[Federal Register Volume 80, Number 30 (Friday, February 13, 2015)]
[Notices]
[Pages 8115-8119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02992]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31451; File No. 812-14359]


Pacific Life Insurance Company, et al; Notice of Application

February 9, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

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

-----------------------------------------------------------------------

    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: 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 the Advisor Class shares of the PIMCO 
Global Multi-Asset Managed Allocation Portfolio, a series of the PIMCO 
Variable Insurance Trust (the ``Replaced Portfolio'') (the ``Proposed 
Substitution''), under certain variable annuity contracts issued by the 
Insurers (collectively, the ``Contracts'').

DATES: Filing Date: The application was filed on September 19, 2014, 
and amended on February 5, 2015.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the 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 March 4, 2015, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to Rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: Brandon J. Cage, CLU 
Assistant Vice President, Counsel, Pacific Life Insurance Company, 700 
Newport Center Drive, Newport Beach, CA 92660; Richard T. Choi, Esq., 
Carlton Fields Jorden Burt, P.A., 1025 Thomas Jefferson St. NW., Suite 
400 East, Washington, DC 20007.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Nadya Roytblat, Assistant Chief Counsel, at (202) 
551-6825 (Chief Counsel's Office, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or 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 Advisor Class 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 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

[[Page 8116]]

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 Advisor Class 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 Pacific Investment Management Company, LLC (``PIMCO'') to a 
Replacement Portfolio managed by Janus Capital Management LLC (``Janus 
Capital'') (each of Janus Capital and PIMCO, 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.
    7. The Applicants represent that the investment objectives of the 
Replaced and Replacement Portfolio are similar. The investment 
objective of the Replaced Portfolio is total return which exceeds that 
of a blend of 60% MSCI World Index/40% Barclays U.S. Aggregate Index, 
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 will typically invest 50 to 70% (20% 
minimum under normal circumstances) of its total assets in equity-
related investment securities and may invest up to 30% of its total 
assets in fixed income securities denominated in foreign securities (or 
beyond this limit in U.S. dollar-denominated securities of foreign 
issuers), 15% of its total assets in fixed income securities that are 
economically tied to emerging market countries, and up to 10% of its 
total assets in fixed income securities in high yield securities (i.e., 
``junk'' bonds). 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. Investment in 
``junk'' bonds 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 of 
up to 5% of its total assets 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, 
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. The principal investment strategies of 
the Replacement Portfolio include investments in mortgage-backed and 
mortgage-related securities. Similarly, mortgage-backed securities are 
included among the types of fixed-income securities that constitute a 
principal investment strategy of the Replaced Portfolio. 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 (Advisor Class shares) and the Replacement Portfolio 
(Service Shares) as of the year ended December 31, 2013. As shown 
below, the management fee of the Replacement Portfolio is lower than 
that of the Replaced Portfolio. The management fees of the Replaced 
Portfolio and the Replacement Portfolio are not subject to breakpoints. 
In addition, as shown in the table below, the 12b-1 fee of the Service 
Shares of the Replacement Portfolio is the same as the 12b-1 fee of the 
Advisor Class 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.\1\
---------------------------------------------------------------------------

    \1\ As of the date of filing of the amended application, 
Applicants are aware of no material change to the fee and expense 
information provided in the following table.

                                              Proposed Substitution
----------------------------------------------------------------------------------------------------------------
                                                                   Replaced portfolio     Replacement portfolio
                                                               -------------------------------------------------
                                                                  PIMCO global multi-
                                                                     asset managed         Janus Aspen balanced
                                                                  allocation portfolio          portfolio
----------------------------------------------------------------------------------------------------------------
Advisor Class/Service Shares:
    Management Fee............................................                    0.95%                    0.55%
    12b-1 Fee.................................................                    0.25%                    0.25%
    Other Expenses............................................                    0.01%                    0.04%
    Acquired Fund Fees........................................                    0.52%                      N/A
    Total Gross Expenses......................................                    1.73%                    0.84%
    Expense Waiver/Reimbursement..............................                     0.46                     0.00
                                                               -------------------------------------------------

[[Page 8117]]

 
        Total Net Expenses....................................                    1.27%                    0.84%
----------------------------------------------------------------------------------------------------------------

    9. The Applicants state that the performance for the Replacement 
Portfolio is substantially 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 
assert the Proposed Substitution will help to accomplish these goals 
for the following reasons: (1) The total annual operating expenses for 
the Replacement Portfolio (which does not include any expense waivers 
or reimbursements) are significantly lower than those of the Replaced 
Portfolio (even after taking into account fee waivers or expense 
reimbursements); (2) the historical performance of the Replacement 
Portfolio is generally much better than that of the Replaced Portfolio; 
(3) the Subaccounts that invest in the Replacement Portfolio are 
included among the currently allowable investment options under the 
optional living benefit riders offered under the Contracts; (4) 
Contract Owners will find the stable management of the Replacement 
Portfolio, whose co-portfolio managers have managed the Portfolio since 
2005, attractive, relative to the Replaced Portfolio; and (5) the 
Proposed Substitution will simplify the Subaccount offerings under the 
Contracts.
    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 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 Proposed 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 be effected at the relative net 
asset values of the respective shares in conformity with Section 22(c) 
of the 1940 Act and Rule 22c-1 thereunder without the imposition of any 
transfer or similar charges by Applicants. The Proposed Substitution 
will be effected without change in the amount or value of any Contracts 
held by affected Contract Owners. 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 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.
    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 
the 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 they 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 they had received from the Replaced Portfolio, its 
adviser or underwriter (or their affiliates), including without 
limitation 12b-1 fees, shareholder service, administrative, or other 
service 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 
Insurer or its affiliates by the

[[Page 8118]]

Replacement Portfolio, its adviser or underwriter, or their affiliates.

Legal Analysis

    1. 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 such an order approving the substitution if the 
evidence establishes that the substitution is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the 1940 Act.
    2. The Applicants submit that the terms and conditions of the 
Proposed Substitution meet the standards set forth in Section 26(c) and 
assert that the substitution of the Replaced Portfolio with the 
Replacement Portfolio is consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
l940 Act. As described in the application, the total annual operating 
expenses for the Replacement Portfolio are lower than those of the 
Replaced Portfolio. Applicants assert that the Replacement Portfolio 
has similar investment objectives and investment strategies as the 
Replaced Portfolio, and the principal risks of the Replaced Portfolio 
and the Replacement Portfolio are similar.
    3. Applicants also maintain 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 rights of 
affected Contract Owners and the obligations of the Insurers under the 
Contracts will not be altered by the Proposed Substitution. Affected 
Contract Owners will not incur any additional tax liability or any 
additional fees and expenses as a result of the Proposed Substitution.
    4. The prospectuses for the Contracts disclose that the Insurers 
reserve the right, subject to Commission approval and compliance with 
applicable law, 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.
    5. Applicants also assert that the Proposed Substitution does not 
entail any of the abuses that Section 26(c) was designed to prevent. 
Applicants note that the purpose of Section 26(c) is to protect the 
expectation of investors in a unit investment trust that the trust will 
accumulate shares of a particular issuer by preventing unscrutinized 
substitutions that might, in effect, force shareholders dissatisfied 
with the substituted security to redeem their shares, possibly 
incurring either a loss of the sales load deducted from initial premium 
payments, an additional sales load upon reinvestment of the redemption 
proceeds, or both. The Proposed Substitution will offer Contract Owners 
the opportunity to transfer amounts out of the affected subaccounts 
into any of the remaining subaccounts without cost or other 
disadvantage. The Proposed Substitution, therefore, will not result in 
the type of costly forced redemptions that Section 26(c) was designed 
to prevent.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Proposed Substitution will not be effected unless the 
Insurers determine that: (a) The Contracts allow the substitution of 
shares of registered open-end investment companies in the manner 
contemplated by the application; (b) the Proposed Substitution can be 
consummated as described in the application under applicable insurance 
laws; and (c) any regulatory requirements in each jurisdiction where 
the Contracts are qualified for sale have been complied with to the 
extent necessary to complete the Proposed Substitution.
    2. The Insurers or their affiliates will pay all expenses and 
transaction costs of the Proposed Substitution, including legal and 
accounting expenses, any applicable brokerage expenses and other fees 
and expenses. No fees or charges will be assessed to the Contract 
Owners to effect the Proposed Substitution.
    3. The Proposed Substitution will be effected at the relative net 
asset values of the respective shares in conformity with Section 22(c) 
of the 1940 Act and Rule 22c-1 thereunder without the imposition of any 
transfer or similar charges by Applicants. The Proposed Substitution 
will be effected without change in the amount or value of any Contracts 
held by affected Contract Owners.
    4. The Proposed Substitution will in no way alter the tax treatment 
of affected Contract Owners in connection with their Contracts, and no 
tax liability will arise for affected Contract Owners as a result of 
the Proposed Substitution.
    5. The rights or obligations of the Insurers under the Contracts of 
affected Contract Owners will not be altered in any way. The Proposed 
Substitution will not adversely affect any riders under the Contracts 
since the Replacement Portfolio is an allowable investment option for 
use with such riders.
    6. Affected Contract Owners will be permitted to make at least one 
transfer of Contract value from the subaccount investing in the 
Replaced Portfolio (before the Substitution Date) or the Replacement 
Portfolio (after the Substitution Date) to any other available 
investment option under the Contract without charge for a period 
beginning at least 30 days before the Substitution Date through at 
least 30 days following the Substitution Date. Except as described in 
any market timing/short-term trading provisions of the relevant 
prospectus, the Insurer will not exercise any right it may have under 
the Contract to impose restrictions on transfers between the 
subaccounts under the Contracts, including limitations on the future 
number of transfers, for a period beginning at least 30 days before the 
Substitution Date through at least 30 days following the Substitution 
Date.
    7. All affected Contract Owners will be notified, at least 30 days 
before the Substitution Date about: (a) The intended substitution of 
the Replaced Portfolio with the Replacement Portfolio; (b) the intended 
Substitution Date; and (c) information with respect to transfers as set 
forth in Condition 6 above. In addition, Insurers will deliver to all 
affected Contract Owners, at least 30 days before the Substitution 
Date, a prospectus for the Replacement Portfolio.
    8. Insurers will deliver to each affected Contract Owner within 
five (5) business days of the Substitution Date a written confirmation 
which will include: (a) A confirmation that the Proposed Substitution 
was carried out as previously notified; (b) a restatement of the 
information set forth in the Supplements; and (c) before and after 
account values.
    9. Applicants 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 they had 
received from the Replaced Portfolio, its adviser or underwriter (or 
their affiliates), including without limitation 12b-1 fees, shareholder 
service, administrative or

[[Page 8119]]

other service fees, revenue sharing, or other arrangements.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015-02992 Filed 2-12-15; 8:45 am]
BILLING CODE 8011-01-P