[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62716-62719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24604]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30744; File No. 812-14141]


Pacific Life Insurance Company, et al; Notice of Application

October 17, 2013.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order approving the substitution 
of certain securities pursuant to Section 26(c) of the Investment 
Company Act of 1940, as amended (the ``1940 Act'').

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Applicants: Pacific Life Insurance Company (``Pacific Life''), Pacific 
Life's Separate Account A (``Separate Account A''), Pacific Life's 
Pacific Select Variable Annuity Separate Account (``Select VA Account'' 
and, together with Separate Account A, the ``Pacific Life Separate 
Accounts''), Pacific Life & Annuity Company (``PL&A''), and PL&A's 
Separate Account A (``PL&A Separate Account A''). Pacific Life, PL&A, 
and the Separate Accounts are referred to collectively as the 
``Applicants.'' The Pacific Life Separate Accounts and PL&A Separate 
Account A are referred to individually as a ``Separate Account'' and 
collectively as the ``Separate Accounts.'' Pacific Life and PL&A are 
referred to herein individually as an ``Insurer'' and collectively as 
the ``Insurers.''

Summary of Application: Each Insurer, on behalf of itself and its 
Separate Account(s), seeks an order pursuant to Section 26(c) of the 
1940 Act, approving the substitution of Service Shares of the Janus 
Aspen Balanced Portfolio, a series of Janus Aspen Series (the 
``Replacement Portfolio''), for Class B shares of the AllianceBernstein 
VPS Balanced Wealth Strategy Portfolio, a series of the 
AllianceBernstein Variable Product Series Fund, Inc. (the ``Replaced 
Portfolio'') (hereinafter, the ``Proposed Substitution''), under 
certain variable annuity contracts issued by the Insurers 
(collectively, the ``Contracts'').

DATES: Filing Date: The application was filed on March 29, 2013, and an 
amended and restated application was filed on September 25, 2013 and 
October 2, 2013.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving the 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 November 7, 2013, and should be accompanied 
by proof of service on the Applicants in the form of an affidavit or, 
for lawyers, a certificate of service. Hearing requests should state 
the nature of the requester's interest, the reason for the request, and 
the issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 100 F Street NE., Washington, DC 20549-1090. 
Applicants: Pacific Life Insurance Company, Separate Account A of 
Pacific Life Insurance Company, Pacific Select Variable Annuity 
Separate Account of Pacific Life Insurance Company, Pacific Life & 
Annuity Company, and Pacific Life & Annuity Company Separate Account A, 
all located at 700 Newport Center Drive, Newport Beach, CA 92660.

FOR FURTHER INFORMATION CONTACT: Deborah D. Skeens, Senior Counsel, or 
Michael L. Kosoff, Branch Chief, Insured Investments Office, Division 
of Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. The Insurers, on their own behalf and on behalf of their 
respective Separate Accounts, propose to substitute Service Shares of 
the Replacement Portfolio for Class B shares of the Replaced Portfolio 
held by the Separate Account to fund the Contracts. Each Separate 
Account is divided into subaccounts (each a ``Subaccount,'' 
collectively, the ``Subaccounts''). Each Subaccount invests in the 
securities of a single portfolio of an underlying mutual fund 
(``Portfolio''). Contract owners (each a ``Contract Owner'' and 
collectively, the ``Contract Owners'') may allocate some or all of 
their Contract value to one or more Subaccounts that are available as 
investment options under the Contracts.
    2. Pacific Life is the depositor and sponsor of the Pacific Life 
Separate Accounts. PL&A is the depositor and sponsor of PL&A Company 
Separate Account A.
    3. Each of the Separate Accounts is a ``separate account'' as 
defined by Section 2(a)(37) of the 1940 Act and each is registered 
under the 1940 Act as a unit investment trust for the purpose of 
funding the Contracts. Security interests under the Contracts have been 
registered under the Securities Act of 1933. The application sets forth 
the registration statement file numbers for the Contracts and the 
Separate Accounts.
    4. Each Insurer, on behalf of itself and its Separate Account(s), 
proposes to replace the Class B shares of the Replaced Portfolio that 
are held in Subaccounts of its Separate Account(s) with Service Shares 
of the Replacement Portfolio.
    5. The Applicants state that the Proposed Substitution involves 
moving assets attributable to the Contracts from the Replaced Portfolio 
managed by AllianceBernstein L.P. (``AllianceBernstein'') to a 
Replacement Portfolio managed by Janus Capital Management LLC (``Janus 
Capital'') (each of Janus Capital and AllianceBernstein, an 
``Investment Adviser'' and collectively, the ``Investment Advisers''). 
Each Investment Adviser is responsible for the day-to-day management of 
the assets of the Replaced or Replacement Portfolio, as the case may 
be. Neither the Replaced nor Replacement Portfolio employs a sub-
adviser and neither Portfolio operates under a manager-of-managers 
arrangement that, among other things, would permit the Investment 
Adviser to engage a new or additional sub-adviser without the approval 
of the Portfolio's shareholders. The Applicants state that the 
Investment Advisers are not affiliates of the Insurers.
    6. Applicants state that under the Contracts, the Insurers reserve 
the right to substitute, for the shares of a Portfolio held in any 
Subaccount, the shares of another Portfolio, shares of another 
investment company or series of another investment company, or another 
investment vehicle. The prospectuses for the Contracts include 
appropriate disclosure of this reservation of right.

[[Page 62717]]

    7. The Applicants represent that the investment objectives of the 
Replaced and Replacement Portfolio are similar. The investment 
objective of the Replaced Portfolio is to maximize total return 
consistent with its Investment Adviser's determination of reasonable 
risk, whereas that of the Replacement Portfolio is long-term capital 
growth, consistent with preservation of capital and balanced by current 
income. The investment objectives of both Portfolios include a growth 
component as well as an income component. Additionally, the Applicants 
state that the principal investment strategies of the Replaced and 
Replacement Portfolios are similar. The principal investment strategies 
of both Portfolios include investment in a combination of equity and 
debt securities. The Replaced Portfolio targets a weighting of 60% 
equity securities and 40% debt securities, whereas the Replacement 
Portfolio normally invests 35-65% of its assets in equity securities 
and the remaining assets in debt securities and cash equivalents, with 
normally 25% of its assets invested in fixed-income senior securities. 
In addition, both Portfolios may invest in securities of non-U.S. 
issuers. The principal investment strategies of the Replaced Portfolio 
also include investment in fixed-income securities with below 
investment grade ratings (also called ``junk'' bonds), which is not a 
principal investment strategy of the Replacement Portfolio though it 
may invest in such bonds. The principal investment strategies of the 
Replaced Portfolio include investments in real estate investment trusts 
or REITS, whereas the same is not true for the Replacement Portfolio 
though it may invest in REITs. The principal investment strategies of 
the Replaced Portfolio include entering into forward commitments, the 
making of short sales of securities or maintaining a short position, 
and investments in rights or warrants, none of which is a principal 
investment strategy of the Replacement Portfolio, though it may engage 
in short sales and invest in securities on a forward commitment basis, 
and invest in warrants. The principal investment strategies of the 
Replacement Portfolio include investments in mortgage-backed and 
mortgage-related securities, which are not a principal investment 
strategy of the Replaced Portfolio, though it may investment in 
mortgage-backed securities. A comparison of the investing strategies, 
risks, and performance of the Replaced and Replacement Portfolios is 
included in the application.
    8. The following table compares the fees and expenses of the 
Replaced Portfolio (Class B shares) and the Replacement Portfolio 
(Service Shares) as of the year ended December 31, 2012. As described 
below, the management fees of the Replaced Portfolio are subject to 
breakpoints whereas the management fees of the Replacement Portfolio 
are not.\1\ In addition, as shown in the table below, the 12b-1 fee of 
the Service Class of the Replacement Portfolio is the same as the 12b-1 
fee of the Class B shares of the Replaced Portfolio. In both cases, the 
12b-1 fee is the current maximum permitted under the relevant plan. 
Furthermore, as shown in the table below, the annual operating expenses 
of the Replacement Portfolio are lower than those of the Replaced 
Portfolio.
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    \1\ The Applicants submit that the likelihood of the Replaced 
Portfolio achieving a breakpoint reduction in its management fee in 
the near future appears to be remote given the asset levels of the 
Replaced Portfolio at year end 2012.

                                              Proposed Substitution
----------------------------------------------------------------------------------------------------------------
                                  Replaced portfolio                      Replacement portfolio
                               ---------------------------------------------------------------------------------
                                 AllianceBernstein VPS
                                   wealth strategies                 Janus Aspen balanced portfolio
                                       portfolio
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Class B/Service Class:
    Management Fee............  .55 of 1% of the first                                                     0.55%
                                 $2.5 billion, .45 of
                                 1% of the excess over
                                 $2.5 billion up to $5
                                 billion, and .40 of
                                 1% of the excess over
                                 $5 billion.
    12b-1 Fee.................  0.25%.................                                                     0.25%
    Other Expenses............  0.10%.................                                                     0.05%
    Total Gross Expenses......  0.90%.................                                                     0.85%
    Expense Waiver/             0.00..................                                                      0.00
     Reimbursement.
                               ---------------------------------------------------------------------------------
        Total Net Expenses....  0.90%.................                                                     0.85%
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    9. The Applicants state that the performance for the Replacement 
Portfolio is generally better than that of the Replaced Portfolio for 
all periods shown.
    10. The Applicants state that the Proposed Substitution is part of 
an ongoing effort by the Insurers to make their Contracts more 
attractive to existing and prospective Contract Owners. The Applicants 
believe the Proposed Substitution will help to accomplish these goals 
for the following reasons: (1) The total annual operating expenses (no 
expense waivers or reimbursements) for the Replacement Portfolio are 
lower than those of the Replaced Portfolio; (2) the historical 
performance of the Replacement Portfolio is generally better than that 
of the Replaced Portfolio; and (3) the Proposed Substitution will 
facilitate the ability of Contract Owners to elect certain optional 
living benefit riders; and (4) the Proposed Substitution will simplify 
the Subaccount offerings under the Contracts by eliminating an 
overlapping Investment Option that largely duplicates another 
Investment Option with similar investment objectives, principal 
investment strategies, and principal risks.
    11. The Applicants represent that the Proposed Substitution will be 
described in supplements to the applicable prospectuses for the 
Contracts filed with the Commission or in other supplemental disclosure 
documents, (collectively, ``Supplements'') and delivered to all 
affected Contract Owners at least 30 days before the date the Proposed 
Substitution is effected (the ``Substitution Date''). Each Supplement 
will give the relevant Contract Owners notice of the

[[Page 62718]]

applicable Insurer's intent to take the necessary actions, including 
seeking the order requested by the application, to substitute shares of 
the Replaced Portfolio as described in the application on the 
Substitution Date. Each Supplement also will advise Contract Owners 
that from the date of the Supplement until the Substitution Date, 
Contract Owners are permitted to transfer all of or a portion of their 
Contract value out of any Subaccount investing in the Replaced 
Portfolio (``Replaced Portfolio Subaccount'') to any other available 
Subaccounts offered under their Contracts without the transfer being 
counted as a transfer for purposes of transfer limitations and fees 
that would otherwise be applicable under the terms of the Contracts. In 
addition, each Supplement will (a) instruct Contract Owners how to 
submit transfer requests in light of the Proposed Substitution; (b) 
advise Contract Owners that any Contract value remaining in the 
Replaced Portfolio Subaccount on the Substitution Date will be 
transferred to a Subaccount investing in the Replacement Portfolio 
(``Replacement Portfolio Subaccount''), and that the Substitution will 
take place at relative net asset value; (c) inform Contract Owners that 
for at least thirty (30) days following the Substitution Date, the 
applicable Insurer will permit Contract Owners to make transfers of 
Contract value out of the Replacement Portfolio Subaccount to any other 
available Subaccounts offered under their Contracts without the 
transfer being counted as a transfer for purposes of transfer 
limitations that would otherwise be applicable under the terms of the 
Contracts; and (d) inform Contract Owners that, except as described in 
the market timing limitations section of the relevant prospectus, the 
applicable Insurer will not exercise any rights reserved by it under 
the Contracts to impose additional restrictions on transfers out of the 
Replacement Portfolio Subaccount for at least thirty (30) days after 
the Substitution Date.
    12. The Proposed Substitution will take place at the applicable 
Replaced and Replacement Portfolios' relative per share net asset 
values determined on the Substitution Date in accordance with Section 
22 of the 1940 Act and Rule 22c-1 thereunder. Accordingly, the 
Applicants submit that the Proposed Substitution will have no negative 
financial impact on any Contract Owner.
    13. The Proposed Substitution will be effected by having the 
Replaced Portfolio Subaccount redeem its Replaced Portfolio shares in 
cash and/or in-kind (as determined by the Investment Adviser to the 
Replaced Portfolio) on the Substitution Date at net asset value per 
share and purchase shares of the Replacement Portfolio at net asset 
value per share calculated on the same date. In the event that the 
Investment Adviser of the Replacement Portfolio declines to accept, on 
behalf of the Replacement Portfolio, any securities redeemed in-kind by 
the Replaced Portfolio, the Replaced Portfolio shall instead provide 
cash equal to the value of the declined securities so that Contract 
Owners' Contract values will not be adversely impacted or diluted.
    14. The Insurers or an affiliate thereof will pay all expenses and 
transaction costs reasonably related to the Proposed Substitution, 
including all legal, accounting, and brokerage expenses relating to the 
Proposed Substitution, the above described disclosure documents, and 
this application. No costs of the Proposed Substitution will be borne 
directly or indirectly by Contract Owners. Affected Contract Owners 
will not incur any fees or charges as a result of the Proposed 
Substitution, nor will their rights or the obligations of the Insurers 
under the Contracts be altered in any way. The Proposed Substitution 
will not cause the fees and charges under the Contracts currently being 
paid by Contract Owners to be greater after the Proposed Substitution 
than before the Proposed Substitution. In addition, no transfer charges 
will apply in connection with the Proposed Substitution.
    15. The Applicants represent that will not receive, for three years 
from the date of the Proposed Substitution, any direct or indirect 
benefits from the Replacement Portfolio, its adviser or underwriter (or 
their affiliates), in connection with assets attributable to contracts 
affected by the Proposed Substitution, at a higher rate than it had 
received from the Replaced Portfolio, its adviser or underwriter (or 
their affiliates), including without limitation 12b-1 fees, revenue 
sharing, or other arrangements; and the Proposed Substitution and the 
selection of the Replacement Portfolio were not motivated by any 
financial consideration paid or to be paid to the Company or its 
affiliates by the Replacement Portfolio, its adviser or underwriter, or 
their affiliates.

Legal Analysis and Conditions

Section 26(c) Relief

    1. The Applicants request that the Commission issue an order 
pursuant to Section 26(c) of the 1940 Act approving the Proposed 
Substitution. Section 26(c) of the 1940 Act makes it unlawful for any 
depositor or trustee of a registered unit investment trust holding the 
security of a single issuer to substitute another security for such 
security unless the Commission approves the substitution. Section 26(c) 
requires the Commission to issue an order approving a substitution if 
the evidence establishes that it is consistent with the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the 1940 Act.
    2. Applicants assert that the terms and conditions of the Proposed 
Substitution are consistent with the principles and purposes of Section 
26(c) and do not entail any of the abuses that Section 26(c) is 
designed to prevent. Applicants further submit that the Proposed 
Substitution will not result in the type of costly forced redemption 
that Section 26(c) was intended to guard against and, for the following 
reasons, are consistent with the protection of investors and the 
purposes fairly intended by the 1940 Act:
    (1) The costs reasonably related to the Proposed Substitution will 
be borne by the applicable Insurer or an affiliate and will not be 
borne by Contract Owners. No charges will be assessed to the Contract 
Owners to effect the Proposed Substitution.
    (2) The Proposed Substitution will be effected, in all cases, at 
the relative net asset values of the shares of the Replaced and 
Replacement Portfolios, without the imposition of any transfer or 
similar charge and with no change in the amount of any Contract Owner's 
Contract value.
    (3) The Proposed Substitution will not cause the fees and charges 
under the Contracts currently being paid by Contract Owners to be 
greater after the Proposed Substitution than before the Proposed 
Substitution, and will result in Contract Owners' Contract values being 
allocated to Subaccounts that invest in the Replacement Portfolio, 
which has lower total expenses than the Replaced Portfolio. Any changes 
in the charges for optional living benefit riders would be independent 
of the Proposed Substitution.
    (4) All affected Contract Owners will be given notice of the 
Proposed Substitution prior to the Substitution Date and will have an 
opportunity to reallocate their Contract value among other available 
Subaccounts, including Subaccounts investing in the Replacement 
Portfolio, without the imposition of any charge or limitation (unless 
such transfers are made in connection with market timing or other 
disruptive trading activity), thereby minimizing the likelihood of 
being

[[Page 62719]]

invested through a Subaccount in an undesired Portfolio.
    (5) The Proposed Substitution will in no way alter the insurance 
benefits to Contract Owners or the contractual obligations of the 
Insurers.
    (6) The Proposed Substitution will in no way alter the tax 
treatment of Contract Owners in connection with their Contracts, and no 
tax liability will arise for Contract Owners as a result of the 
Proposed Substitution.
    (7) The Proposed Substitution will not adversely affect existing 
Contract Owners who elected optional living benefit riders and 
allocated Contract value to Subaccounts investing in the Replaced 
Portfolio since the Replacement Portfolio is an allowable Investment 
Option for use with such riders.

Conclusion

    For the reasons and upon the facts set forth above and in the 
application, the Applicants submit that the Proposed Substitution meets 
the standards of Section 26(c) of the 1940 Act and respectfully request 
that the Commission issue an order of approval pursuant to Section 
26(c) of the 1940 Act and that such order be made effective as soon as 
possible.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24604 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P