[Federal Register Volume 64, Number 185 (Friday, September 24, 1999)]
[Notices]
[Pages 51810-51812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24868]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24017; 812-11508]


Pacific Select Fund, et al.; Notice of Application

September 17, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the `Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act.

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SUMMARY OF APPLICATION: The order would permit applicants to enter into 
and materially amend investment subadvisory agreements without 
obtaining shareholder approval.

APPLICANTS: Pacific Select Fund (the ``Fund'') and Pacific Life 
Insurance Company (``Pacific Life'').

FILING DATES: The application was filed on February 9, 1999, and 
amended on May 26, 1999 and on September 15, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on October 12, 
1999, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicants, Pacific Life Insurance

[[Page 51811]]

Company, 700 Newport Center Drive, Newport Beach, CA 92660.

FOR FURTHER INFORMATION CONTACT: Janet M. Grossnickle, Attorney-
Adviser, at (202) 942-0526, or Mary Kay Frech, Branch Chief, at (202) 
942-0564 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Fund, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company. Currently, the 
Fund has eighteen separate portfolios (``Portfolios). The Fund 
currently serves only as an investment medium for variable life 
insurance policies and variable annuity contracts issued or 
administered by Pacific Life, and its affiliates, but may, in the 
future, sell shares directly to qualified retirement plans.
    2. Pacific Life serves as the investment adviser for each of the 
Portfolios and is registered under the Investment Advisers Act of 1940 
(``Advisers Act''). Pacific Life provides investment advisory services 
and administrative services to the Fund under an Investment Advisory 
Agreement with the Fund (the ``Advisory Contract''). In its capacity as 
investment adviser to the Fund, Pacific Life recommends the selection 
or termination of sub-advisers (``Managers'') to the Fund's board of 
trustees (``Board''). In addition, Pacific Life oversees and monitors 
the performance of the Managers and may reallocate a Portfolio's assets 
among Managers. Each Manager recommended by Pacific Life is approved by 
the Board, including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act, of 
the Fund (``Independent Trustees''). Each Portfolio pays Pacific Life a 
fee for its services based on the Portfolio's average daily net assets.
    3. Pacific Life has entered into subadvisory agreements 
(``Subadvisory Agreements'') with eleven Managers, each of which is 
registered or exempt from registration as an investment adviser under 
the Advisers Act. One of the Managers, Pacific Investment Management 
Company, is an affiliate of Pacific Life. Currently, two Portfolios of 
the Fund are advised by Pacific Life and sixteen Portfolios of the Fund 
each are advised by one Manager. Subject to general supervision by 
Pacific Life and the Board, each Manager is responsible for the day-to-
day management of the portion of the Portfolio it advises. The 
Manager's duties consist of making discretionary investment decisions 
on behalf of its Portfolio and conducting any research that may be 
necessary to formulate investment decisions. Pacific Life pays the 
Managers' fees out of the fees Pacific Life receives from each 
Portfolio.
    4. Applicants request an order to permit Pacific Life to enter into 
Subadvisory Agreements without obtaining shareholder approval.\1\ The 
requested relief will not extend to a Subadvisory Agreement with a 
Manager that is an ``affiliated person'' (as defined in section 2(a)(3) 
of the Act) of either the Fund or Pacific Life other than by reason of 
serving as a Manager to one or more of the Portfolios (``Affiliated 
Manager'').\2\
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    \1\ The term ``Shareholders'' includes variable life and annuity 
contract owners having the voting interest in a separate account for 
which the Portfolio serves as a funding medium.
    \2\ Applicants also request relief for (a) any series of the 
Fund, now existing or organized in the future; and (6) any 
registered open-end management investment companies, including those 
that serve as funding vehicles for variable insurance products 
offered by Pacific Life and its affiliates, that in the future are 
(i) advised by Pacific Life or any entity controlling, controlled 
by, or under common control (as defined in section 2(a)(9) of the 
Act) with Pacific Life, (ii) use the manager of managers' strategy 
as described in the application, and (iii) comply with the terms and 
conditions contained in the application (``Future Funds''). The Fund 
is the only existing investment company that currently intends to 
rely on the order.
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Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as an investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
under the Act provides that each series or class of stock in a series 
company affected by a matter must approve the matter if the Act 
requires shareholder approval.
    2. Section 6(c) of the Act authorizes the SEC to exempt persons or 
transactions from the provisions of the Act to the extent that the 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act. Applicants request 
relief under section 6(c) from section 15(a) of the Act and rule 18f-2 
under the Act. For the reasons discussed below, applicants state that 
the requested relief meets the standard of section 6(c).
    3. Applicants assert that the Fund's Shareholders, in effect, hire 
Pacific Life to manage a Portfolio's assets by using external Managers, 
rather than using Pacific Life's own employees to manage assets 
directly. Applicants believe that Shareholders expect that Pacific 
Life, under the overall authority of the Board, will take 
responsibility for overseeing the Managers and for recommending their 
hiring, termination, and replacement. Applicants argue that the 
requested relief will reduce Portfolio expenses associated with 
Shareholder meetings and proxy solicitations, and enable the Portfolios 
to operate more efficiently. Applicants also not that the Advisory 
Contract will remain fully subject to the requirements of section 15 of 
the Act and rule 18f-2 under the Act, including the requirements for 
Shareholder approval.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Before applicants may rely on the requested order as to any 
Portfolio, the operation of the Fund and each Portfolio in the manner 
described in the application will be approved by a majority of its 
Shareholders or by its initial shareholder, provided that, in the case 
of approval by the initial shareholder, the pertinent Portfolio's 
Shareholders purchase shares on the basis of a prospectus containing 
the disclosure contemplated by condition 2 below. Similarly, before a 
Future Fund may rely on the order requested in the application, the 
operation of the Future Fund in the manner described in the application 
will be approved by its initial shareholder before a public offering of 
shares of such Future Fund, provided that Shareholders purchase shares 
on the basis of a prospectus containing the disclosure contemplated by 
condition 2 below.
    2. The prospectus for the Fund and for each Portfolio will disclose 
the existence, substance, and effect of any order granted pursuant to 
the application. In addition, the Fund and each Portfolio will hold 
itself out as employing the management structure described in the 
application. The prospectus for the Fund and each Portfolio will 
prominently disclose that Pacific Life, subject to review of the Board, 
has ultimate responsibility to oversee the Managers and recommend their 
hiring, termination, and replacement.

[[Page 51812]]

    3. Within 90 days of the hiring of any new Manager, Shareholders of 
the affected Portfolio will be sent all information about the new 
Manager that would be included in a proxy statement. Pacific Life will 
meet this condition by sending to such Shareholders an information 
statement meeting the requirements of Regulation 14C, Schedule 14C, and 
Item 22 of Schedule 14A under the Securities Exchange Act of 1934. The 
Fund will send the information statement to contract owners with 
contract assets allocated to any subaccount of a registered separate 
account which invests its assets in the Portfolio undergoing the change 
in Manager.
    4. Pacific Life will not enter into a Subadvisory Agreement with 
any Affiliated Manager without such agreement, including the 
compensation to be paid under it, being approved by the Shareholders of 
the applicable Portfolio.
    5. At all times, a majority of the Board of each Fund shall consist 
of Independent Trustees. The nomination of new or additional 
Independent Trustees will be at the discretion of the then-existing 
Independent Trustees.
    6. Pacific Life will provide general management and administrative 
services to the Fund and its Portfolios, including overall supervisory 
responsibility for the general management and investment of each 
Portfolio's securities portfolio and, subject to Board review and 
approval, will (i) set the Portfolio's overall investment strategies; 
(ii) recommend and select Managers; (iii) when appropriate, allocate 
and reallocate the Portfolio's assets among multiple Mangers; (iv) 
monitor and evaluate the performance of Managers; and (v) implement 
procedures reasonably designed to ensure that the Managers comply with 
the Portfolio's investment objectives, policies, and restrictions.
    7. No trustee or officer of the Fund or director or officer of 
Pacific Life who participates directly in Pacific Life's investment 
advisory activities (including the management or administration of the 
Fund) or otherwise is able to influence the selection of Mangers, will 
own directly or indirectly (other than through a pooled investment 
vehicle that is not controlled by that director or officer) any 
interest in a Manager except for (i) ownership of interests in Pacific 
Life or any entity that controls, is controlled by, or is under common 
control with Pacific Life; or (ii) ownership of less than 1% of the 
outstanding securities of any class of equity or debt of a publicly-
traded company that is either a Manger or an entity that controls, is 
controlled by or is under common control with a Manger.
    8. When a Manager change is proposed for a Portfolio with an 
Affiliated Manger, the Board, including a majority of the Independent 
Trustees, will make a separate finding, reflected in the Board minutes, 
that the change is in the best interests of the Portfolio and its 
Shareholders, and does not involve a conflict of interest from which 
Pacific Life, its affiliates or the Affiliated Manger derives an 
inappropriate advantage.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24868 Filed 9-23-99; 8:45 am]
BILLING CODE 8010-01-M