Correspondence 0001104659-23-045460 from PACIFIC SELECT FUND (CIK 0000813900)
PACIFIC SELECT FUND (CIK 0000813900)
Date: April 14, 2023 · CIK: 0000813900 · Accession: 0001104659-23-045460
AI Filing Summary & Sentiment
File numbers found in text: 811-05141
Letter
VIA EDGAR 100 F Street, NE Washington, D.C. 20549 RE: Pacific Select Fund File Nos. 033-13954 and 811-05141
Dear Ms. Rowland:
This letter is being provided in response to comments received from the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) staff (“Staff”) on March 17, 2023, concerning post-effective amendment No. 163 to the registration statement of Pacific Select Fund (“Registrant”) on Form N-1A (including the Prospectuses (“Prospectus”), Statement of Additional Information (“SAI”) and Part C), which was filed with the Commission on February 3, 2023 pursuant to Rule 485(a) under the Securities Act of 1933 on behalf of each series of Registrant (each a “Fund” and together the “Funds”).
Revisions discussed below will be applied globally to applicable Funds. This letter is being provided at least 10 days prior to the effectiveness of the post-effective amendment.
Set forth in the numbered paragraphs below are the Staff’s comments (in italics) followed by Registrant’s responses.
Prospectus Comments
General Comments (global as applicable)
1. Comment: Risk – Asset Allocation Fund of Funds Risk: The Staff noticed disclosure was added to this risk in the post-effective amendment regarding the layering of fees. For investor clarity, we request that you change this disclosure from “layering of fees” to “an additional layer or layers of fees.”
Response: The disclosure will be revised accordingly.
Page 1 of 10
Pacific Select Fund – Response Letter
April 14, 2023
2. Comment: Principal Investment Strategy – Active Trading: It is the position of the Staff that if portfolio turnover is significant, that is over 100% for the annual period, a Fund should disclose active trading as a principal strategy as well as a principal risk to that Fund.
Response: Registrant respectfully declines to make the requested changes as it believes the Prospectus has adequate disclosure on portfolio turnover. Frequent trading is not a principal investment strategy of any of the Funds of the Trust, including those with portfolio turnover rates greater than 100%. Rather, a higher portfolio turnover rate for a Fund is a result of that Fund’s principal investment strategies and is not itself a strategy. The risks of a higher portfolio turnover rate are already disclosed in the applicable Fund Summary as part of a Fund’s disclosure pursuant to Item 3 (Instruction 5) of Form N-1A. In addition, the Prospectus discloses that all Funds may engage in active and frequent trading and describes the consequences of such trading pursuant to Item 9(b)(1) (Instruction 7) of Form N-1A. The Prospectus and the SAI both discuss those Funds that engaged in active and frequent trading (increase of over 100% turnover of portfolio securities) during the past fiscal year, including pursuant to Item 16(e) of Form N-1A.
Specific Fund Comments
Floating Rate Income Portfolio, Growth Portfolio, Small-Cap Growth Portfolio, International Large-Cap Portfolio, Technology Portfolio
3. Comment: Item 9 Disclosure – ESG Factors: Certain Funds note in their Item 9 disclosure (only) that their sub-advisers consider environmental, social and governance (“ESG”) factors when conducting their investment analysis.
a. Please clarify if ESG factors are applied to all of the investments for these Funds, or just some of their investments.
b. In the principal risk for these same Funds, please add an ESG risk factor or explain why an ESG risk is not needed in Item 4 or Item 9 disclosure.
c. The ancillary risk entitled ESG Factor Risk notes that it is applicable to these Funds. Please explain why this is an ancillary risk and not a principal risk given that ESG factors are discussed in the principal investment strategies of these Funds.
Response:
a. These Funds do not consider ESG factors for every investment. As described in their disclosures, the Floating Rate Income Portfolio’s sub-adviser may consider ESG factors for floating rate loan investments, and the other Funds’ sub-adviser (MFS) may consider ESG factors in its fundamental analysis where the sub-adviser believes such factors could materially impact the economic value of an issuer.
b. The sub-advisers for these Funds do not consider investing based on ESG considerations principal investment strategies for these Funds. The disclosure referenced above is part of the explanation “in general terms how the Fund’s adviser decides which securities to buy and sell” in accordance with Item 9(b)(2) of Form N-1A. For example, as indicated in the Growth Portfolio, Small-Cap Growth Portfolio, International Large-Cap Portfolio and Technology Portfolio Item 9(b)(2) disclosure, investments for these Funds are selected primarily based on blending fundamental and quantitative research. This disclosure also provides examples of factors MFS may consider in its fundamental analysis (e.g., an issuer’s earnings, cash flows, competitive position, and management
Page 2 of 10
Pacific Select Fund – Response Letter
April 14, 2023
ability). The above-referenced disclosure is included to clarify for shareholders that non-financial factors, such as ESG factors, may also be considered as part of MFS’ fundamental analysis. Based on the foregoing, we do not believe any changes to the Funds’ risk disclosures are necessary.
c. See Response 3b. ESG Factor Risk is considered an ancillary risk for these Funds because ESG considerations are not principal investment strategies for these Funds.
PSF Avantis Balanced Allocation Portfolio (formerly named PSF DFA Balanced Allocation Portfolio)
4. Comment: Turnover: If the portfolio repositioning as a result of the changes in this Fund’s principal investment strategy will result in a significant change to the Fund’s prior portfolio turnover rate, please disclose this accordingly in the portfolio turnover section. Please add disclosure, if true, that existing and new shareholders who purchase fund shares may have adverse tax consequences due to the repositioning. In the SAI, please add disclosure regarding the anticipated variation in the portfolio turnover rate as per Item 16(e) of Form N-1A.
Response: Disclosure will be included in the Prospectus for this Fund regarding a portfolio turnover rate greater than 100% as noted above in Response #2. In addition, disclosure will be added to the Statement of Additional Information discussing the significant variation in turnover for this Fund as compared to the immediate prior fiscal year as the result of the portfolio transition in underlying investments pursuant to Item 16(e) of Form N-1A. As noted in the Tax Matters section of the Prospectus and Taxation section of the Statement of Additional Information, the sole shareholders of this Fund are considered to be the separate accounts of the insurance companies, which allow the variable insurance contract and/or variable annuity contract to qualify for tax deferral. Information regarding federal income tax consequences is in the applicable prospectus or offering memorandum of the variable products, and thus disclosure is not needed for this Fund regarding adverse tax consequences resulting from a higher portfolio turnover rate.
Emerging Markets Debt Portfolio
5. Comment: Principal Investment Strategy/Risk – Frontier Markets Risk: Please consider moving the first sentence of this risk to the Fund’s principal investment strategy to further explain to a shareholder what are “frontier markets.”
Response: The disclosure will be revised to expand the definition of a frontier market in the Item 4 principal investment strategy disclosure.
Growth Portfolio
6. Comment: Risk – Small Number of Holdings Risk: Please add to the principal investment strategy of the Fund that there may be a small number of holdings.
Response: The disclosure will be revised accordingly.
Emerging Markets Portfolio
7. Comment: Risk – China Risk: Please confirm supplementally that this Fund does not have principal exposure to China A shares.
Page 3 of 10
Pacific Select Fund – Response Letter
April 14, 2023
Response: So confirmed. Registrant notes that the Statement of Additional Information specifically discloses that China A shares are a non-principal investment strategy of this Fund.
International Growth Portfolio
8. Comment: Principal Investment Strategies: The Staff notes that disclosure was deleted in the post-effective amendment regarding the description of what the sub-adviser considers foreign companies to include. However, the Staff feels that this definition is needed here. Please add the disclosure back or explain supplementally why you are deleting it.
Response: The disclosure will be revised accordingly.
ESG Portfolios
9. Comment: Principal Investment Strategies – Names Rule for ESG Diversified Portfolio and ESG Diversified Growth Portfolio: The strategy disclosure for the ESG Portfolios should describe how the investment adviser selects the ESG Underlying Funds that satisfy the adviser’s ESG investment criteria for the ESG Portfolios.
a. Given that the term ESG (environmental, social and governance) is used in the name of the ESG Portfolios, the ESG Portfolios need to have an 80% policy to invest in ESG Underlying Funds that in turn have an 80% policy as to ESG. Please amend disclosure accordingly.
b. Given that most of the ESG Underlying Funds do not have an 80% policy as per the disclosure, please explain how the ESG Portfolios satisfy the name rule.
c. To the extent to which ESG factors are considered seems to vary widely by ESG Underlying Fund, please explain how the use of ESG in the name of the ESG Portfolios is not materiality misleading given these varying differences in ESG focus in the ESG Underlying Funds. For example, the ESG Underlying Fund managed by JP Morgan is an ESG integration fund and not an ESG focused fund.
Response:
a. Registrant believes its use of the term “ESG” in the name of the ESG Portfolios does not implicate the Names Rule. The term “ESG” refers to the aspect of the ESG Portfolios’ investment goal of “giving consideration to certain environmental, social and governance (“ESG”) criteria” while seeking long-term growth of capital and low to moderate income. The ESG Portfolios seek to achieve this goal by investing in underlying funds that, as disclosed to Fund investors via PLFA’s selection criteria for ESG Underlying Funds, in turn, employ ESG strategies. As such, the term “ESG” aptly describes each ESG Portfolio’s investment goal and its principal strategy; it does not refer to a particular type of investment. Accordingly, the ESG Portfolios are not required to adopt an 80% policy to comply with Rule 35d-1.
b. Please see our response above.
c. Registrant does not consider the term “ESG” in the names of the ESG Portfolios materially misleading for the following reasons: 1) Registrant has fully disclosed that the J.P. Morgan Fund is an ESG integration fund in the principal investment strategies
Page 4 of 10
Pacific Select Fund – Response Letter
April 14, 2023
section. 2) Registrant does not consider the other ESG Underlying Funds to be ESG integration funds. These ESG Underlying Funds (and not the J
Show Raw Text
CORRESP
1
filename1.htm
MARK
KARPE
Managing
Assistant General Counsel
Office:
(949) 219-3224
Fax:
(949) 219-3706
E-mail:
Mark.Karpe@PacificLife.com
April 14, 2023
VIA EDGAR
Emily Rowland, Esq.
Senior Counsel
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
RE:
Pacific Select Fund
File Nos. 033-13954 and 811-05141
Dear
Ms. Rowland:
This letter is being provided in response
to comments received from the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) staff (“Staff”)
on March 17, 2023, concerning post-effective amendment No. 163 to the registration statement of Pacific Select Fund (“Registrant”)
on Form N-1A (including the Prospectuses (“Prospectus”), Statement of Additional Information (“SAI”) and
Part C), which was filed with the Commission on February 3, 2023 pursuant to Rule 485(a) under the Securities Act
of 1933 on behalf of each series of Registrant (each a “Fund” and together the “Funds”).
Revisions discussed below will be applied
globally to applicable Funds. This letter is being provided at least 10 days prior to the effectiveness of the post-effective amendment.
Set forth in the numbered paragraphs
below are the Staff’s comments (in italics) followed by Registrant’s responses.
Prospectus Comments
General Comments (global as applicable)
1. Comment:
Risk – Asset Allocation Fund of Funds Risk: The Staff noticed disclosure was
added to this risk in the post-effective amendment regarding the layering of fees. For investor
clarity, we request that you change this disclosure from “layering of fees” to
“an additional layer or layers of fees.”
Response:
The disclosure will be revised accordingly.
Page 1 of 10
Pacific
Select Fund – Response Letter
April 14, 2023
2. Comment:
Principal Investment Strategy – Active Trading: It is the position of the Staff
that if portfolio turnover is significant, that is over 100% for the annual period, a Fund
should disclose active trading as a principal strategy as well as a principal risk to that
Fund.
Response:
Registrant respectfully declines to make the requested changes as it believes the Prospectus
has adequate disclosure on portfolio turnover. Frequent trading is not a principal investment strategy of any of the Funds of the Trust,
including those with portfolio turnover rates greater than 100%. Rather, a higher portfolio turnover rate for a Fund is a result of that
Fund’s principal investment strategies and is not itself a strategy. The risks of a higher portfolio turnover rate are already
disclosed in the applicable Fund Summary as part of a Fund’s disclosure pursuant to Item 3 (Instruction 5) of Form N-1A. In
addition, the Prospectus discloses that all Funds may engage in active and frequent trading and describes the consequences of such trading
pursuant to Item 9(b)(1) (Instruction 7) of Form N-1A. The Prospectus and the SAI both discuss those Funds that engaged in
active and frequent trading (increase of over 100% turnover of portfolio securities) during the past fiscal year, including pursuant
to Item 16(e) of Form N-1A.
Specific Fund Comments
Floating Rate Income Portfolio, Growth
Portfolio, Small-Cap Growth Portfolio, International Large-Cap Portfolio, Technology Portfolio
3. Comment:
Item 9 Disclosure – ESG Factors: Certain Funds note in their Item 9 disclosure
(only) that their sub-advisers consider environmental, social and governance (“ESG”)
factors when conducting their investment analysis.
a. Please
clarify if ESG factors are applied to all of the investments for these Funds, or just some
of their investments.
b. In
the principal risk for these same Funds, please add an ESG risk factor or explain why an
ESG risk is not needed in Item 4 or Item 9 disclosure.
c. The
ancillary risk entitled ESG Factor Risk notes that it is applicable to these Funds. Please
explain why this is an ancillary risk and not a principal risk given that ESG factors are
discussed in the principal investment strategies of these Funds.
Response:
a. These
Funds do not consider ESG factors for every investment. As described in their disclosures,
the Floating Rate Income Portfolio’s sub-adviser may consider ESG factors for floating
rate loan investments, and the other Funds’ sub-adviser (MFS) may consider ESG factors
in its fundamental analysis where the sub-adviser believes such factors could materially
impact the economic value of an issuer.
b. The
sub-advisers for these Funds do not consider investing based on ESG considerations principal
investment strategies for these Funds. The disclosure referenced above is part of the explanation
“in general terms how the Fund’s adviser decides which securities to buy and
sell” in accordance with Item 9(b)(2) of Form N-1A. For example, as indicated
in the Growth Portfolio, Small-Cap Growth Portfolio, International
Large-Cap Portfolio and Technology Portfolio Item 9(b)(2) disclosure, investments for
these Funds are selected primarily based on blending fundamental and quantitative research.
This disclosure also provides examples of factors MFS may consider in its fundamental analysis
(e.g., an issuer’s earnings, cash flows, competitive position, and management
Page 2 of 10
Pacific Select Fund – Response
Letter
April 14, 2023
ability). The above-referenced
disclosure is included to clarify for shareholders that non-financial factors, such as ESG
factors, may also be considered as part of MFS’ fundamental analysis. Based on the
foregoing, we do not believe any changes to the Funds’ risk disclosures are necessary.
c. See
Response 3b. ESG Factor Risk is considered an ancillary risk for these Funds because
ESG considerations are not principal investment strategies for these Funds.
PSF Avantis Balanced Allocation Portfolio
(formerly named PSF DFA Balanced Allocation Portfolio)
4. Comment:
Turnover: If the portfolio repositioning as a result of the changes in this Fund’s
principal investment strategy will result in a significant change to the Fund’s prior
portfolio turnover rate, please disclose this accordingly in the portfolio turnover section.
Please add disclosure, if true, that existing and new shareholders who purchase fund shares
may have adverse tax consequences due to the repositioning. In the SAI, please add disclosure
regarding the anticipated variation in the portfolio turnover rate as per Item 16(e) of
Form N-1A.
Response: Disclosure
will be included in the Prospectus for this Fund regarding a portfolio turnover rate greater than 100% as noted above in Response
#2. In addition, disclosure will be added to the Statement of Additional Information discussing the significant variation in
turnover for this Fund as compared to the immediate prior fiscal year as the result of the portfolio transition in underlying
investments pursuant to Item 16(e) of Form N-1A. As noted in the Tax Matters section of the Prospectus and Taxation
section of the Statement of Additional Information, the sole shareholders of this Fund are considered to be the separate accounts of
the insurance companies, which allow the variable insurance contract and/or variable annuity contract to qualify for tax deferral.
Information regarding federal income tax consequences is in the applicable prospectus or offering memorandum of the variable
products, and thus disclosure is not needed for this Fund regarding adverse tax consequences resulting from a higher portfolio
turnover rate.
Emerging Markets Debt Portfolio
5. Comment:
Principal Investment Strategy/Risk – Frontier Markets Risk: Please consider
moving the first sentence of this risk to the Fund’s principal investment strategy
to further explain to a shareholder what are “frontier markets.”
Response:
The disclosure will be revised to expand the definition of a frontier market in the Item 4 principal
investment strategy disclosure.
Growth Portfolio
6. Comment:
Risk – Small Number of Holdings Risk: Please add to the principal investment
strategy of the Fund that there may be a small number of holdings.
Response:
The disclosure will be revised accordingly.
Emerging Markets Portfolio
7. Comment:
Risk – China Risk: Please confirm supplementally that this Fund does not have
principal exposure to China A shares.
Page 3 of 10
Pacific Select Fund – Response
Letter
April 14, 2023
Response:
So confirmed. Registrant notes that the Statement of Additional Information specifically discloses
that China A shares are a non-principal investment strategy of this Fund.
International Growth Portfolio
8. Comment:
Principal Investment Strategies: The Staff notes that disclosure was deleted in the
post-effective amendment regarding the description of what the sub-adviser considers foreign
companies to include. However, the Staff feels that this definition is needed here. Please
add the disclosure back or explain supplementally why you are deleting it.
Response:
The disclosure will be revised accordingly.
ESG Portfolios
9. Comment:
Principal Investment Strategies – Names Rule for ESG Diversified Portfolio
and ESG Diversified Growth Portfolio: The strategy disclosure for the ESG Portfolios should
describe how the investment adviser selects the ESG Underlying Funds that satisfy the adviser’s
ESG investment criteria for the ESG Portfolios.
a. Given
that the term ESG (environmental, social and governance) is used in the name of the ESG Portfolios,
the ESG Portfolios need to have an 80% policy to invest in ESG Underlying Funds that in turn
have an 80% policy as to ESG. Please amend disclosure accordingly.
b. Given
that most of the ESG Underlying Funds do not have an 80% policy as per the disclosure, please
explain how the ESG Portfolios satisfy the name rule.
c. To
the extent to which ESG factors are considered seems to vary widely by ESG Underlying Fund,
please explain how the use of ESG in the name of the ESG Portfolios is not materiality misleading
given these varying differences in ESG focus in the ESG Underlying Funds. For example, the
ESG Underlying Fund managed by JP Morgan is an ESG integration fund and not an ESG focused
fund.
Response:
a. Registrant
believes its use of the term “ESG” in the name of the ESG Portfolios does not
implicate the Names Rule. The term “ESG” refers to the aspect of the ESG Portfolios’
investment goal of “giving consideration to certain environmental, social and governance
(“ESG”) criteria” while seeking long-term growth of capital and low to
moderate income. The ESG Portfolios seek to achieve this goal by investing in underlying
funds that, as disclosed to Fund investors via PLFA’s selection criteria for ESG Underlying
Funds, in turn, employ ESG strategies. As such, the term “ESG” aptly describes
each ESG Portfolio’s investment goal and its principal strategy; it does not refer
to a particular type of investment. Accordingly, the ESG Portfolios are not required to adopt
an 80% policy to comply with Rule 35d-1.
b. Please
see our response above.
c. Registrant
does not consider the term “ESG” in the names of the ESG Portfolios materially
misleading for the following reasons: 1) Registrant has fully disclosed that the J.P. Morgan
Fund is an ESG integration fund in the principal investment strategies
Page 4 of 10
Pacific Select Fund – Response
Letter
April 14, 2023
section.
2) Registrant does not consider the other ESG Underlying Funds to be ESG integration funds.
These ESG Underlying Funds (and not the J