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Pacific Life Insurance Co, et al. – ‘40-OIP’ on 9/19/14

On:  Friday, 9/19/14, at 1:43pm ET   ·   Accession #:  1193125-14-346801   ·   File #s:  812-14359, -01, -02, -03, -04

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/19/14  Pacific Life Insurance Co         40-OIP                 1:232K                                   RR Donnelley/FA
          Separate Account A of Pacific Life Insurance Co
          Pacific Select Variable Ann Sep Acct of Pacific Life Ins Co
          Pacific Life & Annuity Co
          Separate Account A of Pacific Life & Annuity Co

Document/Exhibit                   Description                      Pages   Size 

 1: 40-OIP      Substitution Application                            HTML    152K 

File No. 812-            

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

APPLICATION FOR AN ORDER OF APPROVAL PURSUANT TO

SECTION 26(c) OF THE INVESTMENT COMPANY ACT OF 1940

PACIFIC LIFE INSURANCE COMPANY AND ITS

SEPARATE ACCOUNT A AND PACIFIC SELECT VARIABLE ANNUITY

SEPARATE ACCOUNT,

AND

PACIFIC LIFE & ANNUITY COMPANY AND ITS SEPARATE ACCOUNT A

September 19, 2014

1 of 37

UNITED STATES OF AMERICA

BEFORE THE

SECURITIES AND EXCHANGE COMMISSION

APPLICATION FOR AN ORDER OF APPROVAL PURSUANT TO

SECTION 26(c) OF THE INVESTMENT COMPANY ACT OF 1940

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”)¹ hereby file this application (the “Application”) for an order of the Securities and Exchange Commission (the “Commission”) pursuant to Section 26(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), approving the proposed substitution of the securities

¹ The Pacific Life Separate Accounts and PL&A Separate Account A are hereinafter sometimes referred to individually as a “Separate Account” and collectively as the “Separate Accounts.”

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described herein (the “Proposed Substitution”). Pacific Life, PL&A, and the Separate Accounts are hereinafter referred to collectively as the “Applicants.”

I. STATEMENT OF FACTS

A. The Insurance Company Depositors

Pacific Life is a Nebraska life insurance company that is authorized to conduct its life insurance and annuity business in the District of Columbia and in all states except New York. Pacific Life is an indirect wholly-owned subsidiary of Pacific Mutual Holding Company, a mutual life insurance company that has been in business since 1868. Pacific Life serves as the depositor of the Pacific Life Separate Accounts, described below.

PL&A is an Arizona life insurance company that is authorized to conduct its life insurance and annuity business in Arizona, New York, and certain other states. PL&A was incorporated in 1982 and serves as the depositor of the PL&A Separate Account A, described below. For convenience, Pacific Life and PL&A individually may be referred to herein as the “Insurer” and collectively as the “Insurers.”

B. The Separate Accounts

The Pacific Life Separate Accounts are segregated asset accounts of Pacific Life established under California² law pursuant to resolutions of Pacific Life’s Board of

² The Pacific Life Separate Accounts are maintained under Nebraska law.

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Directors to fund the Pacific Life variable annuity contracts described in Appendix A hereto (the “Pacific Life VA Contracts”).

PL&A Separate Account A is a segregated asset account of PL&A established under Arizona law pursuant to resolutions of PL&A’s Board of Directors to fund the PL&A variable annuity contracts described in Appendix A hereto (the “PL&A VA Contracts”). For convenience, the PL&A VA Contracts and Pacific Life VA Contracts are referred to herein individually as a “Contract” and collectively as the “Contracts”).

Each Separate Account is registered under the 1940 Act as a unit investment trust.³ Interests under the Contracts are registered under the Securities Act of 1933, as amended (the “1933 Act”).⁴ Each Separate Account meets the definition of “separate account” contained in Section 2(a)(37) of the 1940 Act.

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”). Purchase payments under the Contracts are allocated to one or more Subaccounts. Income, gains, and losses, whether or not realized, from assets allocated to a Separate Account are, as provided in the Contracts, credited to or charged against the Separate Account without regard to other

³ The 1940 Act registration statements for the Separate Accounts are identified in Appendix A hereto. Pursuant to Rule 0-4 under the 1940 Act, such registration statements are hereby incorporated by reference herein to the extent necessary to support and supplement the descriptions and representations contained in this Application. These registration statements are all currently effective and are updated annually.

⁴ The 1933 Act registration statements for the securities are identified in Appendix A hereto. Pursuant to Rule 0-4 under the 1940 Act, such registration statements are hereby incorporated by reference herein to the extent necessary to support and supplement the descriptions and representations contained in this Application. These registration statements are all currently effective and are updated annually.

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income, gains or losses of the applicable Insurer. That portion of the assets of each Separate Account that is equal to the reserves and other Contract liabilities with respect to such Separate Account is not chargeable with liabilities arising out of any other business of the applicable Insurer.

C. The Contracts

The Contracts include the Pacific Life VA Contracts and PL&A VA Contracts listed in Appendix A hereto. The Contracts are issued as individual Contracts. Contract owners (each a “Contract Owner” and collectively, the “Contract Owners”) may allocate some or all of their Contract value (“Contract value”) to one or more Subaccounts that are available as investment options under the Contracts. In addition, Contract Owners may, if provided for under their Contracts, allocate some or all of their Contract value to a fixed account investment option that is supported by the assets of the general account of the Insurer that issued the Contracts (the “applicable Insurer”). The Subaccounts and the fixed account investment option constitute the investment options (“Investment Options”) under the Contracts.

Each Contract permits Contract Owners to transfer all or a portion of the Contract value from one Subaccount to another at any time, subject to a limit of 25 transfers each calendar year (with one additional transfer of all or portion of the Contract’s value allocated to Subaccounts (“Variable Account Value”) to the Contract’s money market Investment Option (“before the start of the next calendar year), and subject to certain restrictions designed to prevent market-timing. No transfer charges will apply in

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connection with the Proposed Substitution. The Proposed Substitution will not count towards the 25 transfer limit.

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.

The Contracts impose a mortality and expense risk charge and an administrative charge, which are guaranteed not to increase for the life of the Contracts. Some Contracts impose an annual maintenance fee, e.g., $30, that likewise is guaranteed not to increase for the life of the Contracts. The same is true for Contracts that impose a withdrawal charge, which cannot change. Optional riders or benefits available under the Contracts are all subject to a maximum charge that also applies for the life of the Contracts. Current charges for such optional riders or benefits may be lower in some cases than the applicable maximum. Any increase in a current charge, however, would apply uniformly to all Contract Owners who have elected such optional riders or benefits and such an increase is independent from and would not in any way be the result of the Proposed Substitution. The Contracts impose no other fees or charges, other than deductions for premium and other taxes. (Contract Owners will, of course, indirectly bear the fees and expenses associated with the Portfolios in which they invest through the Subaccounts.) The Proposed Substitution, therefore, will not result in any greater Contract fees or charges being imposed on Contract Owners.

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II. THE PROPOSED SUBSTITUTION

A. The Replaced Portfolio and Replacement Portfolio

Each Insurer, on behalf of itself and its Separate Account(s), proposes to exercise its contractual right to substitute shares of one Portfolio for that of another by replacing the Advisor Class shares of the PIMCO Global Multi-Asset Managed Allocation Portfolio, a series of the PIMCO Variable Insurance Trust, (the “Replaced Portfolio”) that are held in Subaccounts of its Separate Account(s) with Service Shares of the Janus Aspen Balanced Portfolio, a series of Janus Aspen Series, (the “Replacement Portfolio”) (hereinafter, the “Proposed Substitution”).

B. Reasons for the Proposed Substitution

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. Lower Portfolio Operating Expenses. As discussed in Section II.C., below, the total annual operating expenses (“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. The Applicants believe that lower Portfolio expenses will appeal to both existing and prospective Contract Owners.

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2. Better Performance. As discussed in Section II.C., below, the historical performance of the Replacement Portfolio is generally much better than that of the Replaced Portfolio. The better performance reflects the fact that since the Replaced Portfolio’s inception through December 31, 2013, the Replaced Portfolio has had two years with negative performance whereas the Replacement Portfolio has had no years with negative performance over that same period. In addition, as noted above, the Replacement Portfolio’s annual expenses are significantly lower than those of the Replaced Portfolio. The Applicants believe that better performance will appeal to both existing and prospective Contract Owners.

3. Continued Eligibility for Optional Living Benefit Riders. Another benefit of the Proposed Substitution is that 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. As a result, a Contract Owner who allocated Contract Value to a Subaccount investing in the Replaced Portfolio (which currently is among the currently allowable Investment Options under the optional living benefit riders under the Contracts), and who has an optional living benefit rider, will continue to receive the benefits provided under the optional living benefit rider on the Proposed Substitution Date.

4. Stable Management. The Insurers believe that 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

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Portfolio, which has undergone, or will undergo, several successive changes in its portfolio managers within a twelve month period, as noted below:

5. Simplified Subaccount Offerings. The Replaced Portfolio recently changed its investment objective and certain of its principal investment strategies effective April 30, 2014, from one of seeking “maximum long-term absolute return, consistent with prudent management of portfolio volatility” to one of seeking “total return which exceeds that of a blend of 60% MSCI World Index/ 40%Barclays U.S. Aggregate Index.” In view of the change in investment objectives, the Insurers believe the Replaced Portfolio is no longer sufficiently differentiated from the Replacement Portfolio, which has a similar

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investment objective, principal investment strategies, and principal risks to warrant its continued inclusion. The Proposed Substitution will simplify the Subaccount offerings under the Contracts by eliminating an Investment Option that largely duplicates another Investment Option with similar investment objectives, principal investment strategies, and principal risks. Overlapping Investment Options create inefficiencies and may be confusing to Contract Owners. The Proposed Substitution would simplify the Contract prospectuses and related materials provided to Contract Owners and thereby reduce the potential for Contract Owner confusion and lead to greater efficiencies in administering the Contracts. The Applicants believe that the deletion of the Subaccounts corresponding to the Replaced Portfolio should not adversely affect Contract Owners given that a similar Investment Option, i.e., the Subaccounts for the Replacement Portfolio, will remain available under the Contracts before and after the Proposed Substitution is completed.

C. Comparison of the Replaced and Replacement Portfolios

A side-by-side comparison of the Replaced and Replacement Portfolios appears in Appendix B hereto. Set out below is a narrative discussion of some of the similarities and differences between them based on a review of their most recent prospectuses.

1. Investment Advisers. The Proposed Substitution involves moving the 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

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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 Investment Advisers are not affiliates of the Insurers.

2. Investment Objectives, Principal Investment Strategies, and Principal Risks. 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 the investment objective 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.

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 investments 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

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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. Investment in “junk” bonds is not a principal investment strategy of the Replacement Portfolio though it may invest in such bonds.

In addition, both Portfolios may invest in securities of non-U.S. issuers. The Replacement Portfolio may invest in both foreign equity and debt securities, including investments in emerging markets. The Replaced Portfolio may invest up to 10% of its total assets in equity securities that are economically tied to emerging market countries and, as noted above, up to 15% of its total assets in fixed income securities that are economically tied to emerging market countries.

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.

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. The Replacement Portfolio also may invest in REITS though doing so is not a principal investment strategy. The Replaced Portfolio may purchase and sell securities on a when-issued, delayed delivery, or forward commitment basis, and may engage in short sales of securities, 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.

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The principal strategies of the Replaced Portfolio and Replacement Portfolio differ in some respects. The Replaced Portfolio pursues its strategies by investing in affiliated and unaffiliated mutual funds (including exchange-traded funds) that may or may not be registered under the 1940 Act (“Acquired Funds”) as well as by making direct investments in securities, and also may invest up to 5% of its total assets in commodity-related investments, including investments in other entities managed by PIMCO, whereas the same is not true for the Replacement Portfolio. In addition, the Replaced Portfolio is a “non-diversified company” within the meaning of the 1940 Act, which means that it can invest in a fewer number of issuers, unlike the Replacement Portfolio, which is a “diversified company” within the meaning of the 1940 Act. These differences favor the Replacement Portfolio in terms of presenting less potential for conflicts of interest from investments in affiliates and less potential risk from greater exposure to any single issuer.

In seeking to achieve the Replaced Portfolio’s investment objectives, the Replaced Portfolio applies a three-step approach that consists of 1) developing a target asset allocation; 2) developing a series of relative value strategies designed to add value beyond the target allocation; and 3) utilizing hedging techniques to manage risks. In seeking to achieve the Replacement Portfolio’s investment objective, Janus Capital applies a “bottom up” approach with one portfolio manager focusing on the equity portion of the Portfolio and the other portfolio manager focusing on the fixed-income portion of the Portfolio. Each portfolio manager reviews companies one at a time to determine if a company is an attractive investment opportunity and if it is consistent with the Portfolio’s investment policies. The Insurers believe that the relative performance results of the Portfolios speak for themselves and favor the Replacement Portfolio.

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The principal risks of the Replaced and Replacement Portfolios are similar in many respects. The principal risks of both Portfolios include risks relating to fluctuations in the value of their assets for reasons relating to a particular issuer or due to economic or market conditions not specifically related to an issuer, interest rate risk, credit risk, management risk, mortgage-backed securities risks, risks relating to investments in foreign securities, and risks associated with below investment grade securities.

Unlike the Replacement Portfolio, however, the principal risks of the Replaced Portfolio also include the following: risks associated with asset allocation decisions, risks associated with the securities and other investments held by the Acquired Funds and the Acquired Funds’ ability to achieve their own investment objectives, call risk (the risk that an issuer may exercise its right to redeem a fixed income security earlier than expected), distressed company risk (the risk that securities of distressed companies may be subject to greater levels of credit, issuer, and liquidity risk than a portfolio that does not invest in such securities), liquidity risk, the risks of investing in derivative instruments, commodity risk, real estate risk, emerging markets risk, currency risk, issuer non-diversification risk, leveraging risk, smaller company risk, tax risks, risks associated with investing in a wholly-owned non-U.S. subsidiary that primarily invests in commodity-linked derivative instruments, short sale risk, and value investing risk. Unlike the Replaced Portfolio, the principal risks of the Replacement Portfolio include growth securities risk (the potential for greater volatility and other risks associated with investments in companies perceived to be “growth” companies), and securities lending risk (the risk that when securities are lent the securities may not be returned on a timely

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basis and the Portfolio may experience delays and costs in recovering the security or gaining access to the collateral for the loan).

3. Fees, Expenses, and Assets. As shown in the table below, the management fee of the Replacement Portfolio is significantly 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 Class 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 12b-1 plan. Furthermore, as shown in the table below, the annual operating expenses of the Replacement Portfolio are significantly lower than those of the Replaced Portfolio. The fees and expenses shown in the table below are as of December 31, 2013.

The tables below show the total net assets of the Replaced and Replacement Portfolios as of December 31, 2013 and June 30, 2014. For convenience, share classes are consolidated for purposes of comparing the total net assets of the Replaced and

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Replacement Portfolios. As shown below, the Replaced and Replacement Portfolios are of comparable sizes, with the Replaced Portfolio being larger as of December 31, 2013, and the Replacement Portfolio being larger as of June 30, 2014.

As of June 30, 2014, the Contracts represented approximately 16.60% of the foregoing assets of the Replaced Portfolio.

4. Performance History. The average annual total returns for the 1, 5, 10 and/or since inception periods ended December 31, 2013 and June 30, 2014 for the Replaced and Replacement Portfolios are set out in the tables below. The performance for the Replacement Portfolio is substantially better than that of the Replaced Portfolio for all periods shown. In addition, between 2009 (inception year of Replaced Portfolio) and 2013 the Replacement Portfolio’s worst performance in any single year (2011) was 1.35% whereas the Replaced Portfolio’s worst performance in any single year (2013) was (-7.91)%. The Replacement Portfolio’s best performance in any single year (2009) was 25.53%, whereas the Replaced Portfolio’s best performance in any single year (2009, a partial year) was 19.11%.

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Average Annual Total Returns for the Periods ended December 31, 2013

Average Annual Total Returns for the Periods ended June 30, 2014

D. Procedures for the Proposed Substitution

1. Prospectus Supplements. The Proposed Substitution requested in this Application 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, which is expected to be on or about March 6, 2014 (the “Substitution Date”). Each Supplement will give the relevant Contract Owners notice of the applicable Insurer’s intent to take the necessary actions,

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including seeking the order requested by this Application, to substitute shares of the Replaced Portfolio as described herein on the Substitution Date. Each Supplement also will advise Contract Owners that for thirty (30) days before 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.

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The Insurers will send Contract Owners the prospectus for the Replacement Portfolio in accordance with applicable legal requirements.

2. Confirmation Statements. In addition to the Supplement distributed to Contract Owners, within five (5) business days after the Substitution Date, Contract Owners will be sent a written confirmation of the completed Proposed Substitution in accordance with Rule 10b-10 under the Securities Exchange Act of 1934, as amended. The confirmation statement will include or be accompanied by a statement that reiterates the free transfer rights disclosed in the Supplements.

3. Redemption and Purchase of Shares. The 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 Proposed Substitution will have no negative financial impact on any Contract Owner. 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.

4. Substitution Expenses. 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

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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. The charges for optional living benefit riders, of course, may change from time to time and any such changes would be unrelated to the Proposed Substitution.

III. REQUEST FOR AN ORDER OF APPROVAL

PURSUANT TO SECTION 26(c)

The Applicants request that the Commission issue an order pursuant to Section 26(c) of the 1940 Act approving the Proposed Substitution.

A. Applicable Law

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.

Section 26(c) (then denominated as Section 26(b)) was enacted as part of the Investment Company Act Amendments of 1970 (“1970 Amendments”). Prior to the 1970 Amendments, a depositor of 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 after such substitution. In 1966, the Commission was concerned with the high sales charges then common to most unit investment trusts and the

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disadvantageous position in which such charges placed investors who did not want to remain invested in a unit investment trust following a substitution.⁵ The Commission recommended that Section 26 be amended to require that a proposed substitution of the underlying investments of a trust receive prior Commission approval. Congress responded to the Commission’s concerns by enacting Section 26(c) to require that the Commission approve all substitutions by the depositor of investments held by a unit investment trust. The Senate Report on the bill explained the purpose of Section 26(c) as follows:

The proposed amendment recognizes that in the case of a unit investment trust holding the securities of a single issuer notification to shareholders does not provide adequate protection since the only relief available to the shareholders, if dissatisfied, would be to redeem their shares. A shareholder who redeems and reinvests the proceeds in another unit investment trust or in an open-end company would under most circumstances be subject to a new sales load. The proposed amendment would close this gap in shareholder protection by providing for Commission approval of the substitution. The Commission would be required to issue an order approving the substitution if it finds the substitution consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.⁶

The legislative history makes clear 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, thereby possibly incurring either a loss of the sales load deducted from initial premium payments,

⁵ House Committee on Interstate and Foreign Commerce, Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth, H.R. Rep. No. 2337, 89th Cong., 2d Sess. 337 (1966).

⁶ S. Rep. No. 184, 91^st Cong., 1^st Sess. 41 (1969); H. Rep. No. 1382, 91^st Cong., 2d. Sess. 33 (1970).

(Continued on next page . . .)

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an additional sales load upon reinvestment of the redemption proceeds, or both.⁷ Moreover, a Contract Owner forced to redeem may suffer adverse tax consequences. Section 26(c) affords this protection to investors by preventing a depositor or trustee of a unit investment trust that holds shares of one issuer from substituting for those shares the shares of another issuer unless the Commission approves that substitution.

B. Basis for Section 26(c) Order

The Proposed Substitution is in furtherance of the exercise, by the Insurers, of rights reserved under the Contracts and disclosed in prospectuses relating thereto. Furthermore, 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. 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:

(continued from prior page)

⁷ House Comm. on Interstate and Foreign Commerce, Report of the Securities and Exchange Commission on the Public Policy Implications of Investment Company Growth, H.R. Rep. No. 2337, 89th Cong., 2d Sess. 337 (1966).

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C. Applicable Precedents

The Applicants submit that the Proposed Substitution is consistent with the protection of investors and the policy and provisions of the 1940 Act and supported by applicable precedent.⁸

D. Request for an Order of Approval

⁸ E.g.,Pacific Life Insurance Company et al., Investment Company Act Release No. 30744 (Oct. 17, 2013) (notice); Investment Company Act Release No. 30777 (Nov. 8, 2013) (order) (File No. 812-14141).

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The Applicants request an order of the Commission pursuant to Section 26(c) of the 1940 Act approving the Proposed Substitution. The Applicants submit that, for all the 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.

VI. CONCLUSION

For the reasons set forth in this 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.

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APPENDIX A

List of Separate Accounts and Contracts Affected by the Proposed Substitution

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*The asterisked Contracts above have a fixed option available but only for Contracts issued before a certain date. The cut off dates are as follows:

Pacific One - 5/1/06

Pacific One Select - 1/14/02

Pacific Odyssey; Pacific Value; Pacific Portfolios - 7/1/03

Pacific Innovations Select (333-93059) - 11/1/02

Pacific Innovations Select (333-71081) - 5/1/03

Pacific Select Variable Annuity and Pacific Innovations currently offer a fixed option that is available regardless of the contract issue date.

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APPENDIX B

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32

33

34

35

36

37

38

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AUTHORIZATION AND SIGNATURES

Under the current Charter and By-Laws of Pacific Life Insurance Company (“Pacific Life”), the business and affairs of each of its separate accounts named in this Application (“Separate Accounts”), as a unit investment trust, are conducted by Pacific Life, as depositor thereof, pursuant to its Charter and By-Laws. In accordance with the aforesaid Charter and By-Laws, resolutions were adopted by a vote of the Board of Directors of Pacific Life authorizing the appropriate officers to prepare, execute and file with the Securities and Exchange Commission various documents, including this Application. Copies of these resolutions were previously filed. Pacific Life, on behalf of itself and its Separate Accounts has caused this Application to be duly signed, in the City of Newport Beach and State of California on the 19th day of September, 2014.

VERIFICATION

The undersigned states that he has duly executed the attached Application, dated September 19, 2014, for and on behalf of Pacific Life Insurance Company (“Pacific Life”) (acting both for itself and as depositor of its Separate Accounts named in the attached Application); that he is an officer of Pacific Life; and that all action by the members of the Board of Directors of Pacific Life necessary to authorize the undersigned to execute and file such instrument has been taken. The undersigned further says that he is familiar with such instrument, and the contents thereof, and that the facts therein set forth are true to the best of his knowledge, information and belief.

AUTHORIZATION AND SIGNATURES

Under the current Charter and By-Laws of Pacific Life & Annuity Company (“PL&A”), the business and affairs of its Separate Account A, as a unit investment trust, are conducted by PL&A, as depositor thereof, pursuant to its Charter and By-Laws. In accordance with the aforesaid Charter and By-Laws, resolutions were adopted by a vote of the Board of Directors of PL&A authorizing the appropriate officers to prepare, execute and file with the Securities and Exchange Commission various documents, including this Application. Copies of these resolutions were previously filed. PL&A, on behalf of itself and its Separate Account A, has caused this Application to be duly signed, in the City of Newport Beach and State of California on the 19th day of September, 2014.

VERIFICATION

The undersigned states that he has duly executed the attached Application, dated September 19, 2014, for and on behalf of Pacific Life & Annuity Company (“PL&A”) (acting both for itself and as depositor of its Separate Account A); that he is an officer of PL&A; and that all action by the members of the Board of Directors of PL&A necessary to authorize the undersigned to execute and file such instrument has been taken. The undersigned further says that he is familiar with such instrument, and the contents thereof, and that the facts therein set forth are true to the best of his knowledge, information and belief.

EXHIBIT LIST

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘40-OIP’ Filing		Date		Other Filings
		10/14/14		497
Filed on:		9/19/14
		6/30/14		N-30D
		4/30/14
		3/6/14
		1/29/14
		12/31/13		24F-2NT,  N-30D,  NSAR-U
		11/15/13
		11/8/13
		10/17/13		497
		10/1/12		497
		4/15/09
		1/25/99		N-4,  N-8A
		1/1/99
		7/1/98
		3/28/96		485BPOS
		10/19/95		N-4/A
		9/7/94
		9/13/93
				List all Filings

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Filing Submission 0001193125-14-346801   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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