[Federal Register: April 6, 2006 (Volume 71, Number 66)]
[Notices]
[Page 17503-17510]
[DOCID:fr06ap06-106]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27276; File No. 812-13187]

Pacific Life Insurance Company, et al.

March 30, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Applicants: Pacific Life Insurance Company (``Pacific Life''); Separate
Account A of Pacific Life (``Pacific Separate Account A''); Separate
Account B of Pacific Life (``Pacific Separate Account B''); Pacific
Select Variable Annuity Separate Account of Pacific Life (``PSVA
Separate Account''); Pacific Select Exec Separate Account of Pacific
Life (``Pacific PSE Separate Account''); Pacific Life & Annuity Company
(``PL&A''); Separate Account A of PL&A (``PL&A Separate Account A'');
Pacific Select Exec Separate Account of PL&A (``PL&A PSE Separate
Account'') (Pacific Separate Account A, Pacific Separate Account B,
PSVA Separate Account, Pacific PSE Separate Account, PL&A Separate
Account A and PL&A PSE Separate Account, are collectively referred to
herein as the ``Separate Accounts''); and Pacific Select Fund (``Select
Fund'') (Pacific Life, PL&A, the Separate Accounts and Select Fund are
collectively referred to herein as the ``Applicants'')

Summary of Application: Applicants request an order pursuant to section
26(c) of the 1940 Act to permit the substitution of shares of the
American Funds Growth-Income Portfolio of Select Fund (``Growth-Income
Portfolio'' or ``Substitute Portfolio'') for shares of the Equity
Income Portfolio of Select Fund (``Equity Income Portfolio'' or
``Replaced Portfolio'') held by each Separate Account
(``Substitution'').

Filing Dates: The application was filed with the Commission on April
29, 2005. Applicants have agreed to file a final amendment during the
notice period, the substance of which is reflected in this notice.

Hearing Or Notification: An order granting the Application will be
issued unless the Commission orders a hearing. Interested persons may
request a hearing by writing to the Commission's secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the Commission by 5:30 p.m., on April
24, 2006, and should be accompanied by proof of service on Applicants,
in the form of an affidavit, or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,

NE., Washington, DC 20549-1090. Applicants, 700 Newport Center Drive,
Newport Beach, CA 92660.

FOR FURTHER INFORMATION CONTACT: Michael Kosoff, Staff Attorney, at
(202) 551-6754 or Harry Eisenstein, Branch Chief, Office of Insurance
Products, Division of Investment Management, at<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Room, 100 F Street, NE., Room 1580,
Washington, DC 20549<PHONE_NUMBER>).

Applicants' Representations

    1. Pacific Life is a life insurance company that is domiciled in
Nebraska. Along with subsidiaries and affiliates, Pacific Life's
operations include life insurance, annuities, pension and institutional
products, mutual funds, group employee benefits, broker/dealer
operations and investment advisory services. Pacific Life and PL&A
issue variable annuity contracts and variable life insurance policies,
including those currently funded by a Separate Account (each, a
``Variable Contract'' and collectively, the ``Variable Contracts'').
    2. Pacific Separate Account A was established on September 7, 1994,
as a segregated asset account of Pacific Life and is registered with
the Commission as a unit investment trust. Pacific Separate Account A
currently funds the variable benefits available under various variable
annuity contracts issued by Pacific Life. Interests in Pacific Separate
Account A under each Variable Contract funded by Pacific Separate
Account A are registered under the Securities Act of 1933, as amended
(the ``1933 Act'').\1\ Pacific Life is the legal owner of the assets in
Pacific Separate Account A. Assets of Pacific Separate Account A
attributable to the reserves and other liabilities under the
outstanding Variable Contracts funded by Pacific Separate Account A may
not be charged with liabilities arising from other Pacific Life
business.
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    \1\ Pacific Life and Pacific Separate Account A have filed Form
N-4 Registration Statements under the 1933 Act registering the
various Variable Contracts funded by Pacific Separate Account A
(File Nos. 333-60833, 33-88460, 33-88458, 33-88458, 333-93059, 333-
93059, 333-53040 and 811-08946).
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    3. Pacific Separate Account B was established on September 25,
1996, as a segregated asset account of Pacific Life and is registered
with the Commission as a unit investment trust. Pacific Separate
Account B currently funds the variable benefits available under various
variable annuity contracts issued by Pacific Life. Interests in Pacific
Separate Account B under each Variable Contract funded by Pacific
Separate Account B are registered under the 1933 Act.\2\ Pacific Life
is the legal owner of the assets in Pacific Separate Account B. Assets
of Pacific Separate Account B attributable to the reserves and other
liabilities under the outstanding Variable Contracts funded by Pacific
Separate Account B may not be charged with liabilities arising from
other Pacific Life business.
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    \2\ Pacific Life and Pacific Separate Account B have filed a
Form N-4 Registration Statement under the 1933 Act relating to the
Variable Contracts funded by Pacific Separate Account B (File Nos.
333-14131 and 811-07859).
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    4. PSVA Separate Account was established on November 30, 1989, as a
segregated asset account of Pacific Life and is registered with the
Commission as a unit investment trust. PSVA Separate Account currently
funds the variable benefits available under a variable annuity contract
designated as Pacific Select Variable Annuity (``PSVA''). PSVA Separate
Account interests in PSVA are registered under the 1933 Act.\3\ Pacific
Life is the legal owner of the assets in PSVA Separate Account. Assets
of PSVA Separate Account attributable to the reserves and other
liabilities under the Variable Contracts funded by PSVA Separate
Account may not be charged with liabilities arising from any other
Pacific Life business.
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    \3\ Pacific Life and PSVA Separate Account have filed a Form N-4
Registration Statement under the 1933 Act relating to the Variable
Contracts funded by PSVA Separate Account (File Nos. 33-32704 and
811-05980).
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    5. Pacific PSE Separate Account was established on May 12, 1988, as
a segregated asset account of Pacific Life and is registered with the
Commission as a unit investment trust. Pacific PSE Separate Account
currently funds the variable benefits available under various flexible
premium variable life insurance policies. Interests in Pacific PSE
Separate Account under each Variable Contract funded by Pacific PSE
Separate Account are registered under the 1933 Act.\4\ Pacific Life is
the legal owner of the assets in Pacific PSE Separate Account. Assets
of Pacific PSE Separate Account attributable to the reserves and other
liabilities under the outstanding Variable Contracts funded by Pacific
PSE Separate Account may not be charged with liabilities arising from
other Pacific Life business.
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    \4\ Pacific Life and Pacific PSE Separate Account have filed
Form N-6 Registration Statements under the 1933 Act relating to the
various Variable Contracts funded by Pacific PSE Separate Account
(File Nos. 33-21754, 33-57908, 333-01713, 333-20355, 333-60461, 333-
61135, 333-102902, 333-106969, 333-118913 and 811-05563).
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    6. PL&A is a life insurance company domiciled in Arizona. It is a
wholly-owned subsidiary of Pacific Life. PL&A's operations include life
insurance, annuity and institutional products, group life and health
insurance and various other insurance products and services. PL&A also
issues Variable Contracts. PL&A is authorized to conduct life insurance
and annuity business in Arizona, New York and certain other states.
    7. PL&A Separate Account A was established on January 25, 1999, as
a segregated asset account of PL&A and is registered with the
Commission as a unit investment trust. PL&A Separate Account A
currently funds the variable benefits available under various variable
annuity contracts issued by PL&A. Interests in PL&A Separate Account A
under each Variable Contract funded by PL&A Separate Account A are
registered under the 1933 Act.\5\ PL&A is the legal owner of the assets
in PL&A Separate Account A. Assets of PL&A Separate Account A
attributable to the reserves and other liabilities under the
outstanding Variable Contracts funded by PL&A Separate Account A may
not be charged with liabilities arising from other PL&A business.
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    \5\ PL&A and PL&A Separate Account A have filed Form N-4
Registration Statements under the 1933 Act relating to the various
Variable Contracts funded by PL&A Separate Account A (File Nos. 333-
71081, 333-100907, 333-107571 and 811-09203).
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    8. PL&A PSE Separate Account was established on September 24, 1998,
as a segregated asset account of PL&A and is registered with the
Commission as a unit investment trust. PL&A PSE Separate Account
currently funds the variable benefits available under various flexible
premium variable life insurance policies. Interests in PL&A PSE
Separate Account under each Variable Contract funded by PL&A PSE
Separate Account are registered under the 1933 Act.\6\ PL&A is the
legal owner of the assets in PL&A PSE Separate Account. Assets of PL&A
PSE Separate Account attributable to the reserves and other liabilities
under the outstanding Variable Contracts funded by PL&A PSE Separate
Account may not be charged with liabilities arising from other PL&A
business.
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    \6\ PL&A and PL&A PSE Separate Account have filed Form N-6
Registration Statements under the 1933 Act relating to the various
Variable Contracts funded by PL&A PSE Separate Account (File Nos.
333-62446, 333-80825, 333-106653, 333-106721 and 811-09389).
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    9. Select Fund is a registered open-end management investment
company that currently offers 34 separate

portfolios. Shares of Select Fund currently are offered only to the
Separate Accounts for the purpose of serving as an investment vehicle
for variable annuity contracts and variable life insurance policies
offered or administered by Pacific Life and PL&A (collectively, the
``PL Insurers''). Pursuant to an Advisory Agreement, Pacific Life
serves as the investment adviser of Select Fund.
    10. Select Fund began offering shares of the Equity-Income
Portfolio (``Replaced Portfolio'') on January 2, 2002. Putnam
Investment Management, LLC serves as the Portfolio Manager to the
Replaced Portfolio. As of December 31, 2005, the Replaced Portfolio had
approximately $160.9 million in assets.
    11. Since May 1, 2005, Select Fund has offered shares of the
Growth-Income Portfolio (``Substitute Portfolio''). The Substitute
Portfolio does not invest directly in securities but instead invests
all of its assets in Class 2 shares of the American Funds Growth-Income
Fund (the ``Master Fund''). The Master Fund is a series of American
Funds Insurance Series[reg] and invests directly in securities. Capital
Research and Management Company serves as investment adviser to the
Master Fund. As of December 31, 2005, the Substitute Portfolio had
$783.9 million in assets.
    12. The PL Insurers and the Board of Trustees of Select Fund made a
strategic determination to replace the sub-adviser of the Replaced
Portfolio, which sub-advised two other portfolios in addition to the
Replaced Portfolio. This decision was based primarily on the concerns
of potential effects of recent regulatory events respecting such sub-
adviser. With respect to the Replaced Portfolio, the PL Insurers and
the Board of Trustees have determined that this Substitution is an
appropriate means to effectively replace the sub-adviser.
    13. The following chart sets out the investment objectives and
certain policies of each Portfolio as stated in the Fund's most recent
post-effective amendment to its registration statement.

------------------------------------------------------------------------
   Replaced Portfolio (Equity Income      Substitute Portfolio (Growth-
               Portfolio)                       Income Portfolio)
------------------------------------------------------------------------
Investment Goal: Seeks current income;   Investment Goal: Seeks long-
 capital growth is of secondary           term growth of capital and
 importance.                              income.
Main Investments: The Replaced           Main Investments: The
 Portfolio invests primarily in common    Substitute Portfolio invests
 stocks of large U.S. companies, with a   all of its assets in Class 2
 focus on value stocks that offer the     shares of the Master Fund. In
 potential for current income and may     turn, the Master Fund seeks to
 also offer the potential for capital     make shareholders' investments
 growth. Value stocks are those that      grow and to provide income
 the manager believes are currently       over time by investing
 undervalued by the market. To            primarily in common stocks or
 determine whether to buy or sell         other securities which
 investments, Putnam Investment           demonstrate the potential for
 Management, LLC, the portfolio           appreciation and/or dividends.
 manager, will consider, among other      The Master Fund is designed
 factors, a company's financial           for investors seeking both
 strength, competitive position in its    long-term growth of capital
 industry, projected future earnings,     and income.
 cash flows and dividends. The Replaced  The Master Fund may invest up
 Portfolio will normally invest at        to 15% of its assets in equity
 least 80% of its assets in common        securities of issuers
 stocks and other equity investments.     domiciled outside the U.S. and
 The manager may invest up to 20% of      Canada and not included in S&P
 its assets in foreign securities that    500 Index.
 are principally traded outside the      The Master Fund may invest up
 U.S. including emerging market           to 5% of its assets in
 securities (American Depositary          nonconvertible debt securities
 Receipts (ADRs) are excluded from this   rated Ba or below by Moody's
 limit), preferred stocks, convertible    and BB or below by S&P or in
 securities, and fixed income             unrated securities that are
 securities, including high yield         determined to be of equivalent
 (junk) bonds. The Replaced Portfolio     quality (junk bonds).
 may invest up to 20% of its net assets  The Master Fund currently does
 in lower-rated high-yield (junk)         not intend to purchase and
 bonds. The manager may use derivatives   sell currencies to facilitate
 (such as options, futures contracts,     securities transactions and
 swaps and warrants) to try to increase   enter into forward currency
 returns, for hedging purposes, as a      contracts to protect against
 substitute for securities, or to         changes in currency exchange
 otherwise help achieve the Replaced      rates other than to facilitate
 Portfolio's investment goal. The         the settlement of trades.
 manager may use foreign currency
 contracts or derivatives to hedge
 against changes in currency exchange
 rates.
Principal risks:                         Principal risks:
 price volatility risk--the       price volatility risk--
 Replaced Portfolio principally invests   the Master Fund principally
 in equity securities, which tend to go   invests in equity securities,
 up or down in value, sometimes rapidly   which may go up or down in
 and unpredictably. The prices of         value, sometimes rapidly and
 equity securities change in response     unpredictably. The Master Fund
 to many factors, including a company's   invests in companies that the
 historical and prospective earnings,     portfolio counselors think
 the value of its assets, general         have the potential for above
 economic conditions, interest rates,     average growth, which may give
 investor perceptions and market          the Master Fund a higher risk
 liquidity. The Replaced Portfolio may    of price volatility than a
 invest in small and medium-sized         portfolio that invests
 companies, which may be riskier and      principally in equities that
 more susceptible to greater price        are ``undervalued.''
 swings than large companies because     The Master Fund may also invest
 they may have fewer financial            in small and medium-sized
 resources, limited product and market    companies, which may be more
 diversification, greater potential       susceptible to greater price
 volatility in earnings and business      swings than larger companies
 prospects, and many are dependent on a   because they may have fewer
 few key managers.                        financial resources, limited
                                          product and market
                                          diversification, greater
                                          potential volatility in
                                          earnings and business
                                          prospects and many are
                                          dependent on a few key
                                          managers.
 foreign investment risk--        foreign investment
 foreign investments may be riskier       risk--foreign investments may
 than U.S. investments for many           be riskier than U.S.
 reasons, including changes in currency   investments for many reasons,
 exchange rates, unstable political and   including changes in currency
 economic conditions, lack of adequate    exchange rates, unstable
 and timely company information,          political and economic
 differences in the way securities        conditions, lack of adequate
 markets operate, relatively lower        and timely company
 market liquidity, less stringent         information, differences in
 financial reporting and accounting       the way securities markets
 standards and controls, less secure      operate, relatively lower
 foreign banks or securities              market liquidity, less
 depositories than those in the U.S.,     stringent financial reporting
 foreign taxation issues and foreign      and accounting standards and
 controls on investment.                  controls, less secure foreign
                                          banks or securities
                                          depositories than those in the
                                          U.S., foreign taxation issues
                                          and foreign controls on
                                          investment.
 interest rate risk--the value    interest rate risk--
 of bonds and short-term money market     the value of bonds and short-
 instruments may fall when interest       term money market instruments
 rates rise. Bonds with longer            may fall when interest rates
 durations tend to be more sensitive to   rise. Bonds with longer
 changes in interest rates, making them   durations tend to be more
 more volatile than bonds with shorter    sensitive to changes in
 durations or money market instruments.   interest rates, making them
                                          more volatile than bonds with
                                          shorter durations or money
                                          market instruments.

 credit risk--a fixed income      credit risk--a fixed
 security's issuer may not be able to     income security's issuer may
 meet its financial obligations and go    not be able to meet its
 bankrupt. High-yield/high-risk bonds,    financial obligations and go
 i.e., low credit ratings by Moody's      bankrupt. High-yield/high-risk
 (Ba and lower) or Standard & Poor's      bonds, i.e., low credit
 (BB and lower), or no rating, but are    ratings by Moody's (Ba and
 of comparable quality, are especially    lower) or Standard & Poor's
 subject to credit risk during periods    (BB and lower), or no rating,
 of economic uncertainty or during        but are of comparable quality,
 economic downturns and are considered    are especially subject to
 to be mostly speculative in nature.      credit risk during periods of
 Not all U.S. government securities are   economic uncertainty or during
 backed or guaranteed by the U.S. Some    economic downturns and are
 are supported only by the credit of      considered to be mostly
 the issuing agency, which depend         speculative in nature. Not all
 entirely on their own resources to       U.S. government securities are
 repay their debt, and are subject to     backed or guaranteed by the
 the risk of default.                     U.S. Some are supported only
                                          by the credit of the issuing
                                          agency, which depend entirely
                                          on their own resources to
                                          repay their debt, and are
                                          subject to the risk of
                                          default.
 emerging countries--             master/feeder mutual
 investments in emerging market           fund structure--the Substitute
 countries (such as many in Latin         Portfolio operates as a
 America, Asia, the Middle East,          ``feeder portfolio'' which
 Eastern Europe and Africa) may be        means it invests all of its
 riskier than in developed markets, for   assets in the Master Fund. The
 many reasons, including smaller market   Substitute Portfolio has a
 capitalizations, greater price           similar investment objective
 volatility, less liquidity, higher       and the same limitations as
 degree of political and economic         the master fund in which it
 instability, less governmental           invests. The Substitute
 regulation of the financial industry     Portfolio does not buy
 and markets, and less stringent          investment securities
 financial reporting and accounting       directly. The Master Fund, on
 standards and controls. Such             the other hand, invests
 investments may also involve risk of     directly in portfolio
 loss resulting from problems in share    securities.
 registration and custody, especially    Under the master/feeder
 in Eastern European countries such as    structure, the Substitute
 Russia.                                  Portfolio may withdraw its
                                          investment in the Master Fund
                                          if approved by the Board of
                                          Trustees. Prior to any such
                                          withdrawal, the Board would
                                          consider what action might be
                                          taken, including the
                                          investment of all the assets
                                          of the Substitute Portfolio in
                                          another pooled investment
                                          entity having the same or
                                          similar investment objective
                                          as the Substitute Portfolio,
                                          request Pacific Life to manage
                                          the Substitute Portfolio
                                          directly or hire another
                                          portfolio manager to manage
                                          the Substitute Portfolio, or
                                          take other action.
                                         Because the Substitute
                                          Portfolio invests all of its
                                          assets in the Master Fund, the
                                          Substitute Portfolio will bear
                                          the fees and expenses of the
                                          Substitute Portfolio and the
                                          Master Fund in which it
                                          invests. The Substitute
                                          Portfolio's expenses may be
                                          higher than those of other
                                          mutual funds which invest
                                          directly in securities. The
                                          master/feeder structure is
                                          different from that of most of
                                          the other portfolios of Select
                                          Fund and many other investment
                                          companies. The Master Fund may
                                          have other shareholders, each
                                          of whom will pay their
                                          proportionate share of the
                                          Master Fund's expenses. The
                                          Master Fund may change its
                                          investment objectives,
                                          policies, managers, expense
                                          limitation agreements and
                                          other matters relating to the
                                          Master Fund without approval
                                          of the Substitute Portfolio or
                                          the Substitute Portfolio's
                                          Board.
                                          derivatives and
                                          forward contracts--derivatives
                                          (such as futures and options
                                          contracts) derive their value
                                          from the value of an
                                          underlying security, a group
                                          of securities or an index.
                                          Synthetics are artificially
                                          created by using a collection
                                          of other assets whose combined
                                          features replicate the
                                          economic characteristics of a
                                          direct investment. The
                                          Replaced Portfolio's use of
                                          derivatives, synthetics,
                                          forward commitments and
                                          currency transactions could
                                          reduce returns, increase
                                          portfolio volatility, may not
                                          be liquid, and may not
                                          correlate precisely to the
                                          underlying securities or
                                          index. All of these
                                          investments, including
                                          repurchase agreements, are
                                          particularly sensitive to
                                          counterparty risk.
------------------------------------------------------------------------

    Although both the Master Fund and the Replaced Portfolio are
permitted to invest in high yield bonds, derivative instruments and
emerging markets securities, neither the Master Fund nor the Replaced
Portfolio held significant investments in these categories as of
December 31, 2005. Both the Master Fund and the Replaced Portfolio are
considered to be ``Large Value'' funds by Morningstar, Inc., a leading
provider of independent investment research.
    14. Pacific Life, as investment adviser to the Substitute
Portfolio, is responsible for monitoring the performance and continued
appropriateness of the Master Fund for the Substitute Portfolio.
Pacific Life may recommend to the Substitute Portfolio's Board (or the
Board may, on its own determine) that the Substitute Portfolio should
withdraw its assets from the Master Fund, upon appropriate notice to
the Master Fund. Investment in the Master Fund is not a fundamental
policy of the Substitute Portfolio, consequently, the Board may
authorize the Substitute Portfolio's withdrawal from the Master Fund
without a shareholder vote.
    15. The following chart compares the advisory fees, 12b-1 fees (if
any), operating expenses and total expenses expressed as an annual
percentage of average daily net assets, both before and after giving
effect to fee waivers and expense reimbursements. The figures for the
Substitute Portfolio set forth the fees and expenses at both the master
and feeder levels. The fees and expenses quoted for the Replaced
Portfolio, Master Fund and Substitute Portfolio are for the year ended
December 31, 2005. As the chart demonstrates, while the Replaced
Portfolio has the same total expenses as the Substitute Portfolio has
before giving effect to fee waivers, the Substitute Portfolio is
expected to have lower total net expenses than the Replaced Portfolio
after giving effect to fee waivers.

------------------------------------------------------------------------
           Replaced Portfolio                  Substitute Portfolio
------------------------------------------------------------------------
                                         Feeder Fund Level
Advisory Fees 0.95%....................  Advisory Fees \7\ 0.42%
Other Expenses 0.06%...................  Other Expenses 0.03%
Total Expenses of Replaced Portfolio     Total Expenses of Feeder Fund
 1.01%.                                   0.45%
                                         Advisory Fee Waiver \8\ (0.06%)
                                         Total Net Expenses of Feeder
                                          Fund 0.39%
                                         Master Fund Level
                                         Advisory Fees \9\ 0.28%
                                         12b-1 Fees 0.25%
                                         Other Expenses 0.01%
                                         Total Expenses of Master Fund
                                          \10\ 0.54%
                                         Total Expenses of Master and
                                          Feeder
                                         Total Expenses 0.99%
                                         Less Advisory Fee Waiver
                                          (0.06%)
                                         Total Net Expenses 0.93%
------------------------------------------------------------------------

    Pursuant to the Investment Advisory Agreement between Pacific Life
and Select Fund with respect to the Substitute Portfolio, Pacific
Life's advisory fee will be 0.95% minus the annual rates of any
advisory and 12b-1 fees paid by a master fund in which the Substitute
Portfolio invests in a master/feeder arrangement. In the event that the
Master Fund level advisory fees and 12b-1 fees exceed 95 basis points,
Pacific Life will subsidize any fees in excess of this amount for the
life of the Substitute Portfolio or until the fee is changed pursuant
to a shareholder vote.
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    \7\ Under an addendum to the amended and restated advisory
agreement between the Substitute Portfolio and Pacific Life,
advisory fees are payable to Pacific Life, as investment adviser to
the Substitute Portfolio, at an annual rate of 0.95% reduced by the
sum of the annual rates of any investment advisory fees and 12b-1
fees paid by the Master Fund.
    \8\ This waiver reflects the terms of an advisory fee waiver
agreement described below.
    \9\ CRMC, the Adviser to the Master Fund, began waiving 5% of
its advisory fees on September 1, 2004. Beginning April 1, 2005,
this waiver increased to 10% and will continue at this level until
further review by CRMC. Total Expenses of the Master Fund do not
reflect this waiver.
    \10\ The Total Expenses of the Master Fund do not include a non-
contractual advisory fee waiver of 0.02%.
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    The Advisory Fee Waiver, with respect to the Feeder Fund Level
expenses, shown in the chart above is put into place through an
Advisory Fee Waiver Agreement between Select Fund and Pacific Life
(``Waiver Agreement''). Under the terms of the Waiver Agreement,
Pacific Life agrees to limit its total advisory fee to 0.36% annually
during the term of the agreement. The Waiver Agreement has an initial
term ending on the earlier of May 1, 2007, or such time as the
Substitute Portfolio no longer invests substantially all of its assets
in the Master Fund.
    In addition to the Waiver Agreement, Pacific Life has contractually
committed to waive that portion of its advisory fee and/or reimburse
expenses with respect to the Substitute Portfolio such that the net
fees and expenses, considering both the master and feeder levels, paid
by shareholders invested in the Substitute Portfolio will not exceed an
annual rate of 1.01% of the Substitute Portfolio's average daily net
assets. In order to effectuate this commitment, Pacific Life and Select
Fund have entered into an Expense Limitation Agreement. Under the terms
of the Expense Limitation Agreement, Pacific Life will reimburse the
Substitute Portfolio an amount necessary to ensure that portfolio net
operating expenses do not exceed an annual rate of 1.01% during the
term of the Expense Limitation Agreement. The Expense Limitation
Agreement has an initial term of two years from the date the
Substitution requested by the Application occurs (the ``Effective
Date''). Separate Account expenses also will not be increased during
this two-year period for Contractholders that invest in the Replaced
Portfolio on the Effective Date of the substitution (the ``Affected
Contractholders'').
    16. The following chart compares the historical performance of the
Replaced Portfolio to the historical performance of the Master Fund for
the periods shown. The Master Fund's historical performance has been
adjusted to reflect the estimated expenses of the Substitute Portfolio
at the feeder fund level, as if the Substitute Portfolio had invested
in the Master Fund for the periods presented.

------------------------------------------------------------------------
            Replaced Portfolio                  Substitute Portfolio
------------------------------------------------------------------------
Calendar Year Ended:                        Calendar Year Ended:
2005 5.63%                                  2005 5.43%
2004 12.19%                                 2004 9.98%
2003 26.24%                                 2003 32.04%
2002* (13.54)%                              2002 (18.73)%
Average Annual Total Return as of December  Average Annual Total Return
 31, 2005:                                   as of December 31, 2004:
1 year 5.63%                                1 year 5.44%
3 years 14.37%                              3 years 15.26%
5 years N/A                                 5 years 4.92%
10 years N/A                                10 years 10.17%
------------------------------------------------------------------------
*Inception date 1/2/02.

    17. Applicants will effect the Substitution as soon as practicable
following the issuance of the requested order. As of the Effective
Date, shares of the Replaced Portfolio will be redeemed for cash. The
PL Insurers, on behalf of the subaccount of each relevant Separate
Account investing in the Replaced Portfolio, will simultaneously place
a redemption request with the Replaced Portfolio and a purchase order
with the Substitute Portfolio so that the

purchase of the Substitute Portfolio shares will be for the exact
amount of the redemption proceeds, and thus Variable Contract values
will remain fully invested at all times. The proceeds of such
redemptions will then be used to purchase the appropriate number of
shares of the Substitute Portfolio. Following the Substitution, the
Replaced Portfolio will no longer be offered through the Variable
Contracts.
    18. The Substitution will take place at relative net asset value
(in accordance with Rule 22c-1 under the 1940 Act) with no change in
the amount of any Affected Contractholder's accumulation value or death
benefit or in dollar value of his or her investment in the applicable
Separate Account. No brokerage commissions, fees or other remuneration
will be paid by either the Replaced Portfolio or the Substitute
Portfolio or by Affected Contractholders in connection with the
Substitution. The transactions comprising the Substitution will be
consistent with the policies of each investment company involved and
with the general purposes of the 1940 Act.
    19. Affected Contractholders will not incur any fees or charges as
a result of the Substitution nor will their rights or the relevant PL
Insurer's obligations under the Variable Contracts be altered in any
way. The PL Insurers or their affiliates will pay all expenses and
transaction costs of the Substitution, including legal and accounting
expenses, any applicable brokerage expenses, and other fees and
expenses. In addition, the Substitution will not impose any tax
liability on Affected Contractholders. The Substitution will not cause
the Variable Contract fees and charges currently being paid by Affected
Contractholders to be greater after the Substitution than before the
Substitution.
    20. Currently, each Affected Contractholder is subject to transfer
limitations which are stated in the applicable prospectus. Generally,
an Affected Contractholder may not make more than twenty-five (25)
transfers per calendar year and may only make one ``safe harbor''
transfer into the Money Market Portfolio once the 25 transfer limit is
reached. Additionally, an Affected Contractholder may not make more
than two transfers per calendar month involving international
portfolios. Multiple transfers among the portfolios on the same day
count as one transfer. Transfers to or from a portfolio cannot be made
before the seventh calendar day following the last transfer to or from
the same portfolio. If the seventh calendar day is not a business day,
then a transfer may not occur until the next business day. The day of
the last transfer is not considered a calendar day for purposes of
meeting this requirement. Currently, there are no fees imposed for
transfers among the investment options, but a transfer fee of up to $15
per transfer may be imposed in the future for transfers in excess of
fifteen (15) in any contract year. The above transfer restrictions are
referred to as ``Frequent Trading Policies.''
    However, as described more fully below, for a 60 day period
commencing 30 days prior to the Effective Date and ending 30 days after
the Effective Date (``Free Transfer Period''), Affected Contractholders
may reallocate to any other investment options available under their
Variable Contract their accumulation value allocated to each subaccount
invested in the Replaced Portfolio (``Replaced Subaccount'') and each
subaccount invested in the Substitute Portfolio (together with the
Replaced Subaccounts, the ``Affected Subaccounts'') without incurring
any administrative costs or allocation (transfer) charges and such
reallocation will not count toward the Frequent Trading Policies. In
effect, each transfer by Affected Contractholders from the Affected
Subaccounts during the Free Transfer Period will be a ``free
transfer;'' if Affected Contractholders reallocate accumulation value
in the Affected Subaccounts only during the Free Transfer Period, there
will be no charge for the entire reallocation of accumulated value from
that Affected Subaccount and the entire reallocation will not be
counted toward the total number of reallocations made within the
calendar year or Variable Contract year for purposes of determining the
number of reallocations that may be made pursuant to the Frequent
Trading Policies with respect to the Affected Subaccounts, or that may
be made without incurring any potential future administrative or
transfer fees, if any, under the relevant Variable Contract. The PL
Insurers will not exercise any right they may have under the Variable
Contracts to impose additional restrictions or fees on the free
transfer from the Affected Subaccounts under the Variable Contracts
during the Free Transfer Period.
    21. All Affected Contractholders have been or will be sent
notification of this Application by means of supplements to the
prospectuses for the Variable Contracts on or shortly before or after
the date that this Application is filed. Among other information
regarding the proposed Substitution, the supplements will inform
Affected Contractholders that the PL Insurers will not exercise any
rights reserved by them under the Variable Contracts to impose
additional restrictions or fees on transfers from the Affected
Subaccounts during the Free Transfer Period. Following the date the
order requested by this Application is issued, but before the Effective
Date, PL Insurers will send Affected Contractholders a notice (the
``Substitution Notice'') setting forth the scheduled Effective Date as
well as the commencement date and precise duration of the Free Transfer
Period. The Substitution Notice will advise Affected Contractholders of
their right, if they choose, at any time during the Free Transfer
Period, to reallocate to any other investment options available under
their Variable Contract their accumulation value allocated to each
Affected Subaccount 30 days prior to and after the Effective Date
without incurring any administrative costs or allocation (transfer)
charges and such reallocation will not count toward determining the
number of reallocations that may be made pursuant to the Frequent
Trading Policies (a ``free transfer''). Any additional transfers beyond
the ``free transfer'' must be made in accordance with the terms and
conditions of the Variable Contracts.
    22. Within five (5) business days after the Effective Date,
Affected Contractholders will be sent a notice (``Post-Substitution
Confirmation'') showing that each Affected Contractholder's interest in
the Affected Subaccount invested the Replaced Portfolio has been
transferred in exchange for units of the Subaccounts that invest in the
Substitute Portfolio, and confirming the transactions effected on
behalf of the respective Affected Contractholder with regard to the
Substitution. All current Contractholders will have been sent a Select
Fund prospectus containing a description of the Substitute Portfolio
before the Effective Date.

Applicants' Legal Analysis

    1. Section 26(c) of the 1940 Act prohibits any depositor or trustee
of a unit investment trust that invests exclusively in the securities
of a single issuer from substituting the securities of another issuer
without the approval of the Commission. Section 26(c) provides that
such approval shall be granted by order of the Commission, if the
evidence establishes that the substitution is consistent with the
protections of investors and the purposes fairly intended by the policy
and the provisions of the 1940 Act.
    2. Section 26(c) of the 1940 Act was enacted as part of the
Investment Company Act Amendments of 1970. Prior to the enactment of
these

amendments, a depositor or a unit investment trust could substitute new
securities for those held by the trust by notifying the trust's
security holders of the substitution within five days of the
substitution. In 1966, the Commission, concerned with the high sales
charges then common to most unit investment trusts and the
disadvantageous position in which such charges placed investors who did
not want to remain invested in the substituted fund, recommended that
Section 26 be amended to require that a proposed substitution of the
underlying investments of a trust receive prior Commission approval.
    3. Applicants assert that the proposed Substitution appears to
involve a substitution of securities within the meaning of section
26(c) of the 1940 Act. The Applicants therefore request an order from
the Commission pursuant to Section 26(c) approving the proposed
Substitution.
    4. Applicants contend that although not identical, the investment
objective of the Substitute Portfolio is compatible with that of the
Replaced Portfolio. In addition, Applicants believe that the investment
policies of the Substitute Portfolio are substantially similar to those
of the Replaced Portfolio and assure that the investment objectives of
Affected Contractholders can continue to be met.
    5. Applicants note that the Commission has previously granted
Section 26(c) orders to permit the substitution of one fund for another
where the investment policies or restrictions or both were not exactly
the same. In addition to the foregoing, Applicants generally submit
that the Substitution meets the standards that the Commission and its
staff have applied to similar substitutions that have been approved in
the past.
    6. Applicants state that the expenses of the Substitute Portfolio
will be slightly lower than those experienced by the Replaced
Portfolio, after giving effect to applicable fee waivers. The total net
annualized expenses of the Replaced Portfolio, expressed as a
percentage of net assets, is 1.01%. The total net annualized expenses
of the Substitute Portfolio (including the net fees and expenses
incurred by the Master Fund), expressed as a percentage of net assets,
is expected to be 0.93%. Pursuant to the Expense Limitation Agreement
with respect to the Substitute Portfolio, the total net annualized
expenses are limited to 1.01% of the Substitute Portfolios average
daily net assets for a period not less than two years from the
Effective Date.
    7. Applicants state that the Substitution will take place at
relative net asset value (in accordance with Rule 22c-1 under the 1940
Act) with no change in the amount of any Affected Contractholder's
accumulation value or death benefit or in dollar value of his or her
investment in the Separate Accounts. Affected Contractholders will not
incur any fees or charges as a result of the Substitution, nor will
their rights or the PL Insurer' obligations under the affected Variable
Contracts be altered in any way. In addition, the Substitution will not
impose any tax liability on Affected Contractholders. The PL Insurers
or their affiliates will pay all expenses incurred with the
Substitution, including legal, accounting, and other fees and expenses.
    8. Applicants also note that the Substitution will not cause the
affected Variable Contract fees and charges currently being paid by
Affected Contractholders to be greater after the Substitution than
before the Substitution. In addition, while the PL Insurers do not
anticipate increasing Variable Contract fees and/or charges paid by any
current Contractholders, the PL Insurers have agreed not to increase
the Variable Contract fees and charges specified in the Variable
Contracts for a period of at least two years following the
Substitution.
    9. Applicants note that each Affected Contractholder will be sent a
copy of: (1) A supplement informing shareholders of the proposed
substitution; (2) a Substitution Notice setting forth the Effective
Date and advising Affected Contractholders of their right to reconsider
the Substitution and, if they so choose, any time during the Free
Transfer Period, to withdraw or reallocate accumulation value under the
affected Variable Contract; and (3) within five business days of the
Effective Date, a Post-Substitution Confirmation.
    10. Applicants note that each of the Variable Contracts reserves to
the PL Insurers the right, subject to compliance with applicable law,
to substitute shares of another open end management investment company
for shares of an open end management investment company held by a
subaccount of a Separate Account. The prospectuses for the Variable
Contracts and the Separate Accounts contain appropriate disclosure of
this right. The PL Insurers reserve this right of substitution to
address situations where continued investment in an underlying
investment option becomes unsuitable or unavailable.
    11. Applicants assert that unlike traditional unit investment
trusts where a depositor could only substitute an investment security
in a manner which permanently affected all the investors in the trust,
the Variable Contracts provide each Contractholder with the right to
exercise his or her own judgment and transfer accumulation values into
other subaccounts. Moreover, the Variable Contracts will offer
Contractholders the opportunity to transfer amounts out of the affected
subaccounts into any of the remaining subaccounts without cost or other
disadvantage. The Substitution, therefore, will not result in the type
of costly forced redemption which Section 26(c) was designed to
prevent.
    12. Applicants also contend that the Substitution also is unlike
the type of substitution which Section 26(c) was designed to prevent in
that by purchasing a Variable Contract, Contractholders select much
more than a particular investment company in which to invest their
account values. They also select the specific type of death benefit and
other optional benefits offered by the PL Insurers in their Variable
Contracts as well as numerous other rights and privileges set forth in
the Variable Contracts. Contractholders may also have considered the PL
Insurers' size, financial condition, and reputation for service in
selecting their Variable Contract. The Applicant states that these
factors will not change as a result of the Substitution.
    13. Applicants contend that the Substitution will not result in the
type of costly forced redemption that Section 26(c) was intended to
guard against and is consistent with the protection of investors and
the purposes fairly intended by the 1940 Act, because of what the
Applicants consider to be the significant terms of the Substitution.
These terms include:
    (a) The Replaced Portfolio has investment objectives that
Applicants believe are compatible with and policies and risks
substantially similar to those of the Substitute Portfolio so that the
objective of the Affected Contractholders can continue to be met.
    (b) For two years following the implementation of the Substitution
described herein, the net operating expenses of the Substitute
Portfolio (including the net fees and expenses incurred by the Master
Fund) will not exceed an annual rate of 1.01% of its average daily net
assets.
    (c) Affected Contractholders may reallocate accumulation value in
the Affected Subaccounts during the sixty-day Free Transfer Period,
with no charge for the reallocations of accumulated value from each
Affected Subaccount. The reallocations will not be counted toward the
total number of

reallocations made within the calendar year or Variable Contract year
for purposes of determining whether the number of reallocations that
may be made pursuant to the Frequent Trading Policies has been
exceeded, or that may be made without incurring administrative or
transfer fees, if any, under the relevant Variable Contract.
Alternately, Affected Contractholders may withdraw amounts held in any
Affected Subaccount at any time during the Free Transfer Period in
accordance with the terms and conditions of the relevant Variable
Contract. The Free Transfer Period commences upon a date declared in
the Substitution Notice (which will be thirty days prior to the
Effective Date) and will last for 30 days after the Effective Date.
    (d) The Substitution will be effected at the net asset value of the
shares in conformity with Section 22(c) of the 1940 Act and Rule 22c-1
thereunder, without the imposition of any transfer or similar charge by
Applicants.
    (e) The Substitution will take place at relative net asset value
without change in the amount or value of any Variable Contract held by
Affected Contractholders. Affected Contractholders will not incur any
fees or charges as a result of the Substitution, nor will their rights
or the obligations of the PL Insurers under such Variable Contracts be
altered in any way. In addition, the PL Insurers will not increase the
Variable Contract fees and charges specified in the Variable Contracts
for a period of at least two years following the Substitution.
    (f) The Substitution will be effected in such a manner that
Applicants believe will continue to fulfill Affected Contractholders'
objectives and risk expectations, because, according to Applicants, the
investment objectives of the Substitute Portfolio are substantially
similar to those of the Replaced Portfolio.
    (g) No brokerage commissions, fees or other remuneration will be
paid by the Replaced Portfolio or the Substitute Portfolio or Affected
Contractholders in connection with the Substitution.
    (h) The Substitution will not alter in any way the annuity, life or
tax benefits afforded under the Variable Contracts held by any Affected
Contractholder.
    (i) The PL Insurers will send to their Affected Contractholders
within five (5) business days of the Effective Date a copy of the Post-
Substitution Confirmation confirming the transactions effected on
behalf of the respective Affected Contractholder with regard to the
Substitution.
    Conditions:
    Applicants agree that the proposed Substitution and related
transaction will not be completed unless all of the following
conditions are met:
    1. The Commission shall have issued an order approving the
Substitution under Section 26(c) of the 1940 Act.
    2. Each Affected Contractholder will have been sent a copy of (i) a
supplement informing shareholders of this Application; (ii) a
prospectus for the Substitute Portfolio, (iii) a Substitution Notice
setting forth the scheduled Effective Date and advising Affected
Contractholders of their right, if they so choose, to reallocate or
withdraw amounts allocated to the Affected Subaccount under their
Variable Contract at any time during the sixty-day Free Transfer
Period, in accordance with the terms and conditions of their Variable
Contract; and (iv) within five business days of the Effective Date, a
Post-Substitution Confirmation confirming the transactions effected on
behalf of the respective Affected Contractholder with regard to the
Substitution.
    3. The PL Insurers shall have satisfied themselves that (i) the
Variable Contracts allow the substitution of investment company shares
in the manner contemplated by the Substitution and related transactions
described herein; (ii) the transactions can be consummated as described
in this Application under applicable insurance laws; and (iii) any
regulatory requirements in each jurisdiction where the Variable
Contracts are qualified for sale, have been complied with to the extent
necessary to complete the transactions.
    4. Pacific Life and Select Fund have entered into an Expense
Limitation Agreement, with respect to the Substitute Portfolio, whereby
Pacific Life will reimburse the Substitute Portfolio an amount
necessary to ensure that net operating expenses do not exceed an annual
rate of 1.01% during a two-year period from the date the Substitution
occurs. Separate Account expenses will not be increased during this
two-year period for Affected Contractholders.
    5. Pacific Life will amend its advisory agreement with the
Substitute Portfolio to reflect that in the event that the Master Fund
level advisory fees and 12b-1 fees exceed 95 basis points, Pacific Life
will subsidize any fees in excess of this amount for the life of the
Substitute Portfolio or until the fee is changed pursuant to a
shareholder vote.
    Conclusion:
    Applicants submit that, for all reasons stated above, the proposed
Substitution is consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act,
and that the requested order should be granted.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-5016 Filed 4-5-06; 8:45 am]

BILLING CODE 8010-01-P