countries (such as many in Latin Portfolio operates as a
America, Asia, the Middle East, ``feeder portfolio'' which
Eastern Europe and Africa) may be means it invests all of its
riskier than in developed markets, for assets in the Master Fund. The
many reasons, including smaller market Substitute Portfolio has a
capitalizations, greater price similar investment objective
volatility, less liquidity, higher and the same limitations as
degree of political and economic the master fund in which it
instability, less governmental invests. The Substitute
regulation of the financial industry Portfolio does not buy
and markets, and less stringent investment securities
financial reporting and accounting directly. The Master Fund, on
standards and controls. Such the other hand, invests
investments may also involve risk of directly in portfolio
loss resulting from problems in share securities.
registration and custody, especially Under the master/feeder
in Eastern European countries such as structure, the Substitute
Russia. Portfolio may withdraw its
investment in the Master Fund
if approved by the Board of
Trustees. Prior to any such
withdrawal, the Board would
consider what action might be
taken, including the
investment of all the assets
of the Substitute Portfolio in
another pooled investment
entity having the same or
similar investment objective
as the Substitute Portfolio,
request Pacific Life to manage
the Substitute Portfolio
directly or hire another
portfolio manager to manage
the Substitute Portfolio, or
take other action.
Because the Substitute
Portfolio invests all of its
assets in the Master Fund, the
Substitute Portfolio will bear
the fees and expenses of the
Substitute Portfolio and the
Master Fund in which it
invests. The Substitute
Portfolio's expenses may be
higher than those of other
mutual funds which invest
directly in securities. The
master/feeder structure is
different from that of most of
the other portfolios of Select
Fund and many other investment
companies. The Master Fund may
have other shareholders, each
of whom will pay their
proportionate share of the
Master Fund's expenses. The
Master Fund may change its
investment objectives,
policies, managers, expense
limitation agreements and
other matters relating to the
Master Fund without approval
of the Substitute Portfolio or
the Substitute Portfolio's
Board.
derivatives and
forward contracts--derivatives
(such as futures and options
contracts) derive their value
from the value of an
underlying security, a group
of securities or an index.
Synthetics are artificially
created by using a collection
of other assets whose combined
features replicate the
economic characteristics of a
direct investment. The
Replaced Portfolio's use of
derivatives, synthetics,
forward commitments and
currency transactions could
reduce returns, increase
portfolio volatility, may not
be liquid, and may not
correlate precisely to the
underlying securities or
index. All of these
investments, including
repurchase agreements, are
particularly sensitive to
counterparty risk.
------------------------------------------------------------------------
Although both the Master Fund and the Replaced Portfolio are
permitted to invest in high yield bonds, derivative instruments and
emerging markets securities, neither the Master Fund nor the Replaced
Portfolio held significant investments in these categories as of
December 31, 2005. Both the Master Fund and the Replaced Portfolio are
considered to be ``Large Value'' funds by Morningstar, Inc., a leading
provider of independent investment research.
14. Pacific Life, as investment adviser to the Substitute
Portfolio, is responsible for monitoring the performance and continued
appropriateness of the Master Fund for the Substitute Portfolio.
Pacific Life may recommend to the Substitute Portfolio's Board (or the
Board may, on its own determine) that the Substitute Portfolio should
withdraw its assets from the Master Fund, upon appropriate notice to
the Master Fund. Investment in the Master Fund is not a fundamental
policy of the Substitute Portfolio, consequently, the Board may
authorize the Substitute Portfolio's withdrawal from the Master Fund
without a shareholder vote.
15. The following chart compares the advisory fees, 12b-1 fees (if
any), operating expenses and total expenses expressed as an annual
percentage of average daily net assets, both before and after giving
effect to fee waivers and expense reimbursements. The figures for the
Substitute Portfolio set forth the fees and expenses at both the master
and feeder levels. The fees and expenses quoted for the Replaced
Portfolio, Master Fund and Substitute Portfolio are for the year ended
December 31, 2005. As the chart demonstrates, while the Replaced
Portfolio has the same total expenses as the Substitute Portfolio has
before giving effect to fee waivers, the Substitute Portfolio is
expected to have lower total net expenses than the Replaced Portfolio
after giving effect to fee waivers.
[[Page 17507]]
------------------------------------------------------------------------
Replaced Portfolio Substitute Portfolio
------------------------------------------------------------------------
Feeder Fund Level
Advisory Fees 0.95%.................... Advisory Fees \7\ 0.42%
Other Expenses 0.06%................... Other Expenses 0.03%
Total Expenses of Replaced Portfolio Total Expenses of Feeder Fund
1.01%. 0.45%
Advisory Fee Waiver \8\ (0.06%)
Total Net Expenses of Feeder
Fund 0.39%
Master Fund Level
Advisory Fees \9\ 0.28%
12b-1 Fees 0.25%
Other Expenses 0.01%
Total Expenses of Master Fund
\10\ 0.54%
Total Expenses of Master and
Feeder
Total Expenses 0.99%
Less Advisory Fee Waiver
(0.06%)
Total Net Expenses 0.93%
------------------------------------------------------------------------
Pursuant to the Investment Advisory Agreement between Pacific Life
and Select Fund with respect to the Substitute Portfolio, Pacific
Life's advisory fee will be 0.95% minus the annual rates of any
advisory and 12b-1 fees paid by a master fund in which the Substitute
Portfolio invests in a master/feeder arrangement. In the event that the
Master Fund level advisory fees and 12b-1 fees exceed 95 basis points,
Pacific Life will subsidize any fees in excess of this amount for the
life of the Substitute Portfolio or until the fee is changed pursuant
to a shareholder vote.
---------------------------------------------------------------------------
\7\ Under an addendum to the amended and restated advisory
agreement between the Substitute Portfolio and Pacific Life,
advisory fees are payable to Pacific Life, as investment adviser to
the Substitute Portfolio, at an annual rate of 0.95% reduced by the
sum of the annual rates of any investment advisory fees and 12b-1
fees paid by the Master Fund.
\8\ This waiver reflects the terms of an advisory fee waiver
agreement described below.
\9\ CRMC, the Adviser to the Master Fund, began waiving 5% of
its advisory fees on September 1, 2004. Beginning April 1, 2005,
this waiver increased to 10% and will continue at this level until
further review by CRMC. Total Expenses of the Master Fund do not
reflect this waiver.
\10\ The Total Expenses of the Master Fund do not include a non-
contractual advisory fee waiver of 0.02%.
---------------------------------------------------------------------------
The Advisory Fee Waiver, with respect to the Feeder Fund Level
expenses, shown in the chart above is put into place through an
Advisory Fee Waiver Agreement between Select Fund and Pacific Life
(``Waiver Agreement''). Under the terms of the Waiver Agreement,
Pacific Life agrees to limit its total advisory fee to 0.36% annually
during the term of the agreement. The Waiver Agreement has an initial
term ending on the earlier of May 1, 2007, or such time as the
Substitute Portfolio no longer invests substantially all of its assets
in the Master Fund.
In addition to the Waiver Agreement, Pacific Life has contractually
committed to waive that portion of its advisory fee and/or reimburse
expenses with respect to the Substitute Portfolio such that the net
fees and expenses, considering both the master and feeder levels, paid
by shareholders invested in the Substitute Portfolio will not exceed an
annual rate of 1.01% of the Substitute Portfolio's average daily net
assets. In order to effectuate this commitment, Pacific Life and Select
Fund have entered into an Expense Limitation Agreement. Under the terms
of the Expense Limitation Agreement, Pacific Life will reimburse the
Substitute Portfolio an amount necessary to ensure that portfolio net
operating expenses do not exceed an annual rate of 1.01% during the
term of the Expense Limitation Agreement. The Expense Limitation
Agreement has an initial term of two years from the date the
Substitution requested by the Application occurs (the ``Effective
Date''). Separate Account expenses also will not be increased during
this two-year period for Contractholders that invest in the Replaced
Portfolio on the Effective Date of the substitution (the ``Affected
Contractholders'').
16. The following chart compares the historical performance of the
Replaced Portfolio to the historical performance of the Master Fund for
the periods shown. The Master Fund's historical performance has been
adjusted to reflect the estimated expenses of the Substitute Portfolio
at the feeder fund level, as if the Substitute Portfolio had invested
in the Master Fund for the periods presented.
------------------------------------------------------------------------
Replaced Portfolio Substitute Portfolio
------------------------------------------------------------------------
Calendar Year Ended: Calendar Year Ended:
2005 5.63% 2005 5.43%
2004 12.19% 2004 9.98%
2003 26.24% 2003 32.04%
2002* (13.54)% 2002 (18.73)%
Average Annual Total Return as of December Average Annual Total Return
31, 2005: as of December 31, 2004:
1 year 5.63% 1 year 5.44%
3 years 14.37% 3 years 15.26%
5 years N/A 5 years 4.92%
10 years N/A 10 years 10.17%
------------------------------------------------------------------------
*Inception date 1/2/02.
17. Applicants will effect the Substitution as soon as practicable
following the issuance of the requested order. As of the Effective
Date, shares of the Replaced Portfolio will be redeemed for cash. The
PL Insurers, on behalf of the subaccount of each relevant Separate
Account investing in the Replaced Portfolio, will simultaneously place
a redemption request with the Replaced Portfolio and a purchase order
with the Substitute Portfolio so that the
[[Page 17508]]
purchase of the Substitute Portfolio shares will be for the exact
amount of the redemption proceeds, and thus Variable Contract values
will remain fully invested at all times. The proceeds of such
redemptions will then be used to purchase the appropriate number of
shares of the Substitute Portfolio. Following the Substitution, the
Replaced Portfolio will no longer be offered through the Variable
Contracts.
18. The Substitution will take place at relative net asset value
(in accordance with Rule 22c-1 under the 1940 Act) with no change in
the amount of any Affected Contractholder's accumulation value or death
benefit or in dollar value of his or her investment in the applicable
Separate Account. No brokerage commissions, fees or other remuneration
will be paid by either the Replaced Portfolio or the Substitute
Portfolio or by Affected Contractholders in connection with the
Substitution. The transactions comprising the Substitution will be
consistent with the policies of each investment company involved and
with the general purposes of the 1940 Act.
19. Affected Contractholders will not incur any fees or charges as
a result of the Substitution nor will their rights or the relevant PL
Insurer's obligations under the Variable Contracts be altered in any
way. The PL Insurers or their affiliates will pay all expenses and
transaction costs of the Substitution, including legal and accounting
expenses, any applicable brokerage expenses, and other fees and
expenses. In addition, the Substitution will not impose any tax
liability on Affected Contractholders. The Substitution will not cause
the Variable Contract fees and charges currently being paid by Affected
Contractholders to be greater after the Substitution than before the
Substitution.
20. Currently, each Affected Contractholder is subject to transfer
limitations which are stated in the applicable prospectus. Generally,
an Affected Contractholder may not make more than twenty-five (25)
transfers per calendar year and may only make one ``safe harbor''
transfer into the Money Market Portfolio once the 25 transfer limit is
reached. Additionally, an Affected Contractholder may not make more
than two transfers per calendar month involving international
portfolios. Multiple transfers among the portfolios on the same day
count as one transfer. Transfers to or from a portfolio cannot be made
before the seventh calendar day following the last transfer to or from
the same portfolio. If the seventh calendar day is not a business day,
then a transfer may not occur until the next business day. The day of
the last transfer is not considered a calendar day for purposes of
meeting this requirement. Currently, there are no fees imposed for
transfers among the investment options, but a transfer fee of up to $15
per transfer may be imposed in the future for transfers in excess of
fifteen (15) in any contract year. The above transfer restrictions are
referred to as ``Frequent Trading Policies.''
However, as described more fully below, for a 60 day period
commencing 30 days prior to the Effective Date and ending 30 days after
the Effective Date (``Free Transfer Period''), Affected Contractholders
may reallocate to any other investment options available under their
Variable Contract their accumulation value allocated to each subaccount
invested in the Replaced Portfolio (``Replaced Subaccount'') and each
subaccount invested in the Substitute Portfolio (together with the
Replaced Subaccounts, the ``Affected Subaccounts'') without incurring
any administrative costs or allocation (transfer) charges and such
reallocation will not count toward the Frequent Trading Policies. In
effect, each transfer by Affected Contractholders from the Affected
Subaccounts during the Free Transfer Period will be a ``free
transfer;'' if Affected Contractholders reallocate accumulation value
in the Affected Subaccounts only during the Free Transfer Period, there
will be no charge for the entire reallocation of accumulated value from
that Affected Subaccount and the entire reallocation will not be
counted toward the total number of reallocations made within the
calendar year or Variable Contract year for purposes of determining the
number of reallocations that may be made pursuant to the Frequent
Trading Policies with respect to the Affected Subaccounts, or that may
be made without incurring any potential future administrative or
transfer fees, if any, under the relevant Variable Contract. The PL
Insurers will not exercise any right they may have under the Variable
Contracts to impose additional restrictions or fees on the free
transfer from the Affected Subaccounts under the Variable Contracts
during the Free Transfer Period.
21. All Affected Contractholders have been or will be sent
notification of this Application by means of supplements to the
prospectuses for the Variable Contracts on or shortly before or after
the date that this Application is filed. Among other information
regarding the proposed Substitution, the supplements will inform
Affected Contractholders that the PL Insurers will not exercise any
rights reserved by them under the Variable Contracts to impose
additional restrictions or fees on transfers from the Affected
Subaccounts during the Free Transfer Period. Following the date the
order requested by this Application is issued, but before the Effective
Date, PL Insurers will send Affected Contractholders a notice (the
``Substitution Notice'') setting forth the scheduled Effective Date as
well as the commencement date and precise duration of the Free Transfer
Period. The Substitution Notice will advise Affected Contractholders of
their right, if they choose, at any time during the Free Transfer
Period, to reallocate to any other investment options available under
their Variable Contract their accumulation value allocated to each
Affected Subaccount 30 days prior to and after the Effective Date
without incurring any administrative costs or allocation (transfer)
charges and such reallocation will not count toward determining the
number of reallocations that may be made pursuant to the Frequent
Trading Policies (a ``free transfer''). Any additional transfers beyond
the ``free transfer'' must be made in accordance with the terms and
conditions of the Variable Contracts.
22. Within five (5) business days after the Effective Date,
Affected Contractholders will be sent a notice (``Post-Substitution
Confirmation'') showing that each Affected Contractholder's interest in
the Affected Subaccount invested the Replaced Portfolio has been
transferred in exchange for units of the Subaccounts that invest in the
Substitute Portfolio, and confirming the transactions effected on
behalf of the respective Affected Contractholder with regard to the
Substitution. All current Contractholders will have been sent a Select
Fund prospectus containing a description of the Substitute Portfolio
before the Effective Date.
Applicants' Legal Analysis
1. Section 26(c) of the 1940 Act prohibits any depositor or trustee
of a unit investment trust that invests exclusively in the securities
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
protections of investors and the purposes fairly intended by the policy
and the provisions of the 1940 Act.
2. Section 26(c) of the 1940 Act was enacted as part of the
Investment Company Act Amendments of 1970. Prior to the enactment of
these
[[Page 17509]]
amendments, a depositor or a unit investment trust could substitute new
securities for those held by the trust by notifying the trust's
security holders of the substitution within five days of the
substitution. In 1966, the Commission, concerned with the high sales
charges then common to most unit investment trusts and the
disadvantageous position in which such charges placed investors who did
not want to remain invested in the substituted fund, recommended that
Section 26 be amended to require that a proposed substitution of the
underlying investments of a trust receive prior Commission approval.
3. Applicants assert that the proposed Substitution appears to
involve a substitution of securities within the meaning of section
26(c) of the 1940 Act. The Applicants therefore request an order from
the Commission pursuant to Section 26(c) approving the proposed
Substitution.
4. Applicants contend that although not identical, the investment
objective of the Substitute Portfolio is compatible with that of the
Replaced Portfolio. In addition, Applicants believe that the investment
policies of the Substitute Portfolio are substantially similar to those
of the Replaced Portfolio and assure that the investment objectives of
Affected Contractholders can continue to be met.
5. Applicants note that the Commission has previously granted
Section 26(c) orders to permit the substitution of one fund for another
where the investment policies or restrictions or both were not exactly
the same. In addition to the foregoing, Applicants generally submit
that the Substitution meets the standards that the Commission and its
staff have applied to similar substitutions that have been approved in
the past.
6. Applicants state that the expenses of the Substitute Portfolio
will be slightly lower than those experienced by the Replaced
Portfolio, after giving effect to applicable fee waivers. The total net
annualized expenses of the Replaced Portfolio, expressed as a
percentage of net assets, is 1.01%. The total net annualized expenses
of the Substitute Portfolio (including the net fees and expenses
incurred by the Master Fund), expressed as a percentage of net assets,
is expected to be 0.93%. Pursuant to the Expense Limitation Agreement
with respect to the Substitute Portfolio, the total net annualized
expenses are limited to 1.01% of the Substitute Portfolios average
daily net assets for a period not less than two years from the
Effective Date.
7. Applicants state that the Substitution will take place at
relative net asset value (in accordance with Rule 22c-1 under the 1940
Act) with no change in the amount of any Affected Contractholder's
accumulation value or death benefit or in dollar value of his or her
investment in the Separate Accounts. Affected Contractholders will not
incur any fees or charges as a result of the Substitution, nor will
their rights or the PL Insurer' obligations under the affected Variable
Contracts be altered in any way. In addition, the Substitution will not
impose any tax liability on Affected Contractholders. The PL Insurers
or their affiliates will pay all expenses incurred with the
Substitution, including legal, accounting, and other fees and expenses.
8. Applicants also note that the Substitution will not cause the
affected Variable Contract fees and charges currently being paid by
Affected Contractholders to be greater after the Substitution than
before the Substitution. In addition, while the PL Insurers do not
anticipate increasing Variable Contract fees and/or charges paid by any
current Contractholders, the PL Insurers have agreed not to increase
the Variable Contract fees and charges specified in the Variable
Contracts for a period of at least two years following the
Substitution.
9. Applicants note that each Affected Contractholder will be sent a
copy of: (1) A supplement informing shareholders of the proposed
substitution; (2) a Substitution Notice setting forth the Effective
Date and advising Affected Contractholders of their right to reconsider
the Substitution and, if they so choose, any time during the Free
Transfer Period, to withdraw or reallocate accumulation value under the
affected Variable Contract; and (3) within five business days of the
Effective Date, a Post-Substitution Confirmation.
10. Applicants note that each of the Variable Contracts reserves to
the PL Insurers the right, subject to compliance with applicable law,
to substitute shares of another open end management investment company
for shares of an open end management investment company held by a
subaccount of a Separate Account. The prospectuses for the Variable
Contracts and the Separate Accounts contain appropriate disclosure of
this right. The PL Insurers reserve this right of substitution to
address situations where continued investment in an underlying
investment option becomes unsuitable or unavailable.
11. Applicants assert that unlike traditional unit investment
trusts where a depositor could only substitute an investment security
in a manner which permanently affected all the investors in the trust,
the Variable Contracts provide each Contractholder with the right to
exercise his or her own judgment and transfer accumulation values into
other subaccounts. Moreover, the Variable Contracts will offer
Contractholders the opportunity to transfer amounts out of the affected
subaccounts into any of the remaining subaccounts without cost or other
disadvantage. The Substitution, therefore, will not result in the type
of costly forced redemption which Section 26(c) was designed to
prevent.
12. Applicants also contend that the Substitution also is unlike
the type of substitution which Section 26(c) was designed to prevent in
that by purchasing a Variable Contract, Contractholders select much
more than a particular investment company in which to invest their
account values. They also select the specific type of death benefit and
other optional benefits offered by the PL Insurers in their Variable
Contracts as well as numerous other rights and privileges set forth in
the Variable Contracts. Contractholders may also have considered the PL
Insurers' size, financial condition, and reputation for service in
selecting their Variable Contract. The Applicant states that these
factors will not change as a result of the Substitution.
13. Applicants contend that the Substitution will not result in the
type of costly forced redemption that Section 26(c) was intended to
guard against and is consistent with the protection of investors and
the purposes fairly intended by the 1940 Act, because of what the
Applicants consider to be the significant terms of the Substitution.
These terms include:
(a) The Replaced Portfolio has investment objectives that
Applicants believe are compatible with and policies and risks
substantially similar to those of the Substitute Portfolio so that the
objective of the Affected Contractholders can continue to be met.
(b) For two years following the implementation of the Substitution
described herein, the net operating expenses of the Substitute
Portfolio (including the net fees and expenses incurred by the Master
Fund) will not exceed an annual rate of 1.01% of its average daily net
assets.
(c) Affected Contractholders may reallocate accumulation value in
the Affected Subaccounts during the sixty-day Free Transfer Period,
with no charge for the reallocations of accumulated value from each
Affected Subaccount. The reallocations will not be counted toward the
total number of
[[Page 17510]]
reallocations made within the calendar year or Variable Contract year
for purposes of determining whether the number of reallocations that
may be made pursuant to the Frequent Trading Policies has been
exceeded, or that may be made without incurring administrative or
transfer fees, if any, under the relevant Variable Contract.
Alternately, Affected Contractholders may withdraw amounts held in any
Affected Subaccount at any time during the Free Transfer Period in
accordance with the terms and conditions of the relevant Variable
Contract. The Free Transfer Period commences upon a date declared in
the Substitution Notice (which will be thirty days prior to the
Effective Date) and will last for 30 days after the Effective Date.
(d) The Substitution will be effected at the net asset value of the
shares in conformity with Section 22(c) of the 1940 Act and Rule 22c-1
thereunder, without the imposition of any transfer or similar charge by
Applicants.
(e) The Substitution will take place at relative net asset value
without change in the amount or value of any Variable Contract held by
Affected Contractholders. Affected Contractholders will not incur any
fees or charges as a result of the Substitution, nor will their rights
or the obligations of the PL Insurers under such Variable Contracts be
altered in any way. In addition, the PL Insurers will not increase the
Variable Contract fees and charges specified in the Variable Contracts
for a period of at least two years following the Substitution.
(f) The Substitution will be effected in such a manner that
Applicants believe will continue to fulfill Affected Contractholders'
objectives and risk expectations, because, according to Applicants, the
investment objectives of the Substitute Portfolio are substantially
similar to those of the Replaced Portfolio.
(g) No brokerage commissions, fees or other remuneration will be
paid by the Replaced Portfolio or the Substitute Portfolio or Affected
Contractholders in connection with the Substitution.
(h) The Substitution will not alter in any way the annuity, life or
tax benefits afforded under the Variable Contracts held by any Affected
Contractholder.
(i) The PL Insurers will send to their Affected Contractholders
within five (5) business days of the Effective Date a copy of the Post-
Substitution Confirmation confirming the transactions effected on
behalf of the respective Affected Contractholder with regard to the
Substitution.
Conditions:
Applicants agree that the proposed Substitution and related
transaction will not be completed unless all of the following
conditions are met:
1. The Commission shall have issued an order approving the
Substitution under Section 26(c) of the 1940 Act.
2. Each Affected Contractholder will have been sent a copy of (i) a
supplement informing shareholders of this Application; (ii) a
prospectus for the Substitute Portfolio, (iii) a Substitution Notice
setting forth the scheduled Effective Date and advising Affected
Contractholders of their right, if they so choose, to reallocate or
withdraw amounts allocated to the Affected Subaccount under their
Variable Contract at any time during the sixty-day Free Transfer
Period, in accordance with the terms and conditions of their Variable
Contract; and (iv) within five business days of the Effective Date, a
Post-Substitution Confirmation confirming the transactions effected on
behalf of the respective Affected Contractholder with regard to the
Substitution.
3. The PL Insurers shall have satisfied themselves that (i) the
Variable Contracts allow the substitution of investment company shares
in the manner contemplated by the Substitution and related transactions
described herein; (ii) the transactions can be consummated as described
in this Application under applicable insurance laws; and (iii) any
regulatory requirements in each jurisdiction where the Variable
Contracts are qualified for sale, have been complied with to the extent
necessary to complete the transactions.
4. Pacific Life and Select Fund have entered into an Expense
Limitation Agreement, with respect to the Substitute Portfolio, whereby
Pacific Life will reimburse the Substitute Portfolio an amount
necessary to ensure that net operating expenses do not exceed an annual
rate of 1.01% during a two-year period from the date the Substitution
occurs. Separate Account expenses will not be increased during this
two-year period for Affected Contractholders.
5. Pacific Life will amend its advisory agreement with the
Substitute Portfolio to reflect that in the event that the Master Fund
level advisory fees and 12b-1 fees exceed 95 basis points, Pacific Life
will subsidize any fees in excess of this amount for the life of the
Substitute Portfolio or until the fee is changed pursuant to a
shareholder vote.
Conclusion:
Applicants submit that, for all reasons stated above, the proposed
Substitution is consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act,
and that the requested order should be granted.
For the Commission, by the Division of Investment Management,
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-5016 Filed 4-5-06; 8:45 am]
BILLING CODE 8010-01-P
