SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c)
of the Securities Exchange Act 1934
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Pacific Life Funds
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PACIFIC LIFE FUNDS
PL GROWTH FUND
(formerly called “PL Growth LT Fund”)
INFORMATION STATEMENT DATED JULY 10, 2013
This document (“Information Statement”) provides information concerning a new fund manager and a new fund management agreement for the PL Growth Fund and is being sent on or about July 18, 2013 to the shareholders of record as of July 10, 2013.
We are not asking you for a proxy and you are requested not to send us a proxy.
I. Introduction and Background
The Pacific Life Funds’ (the “Trust”) Board of Trustees (the “Board” or “Trustees”) approved a change in fund manager and a new fund management agreement with respect to the PL Growth Fund (the “Fund”), effective May 1, 2013. Information concerning this change in fund manager has been included in supplements dated February 26, 2013 and May 1, 2013 to the Trust’s prospectus for Class P Shares dated December 19, 2012 for the PL Floating Rate Loan Income Fund and July 1, 2012 for all other funds, as supplemented. Under the Investment Company Act of 1940, as amended (the “1940 Act”), a change in fund manager requires shareholder approval of a new fund management agreement; however, pursuant to an exemptive order issued to Pacific Life Insurance Company (“Pacific Life”) by the Securities and Exchange Commission (“SEC”) on October 13, 1999 and relied upon by the Trust and Pacific Life Fund Advisors LLC (“PLFA” or “Adviser”), in accordance with the terms of the exemptive order, PLFA and the Trust can hire, terminate, and replace, as applicable, fund managers and enter into new fund management agreements (except, as a general matter, fund managers affiliated with PLFA) without shareholder approval. The additional information provided herein concerning the fund manager change is being provided pursuant to the requirements of the exemptive order.
At an in-person meeting on December 12, 2012, the Board, including all of the Trustees who are not “interested persons,” as that term is defined in the 1940 Act (“Independent Trustees”), approved, effective May 1, 2013, a new Fund Management Agreement with Massachusetts Financial Services Company, doing business as MFS Investment Management (“MFS”) with respect to the PL Growth Fund (the “MFS Fund Management Agreement”) and appointed MFS as the new Fund Manager for this Fund. The Board also approved effective May 1, 2013, a change to the name of the Fund from “PL Growth LT Fund” to “PL Growth Fund”. In connection with this matter, also at the December 12, 2012 meeting, the Board terminated the Fund Management Agreement for the Trust with the previous fund manager upon the effectiveness of the MFS Fund Management Agreement. MFS’s appointment as new Fund Manager was made in accordance with the exemptive order issued by the SEC with regard to the Trust and does not require shareholder approval. In order to facilitate these changes, a portion of the Fund’s holdings were sold and new investments purchased in accordance with recommendations by the new Fund Manager or management team. PLFA and/or the Fund retained a transitioning agent in order to help reduce the transaction costs associated with the purchase and sale of Fund holdings in connection with this transition.
II. Board Consideration of the New Fund Management Agreement
In evaluating the MFS Fund Management Agreement, the Board, including all of the Independent Trustees, considered the factors described below. Additionally, the Board considered the various screening processes that PLFA utilizes in identifying a proposed new fund manager, including screening for qualified firms through the use of quantitative data and information gathered from independent third-party databases, as well as the due diligence conducted by PLFA on the investment resources and personnel of a fund manager and an assessment of the investment strategies used by a fund manager and the due diligence previously conducted by the Trust’s Chief Compliance Officer (“CCO”). In addition, the Board reviewed the specific criteria and information evaluated by PLFA during the selection process of MFS, including information about other firms considered by PLFA, and PLFA’s analysis in reaching its conclusion to recommend MFS as the new Fund Manager. The Trustees also considered that PLFA has historically exercised diligence in monitoring the performance of the fund managers, and has recommended and taken measures to attempt to remedy relative underperformance by a fund when PLFA and the Board believed appropriate.
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In evaluating the MFS Fund Management Agreement, the Board, including all the Independent Trustees, considered the following factors, among others:
A. Nature, Extent and Quality of Services to be Provided
The Trustees considered the benefits to shareholders of retaining MFS as the Fund Manager, particularly in light of the nature, extent, and quality of the services expected to be provided by MFS. In this regard, the Trustees considered various materials relating to the proposed Fund Manager, including copies of the proposed MFS Fund Management Agreement; copies of MFS’s Form ADV; financial information; and other information deemed relevant to the Trustees’ evaluation, including comprehensive assessments from senior management of PLFA.
The Trustees considered that under the MFS Fund Management Agreement, MFS would be responsible for providing the investment management services for the Fund’s assets, including investment research, advice and supervision, and determining which securities would be purchased or sold by the Fund. The Trustees considered the quality of the management services expected to be provided to the PL Growth Fund over both the short- and long-term, the organizational depth and resources of MFS, including the background and experience of MFS’s management and the expertise of the fund management team, as well as the investment strategies, processes and philosophy to be used with respect to the investment strategy.
In addition, the Trustees considered MFS’s written compliance policies and procedures and noted that the Trust’s CCO had previously provided an assessment of MFS’s compliance program, as required under Rule 38a-1 of the 1940 Act, and its code of ethics.
In making these assessments, the Trustees took note of the extensive due diligence PLFA conducted with respect to MFS, and were aided by the assessment and recommendation of PLFA and the in-person presentation and materials provided by MFS.
The Board concluded it was satisfied with the nature, extent and quality of the investment management services anticipated to be provided to the PL Growth Fund by MFS under the MFS Fund Management Agreement.
B. Performance
The Trustees considered PLFA’s efforts and process to search for and screen advisory firms that are qualified to manage a growth fund, and PLFA’s identification of MFS to serve as Fund Manager with regard to the day-to-day investment activities of the PL Growth Fund. The Trustees considered factors concerning performance in connection with its consideration of this matter and in connection with approval of the related MFS Fund Management Agreement, as described below.
The Trustees considered information about the historical performance of an account managed by the same MFS fund management team that would manage the PL Growth Fund using similar investment strategies as those proposed for the PL Growth Fund (the “Comparable Performance”). The Trustees considered the Comparable Performance against a pertinent benchmark and against the applicable peer group for the year-to-date, one-, three-, five-, and ten-year periods as of September 30, 2012. The Trustees also considered the Comparable Performance against a pertinent benchmark and an applicable peer group for the previous nine calendar years. The Trustees also considered information about the historical performance of additional accounts managed by MFS using similar investment strategies as those proposed for the PL Growth Fund against a pertinent benchmark for the one-, three-, five- and ten-year periods (as available) as of September 30, 2012. Additionally, the Trustees considered performance information presented by PLFA for another potential manager of the Fund. The Trustees also considered the need for MFS to adhere to the Fund’s general investment mandate in order to function appropriately in the PL Portfolio Optimization Funds.
The Board determined that the performance record of the MFS management team was acceptable.
C. Advisory and Fund Management Fees
The Trustees considered information regarding the comparative advisory fees charged under other investment advisory contracts of the Fund Manager with regard to other investment accounts with substantially similar investment strategies as the PL Growth Fund. The Trustees also considered that the proposed sub-advisory fees payable to MFS under the Fund Management Agreement contain breakpoints and were lower than the sub-advisory fees paid to the current fund manager. The Trustees considered that the advisory
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fee schedule would remain unchanged from the current fee schedule for the Fund and that the total advisory fees paid by shareholders would not increase. The Trustees noted that in certain cases there were differences in the level of services proposed to be provided to the PL Growth Fund by MFS and that the level of services provided by MFS on these other accounts was due to the different nature of the accounts or an affiliation between MFS and the account. These differences often explained differences in fee schedules. The Trustees noted that the fee rates were the result of arms’-length negotiations between PLFA and MFS, and that the PL Growth Fund’s sub-advisory management fees are paid by PLFA and are not paid directly by the PL Growth Fund. Additionally, the Trustees considered that there are certain costs associated with a manager change, but that the advisory fee rates and ongoing operating expenses paid by the shareholders were not expected to materially increase as a result of this portfolio manager change.
The Board concluded that the compensation payable under the MFS Fund Management Agreement is fair and reasonable.
D. Costs, Level of Profits and Economies of Scale
The Trustees considered information about the profitability of other investment accounts managed by MFS using similar investment strategies as those proposed for the PL Growth Fund in assessing the projected profitability of the MFS Fund Management Agreement to MFS to the extent practicable based on the information provided by MFS. The Trustees considered that it was difficult to accurately determine or evaluate the projected profitability of the MFS Fund Management Agreement to MFS because it managed substantial assets and had multiple business lines and, further, that any such assessment would involve assumptions regarding its allocation policies, capital structure, cost of capital, business mix and other factors. The Trustees focused their consideration on other information provided in connection with this matter, given the arms’-length nature of the relationship between PLFA and MFS with respect to the negotiation of Fund sub-advisory fees, the fact that such fees are paid by PLFA and the fact that the projected profitability of the MFS Fund Management Agreement to MFS is an estimate because it had not yet begun to manage the Fund.
The Board concluded that the PL Growth Fund’s fee structure reflected in the MFS Fund Management Agreement is fair and reasonable.
E. Ancillary Benefits
The Trustees received from PLFA and MFS information concerning other benefits that may be received by MFS and its affiliates as a result of their relationship with the PL Growth Fund, including commissions that may be paid to broker-dealers affiliated with the Fund Manager and the anticipated use of soft-dollars by the Fund Manager. In this regard, the Trustees noted that MFS represented that it does not anticipate utilizing an affiliated broker-dealer and that it anticipates using soft dollar credits generated by Fund commissions to pay for research services. The potential benefits that may be derived by MFS from its relationship with the PL Growth Fund could include larger assets under management and reputational benefits, which are consistent with those generally derived by sub-advisers to mutual funds. The Trustees considered potential benefits to be derived by MFS from its relationship with the PL Growth Fund and that such benefits were consistent with those generally derived by sub-advisers to mutual funds or were otherwise not unusual.
F. Conclusion
Based on their review, including the consideration of each of the factors referred to above, the Board found that: (i) the MFS Fund Management Agreement is in the best interests of the PL Growth Fund and its shareholders; and (ii) the compensation payable under the MFS Fund Management Agreement is fair and reasonable. No single factor was determinative of the Board’s findings, but rather the Trustees based their determination on the total mix of information available to them.
III. The New Fund Management Agreement
The MFS Fund Management Agreement is substantially similar to the previous fund management agreement with the prior fund manager respect to the Fund. MFS will, subject to the supervision of the Adviser, provide a continuous investment program for the Fund and determine the composition of the assets of the Fund, including the evaluation, investment, purchases and/or sales and reinvestment of the Fund’s assets in accordance with its investment goal, strategies, policies and restrictions. MFS bears all expenses incurred by it and its staff with respect to all activities in connection with the performance of the Fund Manager’s services provided under the MFS Fund Management Agreement. The Fund is responsible for its own expenses including, but not limited to,
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investment advisory fees, administration fees, custody fees, brokerage and transaction expenses, fees for pricing services, registration fees and costs of regulatory compliance, and fees for professional services, including legal and auditing services. Except as may otherwise be required by the 1940 Act, other applicable laws, applicable regulations or other provisions of the MFS Fund Management Agreement, MFS is not subject to any liability for, nor subject to any damages, expenses or losses in connection with, any act or omission connected with or arising out of any services rendered under the MFS Fund Management Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties under the MFS Fund Management Agreement or by reason of MFS’s reckless disregard of its obligations and duties under the MFS Fund Management Agreement or by breach of any provision of the MFS Fund Management Agreement, including breach of any confirmation, representation, warranty or undertaking. The MFS Fund Management Agreement will continue in effect for a period of two years from the effective date, and will continue from year to year thereafter, subject to approval annually by the Board or by the shareholders of the Fund and also, in either event, approval of a majority of the Independent Trustees. The MFS Fund Management Agreement may be terminated without penalty at any time by any of the parties upon 60 days’ prior written notice to the other parties.
There was no change to the advisory fee rate paid by the PL Growth Fund to the Adviser in connection with the fund manager change. There was a change to the sub-advisory fee rate paid by the Adviser to the new Fund Manager in connection with the fund manager change. The prior and new sub-advisory fee schedules are set forth in the tables below:
Prior Fee Schedule1 | New Fee Schedule2 | |
| 0.450% on the first $25 million | 0.375% on the first $250 million | |
| 0.400% on next $125 million | 0.325% on next $250 million | |
| 0.350% on next $850 million | 0.300% on next $250 million | |
| 0.300% on next $1 billion | 0.275% on next $250 million | |
| 0.250% on excess | 0.250% on next $500 million | |
| 0.225% on excess |
| 1 | When determining the breakpoint rate under the prior fund management agreement, the average daily net assets of the PL Growth LT Fund were aggregated with the average daily net assets of the Growth LT Portfolio, a series of Pacific Select Fund. | |
| 2 | When determining the breakpoint rate under the Fund Management Agreement, the average daily net assets of the PL Growth Fund are aggregated with the average daily net assets of the Growth Portfolio, a series of Pacific Select Fund (“Combined Assets”), which is managed by the same Fund Manager. | |
The sub-advisory fees paid by the Adviser to the prior fund manager through April 30, 2013 were paid pursuant to a fund management agreement dated April 3, 2002, as amended. For the period April 1, 2012 through March 31, 2013, the Fund’s sub-advisory fees paid or owed by the Adviser to the prior fund manager totaled $210,065. Had the new sub-advisory fee rate been in effect for the same period, the Fund’s sub-advisory fees paid or owed by the Adviser would have been $196,717. This amount would have been a decrease in such fees paid by the Adviser of approximately 6.35%. For the Fund’s fiscal year ended March 31, 2013, the Fund did not pay any brokerage commissions to an affiliated broker of MFS.
IV. Information Regarding MFS
Massachusetts Financial Services Company, doing business as MFS Investment Management (“MFS”), and its predecessor organizations have a history of money management dating from 1924, and the founding of the first mutual fund. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings, Inc. (“Sun Life of Canada U.S.”), which in turn is an indirect, majority-owned subsidiary of Sun Life Financial Inc., (“Sun Life Financial”), a diversified financial services organization. MFS is located at 111 Huntington Avenue, Boston, Massachusetts 02199. Sun Life Financial is located at 150 King Street West, Toronto, Ontario, Canada M5H 1J9, and Sun Life of Canada U.S. is located at 111 Huntington Avenue, Boston, Massachusetts, 02199. As of March 31, 2013, MFS including its affiliates’ total assets under management were approximately $347 billion.
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MFS acts as investment adviser to the following registered investment companies, which have similar objectives to the Fund.
Portfolio Name | Net Assets1 | Compensation Rate | Waived/ | |||
MFS Series Trust II – | $6.6 billion | 0.750% of first $1 billion; 0.650% of next $1.5 billion; and 0.600% in excess of $2.5 billion | Yes2 | |||
MFS Variable Insurance Trust – | $1.2 billion | 0.750% of first $1 billion; and 0.650% in excess of $1 billion | N/A | |||
Advanced Series Trust – | $1.8 billion | 0.375% on first $250 million; 0.325% on next $250 million; 0.300% on next $250 million; 0.275% on next $250 million; 0.250% on next $500 million; and 0.225% on assets in excess of $1.5 billion3 | N/A | |||
Target Asset Allocation Funds – | $8.6 million4 | 0.375% on first $250 million; 0.325% on next $250 million; 0.300% on next $250 million; 0.275% on next $250 million; 0.250% on next $500 million; and 0.225% on assets in excess of $1.5 billion3 | N/A | |||
Target Asset Allocation Funds – | $24.9 million4 | 0.375% on first $250 million; 0.325% on next $250 million; 0.300% on next $250 million; 0.275% on next $250 million; 0.250% on next $500 million; and 0.225% on assets in excess of $1.5 billion3 | N/A | |||
Target Asset Allocation Funds – | $26.4 million4 | 0.375% on first $250 million; 0.325% on next $250 million; 0.300% on next $250 million; 0.275% on next $250 million; 0.250% on next $500 million; and 0.225% on assets in excess of $1.5 billion3 | N/A | |||
Target Portfolio Trust – | $100.1 million4 | 0.375% on first $250 million; 0.325% on next $250 million; 0.300% on next $250 million; 0.275% on next $250 million; 0.250% on next $500 million; and 0.225% on assets in excess of $1.5 billion3 | N/A |
| 1 | As of March 31, 2013. | |
| 2 | MFS has agreed in writing to bear the MFS Growth Fund’s expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses (such as interest and borrowing expenses incurred in connection with the fund’s investment activity), such that “Total Annual Fund Operating Expenses” do not exceed 1.22% of the fund’s average daily net assets annually for each of Class A and Class R3 shares; 1.97% of the fund’s average daily net assets annually for each of Class B, Class C and Class R1 shares; 0.97% of the fund’s average daily net assets annually for each of Class I and Class R4 shares; 1.47% of the fund’s average daily net assets annually for Class R2 shares; and 0.91% of the fund’s average daily net assets annually for Class R5 shares. This written agreement will terminate on August 31, 2013. | |
| 3 | Sub-advisory fee—assets for these funds are aggregated for purposes of determining the sub-advisory fees payable to MFS. | |
| 4 | Multi-managed fund; represents the portion of the fund sub-advised by MFS. | |
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As of March 31, 2013, MFS’s principal executive officers are:
Principal Executive Officers1 | Principal Occupation with MFS2 | |
Robert J. Manning | Director, Chief Executive Officer and Chairman of the Board of Directors of MFS | |
Michael W. Roberge | Director, President, Chief Investment Officer and Director of Global Research of MFS | |
Thomas A. Bogart | Director of MFS; Executive Vice President, Corporate Development and General Counsel of Sun Life Financial, Inc. | |
Colm J. Freyne | Director of MFS; Executive Vice President and Chief Financial Officer of Sun Life Financial, Inc. | |
David A. Antonelli | Vice Chairman of MFS | |
Carol W. Geremia | Executive Vice President of MFS | |
James A. Jessee | Executive Vice President of MFS | |
Amrit Kanwal | Executive Vice President and Chief Financial Officer of MFS | |
Mark A. Leary | Executive Vice President and Chief Human Resources Officer of MFS | |
Mark N. Polebaum | Executive Vice President, General Counsel and Secretary of MFS | |
Robin A. Stelmach | Executive Vice President and Chief Operating Officer of MFS | |
Timothy M. Fagan | Chief Compliance Officer of MFS |
| 1 | The business address for each above individual with respect to the individual’s position at MFS is c/o MFS Investment Management — 111 Huntington Avenue, Boston, Massachusetts 02199. | |
| 2 | Principal occupation is also given if different from position(s) with MFS. | |
No officer or Trustee of the Trust is an officer, director or shareholder of MFS.
Additional Information
Additional information about MFS is available in Pacific Life Fund’s Statement of Additional Information, as supplemented, a copy of which may be obtained by calling the appropriate number set forth below.
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The Trust’s annual report for the fiscal year ended March 31, 2013 is being sent to shareholders. The Trust’s semi-annual report for the fiscal half-year ended September 30, 2012 was previously sent to shareholders. Both of these reports are available upon request without charge by contacting Pacific Life Funds by:
| Regular mail: | Pacific Life Funds, P.O. Box 9768, Providence, RI 02940-9768 | |||
| Express mail: | Pacific Life Funds, 4400 Computer Drive Westborough, MA 01581 | |||
| Telephone: | (800) 722-2333 (select Option 2) | |||
| Website: | www.PacificLife.com/pacificlifefunds.htm | |||
To help reduce Trust expenses, environmental waste and the volume of mail you receive, only one copy of this Information Statement may be sent to shareholders who share the same household address (“Householding”). You may elect to not participate in Householding by contacting the Trust through one of the methods provided above. If you are not currently participating in Householding, you may elect to do so by writing to Pacific Life Funds.
The Trust’s investment adviser is PLFA, and its administrator is Pacific Life. Both are located at 700 Newport Center Drive, Newport Beach, CA 92660.
The Trust’s distributor is Pacific Select Distributors, Inc., 700 Newport Center Drive, P.O. Box 9000, Newport Beach, CA 92660.
PLEASE RETAIN THIS INFORMATION STATEMENT FOR FUTURE REFERENCE
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