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As filed with the Securities and Exchange Commission on October 15, 1996
Registration No. 33-
Investment Company Act File No. 811-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-4 EL
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __ [ ]
(Check appropriate box or boxes)
SEPARATE ACCOUNT B
--------------------------
(Exact Name of Registrant)
PACIFIC MUTUAL LIFE INSURANCE COMPANY
-------------------------------------
(Name of Depositor)
700 Newport Center Drive
Newport Beach, California 92660
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(Address of Depositor's Principal Executive Offices) (Zip Code)
(714) 640-3743
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(Depositor's Telephone Number, including Area Code)
Diane N. Ledger
Assistant Vice President
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
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(Name and address of agent for service)
Copies of all communications to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1500 K Street, N.W., Suite 500
Washington, D.C. 20005
Title of Securities Being Registered: interests in a separate account funding
individual flexible premium variable accumulation deferred annuity contracts
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Approximate Date of Commencement of Proposed Public Offering: As soon as
practical after the effective date of the Registration Statement.
DECLARATION PURSUANT TO RULE 24F-2
Pursuant to the provisions of Rules 24f-2 under the Investment Company Act of
1940, the Registrant hereby declares that an indefinite number or amount of
separate account units is hereby being registered under the Securities Act of
1933 The Registrant will file its Notice pursuant to Rule 24f-2 for the fiscal
year ending December 31, 1996 within the time period required by Section 24 of
the Investment Company Act of 1940 and applicable regulations thereunder.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PACIFIC INNOVATIONS
FORM N-4
CROSS REFERENCE SHEET
PART A
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Item No. Prospectus Heading
1. Cover Page Cover Page
2. Definitions SPECIAL DEFINITIONS
3. Synopsis SUMMARY; FEE TABLE
4. Condensed Financial Information YOUR INVESTMENT OPTIONS --- Variable Investment Option Performance;
ADDITIONAL INFORMATION --- Financial Statements
5. General Description of Registrant,
Depositor and Portfolio Companies SUMMARY --- What are My Investment Options?; PACIFIC MUTUAL, BANK
OF AMERICA AND THE SEPARATE ACCOUNT --- Pacific Mutual, ---
Separate Account B; YOUR INVESTMENT OPTIONS --- Your Variable
Investment Options; ADDITIONAL INFORMATION --- Voting Rights
6. Deductions and Expenses SUMMARY --- What Charges Will I Pay?, --- Can I Change My
Investment Options?; FEE TABLE; HOW YOUR PAYMENTS ARE ALLOCATED ---
Transfers; CHARGES, FEES AND DEDUCTIONS; WITHDRAWALS --- Optional
Withdrawals
7. General Description of
Variable Annuity Contracts SPECIAL DEFINITIONS; SUMMARY; WHY BUY A CONTRACT; PURCHASING YOUR
CONTRACT --- How to Apply for your Contract; HOW YOUR PAYMENTS ARE
ALLOCATED; RETIREMENT BENEFITS AND OTHER PAYOUTS --- Choosing Your
Annuity Option, --- Your
</TABLE>
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<TABLE>
<S> <C> <C>
Annuity Payments, --- Death Benefits; ADDITIONAL INFORMATION ---
Voting Rights, --- Changes to Your Contract, --- Changes to ALL
Contracts, --- Inquiries and Submitting Forms and Requests, ---
Timing of Payments and Transactions
8. Annuity Period RETIREMENT BENEFITS AND OTHER PAYOUTS
9. Death Benefit RETIREMENT BENEFITS AND OTHER PAYOUTS --- Death Benefits
10. Purchases and Contract Value SUMMARY --- How Do I Purchase a Contract?, PURCHASING YOUR
CONTRACT; HOW YOUR PAYMENTS ARE ALLOCATED; PACIFIC MUTUAL, BANK OF
AMERICA AND THE SEPARATE ACCOUNT --- Pacific Mutual; THE GENERAL
ACCOUNT --- Withdrawals and Transfers
11. Redemptions SUMMARY --- Can I Withdraw My Contract Value?, --- Can I Return My
Contract?; CHARGES, FEES AND DEDUCTIONS; WITHDRAWALS; ADDITIONAL
INFORMATION --- Timing of Payments and Transactions; THE GENERAL
ACCOUNT --- Withdrawals and Transfers
12. Taxes SUMMARY; CHARGES, FEES AND DEDUCTIONS --- Premium Taxes;
WITHDRAWALS --- Optional Withdrawals, --- Tax Consequences of
Withdrawals; FEDERAL TAX STATUS
13. Legal Proceedings Not Applicable
14. Table of Contents of the Statement
of Additional Information CONTENTS OF THE SAI
PART B
Item No. Statement of Additional Information Heading
</TABLE>
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<TABLE>
<S> <C> <C>
15. Cover Page Cover Page
16. Table of Contents TABLE OF CONTENTS
17. General Information and History Not Applicable
18. Services Not Applicable
19. Purchase of Securities Being Offered THE CONTRACTS AND THE SEPARATE ACCOUNT --- Calculating Subaccount
Unit Values, --- Systematic Transfer Programs
20. Underwriters DISTRIBUTION OF THE CONTRACTS --- Pacific Mutual Distributors, Inc.
21. Calculation of Performance Data PERFORMANCE
22. Annuity Payments THE CONTRACTS AND THE SEPARATE ACCOUNT --- Variable Annuity Payment
Amounts
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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PACIFIC INNOVATIONS
AN INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY PACIFIC MUTUAL LIFE INSURANCE COMPANY
MAILING ADDRESS: P.O. BOX 7187
PASADENA, CALIFORNIA 91109-7187
1-800-722-5558
This Prospectus describes Pacific Innovations (the "Contract") offered by
Pacific Mutual Life Insurance Company ("Pacific Mutual"). The Contracts provide
purchasers with flexibility in long-term financial planning, including planning
for retirement. Contracts are available both to individuals and under certain
tax-qualified retirement plans. Payout options under the Contracts include
variable annuities funded through Pacific Mutual's Separate Account B (the
"Separate Account") and fixed annuities funded through Pacific Mutual's General
Account.
Seven Variable Investment Options are currently available; each is a
subaccount of the Separate Account, and provides variable returns by investing
in shares of a corresponding Fund of Pacific Innovations Trust, a Delaware
Business Trust ("Pacific Innovations Trust"):
<TABLE>
<S> <C>
Money Market Fund Mid-Cap Equity Fund
Managed Bond Fund Aggressive Growth Fund
Capital Income Fund International Fund
Blue Chip Fund
</TABLE>
A Fixed Option is also available; it provides a fixed rate of return and is
funded through Pacific Mutual's General Account.
THIS PROSPECTUS PROVIDES INFORMATION THAT YOU SHOULD KNOW BEFORE PURCHASING
A CONTRACT. IN ADDITION, THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS
FOR THE PACIFIC INNOVATIONS TRUST. YOU SHOULD READ BOTH OF THESE PROSPECTUSES
CAREFULLY AND RETAIN THEM FOR YOUR FUTURE REFERENCE.
Additional information about the Contract and the Separate Account has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information ("SAI"), dated , 1996. You may obtain a free copy of the
SAI by writing or calling Pacific Mutual. The information contained in the SAI
is incorporated by reference into this Prospectus. The table of contents for the
SAI appears on page of this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK. IT IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN A CONTRACT INVOLVES RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
------------------------
THE CONTRACT IS NOT AVAILABLE IN ALL STATES AND THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY JURISDICTION IN WHICH SUCH AN OFFER MAY NOT BE MADE
LAWFULLY. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED SAI (OR ANY
SALES LITERATURE APPROVED BY PACIFIC MUTUAL), AND ANY SUCH
UNAUTHORIZED INFORMATION OR REPRESENTATION IS,
IF GIVEN OR MADE, NOT TO BE RELIED UPON.
DATED:
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SPECIAL DEFINITIONS................................................................... 4
SUMMARY............................................................................... 7
FEE TABLE............................................................................. 8
WHY BUY A CONTRACT.................................................................... 10
YOUR INVESTMENT OPTIONS............................................................... 10
Your Variable Investment Options................................................. 10
Variable Investment Option Performance........................................... 11
Your Fixed Option................................................................ 11
PURCHASING YOUR CONTRACT.............................................................. 11
How to Apply for Your Contract................................................... 11
Making Your Purchase Payments.................................................... 12
HOW YOUR PAYMENTS ARE ALLOCATED....................................................... 12
Choosing Your Investment Options................................................. 12
Investing in Variable Investment Options......................................... 13
When Your Investment is Effective................................................ 13
Transfers........................................................................ 13
CHARGES, FEES AND DEDUCTIONS.......................................................... 14
Withdrawal Charge................................................................ 14
Premium Taxes.................................................................... 16
Annual Fee....................................................................... 16
Waivers and Reduced Charges...................................................... 16
Mortality and Expense Risk Charge................................................ 16
Administrative Fee............................................................... 17
Expenses of the Trust............................................................ 17
RETIREMENT BENEFITS AND OTHER PAYOUTS................................................. 17
Selecting Your Annuitant......................................................... 17
Annuitization.................................................................... 18
Choosing Your Annuity Date ("Annuity Start Date")................................ 18
Default Annuity Date and Options................................................. 18
Choosing Your Annuity Option..................................................... 19
Your Annuity Payments............................................................ 20
Death Benefits................................................................... 20
WITHDRAWALS........................................................................... 22
Optional Withdrawals............................................................. 22
Tax Consequences of Withdrawals.................................................. 24
Right to Cancel.................................................................. 24
PACIFIC MUTUAL AND THE SEPARATE ACCOUNT............................................... 24
Pacific Mutual................................................................... 24
Separate Account B............................................................... 25
FEDERAL TAX STATUS.................................................................... 25
Taxes Payable by Contract Owners: General Rules.................................. 26
Qualified Contracts.............................................................. 27
Loans............................................................................ 28
Withholding...................................................................... 30
Impact of Federal Income Taxes................................................... 30
Taxes on Pacific Mutual.......................................................... 31
</TABLE>
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<TABLE>
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PAGE
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ADDITIONAL INFORMATION................................................................ 31
Voting Rights.................................................................... 31
Changes to Your Contract......................................................... 31
Changes to ALL Contracts......................................................... 32
Inquiries and Submitting Forms and Requests...................................... 33
Telephone Transactions........................................................... 33
Timing of Payments and Transactions.............................................. 34
Confirmations Statements and Other Reports to Contract Owners.................... 34
Sales Commissions................................................................ 35
Financial Statements............................................................. 35
Legal Matters.................................................................... 35
THE GENERAL ACCOUNT................................................................... 35
General Information.............................................................. 35
Guarantee Terms.................................................................. 35
Withdrawals and Transfers........................................................ 36
CONTENTS OF THE SAI................................................................... 37
APPENDIX A: STATE LAW VARIATIONS...................................................... 38
</TABLE>
3
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SPECIAL DEFINITIONS
In this Prospectus, "we," "our" and "us" refer to Pacific Mutual Life Insurance
Company ("Pacific Mutual"); "you" and "your" refer to the Contract Owner.
Account Value--The amount of your Contract Value allocated to a specified
Variable Investment Option or the Fixed Option.
Annual Fee--A $30 fee charged each year on your Contract Anniversary and at the
time of a full withdrawal, if your Net Contract Value is less than $50,000 on
that date.
Annuitant--A person on whose life annuity payments may be determined. An
Annuitant's life may also be used to determine certain increases in death
benefits, and to determine the Annuity Date. A Contract may name a single
("sole") Annuitant or two ("Joint") Annuitants, and may also name a "Contingent"
Annuitant. If you name Joint Annuitants or a Contingent Annuitant, "the
Annuitant" means the sole surviving Annuitant, unless otherwise stated.
Annuity Date ("Annuity Start Date")--The date specified in your Contract, or the
date you later elect, if any, for the start of annuity payments if the Annuitant
(or Joint Annuitants) is (or are) still living and your Contract is in force; or
if earlier, the date that annuity payments actually begin.
Annuity Option--Any one of the income options available for a series of payments
after your Annuity Date.
Beneficiary--A person who may have a right to receive the death benefit payable
upon the death of the Annuitant or a Contract Owner prior to the Annuity Date,
or has a right to receive remaining guaranteed annuity payments, if any, if the
Annuitant dies after the Annuity Date.
Business Day--Any day on which the value of an amount invested in a Variable
Investment Option can be determined, which currently includes each day that the
New York Stock Exchange is open for trading and on which our administrative
offices are open. The New York Stock Exchange is closed on weekends and on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
July Fourth, Labor Day, Thanksgiving Day and Christmas Day. We may choose to
close on other holidays, a day immediately preceding or following a national
holiday, or in emergency situations. In this Prospectus, "day" or "date" means
Business Day unless otherwise specified. If a transaction is scheduled to occur
on a Business Day, the transaction shall be effected on the basis of Unit Values
determined as of 4:00 P.M. Eastern time on that Business Day. If any transaction
or event called for under a Contract is scheduled to occur on a day that is not
a Business Day, such transaction or event will be deemed to occur on the next
following Business Day unless otherwise specified. Special circumstances such as
leap years and months with fewer than 31 days are discussed in the SAI. Each
Business Day ends at 4:00 p.m. Eastern time or at the close of the New York
Stock Exchange, if earlier.
Code--The Internal Revenue Code of 1986, as amended.
Contingent Annuitant--If designated, a person in your Contract, who will become
your sole surviving Annuitant if your existing sole Annuitant (or both Joint
Annuitants) should die before your Annuity Date.
Contingent Owner--If designated, a person in your Contract, who will succeed to
the rights as a Contract Owner of your Contract if all named Contract Owners
die.
Contract Anniversary--The same date, in each subsequent year, as your Contract
Date.
Contract Date--The date we issue your Contract.
Contract Debt--As of the end of any given Business Day, the principal amount you
have outstanding on any loan under your Contract, plus any accrued and unpaid
interest. Loans are available only on certain Qualified Contracts.
Contract Owner--Generally, a person who purchases a Contract and makes the
Purchase Payments. A Contract Owner has all rights in the Contract, including
the right to make withdrawals, designate and change
4
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beneficiaries, transfer amounts among Investment Options, and designate an
Annuity Option. If your Contract names Joint Owners, both Joint Owners are
Contract Owners and share all such rights.
Contract Value--As of the end of any Business Day, the sum of your Variable
Account Value, Fixed Option Value, and the Loan Account Value.
Contract Year--A year that starts on the Contract Date or on a Contract
Anniversary.
Earnings--As of the end of any Business Day, your Earnings equal your Contract
Value less your aggregate Purchase Payments which are reduced by withdrawals of
prior Purchase Payments.
Fixed Option--If you allocate all or a part of your Purchase Payments or
Contract Value to the Fixed Option, such amounts are held in our General Account
and receive interest at rates declared periodically, but not less than an annual
rate of 3%.
Fixed Option Value--The aggregate amount of your Contract Value allocated to the
Fixed Option.
Fund--A separate portfolio of the Pacific Innovations Trust.
General Account--Our General Account consists of all assets of Pacific Mutual
other than those assets allocated to Separate Account B or to any of our other
separate accounts.
Guaranteed Interest Rate--The interest rate guaranteed at the time of allocation
(or roll over) for the Guarantee Term on amounts allocated to the Fixed Option.
All Guaranteed Interest Rates are expressed as annual rates, and interest is
accrued daily. The rate will not be less than an annual rate of 3%.
Guarantee Term--The period during which the amount you allocate to the Fixed
Option earns a Guaranteed Interest Rate. This term is currently up to one-year.
Investment Option--A Variable Account or the Fixed Option offered under the
Contract.
Joint Annuitant--If your Contract is a Non-Qualified Contract, you may name two
Annuitants, called "Joint Annuitants," in your application for your Contract.
Special restrictions apply for Qualified Contracts.
Loan Account Value--The amount transferred from your Investment Options to the
General Account to secure a Contract Loan, increased by interest earned and
decreased by any principal repayments and/or withdrawals or transfers of
interest earned.
Net Contract Value--Your Contract Value less Contract Debt.
Non-Qualified Contract--A Contract other than a Qualified Contract.
Primary Annuitant--The individual that is named in your Contract, the events in
the life of whom are of primary importance in affecting the timing or amount of
the payout under the Contract.
Purchase Payment--An amount paid to us by or on behalf of a Contract Owner, as
consideration for the benefits provided under the Contract.
Qualified Contract--A Contract that qualifies under the Code as an individual
retirement annuity ("IRA"), or a Contract purchased by a Qualified Plan,
qualifying for special tax treatment under the Code.
Qualified Plan--A retirement plan that receives favorable tax treatment under
Section 401, 408, 403 or 457 of the Code.
SEC--Securities and Exchange Commission.
Separate Account B (the "Separate Account")--A separate account of Pacific
Mutual registered as a unit investment trust under the Investment Company Act of
1940.
Subaccount (also called a "Variable Account")--An investment division of the
Separate Account. Each Subaccount invests its assets in shares of a
corresponding Fund.
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Subaccount Annuity Unit--Subaccount Annuity Units (or "Annuity Units") are used
to measure variation in variable annuity payments. To the extent you elect to
convert all or some of your Contract Value into variable annuity payments, the
amount of each annuity payment (after the first payment) will vary with the
value and number of Annuity Units in each Subaccount attributed to any variable
annuity payments. At annuitization (after any applicable premium taxes and/or
other taxes are paid), the amount annuitized to a variable annuity determines
the amount of your first variable annuity payment and the number of Annuity
Units credited to your annuity in each Subaccount. The value of Subaccount
Annuity Units, like the value of Subaccount Units, is expected to fluctuate
daily, as described in the definition of "Unit Value."
Subaccount Unit--Before your Annuity Date, each time you allocate an amount to a
Subaccount, your Contract is credited with a number of Subaccount Units in that
Subaccount; these Units are used, for accounting purposes, to measure your
Account Value in that Subaccount. The value of Subaccount Units is expected to
fluctuate daily, as described in the definition of Unit Value.
Trust--Pacific Innovations Trust.
Unit Value--The value of a Subaccount Unit ("Subaccount Unit Value") or
Subaccount Annuity Unit ("Subaccount Annuity Unit Value"). Unit Value of any
Subaccount is subject to change on any Business Day in much the same way that
the value of a mutual fund share changes each day; the fluctuations in value
reflect the investment results, expenses of and charges against the Fund in
which the Subaccount invests its assets, and also reflect charges against the
Separate Account. Changes in Subaccount Annuity Unit Values also reflect an
additional factor that adjusts Subaccount Annuity Unit Values to offset our
Annuity Option Table's implicit assumption of an annual investment return of 5%;
the effect of this assumed investment return is explained in detail in the SAI.
Unit Value of a Subaccount Unit or Subaccount Annuity Unit on any Business Day
is measured as of 4:00 p.m., Eastern time, on that Business Day.
Variable Account Value--The aggregate amount of your Contract Value allocated to
all Subaccounts.
Variable Investment Option--A Subaccount.
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SUMMARY
This brief description is only an overview of the more significant features of
your Contract. More detailed information may be found in subsequent sections of
this Prospectus, in the SAI, and in the Contract itself. Endorsements to your
Contract may contain variations from the standardized information in this
Prospectus. In addition, certain variations due to requirements particular to
the issue state or jurisdiction may apply (see APPENDIX A: STATE LAW VARIATIONS
for variations in Right to Cancel). IF ANY CONTRACT ENDORSEMENTS OR SUPPLEMENTAL
VARIATIONS TO THIS PROSPECTUS CONFLICT WITH OTHER INFORMATION IN THE CONTRACT
FORM OR IN THIS PROSPECTUS, THE ENDORSEMENTS AND SUPPLEMENTS CONTROL YOUR
CONTRACT.
WHAT IS THE CONTRACT? Pacific Innovations (the "Contract") is an annuity
contract designed to be a long-term financial planning device, permitting you to
invest on a tax-deferred basis for retirement or other long-range goals, and to
receive a series of regular payments for life or a period of years. See FEDERAL
TAX STATUS.
HOW DO I PURCHASE A CONTRACT? Your initial purchase payment must be at least
$5,000 to buy a Non-Qualified Contract ($2,000 for a Qualified Contract). After
this initial payment you may make additional payments but you are not required
to do so. Your initial payment may be payable in automatic installments over
your first Contract Year. See PURCHASING YOUR CONTRACT.
WHAT ARE MY INVESTMENT OPTIONS? You select your own Investment Options. Seven of
the Investment Options are Variable Investment Options available through
Separate Account B. Each Variable Investment Option invests in a corresponding
Fund of the Trust. Bank of America National Trust and Savings Association ("Bank
of America") is the manager of the Trust, and Bank of America and the Trust have
retained other Subadvisers for two of the Funds. You bear the investment risk
associated with the Variable Investment Options, and you should expect your
Contract Value and any variable annuity payments allocated to these Variable
Investment Options to fluctuate. See HOW YOUR PAYMENTS ARE ALLOCATED.
Also available is a Fixed Option with a Guarantee Term of up to one year. This
option provides a fixed annual interest rate of at least 3%; the portion of your
Purchase Payments or Contract Value allocated to the Fixed Option is held in our
General Account. You may select as many Investment Options as you wish until the
Annuity Date. After the Annuity Date, the Variable Investment Options may be
selected if you choose variable annuity payments.
CAN I CHANGE MY INVESTMENT OPTIONS? You may transfer amounts from any Investment
Option to another on or prior to your Annuity Date; after your Annuity Date, up
to four exchanges of Subaccount Annuity Units may be made in any twelve-month
period. Certain restrictions apply to the Fixed Option. You may transfer amounts
automatically using dollar cost averaging, automatic portfolio rebalancing, or
an earnings sweep. Transaction fees may be imposed in the future for excessive
transfers. See HOW YOUR PAYMENTS ARE ALLOCATED--TRANSFERS and THE GENERAL
ACCOUNT--WITHDRAWALS AND TRANSFERS in this Prospectus and THE CONTRACTS AND THE
SEPARATE ACCOUNT--SYSTEMATIC TRANSFER PROGRAMS in the SAI.
WHAT CHARGES WILL I PAY? An Administrative Fee equal to an annual factor
expressed as a decimal (where 1.00 is equal to 100%) of 0.0015, and a mortality
and expense risk charge equal to an annual factor of 0.0125, are charged against
assets held in the Variable Investment Options. Amounts invested in the Variable
Investment Options are also subject to the operating expenses paid by the
corresponding Fund of the Trust. Before the Annuity Date, an Annual Fee of $30
is charged each year and at the time of a full withdrawal if your Net Contract
Value is less than $50,000. When you withdraw amounts attributed to Purchase
Payments from your Contract Value, you may be subject to a contingent deferred
sales charge (or "withdrawal charge") of up to 7%, which is determined by the
amount of your withdrawal and the length of time you held the Purchase Payment
considered withdrawn under your Contract. You may also be subject to other fees.
See CHARGES, FEES AND DEDUCTIONS.
CAN I WITHDRAW MY CONTRACT VALUE? Generally, you may withdraw all or part of
your Contract Value at any time on or prior to your Annuity Date. Certain
restrictions are imposed on withdrawals from the Fixed Option and certain
Qualified Contracts. Withdrawals may be subject to fees and charges, taxation
and, in certain
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circumstances, a tax penalty. See WITHDRAWALS, FEDERAL TAX STATUS and THE
GENERAL ACCOUNT--WITHDRAWALS AND TRANSFERS.
CAN I RETURN MY CONTRACT? For a limited time, usually 10 days after you receive
it, you may return your Contract for a refund in accordance with the terms of
its "Right to Cancel" provision. See WITHDRAWALS--RIGHT TO CANCEL.
HOW DO I REACH PACIFIC MUTUAL? You can reach our service representatives between
6:00 a.m. and 5:00 p.m., Pacific time, at 1-800-722-5558. To send payments,
forms, or requests, see ADDITIONAL INFORMATION--INQUIRIES AND SUBMITTING FORMS
AND REQUESTS.
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly under your
Contract. Expenses shown under "Contract Owner Transaction Expenses" and
"Separate Account B Annual Expenses" are specified under the terms of the
Contract. Expenses shown under "Pacific Innovations Trust Annual Expenses" are
estimated expenses and may vary from year to year. In addition to the charges
and expenses described below, a charge for premium taxes and/or other taxes may
apply. See CHARGES, FEES AND DEDUCTIONS--PREMIUM TAXES in this Prospectus, the
discussion under ORGANIZATION AND MANAGEMENT OF THE TRUST in the Trust's
Prospectus, and MANAGER in the Trust's SAI.
<TABLE>
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CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments......................... None
Maximum Withdrawal Charge(1)...................................... 7.0%
(computed as a percentage of Purchase Payments)
Withdrawal Transaction Fee(2)..................................... None
Transfer Fee(3)................................................... None
Annual Fee(4)..................................................... $30.00
SEPARATE ACCOUNT B ANNUAL EXPENSES
(as a percentage of average daily account value)
Mortality and Expense Risk Charge.............................. 1.25%
Administrative Fee............................................. 0.15%
------
Total Separate Account B Annual Expenses....................... 1.40%
======
</TABLE>
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(1) The withdrawal charge, also called a "contingent deferred sales charge,"
may not apply or may be reduced under certain circumstances. See CHARGES,
FEES AND DEDUCTIONS.
(2) We reserve the right to impose a transaction fee in the future of up to $15
per withdrawal on partial withdrawals in excess of 15 in any Contract Year.
See WITHDRAWALS--OPTIONAL WITHDRAWALS.
(3) We reserve the right to impose a transaction fee in the future of up to $15
per transfer on transfers in excess of 15 in any Contract Year. See HOW
YOUR PAYMENTS ARE ALLOCATED--TRANSFERS.
(4) This fee will be charged on each Contract Anniversary prior to your Annuity
Date and at the time of a full withdrawal of any Contract Value, unless
your Net Contract Value is at least $50,000 on that date.
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PACIFIC INNOVATIONS TRUST ANNUAL EXPENSES
(AS A PERCENTAGE OF FUND AVERAGE NET ASSETS, ESTIMATED)
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<CAPTION>
MANAGEMENT OTHER TOTAL
FEE EXPENSES EXPENSES
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Money Market.................................................... 0.22 0.38 0.60
Managed Bond.................................................... 0.37 0.38 0.75
Capital Income.................................................. 0.48 0.39 0.87
Blue Chip....................................................... 0.53 0.41 0.94
Mid-Cap Equity.................................................. 0.53 0.41 0.94
Aggressive Growth............................................... 0.61 0.42 1.03
International................................................... 0.66 0.58 1.24
</TABLE>
Example: If, at the end of the indicated time period, you withdraw your
entire Variable Account Value or your entire Contract Value, you would pay
the following cumulative expenses on each $1,000 invested, assuming 5%
annual return on assets:
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<CAPTION>
1 YEAR 3 YEARS
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<S> <C> <C>
Money Market.............................................................. $84.15 $110.21
Managed Bond.............................................................. 85.65 114.76
Capital Income............................................................ 86.85 118.36
Blue Chip................................................................. 87.56 120.49
Mid-Cap Equity............................................................ 87.56 120.49
Aggressive Growth......................................................... 88.46 123.19
International............................................................. 90.55 129.47
</TABLE>
Example: If, at the end of the indicated time period, you neither withdraw
your entire Variable Account Value nor your entire Contract Value, whether
you annuitize or not, you would pay the following cumulative expenses on
each $1,000 invested, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Money Market............................................................... $21.15 $ 65.21
Managed Bond............................................................... 22.65 69.76
Capital Income............................................................. 23.85 73.38
Blue Chip.................................................................. 24.56 75.49
Mid-Cap Equity............................................................. 24.56 75.49
Aggressive Growth.......................................................... 25.46 78.19
International.............................................................. 27.55 84.47
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES INCURRED IN ANY GIVEN YEAR MAY BE MORE OR LESS THAN
THOSE SHOWN IN THE EXAMPLES. None of the Funds had begun operations as of
January 1, 1997 and the "Other Expenses" are estimated. The Total Expenses
reflect the policy, adopted by Bank of America and by Pacific Mutual to waive
their fees for services rendered to the Trust and reimburse expenses so that the
Total Expenses on an annual basis (exclusive of interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures, and
extraordinary expenses) are no greater than the Total Expenses shown in the
table above for each Fund. Bank of America and Pacific Mutual intend to continue
this policy until such time as the annualized expenses of a Fund are less than
the Total Expenses shown in the table; however, Bank of America and Pacific
Mutual may discontinue such fee waivers and expense reimbursements at any time.
See THE BUSINESS OF THE FUNDS in the Trust's Prospectus.
The Annual Fee is reflected in the examples, using an assumed Contract Value of
$40,000. No Annual Fee is deducted from annuitized amounts or if your Net
Contract Value is at least $50,000.
9
<PAGE> 15
WHY BUY A CONTRACT
Your Pacific Innovations Contract (your "Contract") is an annuity contract that
provides you with flexibility in tax-deferred retirement planning or other
long-term financial planning. You may select among seven Variable Investment
Options and one Fixed Option. You may choose to add to your Contract Value at
any time before the Annuity Date, and your additional Purchase Payments may be
in any amount you choose (subject to certain limitations). When you annuitize,
we will send the payee a series of variable and/or fixed payments for life or
for a specified number of years.
If you purchase a Contract with after-tax dollars ("Non-Qualified Contract") or
if your Contract is purchased through a Qualified Plan or IRA ("Qualified
Contract"), your earnings on the Contract are not subject to tax until amounts
are withdrawn or distributed (including annuity payments). See FEDERAL TAX
STATUS.
YOUR INVESTMENT OPTIONS
You may choose among seven different Variable Investment Options and the Fixed
Option.
YOUR VARIABLE INVESTMENT OPTIONS
Separate Account B, a separate account of Pacific Mutual, currently offers you
seven "Variable Investment Options" (also called "Subaccounts"). Each Variable
Investment Option invests in a separate Fund of the Trust. Your Variable
Investment Options are:
- Money Market Subaccount
- Managed Bond Subaccount
- Capital Income Subaccount
- Blue Chip Subaccount
- Mid-Cap Equity Subaccount
- Aggressive Growth Subaccount
- International Subaccount
10
<PAGE> 16
What Are Each of These Options?
For your convenience, the following chart summarizes some basic data about each
Fund. THIS CHART IS ONLY A SUMMARY. FOR MORE COMPLETE INFORMATION ON EACH FUND,
INCLUDING A DISCUSSION OF THE FUND'S INVESTMENT TECHNIQUES AND THE RISKS
ASSOCIATED WITH ITS INVESTMENTS, SEE THE ACCOMPANYING TRUST PROSPECTUS. NO
ASSURANCE CAN BE GIVEN THAT A FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. YOU
SHOULD READ THE TRUST PROSPECTUS CAREFULLY BEFORE INVESTING.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE PRIMARY INVESTMENTS ADVISER/SUBADVISER
(UNDER NORMAL
CONDITIONS)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Money Market Liquidity and current Short-term debt Bank of America
income consistent with obligations issued or
preservation of capital guaranteed by U.S.
Government, its
agencies, authorities
or instrumentalities
- ------------------------------------------------------------------------------------------------
Managed Bond Interest income and Investment grade, Scudder, Stevens &
capital appreciation intermediate and longer Clark, Inc.
term bonds.
- ------------------------------------------------------------------------------------------------
Capital Income Total investment Convertible bonds and Bank of America
return, comprised of convertible preferred
current income and stocks
capital appreciation
- ------------------------------------------------------------------------------------------------
Blue Chip Long-term capital Blue chip stocks Bank of America
appreciation
- ------------------------------------------------------------------------------------------------
Mid-Cap Equity Capital appreciation Stocks of companies Bank of America
with medium market
capitalizations
- ------------------------------------------------------------------------------------------------
Aggressive Growth Maximize capital Common stocks and Bank of America
appreciation securities convertible
into common stocks of
companies with smaller
market capitalizations
- ------------------------------------------------------------------------------------------------
International Long-term capital Foreign equity Wellington Management
growth securities. Company
- ------------------------------------------------------------------------------------------------
</TABLE>
The Trust Manager
Bank of America is the manager of the Trust. Bank of America and the Trust have
retained other Subadvisers, supervised by Bank of America, for two of the Funds.
YOUR FIXED OPTION
The Fixed Option offers you a guaranteed minimum interest rate on the amounts
you allocate to this Option. Amounts you allocate to the Fixed Option, and your
earnings credited, become part of Pacific Mutual's General Account. For more
detailed information about these Options, see THE GENERAL ACCOUNT section in
this Prospectus.
PURCHASING YOUR CONTRACT
HOW TO APPLY FOR YOUR CONTRACT
To purchase a Contract, fill out an application and submit it along with your
initial Purchase Payment to Pacific Mutual Life Insurance Company at P.O. Box
100060, Pasadena, California 91189-0060. If your
11
<PAGE> 17
application and payment are complete when received, or once they have become
complete, we will issue your Contract within two Business Days. If some
information is missing from your application, we may delay issuing your Contract
while we obtain the missing information; however, we will not hold your initial
Purchase Payment for more than five Business Days without seeking your
permission.
You may also purchase a Contract by exchanging your existing contract. You must
submit all contracts to be exchanged when you submit your application. Call your
representative, or call us at 1-800-722-5558, if you are interested in this
option.
We reserve the right to reject any application or Purchase Payment for any
reason, subject to any applicable nondiscrimination laws and to our own
standards and guidelines. The maximum age of a Contract Owner, including Joint
and Contingent Owners, for which a Contract will be issued is 85. The Contract
Owner's age is calculated as of his or her attained birthday.
MAKING YOUR PURCHASE PAYMENTS
Making Your Initial Payment
Your initial Purchase Payment must be at least $5,000 if you are buying a
Non-Qualified Contract, and at least $2,000 if you are buying a Qualified
Contract. You may pay this entire amount when you submit your application, or
you may choose our pre-authorized checking plan ("PAC"), which allows you to pay
in equal monthly installments over one year (at least $400 per month for
Non-Qualified Contracts, and at least $150 per month for Qualified Contracts).
If you choose PAC, you must make your first installment payment when you submit
your application. Further requirements for PAC are discussed in the PAC form.
You must obtain our consent before making an initial or additional Purchase
Payment that will bring your aggregate Purchase Payments over $500,000.
Making Additional Payments
You may choose to invest additional amounts in your Contract at any time. Each
additional Purchase Payment must be at least $100 for Non-Qualified Contracts
and $50 for Qualified Contracts.
Forms of Payment
Your initial and additional Purchase Payments may be sent by personal or bank
check or by wire transfer. You may also make additional PAC Purchase Payments
via electronic funds transfer. All checks must be drawn on U.S. funds. If you
make Purchase Payments by check other than a cashier's check, your payment of
any withdrawal proceeds and any refund during your "Right to Cancel" period may
be delayed until your check has cleared.
HOW YOUR PAYMENTS ARE ALLOCATED
CHOOSING YOUR INVESTMENT OPTIONS
You may allocate your Purchase Payments among the seven Subaccounts and the
Fixed Option. Allocations of your initial Purchase Payment to the Investment
Options you selected will be effective either on your Contract Date or on your
Right to Cancel Transfer Date. Any additional Purchase Payments received prior
to your Right to Cancel Transfer Date will be allocated to the Investment
Options you selected either on the Business Day we receive the Payment in proper
form or on your Right to Cancel Transfer Date. See WITHDRAWALS--RIGHT TO CANCEL.
Each additional Purchase Payment after the Right to Cancel Transfer Date will be
allocated to the Investment Options according to your allocation instructions in
your application, or most recent instructions, if any. We reserve the right, in
the future, to require that your allocation to any particular Investment Option
meet a certain minimum amount.
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<PAGE> 18
INVESTING IN VARIABLE INVESTMENT OPTIONS
Each time you allocate your investment to a Variable Investment Option, your
Contract is credited with a number of "Subaccount Units" in that Subaccount. The
number of Subaccount Units credited is equal to the amount you have allocated to
that Subaccount, divided by the "Unit Value" of one Unit of that Subaccount.
Example: You allocate $600 to the Capital Income Subaccount. At the end of
the Business Day on which your allocation is effective, the value of one
Unit in the Capital Income Subaccount is $15. As a result, 40 Subaccount
Units are credited to your Contract for your $600.
Your Variable Account Value Will Change
After we credit your Contract with Subaccount Units, the value of those Units
will usually fluctuate. This means that, from time to time, your investment
allocated to the Variable Investment Options may be worth more or less than the
original Purchase Payments to which those amounts can be attributed.
Fluctuations in Subaccount Unit Value will not change the number of Units
credited to your Contract.
Subaccount Unit Values will vary in accordance with the investment performance
of the corresponding Fund. For example, the value of Units in the Blue Chip
Subaccount will change to reflect the performance of the Blue Chip Fund
(including that Fund's investment income, its capital gains and losses, and its
expenses). Subaccount Unit Values are also adjusted to reflect the
Administrative Fee and Risk Charge imposed on the Separate Account.
We calculate the value of all Subaccount Units as of 4:00 p.m., Eastern time on
each Business Day. The SAI contains a detailed discussion of these calculations.
WHEN YOUR INVESTMENT IS EFFECTIVE
The day your allocation is effective determines the Unit Value at which
Subaccount Units are attributed to your Contract. In the case of transfers or
withdrawals, the effective day determines the Unit Value at which affected
Subaccount Units are debited and/or credited under your Contract. That Value is
the value of the Subaccount Units next calculated after your transaction is
effective. Your Variable Account Value begins to reflect the investment
performance results of your new allocations on the day after your transaction is
effective.
Your initial Purchase Payment is ordinarily effective on the day we issue your
Contract. Any additional allocation is effective on the day we receive your
Purchase Payment in proper form.
TRANSFERS
Once your payments are allocated to the Investment Options you selected, you may
transfer your Contract Value, less Loan Account Value, from any Investment
Option to any other. Certain restrictions apply to the Fixed Option. See THE
GENERAL ACCOUNT--WITHDRAWALS AND TRANSFERS. Transfer requests are normally
effective on the Business Day we receive them in proper form. If your Contract
was issued in a state that requires refund of Purchase Payments under your Right
to Cancel, or if your contract is an IRA, transfers may only be made after your
Right to Cancel Transfer Date. See WITHDRAWALS--RIGHT TO CANCEL.
No transfer fee is currently imposed for transfers among the Investment Options,
but we reserve the right to impose a transaction fee for transfers in the
future; a fee of up to $15 per transfer may apply to transfers in excess of 15
in any Contract Year. Transfers under the dollar cost averaging and earnings
sweep options are counted toward your total transfers in a Contract Year. Any
such fee would be charged against your Investment Options proportionately, based
on your relative Account Value in each immediately after the transfer.
We have the right, at our option, to require certain minimums in the future in
connection with transfers; these may include a minimum transfer amount and a
minimum Account Value, if any, for the Investment Option from which the transfer
is made or to which the transfer is made. If your transfer request results in
your having a remaining Account Value in an Investment Option that is less than
the minimum amount, we may transfer
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<PAGE> 19
that remaining amount to your other Investment Options in the proportions
specified in your current allocation instructions. We also reserve the right to
limit the size of transfers, to limit the number and frequency of transfers, to
restrict transfers, and to suspend transfers. We reserve the right to reject any
transfer request. Currently, the only restriction is that we will not accept
instructions from agents acting under a power of attorney or otherwise on behalf
of multiple Contract Owners.
Exchanges of Annuity Units in any Subaccount(s) to any other Subaccount(s) after
annuitization are limited to four in any twelve-month period. See THE GENERAL
ACCOUNT--WITHDRAWALS AND TRANSFERS AND THE CONTRACTS AND THE SEPARATE ACCOUNT in
the SAI.
Dollar Cost Averaging
Dollar cost averaging is a method in which you buy securities in a series of
regular purchases instead of in a single purchase. This allows you to average
the securities' prices over time, and may permit a "smoothing" of abrupt peaks
and drops in price. Prior to your Annuity Date, you may use dollar cost
averaging to transfer amounts, over time, from any Variable Investment Option or
the Fixed Option with an Account Value of at least $5,000 to one or more other
Variable Investment Options. Each transfer must be for at least $250. Detailed
information appears in the SAI.
Portfolio Rebalancing
You may instruct us to maintain a specific balance of Variable Investment
Options under your Contract (e.g.,30% in the Blue Chip Subaccount, 40% in the
Capital Income Subaccount, and 30% in the Aggressive Growth Subaccount) prior to
your Annuity Date. Periodically, we will "rebalance" your values in the elected
Subaccounts to the percentages you have specified. Rebalancing may result in
transferring amounts from a Subaccount earning a relatively higher return to one
earning a relatively lower return. The Fixed Option is not available for
rebalancing. Detailed information appears in the SAI.
Earnings Sweep
You may instruct us to make automatic periodic transfers of your earnings from
the Money Market Subaccount or from the Fixed Option to one or more Variable
Investment Options (other than the Money Market Subaccount). Detailed
information appears in the SAI.
CHARGES, FEES AND DEDUCTIONS
WITHDRAWAL CHARGE
No sales charge is imposed on any Purchase Payment. Your Purchase Payments may,
however, be subject to a withdrawal charge; this charge may apply to amounts you
withdraw under your Contract, depending on the length of time each Purchase
Payment has been invested and on the amount you withdraw. No withdrawal charge
is imposed on (i) amounts annuitized after the first Contract Year, if
annuitized for at least five years, (ii) payments of death benefits, (iii)
withdrawals by Contract Owners to meet the minimum distribution rules for
Qualified Contracts as they apply to amounts held under the Contract, or (iv)
subject to medical evidence satisfactory to us, after the first Contract
Anniversary, full or partial withdrawals if the last or sole Annuitant has been
diagnosed with a medically determinable condition that results in a life
expectancy of twelve (12) months or less. We will not impose a withdrawal charge
on withdrawals of Purchase Payments held under your Contract for at least five
Contract Years. In no event will the aggregate withdrawal charges imposed exceed
7.0% of your total Purchase Payments.
Free Withdrawals
We will not impose a withdrawal charge on your withdrawal to the extent that
total withdrawals that are free of charge during the Contract Year do not exceed
10% of the sum of your remaining Purchase Payments at the beginning of the
Contract Year that have been held under your Contract for less than six years
plus additional Purchase Payments applied to your Contract during that Contract
Year. Our calculations of the withdrawal
14
<PAGE> 20
charge deduct this "free 10%" from your "oldest" Purchase Payment that is still
otherwise subject to the charge.
Example: You make an initial Purchase Payment of $10,000 in Contract Year
1, and make additional Purchase Payments of $1,000 and $6,000 in Contract
Year 2. With Earnings, your Contract Value in Contract Year 3 is $19,000.
In Contract Year 3, you may withdraw $1,700 free of the withdrawal charges
(your total Purchase Payments were $17,000, so 10% of that total equals
$1,700). After this withdrawal, your Contract Value is $17,300 ($15,300
attributable to Purchase Payments and $2,000 attributable to earnings). In
Contract Year 4, your Contract Value falls to $12,500; you may withdraw
$1,530 (10% of $15,300) free of any withdrawal charges.
How the Charge is Determined
We calculate your withdrawal charge by assuming that amounts withdrawn are
attributed to Purchase Payments in the order the Payments were received by us,
then to Earnings. The amount of the charge depends on how long each Purchase
Payment was held under your Contract. Each Purchase Payment you make is
considered to have a certain "age," depending on the length of time since that
payment was effective. A payment is "one year old" or has an "age of one" from
the day it is effective until your next Contract Anniversary; beginning on that
Contract Anniversary, your payment will have an "age of two" for a full Contract
Year. When you withdraw an amount subject to the withdrawal charge, the "age" of
the Purchase Payment you withdraw determines the level of withdrawal charge as
follows:
<TABLE>
<CAPTION>
"AGE" OF PAYMENT WITHDRAWAL
IN YEARS CHARGE
- ------------------ ----------
<S> <C>
1 7%
2 6%
3 5%
4 3%
5 1%
6 or more 0%
</TABLE>
Example: If in the example above, in Contract Year 3, a gross withdrawal of
$2,000 instead of $1,700 was requested, it would generate a withdrawal
charge of $15, calculated by subtracting the "free 10%" (10% X $17,000 =
$1,700) from the withdrawal amount ($2,000) and applying to the result
($300) the applicable withdrawal charge percentage (5%). The net withdrawal
proceeds to you would be $1,985. After this withdrawal, the remaining
Contract Value would be $17,000, of which $15,000 would be attributable to
Purchase Payments and $2,000 to Earnings.
The withdrawal charge will be deducted proportionally among all Investment
Options from which the withdrawal occurs. Any applicable Annual Fee will be
deducted after the withdrawal charge is calculated. See THE GENERAL
ACCOUNT--WITHDRAWALS AND TRANSFERS.
We pay sales commissions and other expenses associated with promotion and sales
of the Contracts to broker-dealers. The withdrawal charge is designed to
reimburse us for these costs, although we expect that our actual expenses will
be greater than the amount of the withdrawal charge.
Transfers
Transfers of all or part of your Account Value from one Investment Option to
another is not considered a withdrawal of an amount from your Contract, so no
withdrawal charge is imposed at the time of transfer. See HOW YOUR PAYMENTS ARE
ALLOCATED--TRANSFERS AND THE GENERAL ACCOUNT--WITHDRAWALS AND TRANSFERS.
15
<PAGE> 21
PREMIUM TAXES
Depending on (among other factors) your state of residence, a tax may be imposed
on your Purchase Payments at the time your payment is made, at the time of a
partial or full withdrawal, at the time any death benefit proceeds are paid, at
annuitization or at such other time as taxes may be imposed. Tax rates ranging
from 0% to 3.5% are currently in effect, but may change in the future. Some
local jurisdictions also impose a tax.
If we pay any taxes attributable to Purchase Payments ("premium taxes") on your
behalf, we will impose a similar charge against your Contract Value. We normally
will charge you when you annuitize some or all of your Contract Value. We
reserve the right to impose this charge for applicable premium taxes when you
make a full or partial withdrawal, at the time any death benefit proceeds are
paid, or when those taxes are incurred. For these purposes, "premium taxes"
include any state or local premium taxes and, where approval has been obtained,
federal premium taxes and any federal, state or local income, excise, business
or any other type of tax (or component thereof) measured by or based upon,
directly or indirectly, the amount of payments we have received. We will base
this charge on the Contract Value, the amount of the transaction, the aggregate
amount of Purchase Payments we receive under your Contract, or any other amount,
that in our sole discretion we deem appropriate.
We may also charge the Separate Account or your Contract Value for taxes
attributable to the Separate Account or the Contract, including income taxes
attributable to the Separate Account or to our operations with respect to the
Contract, or taxes attributable, directly or indirectly, to Purchase Payments or
payments we make under the Contract. Currently, we do not impose any such
charges.
ANNUAL FEE
We will charge you an Annual Fee of $30 on each Contract Anniversary prior to
the Annuity Date and at the time you withdraw your entire Net Contract Value, if
your Net Contract Value is less than $50,000 on that date. The fee is not
imposed on amounts you annuitize or on payment of death benefit proceeds. The
fee reimburses certain of our costs in administering the Contracts and the
Separate Account; we do not intend to realize a profit from this fee or the
Administrative Fee. This fee is guaranteed not to increase for the life of your
Contract.
Your Annual Fee will be charged proportionately against your Investment Options.
Assessments against your Variable Investment Options are made by debiting some
of the Subaccount Units previously credited to your Contract; that is,
assessment of the Annual Fee does not change the Unit Value for those
Subaccounts.
WAIVERS AND REDUCED CHARGES
We may reduce or waive the withdrawal charge or Annual Fee or credit additional
amounts in situations where selling and/or maintenance costs associated with the
Contracts are reduced, such as the sale of several Contracts to the same
Contract Owner(s), sales of large Contracts and group sales. In addition, we may
waive the Annual Fee and/or credit an additional amount to the Contract Value of
those Contracts sold to officers, directors and employees of Pacific Mutual or
Bank of America and our or its affiliates, registered representatives and
employees of broker-dealers with a current selling agreement with us and their
affiliates, and employees of affiliated asset management firms ("Eligible
Employees") and immediate family members of Eligible Employees. We will only
reduce or waive such charges and fees or credit additional amounts on any
Contract where expenses associated with the sale of the Contract and/or costs
associated with administering and maintaining the Contract are reduced. Eligible
Employees and their immediate family also may purchase a Contract without regard
to minimum Purchase Payment requirements.
MORTALITY AND EXPENSE RISK CHARGE
We assess a charge against the assets of each Subaccount to compensate us for
certain mortality and expense risks that we assume under the Contracts (the
"Risk Charge"). The risk that Annuitants will live longer (and therefore receive
more annuity payments) than we predict through our actuarial calculations is
"mortality
16
<PAGE> 22
risk." We also bear mortality risk in connection with death benefits payable
under the Contracts. The risk that the expense charges and fees under the
Contracts and Separate Account are less than our actual administrative and
operating expenses is called "expense risk."
This Risk Charge is assessed daily at an annual factor expressed as a decimal
(where 1.00 is equal to 100%) of 0.0125 of each Subaccount's assets; this charge
may not be increased for the duration of your Contract. Of this amount, 0.0045
is for assuming expense risk, and 0.0080 is for assuming mortality risk.
The Risk Charge will stop at annuitization if you select a fixed annuity; the
Risk Charge will continue after annuitization if you choose any variable
annuity, even though we do not bear mortality risk if your Annuity Option is
Period Certain Only.
We will realize a gain if the Risk Charge exceeds our actual cost of expenses
and benefits, and will suffer a loss if such actual costs exceed the Risk
Charge. Any gain will become part of our General Account; we may use it for any
reason, including covering sales expenses on the Contracts.
ADMINISTRATIVE FEE
We charge an Administrative Fee as compensation for costs we incur in operating
the Separate Account and issuing and administering the Contracts, including
processing applications and payments, and issuing reports to you and to
regulatory authorities.
The Administrative Fee is assessed daily at an annual factor expressed as a
decimal (where 1.00 is equal to 100%) of 0.0015 of the assets of each
Subaccount. This fee is guaranteed not to increase for the life of your
Contract. A relationship will not necessarily exist between the actual
administrative expenses attributable to a particular Contract and the
Administrative Fee paid in respect of that particular Contract.
EXPENSES OF THE TRUST
Your Variable Account Value reflects advisory fees and other expenses incurred
by the various Funds of the Trust, net of any applicable reimbursements. These
fees and expenses may vary from year to year. The Trust is governed by its own
Board of Trustees, and your Contract does not fix or specify the level of
expenses of the Trust or any Fund. The Trust's fees and expenses are described
in detail in the Trust's Prospectus and in its SAI.
RETIREMENT BENEFITS AND OTHER PAYOUTS
SELECTING YOUR ANNUITANT
When you submit the application for your Contract, you must choose an Annuitant
and may choose a Joint Annuitant. We will send the annuity payments to the payee
that you designate. If you are buying a Qualified Contract, you must be the sole
Annuitant; if you are buying a Non-Qualified Contract you may choose yourself
and/or another person. Whether you choose to have a sole or two Joint
Annuitants, you may choose a Contingent Annuitant; more information on these
options is described in the SAI. You will not be able to add or change a sole or
Joint Annuitant after your Contract is issued; however, if you are buying a
Qualified Contract, you may add a Joint Annuitant at the time of annuitization.
You will be able to add or change a Contingent Annuitant until your Annuity Date
or the death of your sole Annuitant or both Joint Annuitants, whichever occurs
first; however, once your Contingent Annuitant has become the Annuitant under
your Contract, no additional Contingent Annuitant may be named. You may not
choose an Annuitant who has reached his or her 86th birthday at the time your
Contract is issued. This restriction applies to Joint and Contingent Annuitants
as well as to a sole Annuitant. When adding or changing Contingent Annuitants,
the newly named Contingent Annuitant must be less than age 86 at the time of
change or addition. In addition, we reserve the right to require proof of age or
survival of the Annuitant(s).
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<PAGE> 23
ANNUITIZATION
You may choose both your Annuity Date (or "Annuity Start Date") and your Annuity
Option. At the Annuity Date, you may elect to annuitize some or all of your Net
Contract Value, less any transaction fee, and any applicable charge for premium
taxes and/or other taxes, as long as the net amount you annuitize is at least
$10,000, subject to any exceptions under state law. If you annuitize only a
portion of this available Contract Value, you may have the remainder
distributed, less any applicable charge for premium taxes and/or other taxes,
any transaction fee, any applicable withdrawal charge, and any Annual Fee. We
will distribute your Net Contract Value, less any applicable charge for premium
taxes and/or other taxes, any applicable withdrawal charge, any Annual Fee, and
any transaction fee, to you in a single sum if the net amount of your Contract
Value available to convert to an annuity is less than $10,000 on your Annuity
Date. Distributions under your Contract may have tax consequences. You should
consult a qualified tax adviser for information on annuitization.
CHOOSING YOUR ANNUITY DATE ("ANNUITY START DATE")
You should choose your Annuity Start Date when you submit your application or we
will apply a default Annuity Date to your Contract.
You may change your Annuity Date by notifying us in writing (or other form
acceptable to us). We must receive your written notice at least ten Business
Days prior to the earlier of your old Annuity Date or your new Annuity Date.
Your Annuity Date cannot be earlier than your first Contract Anniversary and
must occur on or before a certain date: If you have a sole Annuitant, your
Annuity Date cannot be later than his or her 95th birthday; if you have Joint
Annuitants and a Non-Qualified Contract, your Annuity Date cannot be later than
your younger Joint Annuitant's 95th birthday; if you have Joint Annuitants and a
Qualified Contract, your Annuity Date cannot be later than your own 95th
birthday. In the case of certain trusts, the Annuity Date can not be later than
the Annuitant's 100th birthday. To meet IRS minimum distribution rules, your
Annuity Date may need to be earlier. Different requirements may apply in some
states. If your Contract is a Qualified Contract, you may also be subject to
additional restrictions. Adverse federal tax consequences may result if you
choose an Annuity Date that is prior to an Annuitant's attained age 59 1/2. See
FEDERAL TAX STATUS.
If you annuitize only a portion of your Net Contract Value on your Annuity Start
Date, you may, at that time, have the option to elect not to have the remainder
of your Contract Value distributed, but instead to continue your Contract with
that remaining Contract Value (a "continuing Contract"). If this option is
available, you would then choose a second Annuity Date for your continuing
Contract, and all references in this Prospectus to your "Annuity Date" would, in
connection with your continuing Contract, be deemed to refer to that second
Annuity Date. This option may not be available, or may be available only for
certain types of Contracts. You should be aware that some or all of the payments
received before the second Annuity Date may be fully taxable. We recommend that
you call your tax adviser for more information and specific tax advice if you
are interested in this option.
DEFAULT ANNUITY DATE AND OPTIONS
If you have a Non-Qualified Contract and you do not choose an Annuity Date when
you submit your application, your Annuity Date will be your Annuitant's 95th
birthday or your younger Joint Annuitant's 95th birthday, whichever applies;
however some states' laws may require a different Annuity Date. If you have a
Qualified Contract and fail to choose an Annuity Date, your Annuity Date will be
April 1 of the calendar year following the year your Annuitant attains age
70 1/2; if your Annuitant has already attained age 70 1/2 on the Contract Date,
your Annuity Date will be April 1 of the calendar year following your first
Contract Anniversary.
If you have not specified an Annuity Option or do not instruct us otherwise, at
your Annuity Date your Net Contract Value, less transaction fees and/or charges
for premium taxes and/or other taxes, will be annuitized (if this net amount is
at least $10,000) as follows: the net amount from your Fixed Option Value will
be
18
<PAGE> 24
converted into a fixed-dollar annuity and the net amount from your Variable
Account Value will be converted into a variable-dollar annuity directed to the
Subaccounts proportionate to your Account Value in each. If you have a
Non-Qualified Contract, or if you have a Qualified Contract and are not married,
your default Annuity Option will be Life with Ten Year Period Certain. If you
have a Qualified Contract and you are married, your default Annuity Option will
be Joint and Survivor Life with survivor payments of 50% and your spouse will
automatically be named your Joint Annuitant.
CHOOSING YOUR ANNUITY OPTION
You make three basic decisions about your annuity payments. First, you must
choose whether you want those payments to be a fixed-dollar amount and/or a
variable-dollar amount. Second, you must choose the form of annuity payments
(see ANNUITY OPTIONS). Third, you must decide how often you want annuity
payments to be made (the "frequency" of the payments). You may not change these
selections after annuitization.
Fixed and Variable Annuities
You may choose a fixed annuity (i.e., with fixed-dollar amounts), a variable
annuity (i.e., with variable-dollar amounts), or you may choose both, converting
one portion of the net amount you annuitize into a fixed annuity and another
portion into a variable annuity.
If you select a fixed annuity, each periodic annuity payment received will be
equal to the initial annuity payment, unless you select a joint and survivor
life annuity with reduced survivor payments and the Primary Annuitant dies. Any
net amount you convert to a fixed annuity will be part of our General Account.
If you select a variable annuity, you may choose as many Variable Investment
Options as you wish; the amount of the periodic annuity payments will vary with
the investment results of the Variable Investment Options selected. After the
Annuity Date, Annuity Units may be exchanged among available Variable Investment
Options up to four times in any twelve-month period. How your Contract converts
into a variable annuity is explained in more detail in THE CONTRACTS AND THE
SEPARATE ACCOUNT in the SAI.
Annuity Options
Four Annuity Options are currently available under the Contracts, although
additional options may become available in the future.
- Life Only. Periodic payments are made to the payee during his or her
lifetime. Payments stop when the Annuitant dies.
- Life with Period Certain. Periodic payments are made to the payee during
the Annuitant's lifetime, with payments guaranteed for a specified
period. You may choose to have payments guaranteed for anywhere from 5
through 30 years (in full years only). If the Annuitant dies before the
guaranteed payments are completed, the Beneficiary receives the
remainder of the guaranteed payments.
- Joint and Survivor Life. Periodic payments are made to the Primary
Annuitant during the lifetime of the Primary Annuitant. After the death
of the Primary Annuitant, periodic payments are made to the payee named
in the election if and as long as the secondary Annuitant lives. You may
choose to have the payments based on the life expectancy of the
surviving secondary Annuitant equal to 50%, 66 2/3% or 100% of the
payments made during the lifetime of the Primary Annuitant (you must
make this election when you choose your Annuity Option). Payments stop
when both Annuitants die.
- Period Certain Only. Periodic payments are made to the payee over a
specified period. You may choose to have payments continue for anywhere
from 5 through 30 years (in full years only). If the Annuitant dies
before the guaranteed payments are completed, the Beneficiary receives
the remainder of the guaranteed payments.
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Frequency of Payments
You may choose to have annuity payments made monthly, quarterly, semiannually,
or annually. The amount of a variable payment will be determined in each period
on the date corresponding to your Annuity Date, and payment will be made on the
next succeeding day.
Your initial annuity payment must be at least $250. Depending on the net amount
you annuitize, this requirement may limit your options regarding the period
and/or frequency of annuity payments.
If your Contract was issued in connection with a Qualified Plan subject to Title
I of the Employee Retirement Income Security Act of 1974 ("ERISA"), your
spouse's consent may be required when you seek any distribution under your
Contract, unless your Annuity Option is Joint and Survivor Life with survivor
payments of at least 50%, and your spouse is your Joint Annuitant.
YOUR ANNUITY PAYMENTS
Amount of the First Payment
Your Contract contains tables that we use to determine the amount of the first
annuity payment under your Contract, taking into consideration the annuitized
portion of your Net Contract Value at the Annuity Date. This amount will vary,
depending on the annuity period and payment frequency you select; this amount
will be larger in the case of shorter Period Certain annuities and smaller for
longer Period Certain annuities. Similarly, this amount will be greater for a
Life Only annuity than for a Joint and Survivor Life annuity, because we will
expect to make payments for a shorter period of time on a Life Only annuity. If
you do not choose the Period Certain Only annuity, this amount will also vary
depending on the age of the Annuitant(s) on the Annuity Date and, for some
Contracts in some states, the sex of the Annuitant(s).
For fixed annuity payments, the guaranteed income factors in our tables are
based on an annual interest rate of 3% and the 1983a Annuity Mortality Table
with the ages set back 10 years. If you elect a fixed annuity, fixed annuity
payments will be based on the periodic income factors in effect for your
Contract on the Annuity Date which are at least the guaranteed income factors
under the Contract.
For variable annuity payments, the tables are based on an assumed annual
investment return of 5% and the 1983a Annuity Mortality Table with the ages set
back 10 years. If you elect a variable annuity, your initial variable annuity
payment will be based on the applicable income factor in effect for your
Contract on the Annuity Date which is at least as great as the applicable
variable annuity income factor in our table. A higher assumed investment return
would mean a larger first variable annuity payment, but subsequent payments
would increase only when actual net investment performance exceeds the higher
assumed rate and would fall when actual net investment performance is less than
the higher assumed rate. A lower assumed rate would mean a smaller first payment
and a more favorable threshold for increases and decreases. If the actual net
investment performance is a constant 5% annually, annuity payments will be
level. The assumed investment return is explained in more detail in the SAI
under THE CONTRACTS AND THE SEPARATE ACCOUNT.
DEATH BENEFITS
A death benefit may be payable on proof of death before the Annuity Date of the
Annuitant or of any Contract Owner while the Contract is in force. The amount of
the death benefit will be paid according to the DEATH BENEFIT PROCEEDS section.
Death Benefit Proceeds
The proceeds of any death benefit payable will be paid upon receipt of proof of
death, in proper form, and instructions regarding payment and will be the amount
of the death benefit reduced by any charge for premium taxes and/or other taxes
and any Contract Debt. The death benefit proceeds will be payable in a single
sum, as an annuity, or in accordance with IRS regulations (see MANDATORY
DISTRIBUTION ON DEATH). Any such annuity is subject to all restrictions
(including minimum amount requirements) as are other
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annuities under this Contract; in addition, there may be legal requirements that
limit the recipient's Annuity Options and the timing of any payments. A
recipient should consult a qualified tax adviser before electing to receive an
annuity.
Additional provisions apply if your Contract names a Joint or Contingent Owner
or Annuitant, or if the Beneficiary, Joint Owner, or Contingent Owner is your
spouse. Further information about these provisions is contained in the SAI.
Mandatory Distribution on Death
If a Contract Owner of a Non-Qualified Contract dies before the Annuity Date,
any death benefit proceeds under this Contract must begin distribution within
five years after the Owner's death. In order to satisfy this requirement, the
designated recipient must receive a lump sum payment or elect to receive an
annuity for life or over a period that does not exceed the life expectancy of
the designated recipient with annuity payments that start within one year after
the Owner's death. If an election to receive an annuity is not made within 60
days of our receipt of proof in proper form of the Owner's death or, if earlier,
60 days (or shorter period as we permit) prior to the first anniversary of the
Owner's death, the lump sum option will be deemed elected, unless otherwise
required by law. If the lump sum option is deemed elected, we will consider that
deemed election as receipt of instructions regarding payment of death benefit
proceeds. If a Non-Qualified Contract has Joint Owners, this requirement applies
to the first Contract Owner to die.
If the Contract Owner was not an Annuitant but was a Joint Owner and there is a
surviving Joint Owner, that surviving Joint Owner is the designated recipient;
if no Joint Owner survives but a Contingent Owner is named in the Contract and
is living, he or she is the designated recipient, otherwise the designated
recipient is the Beneficiary; if no Beneficiary is living, the designated
recipient is the Owner's estate. If the Contract Owner was an Annuitant, the
designated recipient is the Beneficiary; if no Beneficiary is living, the
designated recipient is the Owner's estate. A sole designated recipient who is
the Contract Owner's spouse may elect to become the Contract Owner (and sole
Annuitant if the deceased Contract Owner had been the Annuitant) and continue
the Contract until the earliest of the spouse's death, the death of the
Annuitant, or the Annuity Start Date. A Joint or Contingent Owner who is the
designated recipient but not the Contract Owner's spouse may not continue the
Contract, but may purchase a new Contract.
If you are a non-individual Owner of a Contract other than a Contract issued
under a Qualified Plan as defined in Section 401 or 403 of the Code, the Primary
Annuitant will be treated as the Owner of the Contract for purposes of these
Distribution Rules. If there is a change in the Primary Annuitant prior to the
Annuity Date, such change will be treated as the death of the Owner. The amount
of the death benefit in this situation will be (a) the Contract Value if the
non-individual owner elects to maintain the Contract and reinvest the Contract
Value into the Contract in the same amount as immediately prior to the
distribution, or (b) the Contract Value less any Annual Fee, and any withdrawal
and/or transaction fee, any charges for withdrawals, and/or premium taxes and/or
other taxes, if the non-individual elects a cash distribution. The amount of the
death benefit will be determined as of the Business Day we receive, in proper
form, the request to change the Primary Annuitant and instructions regarding
maintaining the Contract or cash distribution.
Death Benefit Amounts
The Death Benefit Amount as of the Notice Date and prior to the Annuity Date is
equal to the greater of (a) your Contract Value as of that day, or (b) your
aggregate Purchase Payments, reduced by any applicable charges and fees, and
further reduced by an amount for each withdrawal that is calculated by
multiplying the aggregate Purchase Payments received by the ratio of the amount
of each withdrawal, including applicable withdrawal charges, to the Contract
Value immediately prior to each withdrawal.
The Guaranteed Minimum Death Benefit ("GMDB") Amount will be calculated only
when a death benefit becomes payable as a result of the death of the sole
Annuitant and is determined as follows: We look at the Contract as of the first
Contract Anniversary and as of every subsequent Contract Anniversary prior to
the Annuity Date, that is, the 1st, 2nd, 3rd , etc., until the earlier of (i)
the date the Annuitant reaches his or her 81st birthday, (ii) the date of the
Annuitant's death, or (iii) the Annuity Date, (each of these Anniversaries is
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a "Milestone Date"). For each Milestone Date, we calculate the Death Benefit
Amount and (a) add the aggregate amount of any Purchase Payments received by us
after that Milestone Date, (b) subtract an amount for each withdrawal that is
calculated by multiplying that Death Benefit Amount by the ratio of the amount
of each withdrawal that has occurred since that Milestone Date, including
applicable withdrawal charges, to the Contract Value immediately prior to each
withdrawal, and (c) subtract the aggregate amount of any previous charges, fees,
and/or taxes effected since that Milestone Date.
The highest of these adjusted Death Benefit Amounts, as of the Notice Date, is
the GMDB Amount. CALCULATIONS OF ANY GUARANTEED MINIMUM DEATH BENEFIT ARE ONLY
MADE ONCE DEATH BENEFIT PROCEEDS BECOME PAYABLE UNDER YOUR CONTRACT.
The Notice Date is the day on which we receive proof (in proper form) of death
and instructions regarding payment of death benefit proceeds.
Death Benefit: Death of the Annuitant
If the Annuitant dies on or before the first Contract Anniversary, or if the
Annuitant had already reached his or her 81st birthday as of the first Contract
Anniversary, the death benefit will be equal to the Death Benefit Amount as of
the Notice Date.
If the Annuitant dies prior to the Annuity Date but after the first Contract
Anniversary, and had not yet reached his or her 81st birthday as of the first
Contract Anniversary, the death benefit will be equal to the greater of (a) the
Death Benefit Amount as of the Notice Date; or (b) the GMDB Amount as of the
Notice Date.
The following procedures apply in the event of death of an Annuitant who is not
also a Contract Owner: If your Contract names Joint Annuitants and only one
Joint Annuitant dies, the surviving Joint Annuitant becomes your sole Annuitant
and the death benefit is not yet payable. If your sole Annuitant dies (or if no
Joint Annuitant survives) and your Contract names a surviving Contingent
Annuitant, he or she becomes the sole Annuitant and the death benefit is not yet
payable. If there is no surviving Joint or Contingent Annuitant, the death
benefit is payable to the Beneficiary, if living; if not, to the Owner's estate.
If both Owner and Annuitant die simultaneously, the death benefit will be paid
to the Beneficiary, if living; if not, to the Owner's estate.
Death Benefit: Death of a Contract Owner
If a Contract Owner who is not the Annuitant dies before the Annuity Date, the
amount of the death benefit will be equal to the Death Benefit Amount as of the
Notice Date and will be paid in accordance with the Death Benefit Proceeds
section above. The death benefit proceeds will be paid to the Joint Owner, if
living; if not, to the Contingent Owner, if living; if not to the Beneficiary,
if living; if not, to the Owner's estate. See THE GENERAL ACCOUNT--WITHDRAWALS
AND TRANSFERS.
If a Contract Owner who is the Annuitant dies before the Annuity Date, the
amount of the death benefit will be equal to the greater of your Death Benefit
Amount or the GMDB Amount as of the Notice Date and will be paid in accordance
with the Death Benefit Proceeds section above. The death benefit proceeds will
be paid to the Beneficiary if living; if not, to the Owner's estate. Joint
and/or Contingent Owners and/or Annuitants will not be considered in determining
the recipient of death benefit proceeds.
WITHDRAWALS
OPTIONAL WITHDRAWALS
You may, on or prior to your Annuity Date, withdraw all or a portion of the
amount available under your Contract. You may surrender your Contract and make a
full withdrawal at any time. Except as provided below, beginning 30 days after
your Contract Date, you also may make partial withdrawals from your Investment
Options at any time. You may request to withdraw a specific dollar amount or a
specific
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percentage of an Account Value or your Net Contract Value. You may choose to
make your withdrawal from specified Investment Options; if you do not specify
Investment Options, your withdrawal will be made from all of your Investment
Options proportionately. Each partial withdrawal must be for $500 or more,
except pre-authorized withdrawals, which must be at least $250. If your partial
withdrawal from an Investment Option would leave a remaining Account Value in
that Investment Option of less than any minimum Account Value we may require in
the future, we have the right, at our option, to transfer that remaining amount
to your other Investment Options on a proportionate basis relative to your most
recent allocation instructions. If your partial withdrawal leaves you with a Net
Contract Value of less than $1,000, we have the right, at our option, to
terminate your Contract and send you the withdrawal proceeds described in the
next section. Partial withdrawals from the Fixed Option in any Contract Year are
subject to restrictions. See GENERAL ACCOUNT--WITHDRAWALS AND TRANSFERS.
Amount Available for Withdrawal
The amount available for withdrawal is your Net Contract Value at the end of the
Business Day on which your withdrawal request is effective, less any applicable
Annual Fee, any withdrawal charge, any withdrawal transaction fee, and any
charge for premium tax and/or other taxes. The amount we send to you (your
"withdrawal proceeds") will also reflect any adjustment for federal and state
income tax withholding (See FEDERAL TAX STATUS). There may be additional
restrictions on partial withdrawals from the Fixed Option (see THE GENERAL
ACCOUNT--WITHDRAWALS AND TRANSFERS).
You assume investment risk on investments in the Subaccounts; as a result, the
amount available to you for withdrawal from any Subaccount may be more or less
than the total Purchase Payments you have allocated to that Subaccount.
Withdrawal Transaction Fees
There is currently no transaction fee for partial withdrawals. However, we
reserve the right to impose a withdrawal transaction fee in the future of up to
$15 for each partial withdrawal (including pre-authorized partial withdrawals)
in excess of 15 in any Contract Year. Any such fee would be charged against your
Investment Options proportionately based on your Account Value in each
immediately after the withdrawal.
Pre-Authorized Withdrawals
If your Contract Value is at least $5,000, you may select the pre-authorized
withdrawal option, and you may choose monthly, quarterly, semiannual or annual
withdrawals. Each withdrawal must be for at least $250. Each pre-authorized
withdrawal is subject to federal income tax on its taxable portion and may be
subject to a 10% tax penalty if you have not reached age 59 1/2. See FEDERAL TAX
STATUS and THE GENERAL ACCOUNT--WITHDRAWALS AND TRANSFERS. Additional
information and options are set forth in the SAI and in the Pre-Authorized
Withdrawal section of your application.
Special Requirements for Full Withdrawals
If you wish to withdraw the entire amount available under your Contract, you
must either return your Contract to Pacific Mutual or sign and submit to us a
"lost Contract affidavit."
Special Restrictions Under Qualified Plans
If your Contract was issued under certain Qualified Plans, you may not withdraw
amounts attributable to contributions made pursuant to a salary reduction
agreement (as defined in Section 402(g)(3)(A) of the Code) or to transfers from
a custodial account (as defined in Section 403(b)(7) of the Code) except in
cases of your (a) separation from service, (b) death, (c) disability as defined
in Section 72(m)(7) of the Code, (d) reaching age 59 1/2, or (e) hardship as
defined for purposes of Section 401(k) of the Code.
These limitations do not affect certain rollovers or exchanges between Qualified
Plans, and do not apply to rollovers from these Qualified Plans to an individual
retirement account or individual retirement annuity. In
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the case of tax sheltered annuities, these limitations do not apply to certain
salary reduction contributions made, and investment results earned, prior to
dates specified in the Code.
Hardship withdrawals under the exception provided above are restricted to
amounts attributable to salary reduction contributions, and do not include
investment results; this additional restriction does not apply to salary
reduction contributions made, and investment results earned, prior to dates
specified in the Code.
Certain distributions, including rollovers, may be subject to mandatory
withholding of 20% for federal income tax if the distribution is not transferred
directly to the trustee of another Qualified Plan, or to the custodian of an
individual retirement account or issuer of an individual retirement annuity. See
FEDERAL TAX STATUS. Distributions may also trigger withholding for state income
taxes. The tax and ERISA rules relating to Contract withdrawals are complex. We
are not the administrator of any Qualified Plan. You should consult your tax
adviser and/or your plan administrator before you withdraw a portion of your
Contract Value.
Effective Date of Withdrawal Requests
Withdrawal requests are normally effective on the Business Day we receive them
in proper form. If you make Purchase Payments by check and submit a withdrawal
request immediately afterwards, payment of your withdrawal proceeds may be
delayed until your check clears.
TAX CONSEQUENCES OF WITHDRAWALS
Withdrawals, including pre-authorized withdrawals, will generally have federal
income tax consequences, which could include tax penalties. YOU SHOULD CONSULT
WITH A TAX ADVISER BEFORE MAKING ANY WITHDRAWAL OR SELECTING THE PRE-AUTHORIZED
WITHDRAWAL OPTION. See FEDERAL TAX STATUS.
RIGHT TO CANCEL
You may return your Contract for cancellation and a full refund during your
Right to Cancel period. Your Right to Cancel period is usually the 10-day period
beginning on the day you receive your Contract, but may vary if required by
state law. For more information, see APPENDIX A: STATE LAW VARIATIONS. If you
return your Contract, it will be canceled and treated as void from your Contract
Date. You will then receive a refund of your Contract Value as of the end of the
Business Day on which we receive your Contract for cancellation, plus a refund
of any amounts that may have been deducted as Contract fees or charges.
Some states' laws and IRA rules require us to refund your Purchase Payments
instead of your Account Value. If your Contract is issued in one of these states
(the "issue state"), or is an IRA, the Purchase Payments you have allocated to
any Subaccount will usually be allocated to the Money Market Subaccount during
your Right to Cancel period. In such cases, we will transfer your Contract Value
in the Money Market Subaccount to your chosen Variable Investment Options at the
end of the 15th calendar day after your Contract Date (your "Right to Cancel
Transfer Date"). We reserve the right to extend your Right to Cancel Transfer
Date by the number of days in excess of ten days that the issue state allows you
to return your Contract to us pursuant to your Right to Cancel right. You may
not waive your Right to Cancel.
PACIFIC MUTUAL AND THE SEPARATE ACCOUNT
PACIFIC MUTUAL
We are a mutual life insurance company organized under California law on January
2, 1868 under the name "Pacific Mutual Life Insurance Company of California" and
reincorporated as Pacific Mutual Life Insurance Company on July 22, 1936. Our
operations include both life insurance and annuity products as well as financial
and retirement services. As of the end of 1995, we had over $44.2 billion of
individual life insurance in force and total assets of approximately $17.6
billion. Together with our subsidiaries and affiliated enterprises, we have
total assets and funds under management of over $116.6 billion. We have been
ranked according to assets as the 23rd largest life insurance carrier in the
nation for 1995. We are authorized to
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conduct life insurance and annuity business in the District of Columbia and all
states except New York. Our principal offices are located at 700 Newport Center
Drive, Newport Beach, California 92660.
Our indirect wholly-owned subsidiary, Pacific Mutual Distributors, Inc. ("PMD"),
serves as the principal underwriter for the Contracts. PMD is located at 700
Newport Center Drive, Newport Beach, California 92660. PMD and Pacific Mutual
enter into selling agreements with broker-dealers, under which such broker-
dealers act as agents of Pacific Mutual and PMD in the sale of the Contracts.
We may provide you with reports of our ratings both as an insurance company and
as to our claims-paying ability with respect to our General Account assets. The
SAI presents more details about these ratings.
SEPARATE ACCOUNT B
Separate Account B was established on September 25, 1996 as a separate account
of Pacific Mutual, and is registered with the SEC under the Investment Company
Act of 1940 (the "1940 Act"), as a type of investment company called a "unit
investment trust."
Obligations arising under your Contract are our general corporate obligations.
We are also the legal owner of the assets in the Separate Account.
Assets of the Separate Account attributed to the reserves and other liabilities
under the Contract and other contracts issued by us that are supported by the
Separate Account may not be charged with liabilities arising from any of our
other business; any income, gain or loss (whether or not realized) from the
assets of the Separate Account are credited to or charged against the Separate
Account without regard to our other income, gain or loss.
We may invest money in the Separate Account in order to commence its operations
and for other purposes, but not to support contracts other than variable annuity
contracts. A portion of the Separate Account's assets may include accumulations
of charges we make against the Separate Account and investment results of assets
so accumulated. These additional assets are ours and we may transfer them to our
General Account at any time; however, before making any such transfer, we will
consider any possible adverse impact the transfer might have on the Separate
Account. Subject to applicable law, we reserve the right to transfer our assets
in the Separate Account to our General Account.
Shares of the Trust currently are offered only for purchase by Separate Account
B. Shares of the Trust may also be sold in the future to other separate accounts
in connection with variable annuity and variable life insurance contracts may be
allowed in the future, which could create conflicts. See MORE ON THE TRUST'S
SHARES in the accompanying Prospectus for the Trust.
FEDERAL TAX STATUS
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. The summary is general in nature, and does not consider
any applicable state or local tax laws. We do not make any guarantee regarding
the tax status, federal, state or local, of any Contract or any transaction
involving the Contracts. Accordingly, you should consult a qualified tax adviser
for complete information and advice before purchasing a Contract.
The following rules generally do not apply to variable annuity contracts held by
or for non-natural persons (e.g., corporations) unless such an entity holds the
contract as nominee for a natural person. If a contract is not owned or held by
a natural person or a nominee for a natural person, the contract generally will
not be treated as an "annuity" for tax purposes, meaning that the contract owner
will be taxed currently on annual increases in Contract Value at ordinary income
rates unless some other exception applies.
Section 72 of the Code governs the taxation of annuities in general, and we
attempted to design the Contracts to meet the requirements of Section 72 of the
Code. We believe that, under current law, the Contract will be treated as an
annuity for federal income tax purposes if the Contract Owner is a natural
person or a nominee for a natural person, and that we (as the issuing insurance
company), and not the Contract Owner(s), will be
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treated as the owner of the investments underlying the Contract. Accordingly, no
tax should be payable by you as a Contract Owner as a result of any increase in
Contract Value until you receive money under your Contract. You should, however,
consider how amounts will be taxed when you do receive them. The following
discussion assumes that your Contract will be treated as an annuity for federal
income tax purposes.
Section 817(h) of the Code provides that the investments underlying a variable
annuity must satisfy certain diversification requirements. Details on these
diversification requirements appear under OTHER INFORMATION ABOUT THE TRUST in
the Trust's Prospectus. We believe the underlying Variable Investment Options
for the Contract meet these requirements. In connection with the issuance of
temporary regulations relating to diversification requirements under Section
817(h), the Treasury Department announced that such regulations do not provide
guidance concerning the extent to which you may direct your investments to
particular divisions of a separate account. Such guidance may be included in
regulations or revenue rulings under Section 817(d) relating to the definition
of a variable contract. Because of this uncertainty, we reserve the right to
make such changes to the Contract or to our administrative procedures as we deem
necessary or appropriate to ensure that your Contract continues to qualify as an
annuity for tax purposes. Any such changes will apply uniformly to affected
Contract Owners and will be made with such notice to affected Contract Owners as
is feasible under the circumstances.
TAXES PAYABLE BY CONTRACT OWNERS: GENERAL RULES
These general rules apply to Non-Qualified Contracts. As discussed below,
however, tax rules may differ for Qualified Contracts and you should consult a
qualified tax adviser if you are purchasing a Qualified Contract.
Distributions of net investment income or capital gains that each Subaccount
receives from its corresponding Fund are automatically reinvested in such Fund
unless we, on behalf of the Separate Account, elect otherwise. As noted above,
you will be subject to federal income taxes on the investment income from your
Contract only when it is distributed to you.
Taxes Payable on Withdrawals
Amounts you withdraw before annuitization, including amounts withdrawn from your
Contract Value in connection with partial withdrawals for payment of any charges
and fees, will be treated first as taxable income, to the extent that your
Contract Value exceeds the aggregate of your Purchase Payments (reduced by
non-taxable amounts previously received), and then as non-taxable recovery of
your Purchase Payments.
The assignment or pledge of (or agreement to assign or pledge) the value of the
Contract for a loan will be treated as a distribution. Moreover, all annuity
contracts issued to you in any given calendar year by us and any of our
affiliates are treated as a single annuity contract for purposes of determining
whether an amount is subject to tax under these rules. The Code further provides
that the taxable portion of a withdrawal may be subject to a penalty tax equal
to 10% of that taxable portion unless the withdrawal is: (1) made on or after
the date you reach age 59 1/2, (2) made by a Beneficiary after your death, (3)
attributable to your becoming disabled, or (4) in the form of level annuity
payments under a lifetime annuity.
Taxes Payable on Annuity Payments
A portion of each annuity payment you receive under a Contract generally will be
treated as a partial recovery of Purchase Payments (as used here, "Purchase
Payments" means the aggregate Purchase Payments less any amounts that were
previously received under the Contract but not included in income) and will not
be taxable. (In certain circumstances, subsequent modifications to an
initially-established payment pattern may result in the imposition of a penalty
tax.) The remainder of each annuity payment will be taxed as ordinary income.
However, after the full amount of aggregate Purchase Payments has been
recovered, the full amount of each annuity payment will be taxed as ordinary
income. Exactly how an annuity payment is divided into taxable and non-taxable
portions depends on the period over which annuity payments are expected to be
received, which in turn is governed by the form of annuity selected and, where a
lifetime annuity is chosen, by the life expectancy of the Annuitant(s) or
payee(s).
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Should the death of a Contract Owner cause annuity payments to cease before
Purchase Payments have been fully recovered, an Annuitant (or in certain cases
the Beneficiary) is allowed a deduction on the final tax return for the
unrecovered Purchase Payments; however, if any remaining annuity payments are
made to a Beneficiary, the Beneficiary will recover the balance of the Purchase
Payments as payments are made. A lump sum payment taken in lieu of remaining
monthly annuity payments is not considered an annuity payment for tax purposes.
The portion of any lump sum payment to a Beneficiary in excess of aggregate
unrecovered Purchase Payments would be subject to income tax. Such a lump sum
payment may also be subject to a penalty tax.
If a Contract Owner dies before annuity payments begin, certain minimum
distribution requirements apply. If a Contract Owner dies after the Annuity
Date, the remaining interest in the Contract must be distributed at least as
rapidly as under the method of distribution in effect on the date of death.
Generally, the same tax rules apply to amounts received by the Beneficiary as
those set forth above, except that the early withdrawal penalty tax does not
apply. Thus, any annuity payments or lump sum withdrawal will be divided into
taxable and non-taxable portions. If the Contract Owner or Annuitant dies and
within sixty days after the date on which a lump sum death benefit first becomes
payable the designated recipient elects to receive annuity payments in lieu of
the lump sum death benefit, then the designated recipient will not be treated
for tax purposes as having received the lump sum death benefit in the tax year
it first became payable. Rather, in that case, the designated recipient will be
taxed on the annuity payments as they are received.
In addition, designation of a Beneficiary who either is 37 1/2 or more years
younger or two or more generations younger (e.g. grandchild) than a Contract
Owner may have Generation Skipping Transfer Tax consequences under section 2601
of the Code.
Certain transfers of a Contract for less than full consideration, such as a
gift, will trigger tax on the investment income in the Contract, and may also
trigger tax penalties and, if applicable, gift tax.
QUALIFIED CONTRACTS
The Contracts are available to a variety of Qualified Plans. Tax restrictions
and consequences for Contracts under each type of Qualified Plan differ from
each other and from those for Non-Qualified Contracts. In addition, individual
Qualified Plans may have terms and conditions that impose additional rules.
THE FOLLOWING IS ONLY A GENERAL DISCUSSION ABOUT TYPES OF QUALIFIED PLANS FOR
WHICH THE CONTRACTS ARE AVAILABLE. WE ARE NOT THE ADMINISTRATOR OF ANY QUALIFIED
PLAN. IF YOU ARE PURCHASING A QUALIFIED CONTRACT, YOU SHOULD CONSULT WITH YOUR
PLAN ADMINISTRATOR AND/OR A QUALIFIED TAX ADVISER.
Individual Retirement Annuities ("IRAs")
Contributions to an IRA are subject to limitations. In addition, distributions
from an IRA are subject to certain restrictions. Failure to make mandatory
distributions may result in imposition of a 50% penalty tax on any difference
between the required distribution amount and the amount actually distributed. A
10% penalty tax is imposed on the amount includable in gross income from
distributions that occur before you attain age 59 1/2 and that are not made on
account of death or disability, with certain exceptions. These exceptions
include distributions that are part of a series of substantially equal periodic
payments made over your life (or life expectancy) or the joint lives (or joint
life expectancies) of you and your Joint Annuitant. Distributions of minimum
amounts specified by the Code must commence by April 1 of the calendar year
following the calendar year in which you attain age 70 1/2. Additional
distribution rules apply after your death.
You may rollover funds from an existing Qualified Plan (such as proceeds from
existing insurance policies, annuity contracts or securities) into your IRA if
those funds are in cash; this will require you to liquidate any value
accumulated under the existing Qualified Plan. Mandatory withholding of 20% may
apply to any rollover distribution from your existing Qualified Plan if the
distribution is not transferred directly to your IRA; to avoid this withholding
you should have cash transferred directly from the insurance company or plan
trustee to us. Similar limitations and tax penalties apply to tax sheltered
annuities, government plans, 401(k) plans, and pension and profit-sharing plans.
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Tax Sheltered Annuities ("TSAs")
Section 403(b) of the Code permits public school systems and certain tax-exempt
organizations to adopt annuity plans for their employees; Purchase Payments made
on Contracts purchased for these employees are excludable from the employees'
gross income (subject to maximum contribution limits). Distributions under these
Contracts must comply with certain limitations as to timing, or result in tax
penalties.
Government Plans
Section 457 of the Code permits employees of a state or local government (or of
certain other tax-exempt entities) to defer compensation through an eligible
government plan. Contributions to a Contract in connection with an eligible
government plan are subject to limitations.
401(K) Plans; Pension and Profit-Sharing Plans
Deferred compensation plans may be established by an employer for certain
eligible employees under Sections 401(a) and 401(k) of the Code. Contributions
to these plans are subject to limitations.
LOANS
Certain Qualified Contract Owners may borrow against their Contracts. If yours
is a Qualified Contract issued under Section 401or 403 of the Code and the terms
of your Qualified Plan permit, you may request a loan from us, using your
Contract Value as your only security.
Tax and Legal Matters
The tax and ERISA rules relating to Contract loans are complex and in many cases
unclear. For these reasons, and because the rules vary depending on the
individual circumstances of each Contract, WE URGE YOU TO CONSULT WITH A
QUALIFIED TAX ADVISER PRIOR TO EFFECTING ANY LOAN TRANSACTION UNDER YOUR
CONTRACT.
Interest paid on your loan under a 401 plan or 403 tax-sheltered annuity will be
considered "personal interest" under Section 163(h) of the Code, to the extent
the loan comes from your pre-tax contributions, even if the proceeds of your
loan are used to acquire your principal residence.
We may change these loan provisions or our administrative procedures to reflect
changes in the Code or interpretations thereof.
Loan Procedures
Your loan request must be submitted on our Loan Request Form. You may submit a
loan request at any time after your first Contract Anniversary and before your
Annuity Date; however, before requesting a new loan, you must wait thirty days
after the last payment of a previous loan. If approved, your loan will usually
be effective as of the end of the Business Day on which we receive all necessary
documentation in proper form. We will normally forward proceeds of your loan to
you within seven calendar days after the effective date of your loan. A loan
administration fee of $100 will be deducted from your loan proceeds, however, we
reserve the right to increase this fee to a maximum of $500.
In order to secure your loan, on the effective date of your loan, we will
transfer an amount equal to the principal amount of your loan into an account
called our "Loan Account." To make this transfer, we will transfer amounts
proportionately from your Fixed and Variable Investment Options, based on your
Account Value in each
As your loan is repaid, a portion, corresponding to the amount of the repayment
of any amount then held as security for your loan, will be transferred from the
Loan Account back into your Fixed Option and Variable Investment Options
relative to your current allocation instructions.
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Loan Terms
You may have only one loan outstanding at any time. The minimum loan amount is
$1,000, subject to certain state limitations. Your Contract Debt at the
effective date of your loan may not exceed the lesser of:
- 50% of your Contract Value;
- $50,000 less your highest outstanding Contract Debt during the 12-month
period immediately preceding the effective date of your loan.
You should refer to the terms of your particular Qualified Plan for any
additional loan restrictions. If you have other loans outstanding pursuant to
other Qualified Plans, the amount you may borrow may be further restricted.
You will be charged interest on your Contract Debt at an annual rate, set at the
time of the loan withdrawal, equal to the higher of (a) Moody's Corporate Bond
Yield Average-Monthly Average Corporates (the "Moody's Rate"), as published by
Moody's Investors Service, Inc., or its successor, for the calendar month ending
two months before the date on which the rate is determined, or (b) 5%. In the
event that the Moody's Rate is no longer available, we may substitute a
substantially similar average rate, subject to compliance with applicable state
regulations. The amount held in the Loan Account to secure your loan will earn a
return equal to an annual rate that is two percentage points lower than the
annual rate of interest charged on your Contract Debt. Interest charges accrue
on your Contract Debt daily, beginning on the effective date of your loan;
interest earnings on the Loan Account Value accrue daily beginning on the
following day, and those earnings will be transferred once a year to your Fixed
and Variable Investment Options in accordance with your current allocation
instructions.
Repayment Terms
Your loan, including principal and accrued interest, must be repaid in quarterly
installments. An installment will be due in each quarter on the date
corresponding to the effective date of your loan, beginning with the first such
date following the effective date of your loan.
Example: On May 1, we receive your loan request, and your loan is
effective. Your first quarterly payment will be due on August 1.
Adverse tax consequences may result if you fail to meet the repayment
requirements for your loan. You must repay principal and interest of any loan in
substantially equal payments over the term of the loan. Normally, the term of
the loan will be five years from the effective date of the loan; however, if you
have certified to us that your loan proceeds are to be used to acquire a
principal residence for yourself, you may request a loan term of 30 years. In
either case, however, you must repay your loan prior to your Annuity Date. If
you elect to annuitize (or withdraw) your Net Contract Value while you have an
outstanding loan, we will deduct any Contract Debt from your Contract Value at
the time of the annuitization (or withdrawal) to repay the Contract Debt.
You may prepay your entire loan at any time; if you do so, we will bill you for
any accrued interest. Your loan will be considered repaid only when the interest
due has been paid. Subject to any necessary approval of state insurance
authorities, while you have Contract Debt outstanding, we will treat all
payments you send us as Purchase Payments unless you specifically indicate that
your payment is a loan repayment or include your loan repayment stub with your
payment. To the extent allowed by law, any loan repayments in excess of the
amount then due will be refunded to you, unless such amount is sufficient to pay
the balance of your loan.
If we have not received your full payment by its due date, we will declare the
entire remaining loan balance in default. At that time, we will send written
notification of the amount needed to bring the loan back to a current status.
You will have sixty (60) days from the date on which the loan was declared in
default (the "grace period") to make the required payment.
If the required payment is not received by the end of the grace period, the
defaulted loan balance plus accrued interest and any withdrawal charge will be
withdrawn from your Contract Value, if amounts under your
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Contract are eligible for distribution. If those amounts are not eligible for
distribution, the defaulted loan balance plus accrued interest and any
withdrawal charge will be considered a Deemed Distribution and will be withdrawn
when such Contract Values become eligible for distribution. In either case, the
Distribution or the Deemed Distribution will be considered a currently taxable
event, may be subject to the mandatory 20% federal withholding, and may be
subject to the early withdrawal tax penalty.
If there is a Deemed Distribution under your Contract and to the extent allowed
by law, any future withdrawals will first be applied as repayment of the
defaulted Contract Debt, including accrued interest and charges for applicable
taxes. Any amounts withdrawn and applied as repayment of Contract Debt will
first be withdrawn from your Loan Account and then from your Investment Options
on a proportionate basis relative to the Account Value in each account. If you
have an outstanding loan that is in default, the defaulted Contract Debt will be
considered a withdrawal for the purpose of calculating any Death Benefit Amount
and/or Guaranteed Minimum Death Benefit Amount.
WITHHOLDING
Unless you elect to the contrary, any amounts you receive under your Contract
that are attributable to investment income will be subject to withholding to
meet federal and state income tax obligations. The rate of withholding on
annuity payments made to you will be determined on the basis of the withholding
information you provide to us with your application. If you do not provide us
with required withholding information, we will withhold, from every withdrawal
from your Contract and from every annuity payment to you, the appropriate
percentage of the taxable amount of the payment. Please call us at
1-800-722-5558 with any questions about the required withholding information.
For purposes of determining your withholding rate on annuity payments, you will
be treated as a married person with three exemptions, unless requested
otherwise. The rate of federal withholding on all other payments made to you
under your Contract, such as amounts you receive upon withdrawals, will be 10%,
unless otherwise specified by the Code. Generally, there will be no withholding
for taxes until you actually receive payments under your Contract.
Distributions from a Contract under a Qualified Plan (not including an
individual retirement annuity subject to Code Section 408) to an employee,
surviving spouse, or former spouse who is an alternate payee under a qualified
domestic relations order, in the form of a lump sum settlement or periodic
annuity payments for a fixed period of fewer than 10 years are subject to
mandatory income tax withholding of 20% of the taxable amount of the
distribution, unless (1) the distributee directs the transfer of such amounts in
cash to another Qualified Plan or an IRA; or (2) the payment is a minimum
distribution required under the Code. The taxable amount is the amount of the
distribution less the amount allocable to after-tax contributions. All other
types of taxable distributions are subject to withholding unless the distributee
elects not to have withholding apply.
Certain states have indicated that pension and annuity withholding will apply to
payments made to residents. Generally, an election out of federal withholding
will also be considered an election out of state withholding.
IMPACT OF FEDERAL INCOME TAXES
In general, if you expect to accumulate your Contract Value over a relatively
long period of time without making significant withdrawals, there should be tax
advantages, regardless of your tax bracket, in purchasing a Contract rather
than, for example, a mutual fund with a similar investment policy and
approximately the same level of expected investment results. This is because
little or no income taxes are incurred by you or by us while you are
participating in the Subaccounts, and it is generally advantageous to defer the
payment of income taxes, so that the investment return is compounded without any
deduction for income taxes. The advantage will be greater if you decide to
liquidate your Contract Value in the form of monthly annuity payments after your
retirement, or if your tax rate is lower at that time than during the period
that you held the Contract, or both.
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TAXES ON PACIFIC MUTUAL
Although the Separate Account is registered as an investment company, it is not
a separate taxpayer for purposes of the Code. The earnings of the Separate
Account are taxed as part of our operations. No charge is made against the
Separate Account for our federal income taxes (excluding the charge for premium
taxes), but we will review, periodically, the question of charges to the
Separate Account or your Contract for such taxes. Such a charge may be made in
future years for any federal income taxes that would be attributable to the
Separate Account or to our operations with respect to your Contract, or
attributable, directly or indirectly, to Purchase Payments on your Contract.
Under current law, we may incur state and local taxes (in addition to premium
taxes) in several states. At present, these taxes are not significant and they
are not charged against the Contract or the Separate Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon us that are attributable to the Separate Account or to our
operations with respect to your Contract may result in a corresponding charge
against the Separate Account or your Contract.
ADDITIONAL INFORMATION
VOTING RIGHTS
We are the legal owner of the shares of the Funds held by the Subaccounts, and
consequently have the right to vote on any matter voted on at Trust
shareholders' meetings. However, our interpretation of applicable law requires
us to vote the shares attributable to your Variable Account Value ("your voting
interest") in accordance with your directions.
We will pass shareholder proxy materials on to you so that you have an
opportunity to give us voting instructions for your voting interest. You may
provide your instructions by proxy or in person at the shareholders' meeting. If
there are shares of a Fund held by a Subaccount for which we do not receive
timely voting instructions, we will vote those shares in the same proportion as
all other shares of that Fund held by that Subaccount for which we have received
timely voting instructions. If we hold shares of a Fund in our General Account,
and if any of our non-insurance subsidiaries hold shares of a Fund, such shares
will be voted in the same proportion as other votes cast by all of our separate
accounts in the aggregate, including Separate Account B.
We may elect, in the future, to vote shares of the Funds held in Separate
Account B in our own right if we are permitted to do so through a change in
applicable federal securities laws or regulations, or in their interpretation.
The number of Fund shares that form the basis for your voting interest is
determined as of the record date set by the Board of Trustees of the Trust. It
is equal to (a) your number of Subaccount Units (or Subaccount Annuity Units
after annuitization) times the applicable Unit Value , divided by (b) the net
asset value per share of that Fund. Fractional votes will be counted. We reserve
the right, if required or permitted by a change in federal regulations or their
interpretation, to amend how we calculate your voting interest.
After your Annuity Date, if you have selected a variable annuity, the voting
rights under your Contract will continue during the payout period of your
annuity, but the number of shares that form the basis for your voting interest,
as described above, will decrease throughout the payout period.
CHANGES TO YOUR CONTRACT
Contract Owner(s) and Contingent Owner
You may change your Non-Qualified Contract at any time prior to your Annuity
Date to name a different Contract Owner or to add a Joint Owner, or to add or
change a Contingent Owner; if yours is a Qualified Contract, you must be the
only Contract Owner, but you may still add or change a Contingent Owner. Your
Contract cannot name more than two Contract Owners (Joint Owners) and one
Contingent Owner at any time. Any newly-named Contract Owners, including Joint
and/or Contingent Owners, must be under the age
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of 86 at the time of change or addition. Joint ownership is in the form of a
joint tenancy. The Contract Owner(s) may make all decisions regarding the
Contract, including making allocation decisions and exercising voting rights.
Transactions under jointly owned Contracts require authorization from both
Contract Owners. Transfer of Contract ownership may involve federal income tax
consequences; you should consult a qualified tax adviser before effecting such a
transfer. A change to joint Contract ownership is considered a transfer of
ownership.
Annuitant and Contingent or Joint Annuitant
Your sole Annuitant cannot be changed, and Joint Annuitants cannot be added or
changed, once your Contract is issued. Certain changes may be permitted in
connection with Contingent Annuitants. See RETIREMENT BENEFITS AND OTHER
PAYOUTS--SELECTING YOUR ANNUITANT. There may be limited exceptions for certain
Qualified Contracts.
Beneficiaries
Your Beneficiary is a person(s) who may receive death benefits under your
Contract. You may change or remove your Beneficiary or add Beneficiaries at any
time prior to the death of the Annuitant or Owner, as applicable. If you have
named your Beneficiary irrevocably, you will need to obtain that Beneficiary's
consent before making any changes. Qualified Contracts may have additional
restrictions on naming and changing Beneficiaries; for example, if your Contract
was issued in connection with a Qualified Plan subject to Title I of ERISA, your
spouse must either be your Beneficiary or consent to your naming of a different
Beneficiary. If you leave no surviving Beneficiary, your estate will receive any
death benefit proceeds under your Contract.
CHANGES TO ALL CONTRACTS
If, in the judgment of our management, continued investment by Separate Account
B in one or more of the Funds becomes unsuitable or unavailable, we may seek to
alter the Variable Investment Options available under the Contracts. We do not
expect that a Fund will become unsuitable, but unsuitability issues could arise
due to changes in investment policies, market conditions, or tax laws, or due to
marketing or other reasons.
Alterations of Variable Investment Options may take differing forms. We reserve
the right to replace shares of any Fund that were already purchased under any
Contract (or shares that were to be purchased in the future under a Contract)
with shares of another Fund, shares of another investment company or series of
an investment company, or another investment vehicle. We may also purchase,
through a Subaccount, other securities for other series or other classes of
contracts, and may permit conversions or exchanges between series or classes of
contracts on the basis of Contract Owner requests. Required approvals of the SEC
and state insurance regulators will be obtained before any such substitutions
are effected, and you will be notified of any planned substitution.
We may add new Subaccounts to Separate Account B, and any new Subaccounts may
invest in Funds or in other investment vehicles; availability of any new
Subaccounts to existing Contract Owners will be determined at our discretion. We
will notify you, and will comply with the filing or other procedures established
by applicable state insurance regulators, to the extent required by applicable
law. We also reserve the right, after receiving any required regulatory
approvals, to do any of the following:
- cease offering any Subaccount
- combine Subaccounts
- delete or substitute Subaccounts
- combine Separate Account B or part of it with another of our separate
accounts or with any of our affiliates' separate accounts
- transfer Separate Account B assets attributable to the Contracts to
another of our separate accounts
- deregister the Separate Account under the 1940 Act
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- operate Separate Account B as a management investment company under the
1940 Act or another form permitted by law
- establish a committee, board or other group to manage aspects of the
Separate Account's operations
- make any changes required by the 1940 Act or other federal securities
laws
- make any changes necessary to maintain the status of the Contracts as
annuities under the Code
- make other changes required under federal or state law relating to
annuities
- suspend or discontinue sale of the Contracts.
INQUIRIES AND SUBMITTING FORMS AND REQUESTS
You may reach our service representatives at 1-800-722-5558 between the hours of
6:00 a.m. and 5:00 p.m., Pacific time.
Please send your forms and written requests or questions to:
Pacific Mutual Life Insurance Company
P.O. Box 7187
Pasadena, California 91109-7187
If you are submitting a purchase or other payment by mail, please send it, along
with your application if you are submitting one, to:
Pacific Mutual Life Insurance Company
P.O. Box 100060
Pasadena, California 91189-0060
If you are using an overnight delivery service to send payments, please send
them to:
Pacific Mutual Life Insurance Company
c/o FCNPC
1111 South Arroyo Parkway, First Floor
Pasadena, California 91105
The effective date of certain notices or of instructions is determined by the
date and time on which we "receive" the notice or instructions. We "receive"
this information only when it arrives, in proper form, at the correct mailing
address set out above. Please call us at 1-800-722-5558 if you have any
questions regarding which address you should use.
Purchase Payments after your initial Purchase Payment, loan requests, transfer
requests, loan repayments and withdrawal requests we receive before the close of
the New York Stock Exchange (normally, 4:00 p.m. Eastern time) will normally be
effective on the same Business Day that we receive them in "proper form," unless
the transaction or event is scheduled to occur on another day. Generally,
whenever you submit any other form, notice or request, your instructions will be
effective on the next Business Day after we receive them in "proper form" unless
the transaction or event is scheduled to occur on another day. "Proper form" may
require, among other things, a signature guarantee or other verification of
authenticity. We may require a signature guarantee if an executed application or
confirmation of application, as applicable and in proper form, has not been
received by us; if it appears that your signature has changed over time, or; due
to other circumstances. Requests regarding death benefits must be accompanied by
both proof of death and instructions regarding payment satisfactory to us. You
should call your registered representative or Pacific Mutual if you have
questions regarding the required form of a request.
TELEPHONE TRANSACTIONS
After your "Right to Cancel" period, you may make transfer requests by telephone
if you have authorized telephone requests (a "telephone authorization"). We
cannot guarantee that you will always be able to reach
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us to complete a telephone transaction; for example, all telephone lines may be
busy during certain periods, such as periods of substantial market fluctuations
or other drastic economic or market change, or telephones may be out of service
during severe weather conditions or other emergencies. Under these
circumstances, you should submit your request in writing (or other form
acceptable to us). Transaction instructions we receive by telephone before 4:00
p.m. Eastern time, or the close of the New York Stock Exchange if earlier, on
any Business Day will normally be effective on that day, and we will send you
written confirmation of each telephone transfer.
We have established procedures reasonably designed to confirm that instructions
communicated by telephone are genuine. These procedures may require any person
requesting a telephone transaction to provide certain personal identification
upon our request. We may also record all or part of any telephone conversation
with respect to transaction instructions. We reserve the right to deny any
transaction request made by telephone. When you make a proper request for a
telephone authorization, you authorize us to accept and to act upon instructions
received by telephone with respect to your Contract, and you agree that, as long
as we comply with our procedures, none of Pacific Mutual, our affiliates, the
Trust, or any of their directors, trustees, officers, employees or agents will
be liable for any loss, liability, cost or expense (including attorneys' fees)
in connection with requests that are effected in accordance with your telephone
authorization and that we believe to be genuine. This policy means that you will
bear the risk of loss arising out of your telephone transaction privileges. If a
Contract has Joint Owners, both Owners must sign the written request for a
telephone authorization, but each Owner individually may make transfer requests
by telephone.
TIMING OF PAYMENTS AND TRANSACTIONS
For withdrawals from the Variable Investment Options or for death benefit
payments attributable to your Variable Account Value, we will normally send the
proceeds within seven calendar days after your withdrawal request is effective
or after the Notice Date, as the case may be. Similarly, for transfers from the
Variable Investment Options, we will normally send the proceeds within seven
calendar days after your transfer (or exchange) request is effective. We will
normally effect periodic annuity payments on the day that corresponds to the
Annuity Date and will make payment on the following day. Payments or transfers
may be suspended for a longer period under certain abnormal circumstances. These
include a closing of the New York Stock Exchange other than on a regular holiday
or weekend, a trading restriction imposed by the SEC, or an emergency declared
by the SEC. For (i) withdrawals from the Fixed Option, (ii) death benefit
payments attributable to Fixed Option Value, or (iii) fixed periodic annuity
payments, payment of proceeds may be delayed for up to six (6) months after the
request is effective. Similar delays may apply to loans and transfers from the
Fixed Option. See THE GENERAL ACCOUNT for more details.
CONFIRMATIONS, STATEMENTS AND OTHER REPORTS TO CONTRACT OWNERS
Confirmations will be sent out for Purchase Payments and unscheduled transfers,
loans, loan repayments, unscheduled partial withdrawals, a full withdrawal, and
on payment of any death benefit proceeds. Each quarter prior to your Annuity
Date, we will send you a statement that provides certain information pertinent
to your Contract. These statements disclose Contract Value, Subaccount values,
values under the Fixed Option, fees and charges applied to your Contract Value,
transactions made and specific Contract data that apply to your Contract.
Confirmations of your transactions under the pre-authorized checking plan,
dollar cost averaging, earnings sweep, portfolio rebalancing, and pre-authorized
withdrawal options will appear on your quarterly account statements. Your
fourth-quarter statement will contain annual information about your Contract
Value and transactions. If you suspect an error on a confirmation or quarterly
statement, you must notify us in writing within 30 days from the date of the
first confirmation or statement on which the transaction you believe to be
erroneous appeared. When you write, tell us your name, contract number and a
description of the suspected error. You will also be sent an annual and a
semiannual report for the Separate Account and the Trust and a list of the
securities held in each Fund of the Trust, as required by the 1940 Act; or more
frequently if required by law.
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SALES COMMISSIONS
Pacific Mutual pays sales commissions directly to broker-dealers and other
expenses associated with promotion and sales of the Contracts. Broker-dealers
may receive aggregate commissions of up to 6.5% of your aggregate Purchase
Payments. Under certain circumstances and in exchange for lower initial
commissions, certain sellers of Contracts may be paid a persistency trail
commission which will take into account, among other things, the length of time
Purchase Payments have been held under a Contract, and Account Values. A trail
commission is not anticipated to exceed 0.25%, on an annual basis, of the
Account Values considered in connection with the trail commission. We may also
pay override payments, expense allowances, bonuses, wholesaler fees and training
allowances. Registered representatives earn commissions from the broker-dealers
with which they are affiliated and such arrangements may vary. In addition,
registered representatives who meet specified production levels may qualify,
under sales incentive programs adopted by Pacific Mutual, to receive non-cash
compensation such as expense-paid trips, expense-paid educational seminars, and
merchandise, or to receive compensation on a deferred basis.
FINANCIAL STATEMENTS
Pacific Mutual's audited financial statements as of and for the years ended
December 31, 1995 and 1994, are contained in the SAI.
LEGAL MATTERS
Legal Matters in connection with the issue and sale of the Contracts described
in this Prospectus, Pacific Mutual's authority to issue the Contracts under
California law, and the validity of the forms of the Contracts under California
law have been passed upon by David R. Carmichael, Esq., Senior Vice President
and General Counsel of Pacific Mutual.
Legal matters relating to the Federal securities and Federal income tax laws
have been passed upon by Dechert Price & Rhoads, Washington, D.C.
THE GENERAL ACCOUNT
GENERAL INFORMATION
All amounts allocated to the Fixed Option become part of our General Account.
Subject to applicable law, we exercise sole discretion over the investment of
General Account assets, and bear the associated investment risk; you will not
share in the investment experience of General Account assets.
Because of exemptive and exclusionary provisions, interests in the General
Account under the Contract are not registered under the Securities Act of 1933
and the General Account has not been registered as an investment company under
the 1940 Act. Any interest you have in the Fixed Option is not subject to these
Acts, and we have been advised that the SEC staff has not reviewed disclosure in
this Prospectus relating to the Fixed Option. This disclosure may, however, be
subject to certain provisions of federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
GUARANTEE TERMS
When you allocate any portion of your Purchase Payments or Contract Value to the
Fixed Option in the General Account, we guarantee you an interest rate (a
"Guaranteed Interest Rate") for a specified period of time (a "Guarantee Term")
of up to one year. Guarantee Terms will be offered at our discretion.
Guaranteed Interest Rates for each Fixed Option may be changed periodically for
new allocations; your allocation will receive the Guaranteed Interest Rate in
effect for that Fixed Option on the effective date of your allocation. All
Guaranteed Interest Rates will be expressed as annual effective rates; however,
interest will accrue daily. The Guaranteed Interest Rate on your Fixed Option
will remain in effect for the Guarantee Term and will never be less than an
annual rate of 3%.
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Fixed Option
EACH ALLOCATION (OR ROLL-OVER) YOU MAKE TO THE FIXED OPTION RECEIVES A GUARANTEE
TERM THAT BEGINS ON THE DAY THAT ALLOCATION OR ROLL-OVER IS EFFECTIVE AND ENDS
AT THE END OF EACH CONTRACT YEAR OR, IF EARLIER, ON YOUR ANNUITY DATE. At the
end of each Contract Year, we will roll over your Fixed Option Value on that day
into a new Guarantee Term of one year (or, if shorter, the time remaining until
your Annuity Date) with a new Guaranteed Interest Rate, unless you instruct us
otherwise.
Example: Your Contract Anniversary is February 1. On February 1 of year 1,
you allocate $1,000 to the Fixed Option and receive a Guarantee Term of one
year and a Guaranteed Interest Rate of 5%. On August 1, you allocate
another $500 to the Fixed Option and receive a Guaranteed Interest Rate of
6%. Through January 31, year 1, your first allocation of $1,000 earns 5%
interest and your second allocation of $500 earns 6% interest. On February
1, year 2, a new interest rate may go into effect for your entire Fixed
Option Value.
WITHDRAWALS AND TRANSFERS
Prior to the Annuity Date, you may withdraw amounts from your Fixed Option, or
transfer amounts from your Fixed Option to one or more of the other Investment
Options. If your Contract was issued in a state that requires refund of Purchase
Payments under the Right to Cancel Right, or if your contract is an IRA,
transfers may only be made after your Right to Cancel Transfer Date. In
addition, no partial withdrawal or transfer may be made from your Fixed Option
within 30 days of the Contract Date. If your withdrawal leaves you with a Net
Contract Value of less than $1,000, we have the right, at our option, to
terminate your Contract and send you the withdrawal proceeds.
Payments or transfers from the Fixed Option may be delayed, as described under
ADDITIONAL INFORMATION--TIMING OF PAYMENTS AND TRANSACTIONS; any amount delayed
will, as long as it is held under the Fixed Option, continue to earn interest at
the Guaranteed Interest Rate then in effect until that Guarantee Term has ended,
and the minimum guaranteed interest rate of 3% thereafter, unless state law
requires a greater rate be paid.
Fixed Option
You may make one transfer or partial withdrawal from your Fixed Option during
any Contract Year, except that this limitation does not apply under the dollar
cost averaging, earnings sweep and pre-authorized withdrawal programs. You may
make one transfer or one partial withdrawal within the 30 days after the end of
each Contract Anniversary. Normally, you may transfer or withdraw up to one-half
(50%) of your Fixed Option Value in any given Contract Year. However, in
consecutive Contract Years, you may transfer or withdraw 50% of your Fixed
Option Value in the first year and your remaining Fixed Option Value in the
second consecutive year. In addition, if, as a result of a partial withdrawal or
transfer, the Fixed Option Value is less than $500, we have the right, at our
option, to transfer the entire remaining amount to your other Investment Options
on a proportionate basis relative to your most recent allocation instructions.
36
<PAGE> 42
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PERFORMANCE........................................................................... 1
Total Returns.................................................................... 1
Yields........................................................................... 2
Performance Comparisons and Benchmarks........................................... 3
Insurance Company Rating Information............................................. 3
Tax Deferred Accumulation........................................................ 4
DISTRIBUTION OF THE CONTRACTS......................................................... 5
Pacific Mutual Distributors, Inc................................................. 5
THE CONTRACTS AND THE SEPARATE ACCOUNT................................................ 6
Calculating Subaccount Unit Values............................................... 6
Variable Annuity Payment Amounts................................................. 6
Corresponding Dates.............................................................. 8
Age and Sex of Annuitant......................................................... 9
Systematic Transfer Programs..................................................... 9
Pre-Authorized Withdrawals....................................................... 11
Death Benefit.................................................................... 11
Joint Annuitants on Qualified Contracts.......................................... 12
1035 Exchanges................................................................... 12
Safekeeping of Assets............................................................ 12
Dividends........................................................................ 12
FINANCIAL STATEMENTS.................................................................. 13
</TABLE>
37
<PAGE> 43
APPENDIX A:
STATE LAW VARIATIONS
Issue Date--The term "Issue Date" shall be substituted for the term "Contract
Date" for Contracts issued to residents of the Commonwealth of Massachusetts.
RIGHT TO CANCEL
VARIATIONS TO THE LENGTH OF THE RIGHT TO CANCEL PERIOD. In most states, the
Right to Cancel period is a 10-day period beginning on the day you receive your
Contract. If your Contract was issued in one of the following states on your
Contract Date, the Right to Cancel period is as specified below:
Colorado (15 days)
Idaho (20 days)
North Dakota (20 days)
In addition, if you reside in California and are age 60 or older on your
Contract Date, the Right to Cancel period is 30 days.
STATES THAT REQUIRE US TO REFUND YOUR PURCHASE PAYMENTS ALLOCATED TO THE
VARIABLE INVESTMENT OPTIONS INSTEAD OF YOUR VARIABLE ACCOUNT VALUE. If your
Contract was issued in one of the following states on your Contract Date and you
exercise your Right to Cancel and return your Contract to us within 10 days of
your receipt of your Contract (unless specified otherwise below), we will refund
your Purchase Payments under your Contract that we received:
<TABLE>
<S> <C> <C>
Georgia Idaho (20 days) Michigan
Nebraska North Carolina Oklahoma
South Carolina Utah Washington
Missouri West Virginia
</TABLE>
38
<PAGE> 44
To receive a current copy of the Pacific Innovations SAI without charge,
complete the following and send it to:
Pacific Mutual Life Insurance Company
Variable Annuities
Post Office Box 7187
Pasadena, California 91109-7187
<TABLE>
<S> <C> <C>
Name __________________________________________
Address _______________________________________
City __________________________________________ State _______________ Zip _____________
</TABLE>
31764 [INSERT BAR CODE HERE]
<PAGE> 45
<TABLE>
<CAPTION>
Issued By: Principal Underwriter:
<S> <C>
Pacific Mutual Life Insurance Company Pacific Mutual Distributors, Inc.
Mailing Address: Member: NASD/SIPC
Annuity Department 700 Newport Center Drive
P.O. Box 7187 P.O. Box 9000
Pasadena, California 91109-7187 Newport Beach, California 92660
Home Office:
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92660
</TABLE>
Prospectus dated , 1996
<PAGE> 46
STATEMENT OF ADDITIONAL INFORMATION
, 1996
PACIFIC INNOVATIONS VARIABLE ANNUITY
SEPARATE ACCOUNT B
------------------------
Pacific Innovations Variable Annuity (the "Contract") is a variable annuity
contract issued by Pacific Mutual Life Insurance Company ("Pacific Mutual").
This Statement of Additional Information is not a Prospectus and should be read
in conjunction with the Contract's Prospectus, dated , 1996, which
is available without charge upon written or telephone request to Pacific Mutual.
Terms used in this Statement of Additional Information ("SAI") have the same
meanings as in the Prospectus, and some additional terms are defined
particularly for this SAI.
------------------------
Pacific Mutual Life Insurance Company
Mailing Address: P.O. Box 7187
Pasadena, California 91109-7187
1-800-722-5558
<PAGE> 47
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PERFORMANCE........................................................................... 1
Total Returns.................................................................... 1
Yields........................................................................... 2
Performance Comparisons and Benchmarks........................................... 3
Insurance Company Rating Information............................................. 3
Tax Deferred Accumulation........................................................ 4
DISTRIBUTION OF THE CONTRACTS......................................................... 5
Pacific Mutual Distributors, Inc................................................. 5
THE CONTRACTS AND THE SEPARATE ACCOUNT................................................ 6
Calculating Subaccount Unit Values............................................... 6
Variable Annuity Payment Amounts................................................. 6
Corresponding Dates.............................................................. 8
Age and Sex of Annuitant......................................................... 9
Systematic Transfer Programs..................................................... 9
Pre-Authorized Withdrawals....................................................... 11
Death Benefit.................................................................... 11
Joint Annuitants on Qualified Contracts.......................................... 12
1035 Exchanges................................................................... 12
Safekeeping of Assets............................................................ 12
Dividends........................................................................ 12
FINANCIAL STATEMENTS.................................................................. 13
</TABLE>
i
<PAGE> 48
PERFORMANCE
From time to time, our reports or other communications to current or prospective
Contract Owners or our advertising or other promotional material may quote the
performance (yield and total return) of a Subaccount. Quoted results are based
on past performance and reflect the performance of all assets held in that
Subaccount for the stated time period. QUOTED RESULTS ARE NEITHER AN ESTIMATE
NOR A GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE
ACTUAL EXPERIENCE OF AMOUNTS INVESTED BY ANY PARTICULAR CONTRACT OWNER.
TOTAL RETURNS
A Subaccount may advertise its "average annual total return" over various
periods of time. "Total return" represents the average percentage change in
value of an investment in the Subaccount from the beginning of a measuring
period to the end of that measuring period. "Annualized" total return assumes
that the total return achieved for the measuring period is achieved for each
such period for a full year. "Average annual" total return is computed in
accordance with a standard method prescribed by the SEC.
Average Annual Total Return
To calculate a Subaccount's average annual total return for a specific measuring
period, we first take a hypothetical $1,000 investment in that Subaccount, at
its then-applicable Subaccount Unit Value (the "initial payment") and we compute
the ending redeemable value ("Cash Surrender Value") of that initial payment at
the end of the measuring period. The redeemable value reflects the effect of all
recurring fees and charges applicable to a Contract Owner under the Contract,
including the Risk Charge, the asset-based Administrative Fee and the deduction
of the applicable withdrawal charge, but does not reflect any charges for
applicable premium taxes and/or other taxes. The Annual Fee is also taken into
account, assuming an average Contract Value of $40,000. The redeemable value is
then divided by the initial payment and this quotient is taken to the Nth root
(N represents the number of years in the measuring period), and 1 is subtracted
from this result. Average annual total return is expressed as a percentage.
T = (ERV/P)to the power of [1/N] - 1
where T = average annual total return
ERV = ending redeemable value
P = hypothetical initial payment of $1,000
N = number of years
Average annual total return figures will be given for recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well
(such as from commencement of the Subaccount's operations, or on a year-by-year
basis). Average annual return information may be accompanied by total return
information that does not take the withdrawal charge or other fees into account.
When considering "average" total return figures for periods longer than one
year, it is important to note that the relevant Subaccount's annual total return
for any one year in the period might have been greater or less than the average
for the entire period.
Aggregate Total Return
A Subaccount may use "aggregate" total return figures along with its "average
annual" total return figures for various periods; these figures represent the
cumulative change in value of an investment in the Subaccount for a specific
period. Aggregate total returns may be shown by means of schedules, charts or
graphs and may indicate subtotals of the various components of total return. The
SEC has not prescribed standard formulas for calculating aggregate total return.
Total returns may also be shown for the same periods that do not take into
account the withdrawal charge or the Annual Fee.
1
<PAGE> 49
YIELDS
Money Market Subaccount
The "yield" (also called "current yield") of the Money Market Subaccount is
computed in accordance with a standard method prescribed by the SEC. The net
change in the Subaccount's Unit Value during a seven-day period is divided by
the Unit Value at the beginning of the period to obtain a base rate of return.
The current yield is generated when the base rate is "annualized" by multiplying
it by the fraction 365/7; that is, the base rate of return is assumed to be
generated each week over a 365-day period and is shown as a percentage of the
investment. The "effective yield" of the Prime Subaccount is calculated
similarly but, when annualized, the base rate of return is assumed to be
reinvested. The effective yield will be slightly higher than the current yield
because of the compounding effect of this assumed reinvestment.
The formula for effective yield is: [(Base Period Return +1) (To the power of
365/7)] -1.
Realized capital gains or losses and unrealized appreciation or depreciation of
the assets of the underlying Money Market Portfolio are not included in the
yield calculation. Current yield and effective yield do not reflect the
deduction of charges for any applicable premium taxes and/or other taxes, but do
reflect a deduction for the Annual Fee, the Risk Charge and the asset-based
Administrative Fee and assume an average Contract Value of $40,000. Yield
information may be accompanied by yield quotations that do not take certain
charges into account.
Other Subaccounts
"Yield" of the other Subaccounts is computed in accordance with a different
standard method prescribed by the SEC. The net investment income (investment
income less expenses) per Subaccount Unit earned during a specified one-month or
30-day period is divided by the Subaccount Unit Value on the last day of the
specified period. This result is then annualized (that is, the yield is assumed
to be generated each month or each 30-day period for a year), according to the
following formula, which assumes semiannual compounding:
YIELD = 2([((a-b/cd) + 1) to the power of 6] - 1)
where: a = net investment income earned during the period by the Portfolio
attributable to the Subaccount.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Subaccount Units outstanding during the
period that were entitled to receive dividends.
d = the Unit Value of the Subaccount Units on the last day of the
period.
The yield of each Subaccount reflects the deduction of all recurring fees and
charges applicable to the Subaccount, such as the Risk Charge, the asset-based
Administrative Fee and the Annual Fee (assuming an average Contract Value of
$40,000), but does not reflect any withdrawal charge or any charge for
applicable premium taxes and/or other taxes. Yield information may be
accompanied by yield quotations that do not take certain charges into account.
General
The Subaccounts' total return and yields will vary from time to time depending
upon market conditions, the composition of each Portfolio and operating expenses
of the Trust allocated to each Portfolio. Consequently, any given performance
quotation should not be considered representative of the Subaccount's
performance in the future. Total return and yield should also be considered
relative to changes in Subaccount Unit Values and to the relative risks
associated with the investment policies and objectives of the various
Portfolios. In addition, because performance will fluctuate, it may not provide
a basis for comparing the total return or yield of a Subaccount with certain
bank deposits or other investments that pay a fixed yield or return for a stated
period of time.
2
<PAGE> 50
PERFORMANCE COMPARISONS AND BENCHMARKS
In advertisements and sales literature, we may compare the performance of some
or all of the Subaccounts to the performance of other variable annuity issuers
in general and to the performance of particular types of variable annuities
investing in mutual funds, or series of mutual funds, with investment objectives
similar to each of the Funds underlying the Subaccounts. This performance may be
presented as averages or rankings compiled by, among others, Lipper Analytical
Services, Inc. ("Lipper"), the Variable Annuity Research and Data Service
("VARDS(R)") or Morningstar, Inc. ("Morningstar"), which are independent
services that monitor and rank the performance of variable annuity issuers
and/or mutual funds in each of the major categories of investment objectives on
an industry-wide basis. Lipper's rankings include variable life issuers as well
as variable annuity issuers. VARDS(R) rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper and VARDS(R) rank such
issuers on the basis of total return, assuming reinvestment of dividends and
distributions, but do not take sales charges, redemption fees or certain expense
deductions at the separate account level into consideration. In addition,
VARDS(R) prepares risk adjusted rankings, which consider the effects of market
risk on total return performance. We may also compare the performance of the
Subaccounts with performance information included in other publications and
services that monitor the performance of insurance company separate accounts or
other investment vehicles. These other services or publications may be general
interest business publications such as The Wall Street Journal, Barron's,
Business Week, Forbes, Fortune, and Money.
In addition, our reports and communications to Contract Owners, advertisements,
or sales literature may compare a Subaccount's performance to various benchmarks
that measure the performance of a pertinent group of securities widely regarded
by investors as being representative of the securities markets in general or as
being representative of a particular type of security. These benchmarks include
the following: (1) the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), an unmanaged weighted index of 500 companies that represent approximately
80% of the market capitalization of the United States equity markets; (2) the
Consumer Price Index ("CPI"), published by the U.S. Bureau of Labor Statistics,
a statistical measure of change, over time, in the prices of goods and services
in major expenditure groups and generally considered to be a measure of
inflation; (3) the Dow Jones Industrial Average ("DJIA"); (4) the Donoghue Money
Market Institutional Averages; (5) the Lehman Brothers Government Corporate
Index; (6) the Lehman Brothers Government Bond Index; (7) the Salomon Brothers
High Yield Bond Indices; and (8) the Morgan Stanley Capital International's EAFE
Index. We may also compare the performance of the Subaccounts with that of other
appropriate indices of investment securities and averages for peer universes of
funds or data developed by us derived from such indices or averages. Unmanaged
indices generally assume the reinvestment of dividends or interest but do not
generally reflect deductions for investment management or administrative costs
and expenses.
INSURANCE COMPANY RATING INFORMATION
We may also advertise or report to you our ratings as an insurance company by
the A.M. Best Company. Each year, A.M. Best reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect Best's current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health industry. Best's Ratings range from A++ to F. An A++ rating means,
in the opinion of A.M. Best, that the insurer has demonstrated the strongest
ability to meet its respective policyholder and other contractual obligations.
A.M. Best publishes Best's Insurance Reports, Life-Health Edition. As of the
date of this SAI, A.M. Best reported our rating for financial position and
operating performance as A+.
In addition, our claims-paying ability as measured by the Standard & Poor's
Corporation ("Standard & Poor's") may be referred to in advertisements or in
reports to Contract Owners. A Standard & Poor's insurance claims-paying ability
rating is an assessment of an operating insurance company's financial capacity
to meet the obligations of its insurance policies in accordance with their
terms. Standard & Poor's ratings range from AAA to D. As of the date of this
SAI, Standard & Poor's rates our claims-paying ability as AA+.
3
<PAGE> 51
We may additionally advertise our rating from Duff & Phelps Credit Rating Co.
("Duff & Phelps"). A Duff & Phelps rating is an assessment of a company's
insurance claims-paying ability. Duff & Phelps ratings range from AAA to CCC. As
of the date of this SAI, Duff & Phelps rates our claims-paying ability as AA+.
We may advertise our insurance financial strength rating from Moody's Investors
Service, Inc. ("Moody's"). Moody's ratings range from Aaa to C. As of the date
of this SAI, Moody's gave us a rating of Aa3.
TAX DEFERRED ACCUMULATION
In reports or other communications to you or in advertising or sales materials,
we may also describe the effects of tax-deferred compounding on the Separate
Account's investment returns or upon returns in general. These effects may be
illustrated in charts or graphs and may include comparisons at various points in
time of returns under the Contract or in general on a tax-deferred basis with
the returns on a taxable basis. Different tax rates may be assumed.
In general, individuals who own annuity contracts are not taxed on increases in
the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The following chart illustrates this benefit by comparing accumulation
under a variable annuity contract with accumulations from an investment on which
gains are taxed on a current basis. The chart shows accumulations on an initial
Purchase Payment of $10,000, assuming hypothetical annual returns of 0%, 4% and
8%, compounded annually, and a tax rate of 36%. The values shown for the taxable
investment do not include any deduction for management fees or other expenses
but assume that taxes are deducted annually from investment returns. The values
shown for the variable annuity do not reflect the deduction of contractual
expenses such as the Risk Charge, the Administrative Fee and the Annual Fee, any
charge for premium taxes and/or other taxes, or the expenses of an underlying
investment vehicle, such as the Trust. For a description of the charges and
expenses under the Contract, see FEE TABLE and CHARGES, FEES AND DEDUCTIONS in
the Prospectus. If these expenses and fees were taken into account, they would
reduce the investment return shown for both the taxable investment and the
hypothetical variable annuity contract. In addition, these values assume that
you do not surrender the Contract or make any withdrawals until the end of the
period shown. The chart assumes a full withdrawal, at the end of the period
shown, of all Contract Value and the payment of taxes at the 36% rate on the
amount in excess of the Purchase Payment.
The rates of return illustrated are hypothetical and are not an estimate or
guarantee of performance. Actual tax rates may vary for different taxpayers from
that illustrated and withdrawals by Contract Owners who have not reached age
59 1/2 may be subject to a tax penalty of 10%.
4
<PAGE> 52
POWER OF TAX DEFERRAL
$10,000 investment at annual rates of return of 0%, 4% and 8%, taxed @ 36%
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
TAXABLE TAX-DEFERRED
INVESTMENT INVESTMENT
---------- ------------
<S> <C> <C>
10 Years
0%.......................................... $10,000.00 $10,000.00
4%.......................................... 12,875.97 13,073.56
8%.......................................... 16,476.07 17,417.12
20 Years
0%.......................................... 10,000.00 10,000.00
4%.......................................... 16,579.07 17,623.19
8%.......................................... 27,146.07 33,430.13
30 Years
0%.......................................... 10,000.00 10,000.00
4%.......................................... 21,347.17 24,357.74
8%.......................................... 44,726.05 68,001.00
</TABLE>
DISTRIBUTION OF THE CONTRACTS
PACIFIC MUTUAL DISTRIBUTORS, INC.
Pacific Mutual Distributors, Inc. ("PMD"), an indirect, wholly-owned subsidiary
of Pacific Mutual, acts as the principal underwriter of the Contracts and offers
the Contracts on a continuous basis. PMD and Pacific Mutual enter into selling
agreements with broker-dealers whose registered representatives are authorized
by state insurance departments to sell the Contracts.
5
<PAGE> 53
THE CONTRACTS AND THE SEPARATE ACCOUNT
CALCULATING SUBACCOUNT UNIT VALUES
The Unit Value of the Subaccount Units in each Variable Investment Option is
computed as of the end of each Business Day. The initial Unit Value of each
Subaccount was $10 on the Business Day the Subaccount began operations. At the
end of each Business Day, the Unit Value for a Subaccount is equal to:
Y X Z
where (Y) = the Unit Value for that Subaccount as of the end of the preceding
Business Day; and
(Z) = the Net Investment Factor for that Subaccount for the period (a
"valuation period") between that Business Day and the immediately
preceding Business Day.
The "Net Investment Factor" for a Subaccount for any valuation period is equal
to:
(A X B) - C
where (A) = the "per share value of the assets" of that Subaccount as of the end
of that valuation period, which is equal to: a+b+c
where (a) = the net asset value per share of the corresponding Portfolio
shares held by that Subaccount as of the end of that valuation
period;
(b) = the per share amount of any dividend or capital gain
distributions made by the Trust for that Portfolio during that
valuation period; and
(c) = any per share charge (a negative number) or credit (a positive
number) for any income taxes and/or any other taxes or other
amounts set aside during that valuation period as a reserve for
any income and/or any other taxes which we determine to have
resulted from the operations of the Subaccount or Contract,
and/or any taxes attributable, directly or indirectly, to
Purchase Payments;
(B) = the net asset value per share of the corresponding Portfolio shares
held by the Subaccount as of the end of the preceding valuation
period; and
(C) = a factor that assesses against the Subaccount net assets for each
calendar day in the valuation period, the charge for mortality and
expense risks at a rate that is equal on an annual basis to an
annual factor expressed as a decimal (where 1.00 is equal to 100%)
of 0.0125 and the Administrative Charge at a rate that is equal on
an annual basis to an annual factor of 0.0015 (see CHARGES, FEES
AND DEDUCTIONS in the Prospectus).
As explained in the Prospectus, the Annual Fee, if applicable, is assessed
against your Variable Account Value through the automatic debit of Subaccount
Units; the Annual Fee decreases the number of Subaccount Units attributed to
your Contract but does not alter the Unit Value for any Subaccount.
VARIABLE ANNUITY PAYMENT AMOUNTS
The following steps show how we determine the amount of each variable annuity
payment under your Contract.
First: Pay Applicable Premium Taxes
When you convert your Net Contract Value into annuity payments, you must pay any
applicable charge for premium taxes and/or other taxes on your Contract Value
(unless applicable law requires those taxes to be paid at a later time). We
assess this charge by reducing your Contract Value, proportionately, relative to
your Account Value in each Subaccount and in the Fixed Option, in an amount
equal to the aggregate amount of the charges. The remaining amount of your
available Contract Value may be used to provide variable annuity payments.
Alternatively, your remaining available Contract Value may be used to provide
fixed annuity
6
<PAGE> 54
payments, or it may be divided to provide both fixed and variable annuity
payments. You may also choose to withdraw some or all of your remaining Net
Contract Value, less any applicable Annual Fees, withdrawal charge, and any
charges for premium taxes and/or other taxes without converting this amount into
annuity payments.
Second: The First Variable Payment
We begin by referring to your Contract's Option Table for your Annuity Option
(the "Annuity Option Table"). The Annuity Option Table allows us to calculate
the dollar amount of the first variable annuity payment under your Contract,
based on the amount applied toward the variable annuity. The number that the
Annuity Option Table yields will be based on the Annuitant's age (and, in
certain cases, sex) and assumes a 5% investment return, as described in more
detail below.
Example: Assume a man is 65 years of age at his Annuity Date and has
selected a lifetime annuity with monthly payments guaranteed for 10 years.
According to the Annuity Option Table, this man should receive an initial
monthly payment of $5.79 for every $1,000 of his Contract Value (reduced by
applicable charges) that he will be using to provide variable payments.
Therefore, if his Contract Value after deducting applicable fees and
charges is $100,000 on his Annuity Date and he applies this entire amount
toward his variable annuity, his first monthly payment will be $579.00.
Third: Subaccount Annuity Units
For each Subaccount, we use the amount of the first variable annuity payment
under your Contract attributable to each Subaccount to determine the number of
Subaccount Annuity Units that will form the basis of subsequent payment amounts.
First, we use the Annuity Option Table to determine the amount of that first
variable payment for each Subaccount. Then, for each Subaccount, we divide that
amount of the first variable annuity payment by the value of one Subaccount
Annuity Unit (the "Subaccount Annuity Unit Value") as of the end of the Annuity
Date to obtain the number of Subaccount Annuity Units for that particular
Subaccount. The number of Subaccount Annuity Units used to calculate subsequent
payments under your Contract will not change unless exchanges of Annuity Units
are made (or if the Joint and Survivor Annuity Option is elected and the Primary
Annuitant dies first), but the value of those Annuity Units will change daily,
as described below.
Fourth: The Subsequent Variable Payments
The amount of each subsequent variable annuity payment will be the sum of the
amounts payable based on each Subaccount. The amount payable based on each
Subaccount is equal to the number of Subaccount Annuity Units for that
Subaccount multiplied by their Subaccount Annuity Unit Value at the end of the
Business Day in each payment period you elected that corresponds to the Annuity
Date.
Each Subaccount's Subaccount Annuity Unit Value, like its Subaccount Unit Value,
changes each day to reflect the net investment results of the underlying
investment vehicle, as well as the assessment of the Risk Charge at a rate equal
on an annual basis to the annual factor expressed as a decimal (where 1.00 is
equal to 100%) of 0.0125 and the Administrative Fee at a rate equal on an annual
basis to the annual factor of 0.0015. In addition, the calculation of Subaccount
Annuity Unit Value incorporates an additional factor; as discussed in more
detail below, this additional factor adjusts Subaccount Annuity Values to
correct for the Option Table's implicit assumption of a 5% annual investment
return on amounts applied but not yet used to furnish annuity benefits.
Different Subaccounts may be selected for your Contract before and after your
Annuity Date, subject to any restrictions we may establish. Currently, you may
exchange Subaccount Annuity Units in any Subaccount for Subaccount Annuity Units
in any other Subaccount(s) up to four times in any twelve month period after you
annuitize. The number of Subaccount Annuity Units in any Subaccount may change
due to such exchanges. Exchanges following annuitization will be made by
exchanging Subaccount Annuity Units of equivalent aggregate value, based on
their relative Subaccount Annuity Unit Values.
7
<PAGE> 55
Understanding the "Assumed Investment Return" Factor
The Annuity Option Table incorporates a number of implicit assumptions in
determining the amount of your first variable annuity payment. As noted above,
the numbers in the Annuity Option Table reflect certain actuarial assumptions
based on the Annuitant's age, and, in some cases, the Annuitant's sex. In
addition, these numbers assume that the amount of your Contract Value that you
convert to a variable annuity will have a positive investment return of 5% each
year during the payout of your annuity; thus 5% is referred to as an "assumed
investment return."
The Subaccount Annuity Unit Value for a Subaccount will increase only to the
extent that the investment performance of that Subaccount exceeds its Risk
Charge, the Administrative Fee, and the assumed investment return. The
Subaccount Annuity Unit Value for any Subaccount will generally be less than the
Subaccount Unit Value for that same Subaccount, and the difference will be the
amount of the assumed investment return factor.
Example: Assume the investment performance of a Subaccount is at a rate of
6.40% per year. The Subaccount Unit Value for that Subaccount would
increase at a rate of 5.00% per year (6.40% minus the Risk Charge at the
annual rate of 1.25% and minus the Administrative Fee at the annual rate of
0.15% equals 5.00%), but the Subaccount Annuity Unit Value would not
increase (or decrease) at all. The net investment factor for that 5% return
[1.05] is then divided by the factor for the 5% assumed investment return
[1.05] and 1 is subtracted from the result to determine the adjusted rate
of change in Subaccount Annuity Unit Value: 1.05/1.05 = 1; 1 - 1 = 0; 0 X
100% = 0%.
If the investment performance of a Subaccount's assets is at a rate less than
6.40% per year, the Subaccount Annuity Unit Value will decrease, even if the
Subaccount Unit Value is increasing.
Example: Assume the investment performance of a Subaccount is at a rate of
4.00% per year. The Subaccount Unit Value for that Subaccount would
increase at a rate of 2.60% per year (4.00% minus the Risk Charge at the
annual rate of 1.25% and minus the Administrative Fee at the annual rate of
0.15% equals 2.60%), but the Subaccount Annuity Unit Value would decrease
at a rate of 2.29% per year. The net investment factor for that 2.6% return
[1.026] is then divided by the factor for the 5% assumed investment return
[1.05] and 1 is subtracted from the result to determine the adjusted rate
of change in Subaccount Annuity Unit Value: 1.026/1.05 = 0.9771; 0.9771 - 1
= -0.0229; -0.0229 X 100% = -2.29%.
The assumed investment return will always cause increases in Subaccount Annuity
Unit Values to be somewhat less than if the assumption had not been made; will
cause decreases in Subaccount Annuity Unit Values to be somewhat greater than if
the assumption had not been made; and will (as shown in the example above)
sometimes cause a decrease in Subaccount Annuity Unit Values to take place when
an increase would have occurred if the assumption had not been made. If we had
assumed a higher investment return in our Annuity Option tables, it would
produce annuities with larger first payments, but the increases in subaccount
annuity payments would be smaller and the decreases in subsequent annuity
payments would be greater; a lower assumed investment return would produce
annuities with smaller first payments, and the increases in subsequent annuity
payments would be greater and the decreases in subsequent annuity payments would
be smaller.
CORRESPONDING DATES
If any transaction or event under your Contract is scheduled to occur on a
"corresponding date" that does not exist in a given calendar period, the
transaction or event will be deemed to occur on the following Business Day. In
addition, as stated in the Prospectus, any event scheduled to occur on a day
that is not a Business Day will occur on the next succeeding Business Day.
Example: If your Contract is issued on February 29 in year 1 (a leap year),
your Contract Anniversary in years 2, 3 and 4 will be on March 1.
8
<PAGE> 56
Example: If your Annuity Date is July 31 and you select monthly annuity
payments, the payments received will be based on valuations made on July
31, August 31, October 1 (for September), October 31, December 1 (for
November), December 31, January 31, March 1 (for February), March 31, May 1
(for April), May 31 and July 1 (for June).
AGE AND SEX OF ANNUITANT
As mentioned in the Prospectus, the Contracts generally provide for sex-distinct
annuity income factors in the case of life annuities. Statistically, females
tend to have longer life expectancies than males; consequently, if the amount of
annuity payments is based on life expectancy, they will ordinarily be higher if
an annuitant is male than if an annuitant is female. Certain states' regulations
prohibit sex-distinct annuity income factors, and Contracts issued in those
states will use unisex factors. In addition, Contracts issued in connection with
Qualified Plans are required to use unisex factors.
We may require proof of your Annuitant's age and sex before or after commencing
annuity payments. If the age or sex (or both) of your Annuitant are incorrectly
stated in your Contract, the amount payable will be corrected to equal the
amount that the annuitized portion of the Contract Value under that Contract
would have purchased for your Annuitant's correct age and sex. If the correction
is effected after annuity payments have commenced, and we have made overpayments
based on the incorrect information, we will deduct the amount of the
overpayment, with interest at 3% a year, from any payments due then or later; if
we have made underpayments, we will add the amount, with interest at 3% a year,
of the underpayments to the next payment we make after we receive proof of the
correct sex and/or date of birth.
SYSTEMATIC TRANSFER PROGRAMS
Dollar Cost Averaging
When you request dollar cost averaging, you are authorizing us to make periodic
reallocations of your Contract Value without waiting for any further instruction
from you. You may request to begin or stop dollar cost averaging at any time
prior to your Annuity Date; the effective date of your request will be the day
we receive written notice from you in proper form. Your request may specify the
date on which you want your first transfer to be made. If you do not specify a
date for your first transfer, we will treat your request as if you had specified
the effective date of your request. Your first transfer may not be made until 30
days after your Contract Date, and if you specify an earlier date, your first
transfer will be delayed until one calendar month after the date you specify. If
you request dollar cost averaging on your application for your Contract and you
fail to specify a date for your first transfer, your first transfer will be made
one period after your Contract Date (that is, if you specify monthly transfers,
the first transfer will occur 30 days after your Contract Date; quarterly
transfers, 90 days after your Contract Date; semiannual transfers, 180 days
after your Contract Date; and if you specify annual transfers, the first
transfer will occur on your Contract Anniversary). If you stop dollar cost
averaging, you must wait 30 days before you may begin this option again.
Your request to begin dollar cost averaging must specify the Investment Option
you wish to transfer money from (your "source account"). You may choose any one
Variable Investment Option or the Fixed Option as your source account. The
Account Value of your source account must be at least $5,000 for you to begin
dollar cost averaging.
Your request to begin dollar cost averaging must also specify the amount and
frequency of your transfers. You may choose monthly, quarterly, semiannual or
annual transfers. The amount of your transfers may be specified as a dollar
amount or a percentage of your source Account Value; however, each transfer must
be at least $250. Dollar cost averaging transfers are subject to the same
requirements and limitations as other transfers.
Finally, your request must specify the Variable Investment Option(s) you wish to
transfer amounts to (your "target account(s)"). If you select more than one
target account, your dollar cost averaging request must specify how transferred
amounts should be allocated among the target accounts. Your source account may
not also be a target account.
9
<PAGE> 57
Your dollar cost averaging transfers will continue until the earlier of (i) your
request to stop dollar cost averaging is effective, (ii) your source Account
Value is zero, or (iii) you annuitize. If, as a result of a dollar cost
averaging transfer, your source Account Value falls below any minimum Account
Value we may establish, we have the right, at our option, to transfer that
remaining Account Value to your target account(s) on a proportionate basis
relative to your most recent allocation instructions. You may not use dollar
cost averaging and the earnings sweep at the same time. We may change, terminate
or suspend the dollar cost averaging option at any time.
Portfolio Rebalancing
Portfolio rebalancing allows you to maintain the percentage of your Contract
Value allocated to each Variable Investment Option at a pre-set level prior to
annuitization. For example, you could specify that 30% of your Contract Value
should be in the Capital Income Subaccount, 40% in the Blue Chip Subaccount, and
30% in the Aggressive Growth Subaccount. Over time, the variations in each
Subaccount's investment results will shift this balance of these Subaccount
Value allocations. If you elect the portfolio rebalancing feature, we will
automatically transfer your Subaccount Value back to the percentages you
specify.
You may choose to have rebalances made quarterly, semiannually or annually until
your Annuity Date; portfolio rebalancing is not available after you annuitize.
Procedures for selecting portfolio rebalancing are generally the same as those
discussed in detail above for selecting dollar cost averaging: You may make your
request at any time prior to your Annuity Date and it will be effective when we
receive it in proper form. If you stop portfolio rebalancing, you must wait 30
days to begin again. You may specify a date for your first rebalance, or we will
use the request date as the effective date. If you specify a date fewer than 30
days after your Contract Date, your first rebalance will be delayed one month,
and if you request rebalancing on your application but do not specify a date for
the first rebalance, it will occur one period after your Contract Date, as
described above under Dollar Cost Averaging. We may change, terminate or suspend
the portfolio rebalancing feature at any time.
Earnings Sweep
An earnings sweep automatically transfers the earnings attributable to a
specified Investment Option (the "sweep option") to one or more other Investment
Options (your "target option(s)"). If you elect to use the earnings sweep, you
may select either the Fixed Option or the Money Market Subaccount as your sweep
option. The Account Value of your sweep option will be required to be at least
$5,000 when you elect the earnings sweep. You may select one or more Variable
Investment Options (but not the Money Market Subaccount) as your target
option(s).
You may choose to have earnings sweeps occur monthly, quarterly, semiannually or
annually until you annuitize. At each earnings sweep, we will automatically
transfer only your accumulated earnings attributable to your sweep option for
the previous period proportionately to your target option(s). That is, if you
select a monthly earnings sweep, we will transfer the sweep option earnings from
the preceding month; if you select a semiannual earnings sweep, we will transfer
the sweep option earnings accumulated over the preceding six months. Earnings
sweep transfers are subject to the same requirements and limitations as other
transfers.
To determine the earnings, we take the change in the sweep option's Account
Value during the sweep period, add any withdrawals or transfers out of the sweep
option Account that occurred during the sweep period, and subtract any
allocations to the sweep option Account during the sweep period. The result of
this calculation represents the "total earnings" for the sweep period.
If, during the sweep period, you withdraw or transfer amounts from the sweep
option Account, we assume that earnings are withdrawn or transferred before any
other Account Value. Therefore, your "total earnings" for the sweep period will
be reduced by any amounts withdrawn or transferred during the sweep option
period. The remaining earnings are eligible for the sweep transfer.
Procedures for selecting the earnings sweep are generally the same as those
discussed in detail above for selecting dollar cost averaging and portfolio
rebalancing: You may make your request at any time and it will be
10
<PAGE> 58
effective when we receive it in proper form. If you stop the earnings sweep, you
must wait 30 days to begin again. You may specify a date for your first sweep,
or we will use your request date as the effective date. If you specify a date
fewer than 30 days after your Contract Date, your first earnings sweep will be
delayed one month, and if you request the earnings sweep on your application but
do not specify a date for the first sweep, it will occur one period after your
Contract Date, as described above under Dollar Cost Averaging.
If you are using the earnings sweep, you may also use portfolio rebalancing only
if you selected the Fixed Option as your sweep option. You may not use the
earnings sweep and dollar cost averaging at the same time. If, as a result of an
earnings sweep transfer, your source Account Value falls below any minimum
Account Value we may establish, we have the right, at our option, to transfer
that remaining Account Value to your target account(s) on a proportionate basis
relative to your most recent allocation instructions. We may change, terminate
or suspend the earnings sweep option at any time.
PRE-AUTHORIZED WITHDRAWALS
You may specify a dollar amount for your pre-authorized withdrawals, or you may
specify a percentage of your Contract Value or an Account Value. You may direct
us to make your pre-authorized withdrawals from one or more specific Fixed or
Variable Investment Options; if you do not give us these specific directions,
amounts will be deducted proportionately from your Account Value in each Fixed
or Variable Investment Option.
Procedures for selecting pre-authorized withdrawals are generally the same as
those discussed in detail above for selecting dollar cost averaging, portfolio
rebalancing, and earnings sweeps. You may make your request at any time and it
will be effective when we receive it in proper form. If you stop the
pre-authorized withdrawals, you must wait 30 days to begin again. You may
specify a date for the first withdrawal, or we will use your request date as the
effective date. If you specify a date fewer than 30 days after your Contract
Date, your first pre-authorized withdrawal will be delayed one month, and if you
request the pre-authorized withdrawals on your application but do not specify a
date for the first withdrawal, it will occur one period after your Contract
Date.
If your pre-authorized withdrawals cause your Account Value in any Investment
Option to fall below any minimum Account Value we establish, we have the right,
at our option, to transfer that remaining Account Value to your other Investment
Options on a proportionate basis relative to your most recent allocation
instructions. If your pre-authorized withdrawals cause your Contract Value to
fall below $1,000, we may, at our option, terminate your Contract and send you
the remaining withdrawal proceeds.
Pre-authorized withdrawals are subject to the same withdrawal charges as are
other withdrawals, and each withdrawal is subject to any applicable charge for
premium taxes and/or other taxes, to federal income tax on its taxable portion,
and, if you have not reached age 59 1/2, a 10% tax penalty.
DEATH BENEFIT
The standard death benefit payable will be calculated as of the date we receive
proof (in proper form) of the Annuitant's death (or, if applicable, the Contract
Owner's death) and instructions regarding payment. Any Guaranteed Minimum Death
Benefit payable will be calculated as of the date we are first notified of the
death. Any claim of a death benefit must be made in proper form. A recipient of
death benefit proceeds may elect to have this benefit paid in one lump sum, in
periodic payments, in the form of a lifetime annuity or in some combination of
these. Annuity payments normally will begin within 30 days once we receive all
information necessary to process the claim.
If your Contract names Joint or Contingent Annuitants, no death benefit will be
payable unless and until the last Annuitant dies prior to the Annuity Date or a
Contract Owner dies prior to the Annuity Date. If yours is a Qualified Contract,
your Contingent Annuitant or Contingent Owner must be your spouse. If both the
Contract Owner(s) and the Annuitant(s) are non-natural persons, no death benefit
will be payable, and any distribution will be treated as a withdrawal and
subject to any applicable charges for Annual Fees, transaction fees, withdrawal
fees, premium taxes and/or other taxes, and withdrawal charges.
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<PAGE> 59
Death of an Annuitant
If a Joint Annuitant who is not a Contract Owner dies prior to the Annuity Date,
the surviving Joint Annuitant becomes your Annuitant. If your Annuitant is not a
Contract Owner and dies, or if there is no surviving Joint Annuitant, your
surviving Contingent Annuitant becomes your Annuitant. If there is no surviving
Contingent Annuitant, the death benefit becomes payable.
Any death benefit payable on the death of your Annuitant is payable to the
surviving Beneficiary. If no Beneficiary survives, any death benefit will be
payable to the surviving Owner, if there is one; if not, any death benefit will
be payable to the Owner's estate.
Death of a Contract Owner
If any Contract Owner dies prior to the Annuity Date while the Annuitant is
still living, a death benefit may be payable. If that Contract Owner was the
sole Annuitant or a Joint Annuitant under the Contract, any death benefit will
be payable to the surviving Beneficiary, or to your estate if no Beneficiary
survives. If that Contract Owner was not an Annuitant under the Contract, any
death benefit will be payable to the surviving Joint Owner of the Contract, if
there is one; if not, the death benefit will be payable to the surviving
Contingent Owner, if there is one; if not, any death benefit will be payable to
the surviving designated Beneficiary, or to the Owner's estate if no designated
Beneficiary survives. If the Joint or Contingent Owner is the deceased Contract
Owner's surviving spouse, he or she may elect to become the Contract Owner and
continue the Contract rather than receive the death benefit proceeds.
JOINT ANNUITANTS ON QUALIFIED CONTRACTS
If your Contract was issued in connection with a Qualified Plan subject to Title
I of the Employee Retirement Income Security Act of 1974 ("ERISA"), you may be
permitted to add a Joint Annuitant on your Annuity Date. You may call us for
more information.
1035 EXCHANGES
You may make your initial Purchase Payment through an exchange of an existing
annuity contract. To exchange, you must complete a 1035 Exchange form, which is
available by calling your representative, or by calling us at 1-800-722-5558,
and mail the form along with the annuity contract you are exchanging (plus your
completed application if you are making an initial Purchase Payment) to us.
In general terms, Section 1035 of the Code provides that you recognize no gain
or loss when you exchange one annuity contract solely for another annuity
contract. However, transactions under Section 1035 may be subject to special
rules and may require special procedures and record-keeping, particularly if the
exchanged annuity contract was issued prior to August 14, 1982. You should
consult your tax adviser prior to effecting a 1035 Exchange.
SAFEKEEPING OF ASSETS
We are responsible for the safekeeping of the assets of the Separate Account.
These assets are held separate and apart from the assets of our General Account
and our other separate accounts.
DIVIDENDS
The current dividend scale for Pacific Mutual is zero and we do not anticipate
that dividends will be paid by Pacific Mutual. If any dividend is paid, you may
elect to receive the dividend in cash or to add the dividend to your Contract
Value. If you make no election, the dividend will be added to your Contract
Value. We will allocate any dividend to Contract Value in accordance with your
most recent allocation instructions, unless instructed otherwise. You should
consult with your tax adviser before making an election.
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<PAGE> 60
FINANCIAL STATEMENTS
Separate Account B had not yet commenced operations as of December 31, 1996 and
therefore no financial statements are included. Pacific Mutual's audited
financial statements as of and for the year ended December 31, 1995 are set
forth beginning on the next page. These financial statements should be
considered only as bearing on our ability to meet our obligations under the
Contracts and not as bearing on the investment performance of the assets held in
the Separate Account.
The financial statements of Pacific Mutual as of and for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein.
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<PAGE> 61
INDEPENDENT AUDITORS' REPORT
Pacific Mutual Life Insurance Company:
We have audited the accompanying statements of financial position of Pacific
Mutual Life Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations and surplus, and of cash flow for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pacific Mutual Life Insurance Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flow
for the years then ended, in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of California and with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 23, 1996
14
<PAGE> 62
Pacific Mutual Life Insurance Company
S T A T E M E N T S O F F I N A N C I A L P O S I T I O N
<TABLE>
<CAPTION>
December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Bonds $ 6,699,489 $ 6,669,853
Preferred stocks 156,097 132,604
Common stocks 54,504 57,874
Unconsolidated subsidiaries 182,040 196,401
Mortgage loans 1,388,743 1,421,182
Real estate 145,178 157,507
Home office properties 48,446 51,419
Policy loans 2,700,544 2,312,455
Cash and short-term investments 262,527 97,745
Investment income due and accrued 135,607 125,534
Premiums due and uncollected, and other assets 295,159 245,243
Separate account assets 5,520,478 3,260,374
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,588,812 $ 14,728,191
==================================================================================================================
LIABILITIES AND SURPLUS
Liabilities
Policy reserves $ 7,204,362 $ 6,476,634
Deposit funds 3,262,340 3,298,915
Other liabilities 686,989 885,638
Asset valuation reserve 191,392 179,006
Separate account liabilities 5,520,478 3,260,374
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 16,865,561 14,100,567
Surplus 723,251 627,624
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SURPLUS $ 17,588,812 $ 14,728,191
==================================================================================================================
</TABLE>
See Notes to Financial Statements
15
<PAGE> 63
Pacific Mutual Life Insurance Company
S T A T E M E N T S O F O P E R A T I O N S A N D S U R P L U S
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
REVENUES
Premiums, annuity considerations and deposit funds $2,919,920 $2,180,409
Net investment income 945,546 879,116
Other income 5,685 5,073
- ------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,871,151 3,064,598
- ------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future policy benefits 3,371,448 2,659,601
Operating expenses 309,588 249,018
Premium and other taxes (excluding tax on capital gains) 35,168 28,705
Dividends to policyowners 16,639 17,162
- ------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 3,732,843 2,954,486
- ------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 138,308 110,112
Federal income taxes 59,470 41,510
- ------------------------------------------------------------------------------------------------------------------
NET GAIN FROM OPERATIONS 78,838 68,602
NET REALIZED CAPITAL GAINS 6,311 12,424
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 85,149 $ 81,026
==================================================================================================================
SURPLUS
Net income $ 85,149 $ 81,026
Other surplus transactions, net 10,478 (36,178)
- ------------------------------------------------------------------------------------------------------------------
Increase in surplus 95,627 44,848
Surplus, beginning of year 627,624 582,776
- ------------------------------------------------------------------------------------------------------------------
SURPLUS, END OF YEAR $ 723,251 $ 627,624
==================================================================================================================
</TABLE>
See Notes to Financial Statements
16
<PAGE> 64
Pacific Mutual Life Insurance Company
S T A T E M E N T S O F C A S H F L O W
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Receipts
Premiums, annuity considerations and deposit funds $ 2,687,698 $ 1,687,583
Net investment income 927,918 809,791
Allowances and reserve adjustments on reinsurance ceded 187,380 491,363
Other 13,885 23,862
Payments
Policy benefit payments (1,677,788) (1,408,650)
Net policy loans (388,320) (352,358)
Operating expenses (278,138) (247,437)
Net transfer to separate accounts (1,178,622) (594,284)
Premium and other taxes (41,116) (34,795)
Dividends to policyowners (16,715) (17,319)
Federal income taxes (35,779) (23,995)
- ------------------------------------------------------------------------------------------------------------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES 200,403 333,761
- ------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds
Bonds 2,496,486 2,937,210
Stocks 208,235 139,785
Mortgage loans 261,514 390,642
Real estate 21,419 20,163
Other investments 49,089 47,132
Payments for the purchase of
Bonds (2,431,687) (3,673,859)
Stocks (222,678) (126,823)
Mortgage loans (239,355) (230,859)
Real estate (4,716) (17,466)
Other investments (124,164) (114,106)
- ------------------------------------------------------------------------------------------------------------------
NET CASH FLOW PROVIDED BY (USED IN)
INVESTING ACTIVITIES 14,143 (628,181)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
See Notes to Financial Statements
17
<PAGE> 65
Pacific Mutual Life Insurance Company
S T A T E M E N T S O F C A S H F L O W
<TABLE>
<CAPTION>
Years Ended December 31,
(Continued) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES
Issuance (repayment) of short-term borrowings $ (49,764) $ 49,764
- ----------------------------------------------------------------------------------------------------------------------
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES (49,764) 49,764
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments 164,782 (244,656)
Cash and short-term investments, beginning of year 97,745 342,401
- ----------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 262,527 $ 97,745
======================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 18,376 $ 22,120
======================================================================================================================
</TABLE>
See Notes to Financial Statements
18
<PAGE> 66
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Pacific Mutual Life Insurance Company ("Pacific Mutual") was
established in 1868 and is organized under the laws of the State of
California as a mutual life insurance company. Pacific Mutual
conducts business in every state except New York.
Pacific Mutual, including its subsidiaries and affiliates, has primary
business segments which consist of life insurance, annuities, pension
products, group employee benefits and investment management and
advisory services. These primary business segments provide products
for individuals and corporations and offer a range of investment
products to institutions and pension plans.
BASIS OF PRESENTATION
Pacific Mutual's financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Insurance
Department of the State of California, which are currently considered
generally accepted accounting principles ("GAAP") for mutual life
insurance companies. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners ("NAIC"), as well as state laws, regulations,
and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The
financial statements of Pacific Mutual are not consolidated with those
of its subsidiaries.
The Financial Accounting Standards Board ("FASB") has issued certain
pronouncements effective for 1996 financial statements and thereafter
that will no longer allow statutory financial statements of mutual
life insurance companies to be described as being prepared in
conformity with GAAP.
Upon the effective date of these pronouncements, in order for their
financial statements to be described as being prepared in accordance
with GAAP, mutual life insurance companies and their insurance
subsidiaries will be required to adopt all applicable authoritative
GAAP pronouncements in any general purpose financial statements that
they may issue. Pacific Mutual intends to issue 1996 general purpose
financial statements reflecting the adoption of all applicable GAAP
pronouncements.
INVESTMENTS
Bonds qualifying for amortization are carried at amortized cost; all
other bonds are carried at prescribed values. Preferred stocks are
principally stated at amortized cost. Unaffiliated common stocks are
carried at market value. Investments in unconsolidated subsidiaries
are reported on the equity method of accounting, except for Pacific
Corinthian Life Insurance Company ("PCL") (Note 2) which is carried at
cost.
Mortgage loans and policy loans are stated at unpaid principal
balances. Real estate is valued at the lower of depreciated cost or
market, less related mortgage debt. Real estate is depreciated using
the straight-line method over 30 years.
Short-term investments generally mature within a year and are carried
at amortized cost which approximates estimated fair value.
The Asset Valuation Reserve ("AVR") is computed in accordance with a
prescribed formula and is designed to stabilize surplus against
valuation and credit-related losses for certain invested assets.
Changes to the AVR are reported as direct additions or deductions from
surplus. The Interest Maintenance Reserve ("IMR"), included in other
liabilities on the accompanying statements of financial position,
results in the deferral of after-tax realized capital gains and losses
attributable to interest rate fluctuations on fixed income
investments. These capital gains and losses are amortized into
investment income over the remaining life of the investment sold. The
IMR was $25.3 million and $13.1 million as of December 31, 1995 and
1994, respectively.
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<PAGE> 67
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net realized capital gains and losses are determined on the specific
identification method and are presented net of federal capital gains
tax of $18.5 million and $(2.3) million and transfers to the IMR of
$22.6 million and $(.4) million for the years ended December 31, 1995
and 1994, respectively.
Derivatives which qualify for hedge accounting are valued consistently
with the hedged items. Realized hedged gains and losses on fixed
income contracts are deferred and amortized over the average life of
the related hedged assets or insurance liabilities. Realized gains
and losses on equity securities, which are marked to market, are
recognized immediately. Derivatives which do not qualify for hedge
accounting are valued at market value through surplus while still held
and when realized through income.
On November 15, 1994, Pacific Financial Asset Management Corporation
("PFAMCo"), a wholly-owned, subsidiary of Pacific Mutual, and five of
its subsidiaries (Pacific Investment Management Company and
subsidiaries, Parametric Portfolio Associates, Inc., Cadence Capital
Management Corporation, NFJ Investment Group, Inc. and Blairlogie
Capital Management Limited) entered into an agreement and plan of
consolidation with Thomson Advisory Group L.P., a Delaware limited
partnership with publicly traded units, to merge into a newly
capitalized partnership named PIMCO Advisors L.P. Collectively,
PFAMCo and various of its subsidiaries beneficially own approximately
42% of the outstanding general and limited partner units of PIMCO
Advisors L.P. as of December 31, 1995 and 1994. Net cash
distributions received on these units are recorded as income as
permitted by the Insurance Department of the State of California.
On December 21, 1995, Pacific Mutual completed a subsidiary
reorganization in which PFAMCo became a direct, wholly-owned
subsidiary of Pacific Mutual. Prior to that PFAMCo was a wholly-owned
second-tier subsidiary of Pacific Mutual. The intermediate company,
Pacific Financial Holding Company ("PFHC") and certain of its assets
and liabilities were merged into PFAMCo in connection with this
reorganization. The remaining assets were merged into Pacific Mutual
which consisted of investments in subsidiaries as follows: Pacific
Equities Network, PM Group Life Insurance Company and PFAMCo.
POLICY RESERVES AND DEPOSIT FUNDS
Life insurance reserves are valued using the net level premium method,
the Commissioners' Reserve Valuation Method, or other modified reserve
methods.
Reserves for individual annuities are maintained principally on the
Commissioners' Annuity Reserve Valuation Method. Group annuity
contract reserves are valued using the net single premium method.
The liability for deposit funds, including guaranteed interest
contracts, is based primarily upon and is not less than the
policyowners' equity in their deposit accounts, including credited
interest.
REVENUES AND EXPENSES
Premiums are recognized as income over the premium paying period.
Deposits made in connection with annuity contracts are recognized as
revenue when received. Investment income is recorded as earned.
Expenses, including policy acquisition costs, such as commissions, and
Federal income taxes are charged to operations as incurred.
DIVIDENDS
Dividends are provided based on dividend formulas approved by the
Board of Directors and reviewed for reasonableness and equitable
treatment of policyowners by an independent consulting actuary.
20
<PAGE> 68
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Pacific Mutual is taxed as a life insurance company for Federal income
tax purposes. Pacific Mutual's income tax return is consolidated with
all its includable domestic subsidiaries except PCL. The amount of
Federal income tax expense includes an equity tax calculated by a
prescribed formula that incorporates a differential earnings rate
between stock and mutual life insurance companies. Under prescribed
statutory accounting practices, deferred tax assets and liabilities
are not recorded. The difference between the effective tax rate and
the statutory tax rate of 35% for 1995 and 1994 is primarily due to
certain policy acquisition costs being deferred and amortized over a
ten-year period for tax purposes, reserve differences, non-taxable
investment income and the equity tax.
OTHER SURPLUS TRANSACTIONS
Other surplus transactions consist primarily of unrealized capital
gains and losses, changes in nonadmitted assets, and changes in the
AVR.
SEPARATE ACCOUNTS
Separate account assets are recorded at market value and the related
liabilities represent segregated contract owner funds maintained in
accounts with individual investment objectives. The investment
results of separate account assets generally pass through to separate
account policy owners and contract owners.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments disclosed in Notes 3
and 4 have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment
is required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented may not be indicative of
the amounts Pacific Mutual could realize in a current market exchange.
The use of different market assumptions and/or estimation
methodologies could have a significant effect on the estimated fair
value amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
practices prescribed or permitted by regulatory authorities and
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1995 financial statement presentation.
2. REHABILITATION OF FIRST CAPITAL LIFE INSURANCE COMPANY
Pursuant to a five-year rehabilitation agreement approved by a
California Superior Court and the Insurance Department of the State of
California in July 1992, Pacific Mutual, through its wholly-owned
subsidiary, PCL, will facilitate the rehabilitation of First Capital
Life Insurance Company ("FCL"). In accordance with the rehabilitation
agreement, insurance policies of FCL were restructured and assumed by
PCL on December 31, 1992.
The rehabilitation agreement provides for the holders of restructured
policies to share in a substantial percentage of the unallocated
surplus of PCL at the end of the rehabilitation period. Policyholders
have the option to surrender their restructured policies with reduced
benefits during this five-year period. During the rehabilitation
21
<PAGE> 69
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
2. REHABILITATION OF FIRST CAPITAL LIFE INSURANCE COMPANY (CONTINUED)
plan period, PCL is prohibited from issuing new insurance policies.
At the end of the rehabilitation period, PCL will merge into Pacific
Mutual, with Pacific Mutual as the surviving entity. Substantially
all of the assets and certain of the liabilities of FCL were assumed
by PCL on December 31, 1992, pursuant to an assumption reinsurance
agreement and asset purchase agreement.
In accordance with the rehabilitation agreement, PCL was capitalized
by a cash contribution of $8.3 million from Pacific Mutual and a $45
million certificate of contribution provided by a wholly-owned
subsidiary of Pacific Mutual for a total of $53.3 million initial
capitalization.
In the event PCL is unable to pay contract benefits, Pacific Mutual is
obligated to contribute funds to pay those benefits in accordance with
the rehabilitation agreement.
3. INVESTMENTS IN DEBT SECURITIES
The statement value, gross unrealized gains and losses and estimated
fair value of bonds and redeemable preferred stocks ("debt
securities"), including short-term investments, are shown below. The
estimated fair value of publicly traded securities was based on quoted
market prices. For securities not actively traded, estimated fair
values were provided by independent pricing services specializing in
"matrix pricing" and modeling techniques. Pacific Mutual also
estimates certain fair values based on interest rates, credit quality
and average maturity or from securities with comparable trading
characteristics.
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Statement -------------------------- Fair
Value Gains Losses Value
-----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury securities
and obligations of U.S.
government authorities
and agencies $ 147,436 $ 28,214 $ 175,650
Obligations of states, political
subdivisions and foreign
governments 452,273 66,960 $ 3,064 516,169
Corporate securities 3,901,979 442,497 46,539 4,297,937
Mortgage-backed securities 2,438,052 116,650 10,106 2,544,596
Redeemable preferred stock 89,191 2,840 2,472 89,559
---------------------------------------------------------
Total $7,028,931 $657,161 $62,181 $7,623,911
=========================================================
December 31, 1994:
U.S. Treasury securities
and obligations of U.S.
Government authorities
and agencies $ 216,201 $ 1,064 $ 37,113 $ 180,152
Obligations of states, political
subdivisions and foreign
governments 321,798 5,371 16,309 310,860
Corporate securities 3,771,271 104,311 160,712 3,714,870
Mortgage-backed securities 2,475,472 28,472 81,111 2,422,833
Redeemable preferred stock 81,026 343 5,031 76,338
---------------------------------------------------------
Total $6,865,768 $139,561 $300,276 $6,705,053
=========================================================
</TABLE>
22
<PAGE> 70
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
3. INVESTMENTS IN DEBT SECURITIES (CONTINUED)
The statement value and estimated fair value of debt securities as of December
31, 1995 by contractual repayment date of principal are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Statement Fair
Value Value
-------------------------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 445,645 $ 449,283
Due after one year through five years 1,319,487 1,426,373
Due after five years through ten years 1,409,209 1,542,228
Due after ten years 1,416,538 1,661,431
-------------------------
4,590,879 5,079,315
Mortgage-backed securities 2,438,052 2,544,596
-------------------------
Total $7,028,931 $7,623,911
=========================
</TABLE>
Proceeds from sales of investments in debt securities were $1.4 billion and
$1.5 billion for the years ended December 31, 1995 and 1994, respectively. In
1995 and 1994, gross gains of $36 million and $30 million and gross losses of
$14 million and $43 million, respectively, were realized on those sales.
4. FINANCIAL INSTRUMENTS
The estimated fair values of Pacific Mutual's financial instruments, including
debt securities, are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Statement Estimated Statement Estimated
Value Fair Value Value Fair Value
---------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Assets:
Debt securities (Note 3) $7,028,931 $7,623,911 $6,865,768 $6,705,053
Preferred and common stocks 121,420 139,613 109,458 116,993
Mortgage loans 1,388,743 1,500,000 1,421,182 1,452,596
Policy loans 2,700,544 2,700,544 2,312,455 2,312,455
Derivative financial instruments:
Interest rate swaps 1,068 3,379 121 (24,809)
Other 18,008 30,649 2,672 (2,822)
Liabilities:
Guaranteed interest contracts 2,375,898 2,459,323 2,635,356 2,614,961
Deposit liabilities 876,276 899,393 897,743 859,469
Annuity liabilities 308,742 311,441 220,026 223,423
Other derivative financial instruments 2,373 1,490 2,270 2,128
Surplus:
Contribution certificates 149,596 157,688 149,593 124,313
</TABLE>
23
<PAGE> 71
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
4. FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair
values of these financial instruments as of December 31, 1995 and
1994:
PREFERRED AND COMMON STOCKS
The estimated fair values are based on quoted market prices or dealer
quotes.
MORTGAGE LOANS
The estimated fair value of the mortgage loan portfolio is determined
by discounting the estimated future cash flows, using a year-end
market rate which is applicable to the yield, credit quality and
average maturity of the composite portfolio.
POLICY LOANS
The statement value of policy loans is a reasonable estimate of their
fair value.
GUARANTEED INTEREST CONTRACTS AND DEPOSIT LIABILITIES
The estimated fair values of fixed-maturity guaranteed interest
contracts are estimated using the rates currently offered for deposits
of similar remaining maturities. The estimated fair values of deposit
liabilities with no defined maturities are the amounts payable on
demand.
Pacific Mutual has issued PRO GIC and Diversifier GIC contracts to
plan sponsors totaling $914 million as of December 31, 1995, pursuant
to the terms of which the plan sponsor retains direct ownership and
control of the assets related to these contracts. Pacific Mutual
agrees to provide benefit responsiveness in the event that plan
benefit requests exceed plan cash flows. In return for this
guarantee, Pacific Mutual receives a fee which varies by contract.
Pacific Mutual sets the investment guidelines to provide for
appropriate credit quality and cash flow matching.
ANNUITY LIABILITIES
The fair value of annuity liabilities approximates statement value and
primarily includes policyholder deposits and accumulated credited
interest.
DERIVATIVE FINANCIAL INSTRUMENTS
Pacific Mutual utilizes certain derivative financial instruments to
diversify its business risk and to minimize its exposure to
fluctuations in market prices, interest rates, or basis risk. Pacific
Mutual has also set aside a corporate total return portfolio utilizing
derivative financial instruments. These instruments include interest
rate and currency swaps, asset swaps, credit derivatives, forwards,
options held, options written, and futures contracts, and involve
elements of credit risk and market risk in excess of amounts
recognized in the accompanying financial statements. The notional
amounts of those instruments reflect the extent of involvement in
those various types of financial instruments. The estimated fair
values of these instruments are based on market or dealer quotes.
Pacific Mutual determines, on an individual counterparty basis, the
need for collateral or other security to support financial instruments
with off-balance sheet credit risks.
24
<PAGE> 72
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
4. FINANCIAL INSTRUMENTS (CONTINUED)
Options and Floors
Pacific Mutual uses options and floors to hedge against fluctuations
in interest rates and in its corporate total return portfolio. Cash
requirements on options held are limited to the premium paid by
Pacific Mutual at acquisition. Pacific Mutual uses written options on
a limited basis consisting primarily of covered calls. Gains and
losses on covered calls are offset by gains and losses on the
underlying position. Options and floors held are reported as assets
and options written are reported as liabilities. As of December 31,
1995, the notional amount of options held and options written
approximated $1.3 billion and $30 million, respectively. As of
December 31, 1994, the notional amount of options held and options
written approximated $1.5 billion and $42 million, respectively.
Option contracts mature during 1996 through 2007.
Interest Rate Swap Contracts
Pacific Mutual has entered into interest rate swap contracts to reduce
the impact of changes in interest rates on its variable short-term and
long-term investments. These contracts effectively change the
interest rate exposure on variable rate notes to fixed rates which
range from 1.9% to 8.9% as of December 31, 1995, and from 1.9% to 8.6%
as of December 31, 1994. Interest rate swap contracts mature during
1996 through 2013. As of December 31, 1995 and 1994, interest rate
swap contracts outstanding with financial institutions had a total
notional amount of $656 million and $411 million, respectively.
Asset Swap Contracts
Pacific Mutual has entered into an asset swap contract to reduce
interest rate risk by shortening both the duration and maturity of one
of its fixed rate investments. The asset swap contract matures during
1998. As of December 31, 1995, the asset swap contract had a notional
amount of $10 million.
Credit Derivatives
Pacific Mutual uses credit derivatives to take advantage of market
opportunities. As of December 31, 1995 and 1994, the notional amount
of credit derivatives outstanding approximated $90 million and $66
million, respectively. Credit derivatives mature during 1996 through
2000.
Foreign Currency Exchange Contracts
Pacific Mutual enters into foreign currency exchange contracts that
are used to hedge against fluctuations in foreign currency-denominated
assets and related income. Gains and losses on such agreements offset
currency gains and losses on the related assets. As of December 31,
1995 and 1994, the notional amount of foreign currency exchange
contracts approximated $15 million and $35 million, respectively.
Foreign currency exchange contracts expire during 1998 and 1999.
Future Contracts
Pacific Mutual uses exchange-traded futures contracts for asset and
liability management of fixed maturity securities and insurance
liabilities and for hedging market fluctuations on equity securities.
Price changes on futures are settled daily through the daily margin
cash flows. As of December 31, 1995 and 1994, the notional amounts of
futures contracts were $340 million and $163 million, respectively.
The notional amounts of the contracts do not represent future cash
requirements, as Pacific Mutual intends to close out open positions
prior to expiration.
25
<PAGE> 73
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
4. FINANCIAL INSTRUMENTS (CONTINUED)
CONTRIBUTION CERTIFICATES
The estimated fair value of contribution certificates is based on
market quotes.
5. CONCENTRATION OF CREDIT RISK
Pacific Mutual manages its investments to limit credit risk by
diversifying its portfolio among various security types and industry
sectors. The credit risk of financial instruments is controlled
through credit approvals, limits and monitoring procedures. Real
estate and mortgage loan investments are diversified by geographic
location and property type. Management believes that significant
concentrations of credit risk do not exist.
Pacific Mutual is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swaps
contracts and other derivative securities. However, Pacific Mutual
does not anticipate nonperformance by the counterparties.
6. UNCONSOLIDATED SUBSIDIARIES
Pacific Mutual's subsidiary operations primarily include other life
and health insurance and investment management and advisory services.
As of December 31, 1995 and 1994, subsidiary assets were $4.5 billion
and liabilities were $4.3 billion as of December 31, 1995 and $4.2
billion as of December 31, 1994.
Revenue and net income, including PCL, were $908 million and $63
million for the year ended December 31, 1995, and $1.1 billion and $75
million for the year ended December 31, 1994. Dividends from
subsidiaries totaled $64.7 million and $2 million for the years ended
December 31, 1995 and 1994, respectively. Earnings of subsidiaries,
excluding PCL, and excluding capital gains, are included in net
investment income.
7. BORROWINGS
Pacific Mutual borrows for short-term needs by issuing commercial
paper. Approximately $50 million was outstanding as of December 31,
1994, bearing an interest rate of 5.86%, and was repaid in January,
1995. There were no borrowings outstanding as of December 31, 1995.
In addition, Pacific Mutual had available a revolving credit facility
totaling approximately $250 million as of December 31, 1995 and 1994.
There were no borrowings outstanding as of December 31, 1995 and 1994.
8. CONTRIBUTION CERTIFICATES
Pacific Mutual has $150 million of Contribution Certificates (the
"Certificates"), also referred to as Surplus Notes, outstanding at an
interest rate of 7.9% maturing on December 30, 2023. Interest is
payable semiannually on June 30 and December 30. The Certificates may
not be redeemed at the option of Pacific Mutual or any holder of the
Certificates. The Certificates are unsecured and subordinated to all
present and future senior indebtedness and policy claims of Pacific
Mutual. Each payment of interest on and the payment of principal of
the Certificates may be made only out of Pacific Mutual's surplus and
with the prior approval of the Insurance Commissioner of the State of
California. In accordance with accounting practices prescribed or
permitted by the Insurance Department of the State of California, the
Certificates are not part of the liabilities of Pacific Mutual and are
included in surplus.
26
<PAGE> 74
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
9. REINSURANCE
Pacific Mutual has reinsurance agreements with other insurance
companies for the purpose of diversifying risk and limiting exposure
on larger risks. For the years ended December 31, 1995 and 1994,
individual life and annuity premiums assumed were $16 million and $20
million and premiums ceded were $339 million and $363 million,
respectively. Amounts recoverable from reinsurers for individual life
and annuities include reinsured and paid claims of $8 million and $13
million as of December 31, 1995 and 1994, respectively. Policy
benefits payable are net of reinsurance recoveries of $8 million and
$4 million at December 31, 1995 and 1994, respectively.
Pacific Mutual also reinsures substantially all of its group life and
health business with a subsidiary insurance company. Premiums of $72
million and $90 million, and benefits of $53 million and $70 million
were ceded during the years ended December 31, 1995 and 1994,
respectively.
Amounts payable to the subsidiary under this agreement were $6 million
and $8 million as of December 31, 1995 and 1994, respectively.
To the extent that the assuming companies become unable to meet their
obligations under these treaties, Pacific Mutual remains contingently
liable. However, Pacific Mutual does not anticipate nonperformance by
these assuming companies.
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
PENSION PLAN
Pacific Mutual maintains a defined benefit pension plan covering
eligible employees and agents. In 1995, Pacific Mutual accrued $2.5
million in pension expense that will be funded in 1996 based on the
latest actuarial valuation report. No expense or contributions were
made during 1994 because of the funded status of the plans and related
income tax considerations. Accumulated benefits and net assets
available for benefits as of the latest valuation dates (January 1,
1995 and April 1, 1994) are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------
(In Thousands)
<S> <C> <C>
Actuarial present value of accumulated benefits:
Vested $ 92,966 $ 88,122
Nonvested 392 1,115
-------------------------
Total $ 93,358 $ 89,237
-------------------------
Net assets available for benefits $ 107,530 $ 111,089
-------------------------
</TABLE>
The above present values were determined using an assumed discount
rate of 8.5% In 1995 and 1994.
POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE PLANS
Pacific Mutual sponsors a defined benefit health care plan and a
defined benefit life insurance plan ("The Plans") that provide
postretirement benefits for all eligible retirees and their
dependents. Generally, qualified employees may become eligible for
these benefits if they reach normal retirement age, have been covered
under Pacific Mutual's policy as an active employee for a minimum
continuous period prior to the date retired, and have an employment
date before January 1, 1990. The Plans contain cost-sharing features
such as deductibles and coinsurance and require retirees to make
contributions which can be adjusted annually. Pacific Mutual's
27
<PAGE> 75
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
commitment to qualified employees who retire after April 1, 1994 is
limited to specific dollar amounts. Pacific Mutual reserves the right
to modify or terminate The Plans at any time. As in the past, the
general policy is to fund these benefits on a pay-as-you-go basis.
The amount of benefits paid under The Plans for the years ended
December 31, 1995 and 1994 was approximately $1.7 million for both
years.
Pacific Mutual utilizes the accrual method of accounting for the costs
of The Plans as prescribed by the Insurance Department of the State of
California and amortizes its transition obligation of $26.7 million
over twenty years.
Components of net periodic postretirement benefit cost are as
follows(In Thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
-------------------------
<S> <C> <C>
Service cost $ 177 $ 186
Interest cost 1,921 1,790
Amortization (260) (260)
-------------------------
1,838 1,716
Recognized transition obligation - net 1,336 1,337
-------------------------
Net periodic postretirement benefit cost $ 3,174 $ 3,053
-------------------------
</TABLE>
The following table presents The Plans' funded status reconciled with amounts
recorded in other liabilities on Pacific Mutual's statement of financial
position (In Thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Accumulated postretirement obligation:
Retirees $ 20,936 $ 20,580
Fully eligible active plan participants 1,695 1,346
Other active plan participants 2,290 2,455
-------------------------
24,921 24,381
Fair value of plan assets 0 0
-------------------------
Unfunded accumulated postretirement obligation 24,921 24,381
Unrecognized net gain 878 942
Prior service cost 1,589 1,849
Unrecognized transition obligation-net (22,720) (24,056)
-------------------------
Accrued postretirement benefit liability $ 4,668 $ 3,116
-------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
benefit obligation was 10% for 1995 and 11% for 1994, and is assumed to
decrease gradually to 5% in 2003 and remain at that level thereafter. The
amount reported is materially affected by the health care cost trend rate
assumptions. If the health care cost trend
28
<PAGE> 76
Pacific Mutual Life Insurance Company
N O T E S T O F I N A N C I A L S T A T E M E N T S
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
rate assumptions were increased by 1%, the accumulated postretirement
benefit obligation as of December 31, 1995 and 1994 would be increased
by 10.9% and 11.2%, respectively. The effect of this change would
increase the aggregate of the service, interest and amortization cost
components of the net periodic benefit cost by 11.4% and 13.6%,
respectively.
The discount rate used in determining the accumulated postretirement
benefit obligation is 7% and 8% for 1995 and 1994, respectively.
11. INVESTMENT COMMITMENTS
Pacific Mutual has outstanding commitments to make investments in
bonds and other invested assets as follows (In Thousands):
<TABLE>
<CAPTION>
Year Ended December 31:
-----------------------
<S> <C>
1996 $ 179,551
1997-2000 88,698
2001 and thereafter 32,091
---------------
Total $ 300,340
---------------
</TABLE>
12. LITIGATION
Pacific Mutual and its subsidiaries are respondents in a number of
legal proceedings, some of which involve extra-contractual damages.
In the opinion of management, the outcome of these proceedings is not
likely to have a material adverse effect on the financial position of
Pacific Mutual.
29
<PAGE> 77
PART II
Part C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A: None
Part B:
(1) Registrant's Financial
Statements
None
(2) Depositor's Financial Statements
Audited financial statements dated as of
December 31, 1995 included in Part B include
the following for Pacific Mutual:
Statements of Financial Position
Statements of Operations and Surplus
Statements of Cash Flows
Notes to Financial Statements
Audited Financial Statements dated
as of December 31, 1994 included in
Part B include the following:
Statements of Financial Position
Statements of Operations and Surplus
Statements of Cash Flows
Notes to Financial Statements
(b) Exhibits
1. Resolution of the Board of Directors of
Pacific Mutual authorizing establishment
of Separate Account B and Memorandum
establishing Separate Account B
2. Not applicable
3. (a) Distribution and Wholesaling
Agreement between Pacific Mutual and
Pacific Mutual Distributors, Inc.
("PMD")
(b) Form of Selling Agreement between
Pacific Mutual, PMD and various
Broker-Dealers (Draft)
4. (a) Form of Individual Flexible Premium
Variable Accumulation Annuity
Contract (Draft)
(b) Qualified Plan Loan Endorsement
<PAGE> 78
(c) Individual Retirement Annuity Rider
(d) Qualified Pension Plan Rider
(e) 403(b) Tax-Sheltered Annuity Rider
(f) Section 457 Plan Rider
5. (a) Application Form for Individual
Flexible Premium Variable
Accumulation Annuity Contract
(b) Application/Confirmation Form
6. (a) Pacific Mutual's Articles of
Incorporation
(b) By-laws of Pacific Mutual
7. Not applicable
8. Fund Participation Agreement
9. Opinion and Consent of legal officer of
Pacific Mutual as to the legality of
Contracts being registered
10. (a) Consent of Deloitte & Touche LLP,
independent auditor
(b) Consent of Dechert Price & Rhoads
11. Not applicable
12. Not applicable
13. Not applicable
14. Financial Data Schedules --- not available
15. Power of Attorney
Item 25. Directors and Officers of Pacific Mutual
Positions and Offices
Name and Address With Pacific Mutual
Thomas C. Sutton Director, Chairman of the Board, and
Chief Executive Officer
<PAGE> 79
Harry G. Bubb Director and Chairman Emeritus
Glenn S. Schafer Director and President
Richard M. Ferry Director
Donald E. Guinn Director
Ignacio E. Lozano, Jr. Director
Charles A. Lynch Director
Dr. Allen W. Mathies, Jr. Director
Charles D. Miller Director
Donn B. Miller Director
Jacqueline C. Morby Director
J. Fernando Niebla Director
Susan Westerberg Prager Director
Richard M. Rosenberg Director
James R. Ukropina Director
Raymond L. Watson Director
Edward Byrd Vice President and Controller
David R. Carmichael Senior Vice President and General
Counsel
Audrey L. Milfs Vice President and Corporate
Secretary
Lynn C. Miller Executive Vice President
Khan T. Tran Senior Vice President and
Chief Financial Officer
_____________________________
The address for each of the persons listed above is as follows:
700 Newport Center Drive
<PAGE> 80
Newport Beach, California 92660
Item 26. Persons Controlled by or Under Common Control with Pacific
Mutual or Separate Account B
The following is an explanation of the organization chart of
Pacific Mutual's subsidiaries:
PACIFIC MUTUAL, SUBSIDIARIES & AFFILIATED ENTERPRISES
LEGAL STRUCTURE
Pacific Mutual Life Insurance Company has a 40% ownership of American
Maturity Life Insurance Company, a 50% ownership of Pacific Mezzanine
Associates, L.L.C., and is the parent company of Pacific Financial
Management Corporation, Pacific Mutual Realty Finance, Inc., PM Group
Life Insurance Company (an Arizona corporation), Pacific Mutual
Distributors, Inc. and Pacific Corinthian Life Insurance Company.
Subsidiaries of Pacific Financial Asset Management Corporation
include: PMRealty Advisors Inc. and PIMCO Advisors L.P. (a Delaware
Limited Partnership which is 42% owned). Subsidiaries of Pacific
Mutual Distributors, Inc. include: Mutual Service Corporation (a
Michigan corporation), along with its subsidiary Advisors' Mutual
Service Center, Inc. (a Michigan corporation); and United Planners'
Group, Inc. (an Arizona corporation which is 95.2% owned consisting of
100% of Class A and 79.3% of Class B of the corporation's common
stock), along with its subsidiary United Planners' Financial Services
of America (an Arizona Limited Partnership). Subsidiaries of Pacific
Corinthian Life Insurance include: World-Wide Holdings Limited (a
United Kingdom corporation which is 72.4% owned), including its
subsidiaries World-Wide Reassurance Company Limited (a United Kingdom
corporation) and World-Wide Reassurance Company (BVI) Limited (a
British Virgin Islands corporation). All corporations are 100% owned
unless otherwise indicated. All entities are California corporations
unless otherwise indicated.
Item 27. Number of Contractholders
None
Item 28. Indemnification
(a) The Distribution Agreement between Pacific Mutual and
PMD (formerly PEN) provides substantially as follows:
Pacific Mutual hereby agrees to indemnify and hold harmless
PMD, its officers, directors, and employees for any expenses
(including legal expenses), losses, claims, damages, or
liabilities incurred by reason of any untrue or alleged untrue
statement or representation of a material fact or any omission
or alleged omission to state a material fact required to be
stated to make other statements not misleading, if made in
reliance on any prospectus, registration statement,
post-effective amendment
<PAGE> 81
thereof, or sales materials supplied or approved by Pacific
Mutual or the Separate Account. Pacific Mutual shall
reimburse each such person for any legal or other expenses
reasonably incurred in connection with investigating or
defending any such loss, liability, damage, or claim.
However, in no case shall Pacific Mutual be required to
indemnify for any expenses, losses, claims, damages, or
liabilities which have resulted from the willful misfeasance,
bad faith, negligence, misconduct, or wrongful act of PMD.
PMD hereby agrees to indemnify and hold harmless Pacific
Mutual, its officers, directors, and employees, and the
Separate Account for any expenses, losses, claims, damages, or
liabilities arising out of or based upon any of the following
in connection with the offer or sale of the contracts: (1)
except for such statements made in reliance on any prospectus,
registration statement or sales material supplied or approved
by Pacific Mutual or the Separate Account, any untrue or
alleged untrue statement or representation made; (2) any
failure to deliver a currently effective prospectus; (3) the
use of any unauthorized sales literature by any officer,
employee or agent of PMD or Broker; (4) any willful
misfeasance, bad faith, negligence, misconduct or wrongful
act. PMD shall reimburse each such person for any legal or
other expenses reasonably incurred in connection with
investigating or defending any such loss, liability, damage,
or claim.
(b) The Form of Selling Agreement between Pacific Mutual, PMD
(formerly PEN) and Various Broker-Dealers provides
substantially as follows:
Pacific Mutual and PMD agree to indemnify and hold harmless
Selling Broker-Dealer and General Agent, their officers,
directors, agents and employees, against any and all losses,
claims, damages or liabilities to which they may become
subject under the 1933 Act, the 1934 Act, or other federal or
state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statements made not
misleading in the registration statement for the Contracts or
for the shares of Pacific Select Fund (the "Fund") filed
pursuant to the 1933 Act, or any prospectus included as a part
thereof, as from time to time amended and supplemented, or in
any advertisement or sales literature approved in writing by
Pacific Mutual and PMD pursuant to Section IV.E. of this
Agreement.
Selling Broker-Dealer and General Agent agree to indemnify and
hold harmless Pacific Mutual, the Fund and PMD, their
officers, directors, agents and employees, against any and all
losses, claims, damages or liabilities to which they may
become subject under the 1933 Act, the 1934 Act or other
federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon: (a) any oral or written misrepresentation by
Selling Broker-Dealer or General Agent or their officers,
directors, employees or agents unless such misrepresentation
is contained in the registration statement for the Contracts
or Fund shares, any prospectus
<PAGE> 82
included as a part thereof, as from time to time amended and
supplemented, or any advertisement or sales literature
approved in writing by Pacific Mutual and PMD pursuant to
Section IV.E. of this Agreement, (b) the failure of Selling
Broker-Dealer or General Agent or their officers, directors,
employees or agents to comply with any applicable provisions
of this Agreement or (c) claims by Sub-agents or employees of
General Agent or Selling Broker-Dealer for payments of
compensation or remuneration of any type. Selling
Broker-Dealer and General Agent will reimburse Pacific Mutual
or PMD or any director, officer, agent or employee of either
entity for any legal or other expenses reasonably incurred by
Pacific Mutual, PMD, or such officer, director, agent or
employee in connection with investigating or defending any
such loss, claims, damages, liability or action. This
indemnity agreement will be in addition to any liability which
Broker-Dealer may otherwise have.
Item 29. Principal Underwriters
(a) PMD (formerly PEN) also acts as principal underwriter
for Pacific Select Separate Account, Pacific Select
Exec Separate Account, Pacific Select Variable
Annuity Separate Account, Separate Account A and
Pacific Select Fund.
(b) For information regarding PMD, reference is made to
Form B-D, SEC File No. 8-15264, which is herein
incorporated by reference.
(c) PMD retains no compensation or net discounts or
commissions from the Registrant.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to
be maintained by Registrant pursuant to Section 31(a)
of the Investment Company Act of 1940 and the rules
under that section will be maintained by Pacific
Mutual at 700 Newport Center Drive, Newport Beach,
California 92660.
Item 31. Management Services
Not applicable
Item 32. Undertakings
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this
registration statement as frequently as is necessary
to ensure that the audited financial statements in
this registration statement are never more than 16
months old for so long as
<PAGE> 83
payments under the variable annuity contracts may be
accepted, unless otherwise permitted.
(b) to include either (1) as a part of any application to
purchase a contract offered by the Prospectus, a
space that an applicant can check to request a
Statement of Additional Information, or (2) a post
card or similar written communication affixed to or
included in the prospectus that the applicant can
remove to send for a Statement of Additional
Information, or (3) to deliver a Statement of
Additional Information with the Prospectus.
(c) to deliver any Statement of Additional Information
and any financial statements required to be made
available under this Form promptly upon written or
oral request.
Additional Representations
(a) The Registrant and its Depositor are relying upon American
Council of Life Insurance, SEC No-Action Letter, SEC Ref. No. 1P-6- 88
(November 28, 1988) with respect to annuity contracts offered as funding
vehicles for retirement plans meeting the requirements of Section 403(b) of the
Internal Revenue Code, and the provisions of paragraphs (1)-(4) of this letter
have been complied with.
(b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT
COMPANY ACT OF 1940: Pacific Mutual Life Insurance Company and Registrant
represent that the fees and charges to be deducted under the Variable Annuity
Contract ("Contract") described in the prospectus contained in this registration
statement are, in the aggregate, reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed in
connection with the Contract.
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has caused this Registration Statement on
Form N-4 to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Newport Beach, and the State of California on this
___ day of October, 1996.
SEPARATE ACCOUNT B
(Registrant)
By: PACIFIC MUTUAL LIFE INSURANCE COMPANY
By:
Thomas C. Sutton*
Chairman and Chief Executive Officer
By: PACIFIC MUTUAL LIFE INSURANCE COMPANY
(Depositor)
By:
Thomas C. Sutton*
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Thomas C Sutton* Director, Chairman of the Board ___________, 1996
and Chief Executive Officer
Glenn S. Schafer* Director and President ___________, 1996
Harry G. Bubb* Director and Chairman Emeritus ___________, 1996
Richard M. Ferry* Director ___________, 1996
Donald E. Guinn* Director ___________, 1996
Ignacio E. Lozano, Jr.* Director ___________, 1996
Charles A. Lynch* Director ___________, 1996
Dr. Allen W. Mathies, Jr.* Director ___________, 1996
Charles D. Miller* Director ___________, 1996
</TABLE>
<PAGE> 85
<TABLE>
<S> <C> <C>
Donn B. Miller* Director ___________, 1996
Jacqueline C. Morby* Director ___________, 1996
J. Fernando Niebla* Director ___________, 1996
Susan Westerberg Prager* Director ___________, 1996
Richard M. Rosenberg* Director ___________, 1996
James R. Ukropina* Director ___________, 1996
Raymond L. Watson* Director ___________, 1996
Edward Byrd* Vice President and Controller ___________, 1996
</TABLE>
By: /s/DAVID R. CARMICHAEL
David R. Carmichael
as attorney-in-fact October ??, 1996
(Powers of Attorney are contained in this Registration Statement for Separate
Account B as Exhibit 15)
<PAGE> 1
EXHIBIT 99.1
Resolution of the Board of Directors of
Pacific Mutual Life Insurance Company
Authorizing Establishment of Separate Account B
and Memorandum Establishing Separate Account B
<PAGE> 2
EXHIBIT 1
SECRETARY'S CERTIFICATE
PACIFIC MUTUAL LIFE INSURANCE COMPANY
RESOLVED, that the Board of Directors of this Corporation hereby authorizes
this Corporation to obtain approval from the appropriate regulatory authorities
of an amendment to its Certificate of Authority to issue variable life
insurance policies and variable annuity contracts and any derivative thereof
being herein collectively referred to as "variable contracts"; and
RESOLVED FURTHER, that the Board of Directors of this Corporation hereby
authorizes and directs the establishment of Separate Accounts ("Separate
Accounts") that may be required to which the amounts received by this
Corporation in connection with the sale of the Contracts shall be allocated;
and
RESOLVED FURTHER, that within the Separate Accounts there may be a number of
Variable Accounts with different investment policies and objectives into which
a policyowner may direct his interests in the Separate Accounts and the
Variable Accounts; and
RESOLVED FURTHER, that the Separate Accounts are to be established and
maintained in accordance with the provisions of Section 10506 of the California
Insurance Code and the regulations promulgated under that Section; and
RESOLVED FURTHER, that any Officer of this Corporation is authorized and
directed to take whatever action may be necessary or advisable to establish and
maintain such Separate Accounts and to register, file, or qualify the Contracts
for sale, including, but not limited to, determining the states or other
jurisdictions in which necessary or advisable action shall be taken to qualify,
file, or register the Contracts for sale, performing any and all acts as such
Officer deems necessary or advisable to comply with the applicable laws of any
such state or jurisdiction including making any required filings with the
California Insurance Department or any other regulatory authority in California
or any other regulatory authority in any state or jurisdiction having
jurisdiction over the insurance activities of the Company or over the
Contracts; performing any and all acts as such Officer deems necessary or
advisable to comply with the applicable laws of the United States including,
but not limited to, preparing and filing registration statements with the
Securities and Exchange Commission to register the Contracts or interests
therein under the Securities Act of 1933 and the Investment Company Act of 1940
and to register the Separate Account under the Investment Company Act of 1940,
and to file an exemptive application if necessary or advisable under the
Investment Company Act of 1940 and to make such other filings or seek any
interpretations that are necessary or advisable from the Securities and
Exchange Commission or any other agency of the United States Government; or
make any filings, seek any interpretations, or make other submissions that such
Officer deems necessary or advisable with other regulatory authorities having
jurisdiction over the offer and sale of the Contracts; and to execute and file
all requisite papers and documents, including, but not limited to,
applications, reports, surety bonds, irrevocable consents, powers of attorneys,
and
<PAGE> 3
appointments of agents for service of process, and the paying of all
necessary fees and expenses as in such Officer's judgment may be necessary or
advisable.
*****
I, AUDREY L. MILFS, do hereby certify that I am the duly elected, qualified and
acting Secretary of Pacific Mutual Life Insurance Company, a California
corporation, and I do hereby further certify that the foregoing is a true and
correct copy of a resolution adopted at a meeting of the Executive Committee of
the Board of Directors of said corporation held on November 22, 1989, at which
a quorum was present and voted in favor thereof, and that said resolution has
not been revoked or amended and is now in full force and effect.
IN WITNESS WHEREOF, I have executed this certificate as Secretary of said
Corporation on this 13th day of January, 1993.
/s/AUDREY L, MILFS
Audrey L. Milfs, Secretary
#4427
<PAGE> 4
OFFICE MEMORANDUM [PACIFIC MUTUAL LOGO]
- --------------------------------
DATE: September 25, 1996
- -------------------------------------------------------------------------------
TO: Glenn S. Schafer
- -------------------------------------------------------------------------------
FROM: Gerald W. Robinson
- -------------------------------------------------------------------------------
SUBJECT: SEPARATE ACCOUNT B
===============================================================================
RECOMMENDATION:
That you authorize the establishment of the Separate Account B
("Separate Account") for Pacific Innovations, a proprietary variable
annuity contract for Bank of America.
WHY RECOMMENDATION IS REQUESTED AT THIS TIME:
Documentation of the authorization must accompany the registration
materials to be filed with the Securities and Exchange Commission and
the State of California for the Separate Account.
BACKGROUND:
Pacific Mutual's Finance Committee has approved the development of the
Separate Account to fund the Pacific Innovations variable annuity
contracts. The Separate Account may be offered under other variable
contracts in the future.
On November 22, 1989, the Board of Pacific Mutual Life Insurance Co.
adopted a resolution authorizing an Officer of the corporation to take
whatever action necessary to establish and maintain Separate Accounts
which may be required in connection with variable life insurance
policies and variable annuity contracts and any derivative thereof.
Our outside counsel recommends obtaining this authorization from the
CEO.
AUTHORIZATION:
On behalf of Pacific Mutual Life Insurance Co., the establishment of
Separate Account B for the Pacific Innovations variable annuity
contracts and other variable annuity contracts that may be offered in
the future is hereby authorized.
Establishment of
Separate Account B
Is Authorized:
/s/ GLENN S. SCHAFER
--------------------
Glenn S. Schafer
President
<PAGE> 1
EXHIBIT 99.3(a)
Distribution and Wholesaling Agreement
Between Pacific Mutual and
Pacific Mutual Distributors, Inc. ("PMD")
<PAGE> 2
EXHIBIT 3(a)
DISTRIBUTION AND WHOLESALING AGREEMENT
This Distribution and Wholesaling Agreement ("Agreement") is made as
of ______________, 1996 by and between Pacific Mutual Life Insurance Company
("Pacific Mutual"), a California company on its own behalf and on behalf of its
Separate Account B (the "Separate Account"), and Pacific Mutual Distributors,
Inc. ("PMD"), a California corporation.
WHEREAS, Pacific Mutual has established and maintains the Separate
Account, a separate investment account, for the purpose of selling variable
annuity contracts ("Contracts") to commence after the effectiveness of the
Registration Statement relating thereto filed with the Securities and Exchange
Commission on Form N-4 pursuant to the Securities Act of 1933, as amended (the
"1933 Act"), through PMD, acting as general agent of Pacific Mutual;
WHEREAS, the Separate Account is or will be registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, PMD, a wholly owned subsidiary of Pacific Mutual, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"1934 Act") and is a member of the National Association of Securities Dealers,
Inc. ("NASD"); and
1
<PAGE> 3
WHEREAS, Pacific Mutual desires to retain PMD as the distributor and
wholesaler of a proprietary Variable Annuity (the "Annuity") for Bank of
America National Trust and Savings Association ("BofA") to provide for the sale
and distribution to the public of the Annuity issued by Pacific Mutual and
funded by interests in the General Account of Pacific Mutual and in the
Separate Account, and PMD is willing to render such services.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
1. DISTRIBUTOR/UNDERWRITER. Pacific Mutual hereby appoints PMD,
during the term of this Agreement, subject to the registration requirements of
the 1933 Act and the 1940 Act and the provisions of the 1934 Act, to be the
distributor and underwriter for the sale of the Annuity to the public in each
state and other jurisdiction in which the Annuity may be lawfully sold.
Pacific Mutual also appoints PMD as its independent general agent for sale of
the Annuity. PMD shall offer the Annuity for sale and distribution at premium
rates set by Pacific Mutual.
Notwithstanding any other provision of this Agreement, it is
understood and agreed that Pacific Mutual shall at all times retain the
ultimate responsibility for and control of all functions performed pursuant to
this Agreement, and for marketing of the Annuity ("Services and Duties", see
below), and reserves the right to direct, approve or disapprove any action
hereunder taken on its behalf by PMD.
2. SERVICES AND DUTIES. PMD as wholesaler and distributor of the
Annuity will provide to Pacific Mutual the following services and will assume
the following duties:
2
<PAGE> 4
a) develop a wholesaling network ("sub-wholesalers") or contract
with sub-wholesalers which will sell and market the Annuity;
b) initial sub-wholesaler training;
c) oversee and supervise sub-wholesaler activities;
d) actively participate in the initial marketing strategy (i.e.
product roll-out) of the Annuity;
e) representation at periodic training and due diligence
meetings;
f) provide advanced market support;
g) develop, design, create and produce all sales literature and
promotional items and fulfillment of requests for sales literature;
h) provide sales reporting;
i) provide consulting services to Pacific Mutual in connection
with information concerning competitive products in the marketplace; and
j) provide the asset allocation model.
3. SELLING AND SUB-WHOLESALING AGREEMENTS. PMD is hereby
authorized to enter into separate written agreements, on such terms and
conditions as PMD determines are not inconsistent with this Agreement, with
such organizations which agree to participate as a general agent and/or
broker-dealer in the distribution of the Annuity and to use their best efforts
to solicit applications for the Annuity. Any such broker-dealer (hereinafter
"Broker") shall be both registered as a broker-dealer under the 1934 Act and a
member of the NASD. Except as provided in Section 5 hereof, PMD shall be
responsible for ensuring that Broker
3
<PAGE> 5
and its agents or representatives and general agent and its sub-agents
soliciting applications for the Annuity shall be duly and appropriately
licensed, registered and otherwise qualified for the sale of such Annuity under
the annuity and insurance laws and any applicable blue sky laws or federal laws
of each state or other jurisdiction in which such Annuity may be lawfully sold
and in which Pacific Mutual is licensed to sell such Annuity. Pacific Mutual
shall undertake to appoint Broker's qualified agents or representatives and
general agent's sub-agents as life insurance agents of Pacific Mutual, provided
that Pacific Mutual reserves the right to appoint any proposed representative,
agent, or sub- agent, or once appointed, to terminate such appointment.
Pacific Mutual shall incur the expenses to appoint the first 500 qualified
agents or representatives and general agent's sub-agents as life insurance
agents of Pacific Mutual and, as mutually agreed, contribute to the expense to
appoint more than 500. PMD shall be responsible for ensuring that Broker and
general agent supervise its agents, representatives or sub-agents.
4. AGENTS. Pacific Mutual shall be responsible for ensuring that
Broker and its agents or representatives and general agent and its sub-agents
meet all qualifications and hold any licenses or authorizations that may be
required for the solicitation or sale of the Annuity under the insurance laws
of the applicable jurisdictions.
5. SUITABILITY. Pacific Mutual desires to ensure that the
Annuity will be sold to purchasers for whom the Annuity will be suitable. PMD
shall take reasonable steps to ensure that the various representatives of
Broker and sub-agents of general agents shall not make recommendations to an
applicant to purchase an Annuity in the absence of reasonable grounds to
believe the purchase of the Annuity is suitable for such applicant. While not
limited to the following, a determination of suitability shall be based on
information
4
<PAGE> 6
furnished to a representative or sub-agent after reasonable inquiry of such
applicant concerning the applicant's other security holdings, retirement and
investment objectives, financial situation and needs, and the likelihood that
the applicant will continue to make any premium payments contemplated by the
Annuity.
6. CONFORMITY WITH REGISTRATION STATEMENT AND APPROVED SALES
MATERIALS. In performing its duties as distributor, PMD will act in conformity
with the registration statement and with the instructions and directions of
Pacific Mutual, the requirements of the 1933 Act, the 1940 Act, and all other
applicable federal and state laws and regulations. PMD shall not give any
information nor make any representations concerning any aspect of the Annuity
or of Pacific Mutual's operations to any persons or entity unless such
information or representations are contained in the registration statement and
the pertinent prospectus filed with the Securities and Exchange Commission, or
are contained in sales or promotional literature approved by Pacific Mutual.
PMD will not use and will take reasonable steps to ensure Broker will not use
any sales promotion material and advertising which has not been previously
approved by Pacific Mutual.
7. APPLICATIONS. Completed applications for the Annuity
solicited by such Broker through its agents or representatives or by general
agent through its sub-agents shall be transmitted directly to Pacific Mutual.
All payments under the Annuity shall be made by check payable to "Pacific
Mutual" or by other method acceptable to Pacific Mutual, and if received by
PMD, shall be held at all times in a fiduciary capacity and remitted promptly
to Pacific Mutual. All such payments will be the property of Pacific Mutual.
Pacific Mutual has the sole authority to approve or reject such applications or
payments and maintains
5
<PAGE> 7
ultimate responsibility for underwriting each Annuity. Anything in this
Agreement to the contrary notwithstanding, Pacific Mutual retains the ultimate
right to control the sale of the Annuity and to appoint and discharge life
insurance agents of Pacific Mutual.
8. STANDARD OF CARE. PMD shall be responsible for exercising
reasonable care in carrying out the provisions of this Agreement.
9. REPORTS AND RECORDS. PMD shall be responsible for maintaining
and preserving accurate records relating to matters pertaining to this
Agreement and the Broker and general agent and their agents, representatives or
sub-agents who are licensed, registered and otherwise qualified to sell the
Annuity, as required by applicable laws and regulations, or as Pacific Mutual
may reasonably request for its own recordkeeping or accounting purposes;
calculating and furnishing the fees payable to Brokers or general agents; and
for furnishing periodic reports to Pacific Mutual as to the sale of the Annuity
made pursuant to this Agreement. The books, accounts and records of Pacific
Mutual, the Separate Account and PMD shall be maintained so as to clearly and
accurately disclose the nature and details of the transactions.
10. INVESTIGATION AND PROCEDURES. PMD and Pacific Mutual agree to
cooperate fully in any regulatory investigation or proceeding or judicial
proceeding arising in connection with the Annuity distributed under this
Agreement. PMD further agrees to furnish regulatory authorities with any
information or reports in connection with such services which may be requested
in order to ascertain whether the operations of Pacific Mutual and the Separate
Account are being conducted in a manner consistent with applicable
6
<PAGE> 8
laws and regulations. PMD and Pacific Mutual further agree to cooperate fully
in any securities regulatory investigation or proceeding with respect to
Pacific Mutual, PMD, their affiliates and their agents or representatives to
the extent that such investigation or proceeding is in connection with any
Annuity distributed under this Agreement. Without limiting the foregoing:
(a) PMD will be notified promptly of any customer complaint or
notice of any regulatory investigation or proceeding or judicial proceeding
received by Pacific Mutual with respect to PMD or any agent, representative, or
sub-agent of a Broker or general agent or which may affect Pacific Mutual's
issuance of any Annuity sold under this Agreement; and
(b) PMD will promptly notify Pacific Mutual of any customer
complaint or notice of any regulatory investigation or proceeding received by
PMD or its affiliates with respect to PMD or any agent, representative, or
sub-agent of a Broker or general agent in connection with any Annuity
distributed under this Agreement or any activity in connection with any such
Annuity.
In the case of a customer complaint, PMD and Pacific Mutual will
cooperate in investigating such complaint and any response will be sent to the
other party to this Agreement for approval not less than five (5) business days
prior to its being sent to the customer or regulatory authority, except that if
a more prompt response is required, the proposed response shall be communicated
by telephone, telegraph or telecopier.
11. LITIGATION. PMD and Pacific Mutual represent and warrant that
there are no legal or artibtral proceedings, or any proceedings by or before
any governmental or regulatory authority or agency, now pending (or to the
knowledge of PMD or Pacific Mutual)
7
<PAGE> 9
threatened, against PMD or Pacific Mutual in respect of this Agreement, or the
transactions contemplated hereby, if adversely determined, could either
individually or in the aggregate, have a material adverse effect.
12. INDEMNIFICATION. Pacific Mutual hereby agrees to indemnify
and hold harmless PMD and its officers and directors, and employees for any
expenses (including legal expenses), losses, claims, damages, or liabilities
incurred by reason of any untrue or alleged untrue statement or representation
of a material fact or any omission or alleged omission to state a material fact
required to be stated to make other statements not misleading, if made in
reliance on any prospectus, registration statement, post-effective amendment
thereof, or sales materials supplied or approved by Pacific Mutual or the
Separate Account. Pacific Mutual shall reimburse each such person for any
legal or other expenses reasonably incurred in connection with investigating or
defending any such loss, liability damage, or claim. However, in no case shall
Pacific Mutual be required to indemnify for any expenses, losses, claims,
damages or liabilities which have resulted from the willful misfeasance, bad
faith, negligence, misconduct, or wrongful act of PMD.
PMD hereby agrees to indemnify and hold harmless Pacific Mutual, its
officers, directors, and employees, and the Separate Account for any expenses,
losses, claims, damages, or liabilities arising out of or based upon any of the
following in connection with the offer or sale of any Annuity: (1) except for
such statements made in reliance on any prospectus, registration statement or
sales material supplied or approved by Pacific Mutual or the Separate Account,
any untrue or alleged untrue statement or representation made; (2) any
8
<PAGE> 10
failure to deliver a currently effective prospectus; (3) the use of any
unauthorized sales literature by any officer, employee, agent, or sub-agent of
PMD, Broker or general agent; or (4) any willful misfeasance, bad faith,
negligence, misconduct or wrongful act. PMD shall reimburse each such person
for any legal or other expenses, reasonably incurred in connection with
investigating or defending any such loss, liability, damage or claim.
Promptly after receipt by a party entitled to indemnification
("Indemnified Party") of notice of the commencement of any action, if a claim
for indemnification in respect thereof is to be made against Pacific Mutual or
PMD ("Indemnifying Party") such Indemnified Party will notify Indemnifying
Party in writing of the commencement thereof, but failure to notify the
Indemnifying Party of any claim shall not relieve it from any liability which
it may have to the person against whom such action is brought otherwise than on
account of this Agreement contained in this Section 12. The Indemnifying Party
will be entitled to participate in the defense of the Indemnified Party, but
such participation will not relieve such Indemnifying Party of the obligation
to reimburse the Indemnified Party for reasonable legal and other expenses
incurred by such Indemnified Party in defending himself.
13. AGENT OF PACIFIC MUTUAL OR SEPARATE ACCOUNT. Any person, even
though also an officer, director, employee, or agent of PMD, who may be or
become an officer, director, employee, or agent of Pacific Mutual or the
Separate Account shall be deemed, when rendering services to Pacific Mutual or
the Separate Account or acting in any business of Pacific Mutual or the
Separate Account, to be rendering such services to or acting solely for Pacific
Mutual or the Separate Account and not as an officer, director, employee, or
agent
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<PAGE> 11
or one under the control or direction of PMD even though paid by PMD.
Likewise, any person even though also an officer, director, employee, or agent
of Pacific Mutual or the Separate Account, who may be or become an officer,
director, employee, or agent of PMD shall be deemed when rendering services to
PMD or acting in any business of PMD to be rendering such services to or acting
solely for PMD and not as an officer, director, employee, or agent or one under
the control or direction of Pacific Mutual or the Separate Account even though
paid by Pacific Mutual or the Separate Account.
14. BOOKS AND RECORDS. It is expressly understood and agreed that
all documents, reports, records, books, files and other materials relating to
this Agreement and the services to be performed hereunder shall be the sole
property of Pacific Mutual and the Separate Account and that any such property
held by PMD shall be held by PMD only as agent, during the effective term of
this Agreement. This material shall be delivered to Pacific Mutual upon the
termination of this Agreement free from any claim or retention of rights by
PMD. During the term of this Agreement and for a period of three years from
the date of termination of this Agreement, PMD will not disclose or use any
records or information and will regard and preserve as confidential all
information related to the business of Pacific Mutual or the Separate Account
that may be obtained by PMD from any source as a result of this Agreement and
will disclose such information only if Pacific Mutual or the Separate Account
has authorized such disclosure, or if such disclosure is expressly required by
applicable federal or state regulatory authorities. PMD further acknowledges
and agrees that, in the event of a breach or threatened breach by it of the
provisions of this Section 14, Pacific
10
<PAGE> 12
Mutual will have no adequate remedy in moneys or damages and, accordingly,
Pacific Mutual shall be entitled in its discretion to seek an injunction
against such breach. However, no specification in this Agreement of a specific
legal or equitable remedy shall be construed as a waiver or prohibition against
any other legal or equitable remedy in the event of a breach of a provision of
this Agreement.
15. EMPLOYEES. PMD will not employ, except with the prior written
approval of the Commissioner of Insurance of the State of California, in any
material connection with the handling of the Separate Account's assets any
person who, to the knowledge of PMD:
a) in the last ten (10) years has been convicted of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or involving violations
of Section 1341, 1342, or 1343 of Title 18, United States Code; or
b) within the last ten (10) years has been found by any state
regulatory authority to have violated or has acknowledged violation of any
provision of any state insurance law involving fraud, deceit, or knowing
misrepresentation; or
c) within the last ten (10) years has been found by any federal
or state regulatory authorities to have violated or have acknowledged violation
of any provision of federal or state securities laws involving fraud, deceit,
or knowing misrepresentation.
16. TERMINATION. This Agreement shall terminate automatically
upon its assignment without the prior written consent of both parties. This
Agreement may be terminated at any time, for any reason, by either party on
sixty (60) days' written notice to the
11
<PAGE> 13
other party, without the payment of any penalty. Upon termination of this
Agreement, all authorizations, rights and obligations shall cease except the
obligation to settle accounts hereunder, including commissions on premiums
subsequently received for the Annuity in effect at time of termination, and the
agreements contained in Section 10 and 11 hereof.
17. REGULATION. This Agreement shall be subject to the provisions
of the 1940 Act and the 1934 Act and the rules, regulations and rulings
thereunder, and of the applicable rules and regulations of the NASD, and
applicable state insurance law and other applicable law, from time to time in
effect, and the terms hereof shall be interpreted and construed in accordance
therewith.
18. INDEPENDENT CONTRACTOR. PMD shall act as an independent
contractor and nothing herein contained shall constitute PMD or its agents,
officers or employees as agents, officers, or employees of Pacific Mutual in
connection with the sale of any Contract.
19. AUTHORITY. Wholesaler shall have no authority on behalf of
Pacific Mutual to:
(a) Have any contact with potential or existing purchasers of the
Annuities other than in the presence of the client's registered representative;
(ii) Make, alter, modify or discharge any Annuity;
(iii) Incur any indebtedness or liability, or expend or contract for
expenditure of any funds on behalf of Pacific Mutual or the Annuity;
(iv) Extend the time for payment of any premiums, bind Pacific
Mutual to reinstate any terminated Annuity, or accept notes for payment of
premiums;
12
<PAGE> 14
(v) Waive or modify any terms, conditions or limitations of any
Annuity;
(vi) Adjust or settle any claim or commit Pacific Mutual with
respect thereto; or
(vii) Institute or file any response to any legal proceeding in
connection with any matter pertaining to the Annuities on behalf of Pacific
Mutual without the prior written consent of Pacific Mutual (except that if
Wholesaler itself is named as a party in such proceedings it may enter into
legal proceedings on Wholesaler's behalf without the written consent of Pacific
Mutual.)
20. NOTICES. Notices of any kind to be given to PMD by Pacific
Mutual or the Separate Account shall be in writing and shall be duly given if
mailed, first class postage prepaid, or delivered to PMD at 700 Newport Center
Drive, Newport Beach, California 92660, or at such other address or to such
individual as shall be specified by PMD. Notices of any kind to be given to
Pacific Mutual or the Separate Account shall be in writing and shall be duly
given if mailed, first class postage prepaid, or delivered to them at 700
Newport Center Drive, Post Office Box 9000, Newport Beach, California 92660, or
at such other address or to such individual as shall be specified by Pacific
Mutual.
21. ENTIRE AGREEMENT AMENDMENTS. This Agreement (a) sets forth
the entire understanding of the parties with respect to the subject matter
hereof; (b) incorporates and merges any and all previous agreements,
understandings, and communications, oral or written; and (c) may not be
modified, amended, or waived except by a written instrument duly executed by
the party against whom such modification, amendment or waiver is sought to be
enforced.
13
<PAGE> 15
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
23. GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with an governed by the laws of the State of California. If any
provisions of this Agreement shall be held or made invalid by a court decision,
statute rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By: --------------------------------
Title:
ATTEST:
By: --------------------------------
Title:
PACIFIC MUTUAL DISTRIBUTORS, INC.
By: --------------------------------
Title:
By: --------------------------------
Title:
14
<PAGE> 1
EXHIBIT 99.3(b)
Form of Selling Agreement Between
Pacific Mutual, PMD and Various Broker-Dealers
(Draft)
<PAGE> 2
PACIFIC MUTUAL LIFE INSURANCE COMPANY
VARIABLE CONTRACT SELLING AGREEMENT
This Agreement ("Agreement") is made as of _______________________,
19__ by and among PACIFIC MUTUAL LIFE INSURANCE COMPANY ("Pacific Mutual"),
PACIFIC MUTUAL DISTRIBUTORS, INC. ("Distributor"), a broker/dealer registered
with the Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and a member of the National
Association of Securities Dealers, Inc. ("NASD"),
___________________________________________________________ ("Broker/Dealer"),
and each undersigned agency included on the attached Schedule (jointly and
severally referred to herein as "Agency"); Broker/Dealer and Agency jointly and
severally hereinafter referred to collectively as "Selling Entities".
This Agreement is for the purpose of providing for the distribution of
certain variable life insurance policies and/or annuity contracts set forth in
Schedule A hereto and of any successor additional SEC registered insurance
products (as discussed in Paragraph [3] of this Agreement) issued by Pacific
Mutual and distributed by Distributor through representatives who are both (a)
state insurance licensed and appointed agents of Pacific Mutual and associated
with the Agency and (b) NASD registered representatives of Broker/Dealer who
are appropriately licensed both with the NASD and with the relevant states.
The variable life insurance and/or annuity contracts set forth in Schedule A
hereto, as such Schedule may be amended and/or restated from time to time to
include any successor or additional SEC registered insurance products, and
together with any riders to such contracts, are referred to collectively herein
as the "Contracts".
1. APPOINTMENT
In consideration of the mutual promises and covenants contained in
this Agreement, Pacific Mutual and Distributor appoint Broker/Dealer and those
persons associated with Agency who are NASD registered representatives of
Broker/Dealer and state insurance licensed agents of Pacific Mutual to solicit
and procure applications for the Contracts.
These appointments are not deemed to be exclusive in any manner and
extend only to those jurisdictions, set forth in Schedule B hereto as such
Schedule B may be amended from time to time by Pacific Mutual in its sole
discretion, where the Contracts specified in such Schedule B have been approved
for sale.
From time to time, Pacific Mutual will provide Selling Entities with
information regarding the jurisdictions in which Pacific Mutual is authorized
to solicit applications for the Contracts and any limitations on the
availability of such Contracts in any jurisdiction.
2. RESPONSIBILITIES
Selling Entities are authorized to collect the premium on the
Contracts and must remit such premiums to Pacific Mutual in the manner set
forth in the applicable Compensation Schedule set forth in the applicable
Schedule D. Contract applications shall be taken only on preprinted,
state-appropriate application forms in accordance with state, federal and
self-regulatory laws, rules, regulations and guidelines supplied by Pacific
Mutual. All completed applications, supporting documents and payments are the
sole property of Pacific Mutual and must be promptly delivered to Pacific
Mutual. All applications are subject to acceptance by Pacific Mutual at its
sole discretion.
3. NEW PRODUCTS
Distributor may propose and Pacific Mutual may issue additional or
successor products, in which event Selling Entities will be informed in writing
of the new product and its related Compensation Schedule. If Selling Entities
do not indicate approval of the new product(s) or the terms contained in its
related Compensation Schedule, Broker/Dealer will be deemed to have thereby
rejected the proposal(a) to distribute such new product(s). If Selling
Entities approve the new product, the Compensation Schedule will be deemed
accepted and shall be attached to and made a part of this Agreement as an
amendment or addendum to the applicable Schedule
<PAGE> 3
D, or as a new Schedule D hereto, and (b) to the amendment of Schedules A and B
to this Agreement to name such new product(s) and to identify where their offer
and sale has been approved.
4. SUBAGENTS
Agency is authorized to appoint Subagents to solicit sales of the
Contracts ("Subagents"); provided, however, that Pacific Mutual shall have the
right in its sole discretion to terminate the appointment of any Subagent upon
notice from Pacific Mutual to Agency. Agency warrants that no Subagent shall
commence solicitation nor aid, directly or indirectly, in the solicitation of
any application for any Contract unless, at the time of such solicitation or
aid, such Subagent is appropriately licensed for such product under applicable
insurance laws and is an NASD registered representative of Selling Entities.
Selling Entities each represent that they have, for each Subagent,
fulfilled all requirements set forth in the form of general letter of
recommendation set forth in Schedule C hereto; and agree, upon reasonable
request by Pacific Mutual, to furnish proof of such fulfillment as Pacific
Mutual may require.
Any direct contact with Subagents will require the prior approval of
the Broker/Dealer.
5. SALES MATERIAL
No party to this Agreement nor any of their respective Subagents,
officers, directors, employees, affiliates, representatives or agents shall
utilize in their marketing efforts for the Contracts any written brochure,
prospectus, descriptive literature, printed and published material,
audio-visual material or standard letters without the prior consent of the
other party; provided, however, that an updated printed prospectus, statement
of additional information, and any supplement or amendment thereto, and annual
and semi-annual reports may be used without specific approval. In order for
any party to review and approve materials not produced by the other party, the
submitting party must provide the other party with evidence that any material
proposed to be used was filed with the NASD in accordance with applicable rules
and copies of correspondence with the NASD relating to the proposed material.
Pacific Mutual and Distributor will not publicize the name of the
Selling Entities in required regulatory filings without the prior consent of
the Selling Entities, such consent not to be unreasonably withheld.
6. RECORDS
In accordance with the requirements of federal and state laws and
rules of applicable self-regulatory organizations ("SROs") as defined in the
Exchange Act including but not limited to the Rules of Fair Practice of the
NASD ("NASD Rules"), Selling Entities shall maintain complete records
concerning the sale of the Contracts, information regarding the customs
relating to the sale and/or servicing of the Contracts, including the manner
and extent of distribution of any sales, marketing or other solicitation
material, shall make such records and files available to staff of Pacific
Mutual or Distributor at such times as Pacific Mutual or Distributor may
reasonably request and shall make such material available to personnel of state
insurance departments, the NASD or other regulatory agency, including the SEC,
OCC and OTS that have regulatory authority over Pacific Mutual or Distributor.
7. DELIVERY OF PROSPECTUSES
Selling Entities warrant that solicited and unsolicited transactions,
specifically including any solicitation effected by any Subagent, will be made
by use of a currently effective prospectus, that a prospectus will be delivered
concurrently with each sales presentation or upon confirmation of a sale and
that no statements shall be made to a client superseding or controverting any
statement made in the prospectus. Pacific Mutual and Distributor shall furnish
Selling Entities, at no cost to Selling Entities, reasonable quantities of
prospectuses and such other material as Pacific Mutual and Distributor deem
necessary to aid in the solicitation of Contracts.
8. BROKER/DEALER REPRESENTATIONS
The representations, warranties and covenants of Broker/Dealer set
forth in this Agreement are continuous during the term of this Agreement and
Broker/Dealer agrees to notify each of Pacific Mutual and
2
<PAGE> 4
Distributor immediately, in writing, if, at any time during the course of this
Agreement, any of the representations, warranties or covenants set forth herein
become inaccurate or untrue of the facts related thereto.
Broker/Dealer represents, warrants and covenants that:
(a) Broker/Dealer is affiliated with Agency which is an entity
properly licensed under the insurance laws of the jurisdiction(s) in which
Broker/Dealer will act under this Agreement;
(b) Broker/Dealer is registered with the SEC as a broker/dealer
under the Exchange Act, a member of the NASD and will, throughout the duration
of this Agreement, remain in compliance with the requirements of the NASD and
of the Exchange Act, including but not limited to laws requiring that the
Broker/Dealer and each of its Subagents/registered representatives be
appropriately securities registered, insurance licensed and appointed by
Pacific Mutual, and such other applicable federal or state laws;
(c) Broker/Dealer has established rules, procedures, and
supervisory and inspection techniques necessary to train and to supervise
diligently the activities of its NASD registered representatives, pursuant to
NASD Bylaws and Rules of Fair Practice, who are state insurance licensed and
appointed agents of Pacific Mutual;
(d) Broker/Dealer shall ensure that no registered representative
of Broker/Dealer, including any Subagent, shall sell or recommend for sale any
Contract to any person without reasonable grounds for believing, after
appropriate inquiry, that the purchase of that Contract is suitable for that
person;
(e) Upon request by Pacific Mutual and Distributor, Broker/Dealer
will furnish such appropriate records as are necessary to document the
training, licensing and diligent supervision required by subparagraph (b)
above, and client suitability determinations required by subparagraph (c)
above.
9. AGENCY REPRESENTATIONS
The representations, warranties and covenants of Agency and Selling
Entities set forth in this Agreement are continuous during the term of this
Agreement and Agency and Selling Entities agree to notify each of Pacific
Mutual and Distributor immediately, in writing, if, at any time during the
course of this Agreement, any of the representations, warranties or covenants
set forth herein become inaccurate or untrue of the facts related thereto.
Agency represents, warrants and covenants that it will, and will cause
each Subagent to, comply fully with the requirements of state insurance law and
applicable federal laws, including but not limited to assuring appropriate
state insurance licensing and appointment by Pacific Mutual, and will establish
rules and procedures necessary to supervise diligently the activities of
licensed and appointed agents of Pacific Mutual associated with Agency. Upon
request by Pacific Mutual or Distributor, Agency will furnish such appropriate
records as are necessary to document such diligent supervision.
10. PACIFIC MUTUAL REPRESENTATIONS
Pacific Mutual represents that the prospectus(es) and registration
statement(s) relating to the Contracts that are and shall be in effect from
time to time contain no untrue statements of material fact and do not omit to
state material facts, the omission of which makes any statement contained in
such prospectus(es) and registration statement(s) misleading.
11. COMPENSATION
11.1 Pacific Mutual, through Distributor, will remit to
Broker/Dealer or Agency compensation as set forth in the applicable Schedule D
hereto, which payments or termination thereof shall be governed by the
administrative rules established by Pacific Mutual in its sole discretion.
Selling Entities shall pay all Subagents. Pacific Mutual reserves the right
not to pay compensation on a Contract, the premium for which is paid in whole
or in part by the loan or surrender value of any other life insurance policy or
annuity contract issued by Pacific Mutual.
3
<PAGE> 5
11.2 Pacific Mutual may offset, against any claim for commission
and any other compensation payable to Broker/Dealer or Agency under this
Agreement, any existing or future indebtedness of, respectively, Broker/Dealer
or Agency, whether fixed or contingent, whether such indebtedness arises under
this Agreement or otherwise. Such indebtedness shall constitute a first lien
against any such compensation. Neither Broker/Dealer nor Agency may offset,
against any such indebtedness, any compensation accruing under this Agreement.
12. COMPLAINTS AND INVESTIGATIONS
Pacific Mutual, Distributor, Broker/Dealer and Agency agree to
cooperate fully in any banking, insurance or securities regulatory
investigation or proceeding or judicial proceeding with respect to Pacific
Mutual, Distributor, Broker/Dealer and/or Agency, their affiliates and their
agents or representatives to the extent that such investigation or proceeding
is in connection with the Contracts distributed under this Agreement. Without
limiting the foregoing:
(a) Selling Entities shall promptly notify Pacific Mutual and
Distributor of any complaint or comment regarding the Contracts and/or any
allegation that Selling Entities or any of its Subagents/representatives
violated any law, regulation or rule in soliciting applications for or
servicing the Contracts. Selling Entities shall promptly investigate such
complaint or allegation, take appropriate remedial measures and notify Pacific
Mutual and Distributor of same. Selling Entities shall provide Pacific Mutual
and Distributor with full details of and correspondence relating to any of the
foregoing, including copies of all legal documents pertaining thereto.
(b) Selling Entities shall cooperate fully with Pacific Mutual and
Distributor in any regulatory proceeding or judicial proceeding involving the
solicitation of applications for or the servicing of Contracts by the Selling
Entities or any of their representatives.
13. INDEMNIFICATION
13.1 Pacific Mutual and Distributor agree to indemnify and hold
harmless Selling Entities, their officers, directors, agents and employees,
against any and all losses, claims, damages, or liabilities to which they may
become subject under the Securities Act, the Exchange Act, the Investment
Company Act of 1940, or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission to state a material fact required to be stated or necessary to
make the statements made not misleading in the registration statement for the
Contracts or for the shares of Pacific Select Fund (the "Fund") filed pursuant
to the Securities Act, or any prospectus included as a part thereof, as from
time to time amended and supplemented, or in any advertisement or sales
literature provided by Pacific Mutual and Distributor.
13.2 Selling Entities agree to, jointly and severally, hold
harmless and indemnify Pacific Mutual and Distributor and any of their
respective affiliates, employees, officers, agents and directors (collectively,
"Indemnified Persons") against any and all claims, liabilities and expenses
(including, without limitation, losses occasioned by any rescission of any
Contract pursuant to a "free look" provision or by any return of initial
purchase payment in connection with an incomplete application), including,
without limitation, reasonable attorneys' fees and expenses and any loss
attributable to the investment experience under a Contract, that any
Indemnified Person may incur from liabilities resulting or arising out of or
based upon (a) any untrue or alleged untrue statement other than statements
contained in the registration statement or prospectus relating to any Contract,
(b) (i) any inaccurate or misleading, or allegedly inaccurate or misleading
sales material used in connection with any marketing or solicitation relating
to any Contract, other than sales material provided preprinted by Pacific
Mutual or Distributor, and (ii) any use of any sales material that either has
not been specifically approved in writing by Pacific Mutual or Distributor or
that, although previously approved in writing by Pacific Mutual or Distributor,
has been disapproved, in writing by either of them, for further use, or (c) any
act or omission of a Subagent, director, officer or employee of Selling
Entities, including, without limitation, any failure of Selling Entities or any
Subagent to be registered as required as a broker/dealer under the 1934 Act, or
licensed in accordance with the rules of any applicable SRO or insurance
regulator.
4
<PAGE> 6
14. FIDELITY BOND
Selling Entities each represent and covenant that all directors,
officers, employees and Subagents of Selling Entities licensed pursuant to this
Agreement or who have access to funds of Pacific Mutual are and will continue
to be covered by a blanket fidelity bond including coverage for larceny,
embezzlement and other defalcation, issued by a bonding company rated A- or
better from A.M. Best or equivalent rating from another nationally recognized
statistical rating organization. This bond shall be maintained at
Broker/Dealer's and/or Agency's expense. Such bond shall be at least
equivalent to the minimal coverage required under the NASD Rules, and endorsed
to extend coverage to life insurance and annuity transactions. Selling
Entities acknowledge that Pacific Mutual may require evidence that such
coverage is in force, and Broker/Dealer or Agency shall promptly give notice to
Pacific Mutual of any notice of cancellation or change of coverage.
Selling Entities each assign any proceeds received from the fidelity
bond company, error and omissions or other liability coverage, to Pacific
Mutual to the extent of Pacific Mutual's loss due to activities covered by the
bond. If there is any deficiency, Selling Entities will promptly pay Pacific
Mutual the amount of such deficiency on demand. Selling Entities each shall
indemnify and hold harmless Pacific Mutual from any such deficiency and from
the cost of collection.
15. LIMITATIONS OF AUTHORITY
The Contract forms are the sole property of Pacific Mutual. No person
or party other than Pacific Mutual has the right or authority to: (i) make,
alter or discharge any policy, Contract, certificate, supplemental contract or
form issued by Pacific Mutual; (ii) make, alter, modify or discharge any
Contract; (iii) waive or modify any provision with respect to any Contract or
policy; (iv) incur indebtedness or liability, or expend or contract for
expenditure of any funds on behalf of Pacific Mutual or the Contracts; (v)
extend the time for payment of any premiums, bind Pacific Mutual to reinstate
any terminated Contracts, or accept notes for payment of premiums; (vi) enter
into any proceeding in a court of law or before a regulatory agency in the
name of or on behalf of Pacific Mutual; or (vii) institute or file any response
to any legal proceeding in connection with any matter pertaining to the
Contracts on behalf of Pacific Mutual without the prior written consent of
Pacific Mutual (except that if Selling Entities themselves are named as a party
or parties in such proceedings each named party may enter into legal
proceedings on its own behalf without the written consent of Pacific Mutual).
16. GENERAL PROVISIONS
16.1 WAIVER
Failure of any of the parties to insist promptly upon strict
compliance with any of the obligations of any other party under this Agreement
will not be deemed to constitute a waiver of the right to enforce strict
compliance.
16.2 INDEPENDENT CONTRACTORS
Selling Entities are each an independent contractor and not an
employee or subsidiary of Pacific Mutual or Distributor. Nothing contained in
this Agreement or otherwise shall be deemed to make any registered
representative of Broker/Dealer or any Subagent appointed by Agency an employee
or agent of Pacific Mutual or Distributor for tax or any other purposes.
Neither Pacific Mutual nor Distributor shall have any responsibility for
training or supervision of any such Subagent or registered representative or of
any other employee or affiliate of any Selling Entities.
16.3 ASSIGNMENT
No assignment of this Agreement or of commissions or other payments
under this Agreement shall be valid without prior written consent of Pacific
Mutual. Any purported assignment in violation of this Paragraph 16.3 is void.
16.4 NOTICE
Any notice required or otherwise given pursuant to this Agreement may
be given electronically by facsimile or electronic mail (but not orally by
telephone) or by mail, postage paid, (including any express mail
5
<PAGE> 7
service), transmitted to the last address communicated by the receiving party
to the other parties to this Agreement. The current address for mailing
purposes of this Agreement shall be set forth on the signature page.
16.5 SEVERABILITY
To the extent this Agreement may be in conflict with any applicable
law or regulation, this Agreement shall be construed in a manner consistent
with such law or regulation. The invalidity or illegality of any provisions of
this Agreement shall not be deemed to affect the validity or legality of any
other provision of this Agreement.
16.6 AMENDMENT
Except as expressly provided herein, this Agreement may be amended
only by a writing signed by all parties. The Schedules hereto may be amended
by Pacific Mutual or Distributor upon 10 days' written notice to Broker/Dealer
and Agency which shall be deemed received the earlier of actual receipt or 10
days after mailing or transmission. The submission of an application for the
Contracts by Broker/Dealer or Agency after the date of any such amendment shall
constitute such party's agreement to such amendment. No amendment will impair
the right to receive commissions as accrued with respect to Contracts issued
and applications procured prior to the amendment.
16.7 TERMINATION
This Agreement may be terminated by any party for any reason upon 10
days' prior written notice. It may be terminated, for cause, by any party
immediately. Termination of this Agreement shall not impair the right to
receive commissions accrued with respect to applications procured prior to the
termination except as otherwise specifically provided in the applicable
Schedule D hereto.
16.8 SURVIVAL
All representations and warranties made in or pursuant to this
Agreement and the provisions of Paragraphs 11, 12 and 14.10 of this Agreement
shall survive the termination of this Agreement.
16.9 ARBITRATION AND GOVERNING LAW
The parties agree that, to the extent permitted by law, any
controversy related to the Agreement or breach thereof shall be submitted to
arbitration conducted under the Code of Arbitration of the NASD. This
Agreement shall be construed in accordance with the laws of the State of
California, without giving effect to the conflict of law provisions thereof.
Broker/Dealer and Agency consent to the jurisdiction of the courts of the State
of California and to the jurisdiction of federal courts located within
California.
16.10 PROPRIETARY INFORMATION
Selling Entities acknowledge that information pertaining to any
Distributor program or service, including names of Contract owners, is
proprietary in nature and belongs exclusively to Distributor. Selling Entities
agree that they will not disclose any information concerning Distributor
programs or services to any person, for consideration or otherwise, unless (a)
Pacific Mutual or Distributor has authorized such disclosure in writing or (b)
if such disclosure is expressly required by state or federal regulatory
authorities and Pacific Mutual and Distributor have received notice, in
writing, of such disclosure. Selling Entities agree further that, following
termination of this Agreement for any reason, they will not solicit or
otherwise contact any Contract owner for any reason except as expressly agreed
in writing by Distributor or Pacific Mutual.
16.11 ENTIRE AGREEMENT
This Agreement shall constitute the entire agreement among the parties
and supersedes all prior agreements and understandings, whether written or
verbal.
6
<PAGE> 8
By signing below, each of the undersigned agrees to have read and be
bound by the terms and conditions of this Agreement. Each of the undersigned
acknowledges receipt of a copy of this Agreement.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
700 Newport Center Drive
Newport Beach, CA 92660
By:____________________________________
Title:_________________________________
PACIFIC MUTUAL DISTRIBUTORS, INC.
700 Newport Center Drive
Newport Beach, CA 92660
By:____________________________________
Title:_________________________________
7
<PAGE> 9
SCHEDULE A
PACIFIC MUTUAL LIFE INSURANCE COMPANY
CONTRACTS COVERED BY THIS AGREEMENT
<TABLE>
<CAPTION>
Contract Name Contract Number
- ------------- ---------------
<S> <C>
Pacific Innovations 96-00
</TABLE>
Date:_____________________________
1
<PAGE> 10
SCHEDULE B
JURISDICTIONS IN WHICH
PACIFIC MUTUAL LIFE INSURANCE COMPANY
IS APPROVED FOR SALE OF CONTRACTS
COVERED BY THIS AGREEMENT
<TABLE>
<CAPTION>
CONTRACT JURISDICTIONS
- -------- -------------
<S> <C>
Pacific Innovations [To be completed at signing]
</TABLE>
Date:_____________________________
1
<PAGE> 11
SCHEDULE C
GENERAL LETTER OF RECOMMENDATION
Selling Entities hereby certify to Pacific Mutual that all of the following
requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as Subagents ("Applicant")
submitted by Agency. Agency will, upon request, forward proof of compliance
with same to Pacific Mutual in a timely manner, including but not limited to
general background check information, NASD background information/reports,
fingerprint reports, etc.
1. We have made a thorough and diligent inquiry and investigation
relative to each applicant's identity, residence and business reputation and
declare that each applicant is personally known to us, has been examined by us,
is known to be of good moral character, has a good business reputation, is
reliable, is financially responsible and is worthy of a license. Our inquiries
and investigations were sufficient to meet the requirements of requisite state
insurance regulation, federal securities regulation and NASD requirements.
Each individual is trustworthy, competent, and qualified to act as an agent for
Pacific Mutual, and to hold himself out in good faith to the general public.
We vouch for each applicant.
2. We have on file a B-300, B-301 or U-4 form which was completed by each
applicant. We have fulfilled all the necessary investigative requirements for
the registration of each applicant as a registered representative through our
NASD member firm, and each applicant is presently registered as an NASD
registered representative.
The above information in our files indicates no fact or condition
which would disqualify the applicant from receiving a license, and all the
findings of all investigative information is favorable.
3. We certify that all educational requirements have been met for the
specific state in which each applicant is requesting a license, and that all
such persons have fulfilled the appropriate examination, education and training
requirements.
4. If the applicant is required to submit his or her picture, signature,
and securities registration in the state in which he or she is applying for a
license, we certify that those items forwarded to Pacific Mutual are those of
the applicant and that the securities registration and any insurance licenses
are true copies of the original.
5. We hereby warrant that the applicant is not applying for a license
with Pacific Mutual in order to place insurance chiefly or solely on his or her
life or property, lives or property of his or her relatives, or property or
liability of his or her associates.
6. We certify that each applicant will receive close and adequate
supervision in compliance with Selling Entities' written supervisory
procedures, and that we will make inspection when needed of any or all risks
written by these applicants, to the end that the insurance interest of the
public will be properly protected.
7. We will not permit any applicant to transact insurance as an agent
until duly licensed therefor. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write, solicit
business or act as an agent in any capacity, and they will not be so permitted
until the certificate of authority or license applied for is received.
8. We certify that Selling Entities and applicant shall have entered into
a written agreement pursuant to which: (i) applicant is appointed a Subagent of
Agency and a registered representative of Broker/Dealer; (ii) applicant agrees
that his/her selling activities relating to securities-regulated Contracts
shall be under the supervision and control of Broker/Dealer and his/her selling
activities relating to all other Contracts shall be under the supervision and
control of Agency; and (iii) applicant's right to continue to sell such
Contracts is subject to his/her continued compliance with such agreement and
any procedures, rules or regulations implemented by Selling Entities.
1
<PAGE> 12
SCHEDULE D-1
COMPENSATION SCHEDULE FOR
PACIFIC INNOVATIONS ANNUITY - INDIVIDUAL FLEXIBLE PREMIUM
VARIABLE ACCUMULATION DEFERRED ANNUITY
(FORM 96-00)
This Schedule D-1 is attached to and made a part of the Agreement to which it
is attached. It is subject to the terms and conditions of the Agreement.
Pursuant to the Selling Agreement, Pacific Mutual, Distributor and Selling
Entities have the right to terminate or amend this Schedule D-1 at their sole
discretion (See Paragraph 16.6). In no event shall Pacific Mutual be liable
for the payment of any compensation with respect to any solicitation made, in
whole or in part, by any person no appropriately licensed and registered prior
to the commencement of such solicitation.
Selling Entities shall forward to Pacific Mutual the first full payment
collected by Agency and Broker/Dealer, without deduction for compensation.
Selling Entities agree to promptly deliver Contracts and hold Pacific Mutual
harmless from and against any claim arising from market loss resulting from
delivery by Agency to the Contract owner as a result of late delivery.
After a change of Compensation Schedule or a change of Broker/Dealer,
compensation due on existing Contracts shall be payable to the Agency or
Broker/Dealer in accordance with the Schedule D-1 in effect at that time.
Moreover, when a Contract owner terminates a Broker/Dealer, no further
commissions or compensation due on existing Contracts after termination shall
be payable to the Agency or Broker/Dealer after the notice of termination is
received and accepted by Pacific Mutual.
1. COMPENSATION ELECTION
The undersigned Broker/Dealer may elect below the compensation schedule under
which commission payments will be based. Broker/Dealer may elect to be paid
under Option A and/or Option B. If both Option A and Option B are elected,
compensation will be payable under the Option elected by the
Subagent/Registered Representative. If the Registered Representative does not
elect an Option for compensation under an individual Contract, compensation
will be paid under the default Option elected by Broker/Dealer. If no Option
is indicated below, this Selling Agreement will be treated as if both Options
were elected. If no default Option is elected, Option B will be the default
Option.
<TABLE>
<CAPTION>
OPTION A OPTION B
-------- --------
<S> <C> <C> <C> <C>
Commission percent of premium (See paragraph 2): 6.50% 5.50%
Trail Commission (See paragraph 3): --- 0.25%, thereafter
Commission reduction age (See paragraph 4): 75 75
Option Elected: [ ] [ ]
Default Option: [ ] [ ]
</TABLE>
2. COMMISSION CALCULATION: Commissions based on premium will be
calculated only on premium actually received and accepted by Pacific Mutual.
Commissions will be paid only on an earned basis.
3. TRAIL COMMISSION: Under Option B, no trail commissions will be paid
until after the end of the first Contract year. At that time, quarterly trail
commissions will be paid at the annual rate of 0.25% of the Contract's
accumulated value less any Contract debt at the beginning of the Contract
quarter, starting with the fifth Contract quarter. Trail commissions will be
payable on the next commission cycle at the beginning of each Contract quarter,
provided the Contract is in force on such commission cycle date.
1
<PAGE> 13
4. COMMISSION RATE CHANGE: The commission rate on premium received will
be reduced by 0.2% for each year the annuitant's attained age exceeds age 75 to
age 85. For example, at age 80, the commission rate is 5.5% under Option A and
4.5% under Option B. If there are joint annuitants, the younger annuitant's
attained age will be used. For purposes of this section, attained age shall be
determined as of the date that premium is actually received by Pacific Mutual.
Attained age shall be as defined in the Contract.
5. COMPENSATION PAYMENTS: Compensation on initial premium will be due to
the Agency and/or Broker/Dealer at the time of issuance of the Contract and for
all other premium payments at the time of the receipt and acceptance of premium
by Pacific Mutual. The amount, if any, and the time of payment of compensation
on replacements, changes, exchanges and other special cases and programs will
be governed by Pacific Mutual's underwriting and administrative rules then in
effect. If the agent or their immediate family purchases a Contract, they may
elect to have their commission withheld and instead an amount equal to Option A
will be credited to the Contract. With respect to any Contract, or group of
Contracts, that either Pacific Mutual or Distributor may, in its sole
discretion, determine to be a special case and for which at the time the
application is submitted, the aggregate premium payment is greater than
$500,000, Pacific Mutual and Distributor may determine that the commissions in
this Schedule D-1 do not apply and establish an alternative commission schedule
for such Contract or group of Contracts.
In the event Selling Entities become Agency or Broker/Dealer of record with
respect to a Contract sold through another agency or broker/dealer,
compensation for that contract will be based upon the compensation option
election at time of sale of Contract, irrespective of Agency's or
Broker/Dealer's choice of compensation.
6. COMMISSION CHARGEBACKS: In the event a Contract for which a
commission has been paid is returned to Pacific Mutual or Distributor pursuant
to a "free look" right in the Contract, Selling Entities shall reimburse
Distributor 100% of commissions paid. In the event a Contract for which a
commission has been paid is deemed to be distributed or surrendered by the
Contract owner or a premium refunded by Pacific Mutual, Selling Entities shall
reimburse Distributor 100% of commissions paid if the distribution, surrender
or premium refund occurs within the first six months of the Contract and 50% of
commissions paid if the distribution, surrender or premium refund occurs within
the second six months of the Contract. In the event a Contract for which a
commission has been paid is rescinded by Pacific Mutual, decided by Pacific
Mutual in its sole discretion, Selling Entities shall reimburse Distributor
100% of the commissions paid. In the event Pacific Mutual determines that any
Subagent/Registered Representative or Selling Entities engage in any sales
practice which is detrimental to Pacific Mutual (as determined by Pacific
Mutual), Pacific Mutual may elect to charge back commissions associated with
the sale of Contracts associated with such practice or activity.
Distributor may deduct reimbursement amounts from any compensation otherwise
due to Broker/Dealer and/or Agency by Pacific Mutual and/or Distributor. If
the amount to be deducted exceeds compensation otherwise due, Broker/Dealer
will promptly reimburse Distributor before the next commission cycle or within
10 business days from the date of mailing of a written demand for
reimbursement, whichever is later. Broker/Dealer and Agency are jointly and
severally liable for such chargebacks.
2
<PAGE> 1
EXHIBIT 99.4(a)
Form of Individual Flexible Premium
Variable Accumulation Annuity Contract
(Draft)
<PAGE> 2
DRAFT
PACIFIC INNOVATIONS
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
o Investment Experience Reflected in Benefits
o Variable and Fixed Accumulation Before Annuity Date; Variable and Fixed
Annuity Payments Thereafter
o Death Benefit Proceeds Payable Before Annuity Date
o Participating
Please read your contract carefully. This is a legal contract between you, the
Owner, and us, Pacific Mutual Life Insurance Company, a mutual company.
We agree to pay the benefits of this Contract according to its provisions.
The consideration for this Contract is the application for it (copy or
confirmation is attached) and our receipt of the Purchase Payment(s).
CONTRACT LOAN AMOUNT IS LESS THAN 100% OF CONTRACT VALUE.
BENEFITS AND VALUES UNDER THIS CONTRACT MAY BE ON A VARIABLE BASIS. AMOUNTS
DIRECTED INTO ONE OR MORE OF THE VARIABLE INVESTMENT OPTIONS WILL REFLECT THE
INVESTMENT EXPERIENCE OF THOSE INVESTMENT OPTIONS. THESE AMOUNTS MAY INCREASE
OR DECREASE, AND ARE NOT GUARANTEED AS TO A DOLLAR AMOUNT. THE DETAILS OF THE
VARIABLE PROVISIONS BEGIN ON PAGE 10.
Right To Cancel - You may return this Contract within 10 days after you receive
it. To do so, mail it to us at our Service Center or to the agent who sold it
to you. This Contract will then be deemed void from the beginning. No
withdrawal fee will be imposed, and we will refund your [Contract Value,
including any fees and/or charges that were deducted from that Contract Value.]
[Purchase Payments.]
Signed at our Home Office, 700 Newport Center Drive, Newport Beach, California
92660.
Chairman and Chief Executive Officer Secretary
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
CONTRACT SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PURCHASE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchase Payment Allocation . . . . . . . . . . . . . . . . . . . . 9
Allocations During the Right to Cancel Period . . . . . . . . . . . 9
Minimum Investment Option Value . . . . . . . . . . . . . . . . . . 9
THE FIXED OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
VARIABLE INVESTMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . .10
Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . .10
CONTRACT VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Fixed Option Value . . . . . . . . . . . . . . . . . . . . . . . . .11
Variable Account Value . . . . . . . . . . . . . . . . . . . . . . .11
Loan Account Value . . . . . . . . . . . . . . . . . . . . . . . . .11
CHARGES, FEES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . .13
Administrative Fee . . . . . . . . . . . . . . . . . . . . . . . . .13
Annual Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . .13
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Transfer Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Withdrawal Fee . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . .13
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Amount Available for Withdrawal . . . . . . . . . . . . . . . . . .15
Special Restrictions - Fixed Option . . . . . . . . . . . . . . . .15
CONTRACT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Death Benefit Amount . . . . . . . . . . . . . . . . . . . . . . . .16
Guaranteed Minimum Death Benefit . . . . . . . . . . . . . . . . . .16
Death of Annuitant . . . . . . . . . . . . . . . . . . . . . . . . .16
Death of Owner . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Death of Owner Distribution Rules . . . . . . . . . . . . . . . . .17
Interest on Death Benefit Proceeds . . . . . . . . . . . . . . . . .18
BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Adding or Changing Your Beneficiary . . . . . . . . . . . . . . . .18
ANNUITY BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Choice of Annuity Date . . . . . . . . . . . . . . . . . . . . . . .18
Application of Contract Value . . . . . . . . . . . . . . . . . . .18
Your Selections . . . . . . . . . . . . . . . . . . . . . . . . . .19
Fixed and Variable Annuities . . . . . . . . . . . . . . . . . . . .19
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . .19
Default Annuity Date and Options . . . . . . . . . . . . . . . . . .20
Amount of Payments . . . . . . . . . . . . . . . . . . . . . . . . .20
Fixed Annuity Payments . . . . . . . . . . . . . . . . . . . . . . .20
Conversion to Current Rates . . . . . . . . . . . . . . . . . . . .20
Variable Annuity Payments . . . . . . . . . . . . . . . . . . . . .20
Periodic Payments . . . . . . . . . . . . . . . . . . . . . . . . .21
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . .21
ANNUITY OPTION TABLES . . . . . . . . . . . . . . . . . . . . . . . . . .22
</TABLE>
i
<PAGE> 4
CONTRACT SPECIFICATIONS
<TABLE>
<S> <C>
SERVICE CENTER: SEND FORMS AND WRITTEN REQUESTS TO: SEND PAYMENTS TO:
Pacific Mutual Life Insurance Company Pacific Mutual Life Insurance Company
P.O. Box 7187 P.O. Box 100060
Pasadena, California 91109-7187 Pasadena, California 91189-0060
</TABLE>
Toll-free number: 1-800-722-5558 (between 6:00 a.m. and 5:00 p.m., Pacific
time)
Please use our toll-free number to present inquiries or obtain information
about your coverage and for us to provide assistance in resolving complaints.
Basic Contract - NON-QUALIFIED
Investment Options:
Variable Investment Options:
[Money Market Subaccount Mid-Cap Equity Subaccount
Managed Bond Subaccount Aggressive Growth Subaccount
Capital Income Subaccount International Subaccount
Blue Chip Subaccount ]
Fixed Option
Administrative Charge: 0.15%
Mortality and Expense Risk Charge: 1.25%
Annual Fee: $30 if Net Contract Value is less
than $50,000
Withdrawal Charge: Age of Premium
in contract years Charge Percent
1 7%
2 6%
3 5%
4 3%
5 1%
6 and over 0%
Contract Number: Contract Date:
Owner(s):
Annuitant(s): Age Sex
Initial Purchase Payment: Annuity Start Date:
3
<PAGE> 5
DEFINITIONS
PM, WE, OUR and US - Pacific Mutual Life Insurance Company.
YOU and YOUR - The person or persons named as Owner(s) in the Contract
Specifications. If there are Joint Owners, you and your means both Joint
Owners.
ACCOUNT VALUE - The amount of your Contract Value allocated to any one of the
Investment Options.
AGE - The Owner's or Annuitant's age, as applicable, at his or her last
birthday.
ANNUITANT - The person you name on whose life annuity payments may be
determined. An Annuitant's life may also be used to determine certain increases
in death benefits, and to determine the Annuity Date. If you designate Joint
Annuitants or a Contingent Annuitant, unless otherwise stated, "Annuitant"
means the sole surviving Annuitant. If your Contract is a Non-Qualified
Contract, you cannot change the Annuitant or change or add a Joint Annuitant.
If your Contract is a Qualified Contract, you may add a Joint Annuitant on the
Annuity Date.
ANNUITY DATE ("ANNUITY START DATE") - The date shown in the Contract
Specifications, or the date you later elect, if any, for the start of annuity
payments if the Annuitant is still living and the Contract is in force; or if
earlier, the date that annuity payments actually begin.
ANNUITY OPTIONS - Income options available for a series of payments after your
Annuity Date.
BENEFICIARY - The person you name who may receive any death benefit proceeds
payable on the death of the Annuitant or any Owner prior to the Annuity Date;
or any remaining annuity benefits payable on the death of the Annuitant after
the Annuity Date. If no Beneficiary is named or the Beneficiary does not
survive the Annuitant, and the Annuitant dies, then the Owner's estate will
have the rights of the Beneficiary. If you are not the Annuitant and you die
before the Annuitant, and before the Annuity Date, any death benefit proceeds
will be payable to the surviving Joint Owner, if any; otherwise to the
surviving Contingent Owner, if any; otherwise, to the Beneficiary, if living;
otherwise, to the Owner's estate.
BUSINESS DAY - Any day on which the value of an amount invested in a Subaccount
can be determined. If any transaction or event under this Contract is scheduled
to occur on a day that does not exist in a given calendar period, or on a day
that is not a Business Day, such transaction or event will be deemed to occur
on the next following Business Day, unless otherwise stated.
CODE - The Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT - The person, if any, you select who may become the
Annuitant if the Annuitant dies before your Annuity Date. You may add or
change your Contingent Annuitant prior to the Annuity Date provided the
existing Contingent Annuitant is not the sole surviving Annuitant. Any
Contingent Annuitant you name must not have attained age 86 as of your Contract
Date or, if you add or change a Contingent Annuitant, as of the date of the
addition or change.
CONTINGENT OWNER - The person, if any, you select who may succeed to your
rights as Owner of this Contract if all named Contract Owners die.
CONTRACT ANNIVERSARY - The same date, in each subsequent year, as your Contract
Date.
CONTRACT DATE - The date we issue your Contract, as shown in the Contract
Specifications. Contract Years, Contract Semiannual Periods, Contract Quarters
and Contract Months are measured from this date.
4
<PAGE> 6
CONTRACT DEBT - As of the end of any Business Day, the principal amount you
have outstanding on any loan under this Contract, plus any accrued and unpaid
interest.
CONTRACT VALUE - As of the end of any Business Day, your Variable Account
Value, plus your Fixed Option Value, and any Loan Account Value.
FIXED OPTION - Amounts allocated under your Contract to the Fixed Option are
held in our General Account and receive interest at rates declared periodically
(the "Guaranteed Interest Rate"), but not less than an annual rate of 3%.
FIXED OPTION VALUE - The aggregate amount of your Contract Value allocated to
the Fixed Option.
GENERAL ACCOUNT - Our General Account consists of all assets of PM, other than
those assets allocated to Separate Account B or to any of our other separate
accounts.
GUARANTEED INTEREST RATE - The interest rate guaranteed at the time of
allocation (or roll over) for the Guarantee Term on amounts allocated to the
Fixed Option. All Guaranteed Interest Rates are expressed as annual rates, and
interest is accrued daily. This rate will not be less than an annual rate of
3%.
GUARANTEE TERM - The period during which the amount you allocate to the Fixed
Option earns a specified Guaranteed Interest Rate. The maximum Guarantee Term
is up to one year. All Guarantee Terms end at midnight on the day prior to your
Contract Anniversary.
INVESTMENT OPTION - A Variable Account or Fixed Option offered under the
Contract.
LOAN ACCOUNT VALUE - The amount, including any interest accrued, held in the
Loan Account to secure any Contract Debt.
NET CONTRACT VALUE - Your Contract Value less any Contract Debt.
NON-NATURAL OWNER - A corporation or other entity which is a non-natural
person, unless the entity demonstrates to our satisfaction, or we otherwise
determine in our sole discretion, that the Contract should be treated, for
purposes of Section 72(s) of the Code, as owned by an individual (natural)
person.
NON-QUALIFIED CONTRACT - A Contract other than a Qualified Contract.
OWNER - The person(s) who has (have) all rights under this Contract. If your
Contract names Joint Owners, Owner means both Joint Owners. Any named Owner
must not have attained age 86 as of your Contract Date. If your Contract allows
you to change or add Owners after the Contract is issued, any newly-named or
added Owners, including Joint and/or Contingent Owners, must be under the age
of 86 at the time of change or addition.
PURCHASE PAYMENT (PREMIUM PAYMENT) - An amount paid to us by or on behalf of an
Owner as consideration for the benefits provided under this Contract.
QUALIFIED CONTRACT - A Contract that qualifies under the Code as an individual
retirement annuity ("IRA"), or a Contract purchased under a Qualified Plan that
qualifies for special tax treatment under the Code.
QUALIFIED PLAN - A retirement plan that receives favorable tax treatment under
Section 401, 403, 408, or 457 of the Code.
SEC - Securities and Exchange Commission.
SEPARATE ACCOUNT (SEPARATE ACCOUNT B) - A Separate Account of PM registered as
a unit investment trust under the Investment Company Act of 1940.
SERVICE CENTER - PM's mailing address shown in the Contract Specifications. We
will notify you of any change in our mailing address.
5
<PAGE> 7
SUBACCOUNT - An investment division of the Separate Account. Each Subaccount,
(a "Variable Investment Option" or "Variable Account") invests its assets in a
separate series or class of shares of a designated investment company.
SUBACCOUNT ANNUITY UNIT (ANNUITY UNITS) - Annuity Units are used to measure
variation in variable annuity payments. The amount of each variable annuity
payment (after the first payment) will vary with the value and number of your
Annuity Units in each Subaccount.
SUBACCOUNT UNIT - Subaccount Units are used to measure your Contract Value in
that Subaccount.
UNIT VALUE - The value of a Subaccount Unit ("Subaccount Unit Value") or
Subaccount Annuity Unit ("Subaccount Annuity Unit Value"). The Unit Value of
any Subaccount is subject to change on any Business Day. The fluctuations in
value reflect the investment results, and also reflect the daily deductions for
the mortality and expense risk charge and administrative fee. Changes in
Subaccount Annuity Unit Values also reflect an additional adjustment factor
that corrects for an assumed investment return of 5%. The Unit Value of a
Subaccount Unit and of a Subaccount Annuity Unit on any Business Day is
measured at or about 4:00 p.m. Eastern Time on each Business Day.
VARIABLE ACCOUNT (A "VARIABLE INVESTMENT OPTION") - A Subaccount of the
Separate Account or any separate account of PM which is available under your
Contract in which assets of PM are segregated from assets in its General
Account and other separate accounts.
VARIABLE ACCOUNT VALUE - The aggregate amount of your Contract Value allocated
to the Variable Accounts.
6
<PAGE> 8
GENERAL PROVISIONS
REPORTS TO OWNERS - At least once per year, we will send you a report that will
show your Contract Value, any Purchase Payments received, loan repayments,
transfers, withdrawals, applicable withdrawal charges and/or other charges
and/or fees incurred since the last report, and any other information that may
be required.
PAYMENTS, INSTRUCTIONS AND REQUESTS - Unless this Contract provides otherwise,
all Purchase Payments, loan repayments, instructions and requests must be
received in proper form at our Service Center at its mailing address. (See
DEFINITIONS - SERVICE CENTER). Any subsequent Purchase Payments, loan
repayments and requests for loans, transfers or withdrawals we receive in
proper form on any Business Day usually will be processed the same Business Day
unless the transaction or event is scheduled to occur on another day.
Generally, all other instructions and requests normally will be effective as of
the end of the day next following the Business Day we receive them in proper
form, unless the event is scheduled to occur on another day. We may require
that you provide signature guarantees or other safeguards for any instruction,
request or other document you may send to our Service Center. You acknowledge
and agree that we will not be liable for any loss, liability, cost or expense
of any kind or character for acting on instructions or requests submitted to us
that we reasonably believe to be genuine, provided we follow our procedures.
ENTIRE CONTRACT - This document, the attached application or confirmation
thereof, any subsequent applications to change this Contract or confirmation
thereof, and any riders and endorsements, constitute the entire Contract, and
supersede any and all prior agreements, whether oral or written, about the
terms of this Contract and the application. All statements made in the
application are representations and not warranties.
CONTRACT MODIFICATIONS - Modifications to this Contract or any waiver of our
rights or requirements under this Contract can only be made if in writing by an
authorized officer of PM. This Contract is intended to qualify as an annuity
contract for Federal income tax purposes. To that end, the provisions of this
Contract are to be interpreted and administered to ensure or maintain such tax
qualification, notwithstanding any other provisions to the contrary. Payments
and distributions under this Contract shall be made in a time and manner
necessary to maintain such qualification under the applicable provisions of the
Code. We reserve the right to amend this Contract and/or our administrative
procedures without consent (except for the states of Michigan, Pennsylvania,
South Carolina and Washington) to reflect any clarifications that may be needed
or are appropriate to maintain its tax qualification or to conform this
Contract to any applicable changes in the tax qualification requirements.
BASIS OF VALUES - A detailed statement showing how values are determined has
been filed with the state insurance departments. All values and reserves are at
least equal to those required by the laws of the state in which this Contract
is issued.
CLAIMS OF CREDITORS - Your Contract Value and other benefits under this
Contract are exempt from the claims of creditors to the extent permitted by
law.
REMOVAL OF BENEFICIARY OR CONTINGENT ANNUITANT - You may remove a Beneficiary
(other than an irrevocable Beneficiary) or a Contingent Annuitant from this
Contract by providing proper instructions to our Service Center.
OWNERSHIP - This Contract belongs to the Owner. The Owner is entitled to
exercise all rights available to the Owner under this Contract. If this
Contract is jointly owned, both Owners must join in any request to exercise
these rights. The Owner may exercise these rights under this Contract without
the consent of the Beneficiary (other than any irrevocable Beneficiary) or any
other person, except as otherwise required by law.
7
<PAGE> 9
ASSIGNMENT - You may assign all rights and benefits under this Contract before
the Annuity Date. We are not bound by any assignment until we have received
written notice satisfactory to us and we record the assignment. We are not
responsible for the validity of any assignment. If the Contract has been
absolutely assigned, the assignee becomes the Owner. You should consult with
your tax adviser before taking any action.
DELAY OF PAYMENTS - Generally, payments, transfers, or exchanges will be made
within seven days from receipt of the payment and/or request in a form
satisfactory to us. Payment of your withdrawal proceeds or transfers or
exchanges to or from a Variable Account may be delayed after receipt of your
withdrawal, transfer, or exchange request under certain circumstances. These
include:
o a closing of the New York Stock Exchange other than on a regular
holiday or weekend;
o a trading restriction by the SEC; or
o an emergency declared by the SEC.
We may delay payments or transfers from our General Account (which would
include payment of your withdrawal proceeds and transfers from the Fixed Option
or any loans, fixed annuity payments, and lump sum death benefit payments
unless state law requires otherwise) for up to six months after the requested
effective date of the transaction. Any amount delayed will, so long as it is
held under the Fixed Option, continue to earn interest at the Guaranteed
Interest Rate then in effect until the applicable Guaranteed Term in effect has
ended, and not less than 3% on an annual basis thereafter. If you make any
Purchase Payment by check, other than a cashier's check, we may delay making
payments to you until your check has cleared.
INCONTESTABILITY - We will not contest this Contract.
PROOF OF LIFE OR DEATH - Before we make a payment, we have the right to require
proof of the life or death of any person on whose life or death determines
whether, to whom, or how much we must pay any benefits under this Contract.
DIVIDENDS - The current dividend scale is zero and we do not expect dividends
to become payable. However, at the end of each Contract Year, we will determine
your dividend, if any; you may choose to have it paid in cash or added to your
Contract Value. If you do not make a choice, we will add it to your Contract
Value. We will allocate any dividend added to your Contract Value in accordance
with your most recent allocation instructions, unless you instruct us
otherwise. You should consult with your tax adviser before making any election.
WITHHOLDING TAXES - From all payments made under this Contract, we will
withhold any taxes required to be withheld by applicable Federal or State law,
unless the Owner or payee elects otherwise pursuant to applicable withholding
rules.
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PURCHASE PAYMENTS
PURCHASE PAYMENTS - This Contract will not be in force until we receive the
initial Purchase Payment. Your initial Purchase Payment is shown in the
Contract Specifications.
You may make additional Purchase Payments at any time before the Annuity Date,
while the Annuitant is living and this Contract is in force. Each additional
Purchase Payment must be at least $100 for Non-Qualified Contracts and $50 for
Qualified Contracts. We may limit the amount of any single Purchase Payment.
You must obtain our consent before making a Purchase Payment that will bring
your aggregate Purchase Payments over $500,000.
Purchase Payments are payable in U.S. dollars either at our Service Center or
through our agent. Checks should be made payable to Pacific Mutual Life
Insurance Company. If you make Purchase Payments by check other than a
cashier's check, your withdrawal proceeds and any refund under your Right to
Cancel may be delayed until your check has cleared. On request, a receipt for
the Purchase Payment signed by an officer of PM will be provided after payment.
PURCHASE PAYMENT ALLOCATION - Prior to your Annuity Date, you may allocate all
or part of your Purchase Payments to one or more of the Investment Options
available to you. The Investment Options available to you on the Contract Date
are shown on your Contract Specifications page. You may change your allocation
by sending us proper instructions (see GENERAL PROVISIONS: INSTRUCTIONS AND
REQUESTS). We will allocate any Purchase Payment according to your most recent
allocation instructions. We may reject any instruction or Purchase Payment that
does not comply with our requirements.
ALLOCATIONS DURING THE RIGHT TO CANCEL PERIOD - We will allocate your initial
Purchase Payment in accordance with your most recent allocation instructions.
However, if this Contract is issued in a state that requires us to refund all
Purchase Payments according to the Right to Cancel provision, we will allocate
the portion of your initial Purchase Payment designated for Variable Investment
Options to the Money Market Portfolio, and the portion of your initial Purchase
Payment designated for the Fixed Option to the Fixed Option. Any subsequent
Purchase Payments that are received before the Right to Cancel Transfer Date
will be allocated in the same manner as the initial Purchase Payment. On the
Right to Cancel Transfer Date, which occurs 15 days after your Contract is
issued, we will transfer the Account Value in the Money Market Portfolio to
your Variable Investment Options in accordance with your most recent allocation
instructions. We reserve the right to extend the Right to Cancel Transfer Date
by the number of days in excess of ten days that the issue state allows you to
return your Contract to us pursuant to your Right to Cancel right.
MINIMUM INVESTMENT OPTION VALUE - We reserve the right to require that, as a
result of any allocation to an Investment Option, any transfer, or any partial
withdrawal, your remaining Account Value in any Investment Option must meet a
minimum Account Value amount. We also reserve the right to transfer any
remaining Account Value that does not meet such minimum amount to your other
Investment Options on a prorata basis relative to your most recent allocation
instructions for those Investment Options.
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THE FIXED OPTION
We credit interest at the Guaranteed Interest Rate(s) on the amount of Purchase
Payments and/or Contract Value that you allocate or transfer to, or roll over
in, the Fixed Option, as described below.
Account Values under the Fixed Option are held in our General Account. Subject
to applicable law, we have sole discretion over the investment of our General
Account assets.
We will credit your Contract with a Guaranteed Interest Rate for up to one year
on that portion of your Purchase Payment and/or Contract Value allocated to the
Fixed Option, while the Annuitant is living and this Contract is in force, and
prior to the Annuity Date. We will credit the Guaranteed Interest Rate in
effect on the Business Day that the allocation and/or transfer is effective for
a Guarantee Term that ends at the end of that Contract Year.
At the end of any Guarantee Term, unless you instruct us otherwise, we will
roll over your Fixed Option Value attributed to that Guarantee Term to a new
Guarantee Term of up to one year. We will credit the Guaranteed Interest Rate
in effect at the time of the roll over on the amount of the Fixed Option Value
rolled over until the end of such Guarantee Term.
We will stop crediting interest on that portion of your Fixed Option Value you
withdraw, transfer (including transfers to the Loan Account), or convert to an
Annuity Option, including any: fees for withdrawals or transfers; withdrawal
charges; annual fee; and charges for premium taxes and/or other taxes. We do so
as of the end of the Business Day any such transaction is effective.
VARIABLE INVESTMENT OPTIONS
The Variable Investment Options consist of Subaccounts of the Separate Account.
The available Subaccounts as of the Contract Date are shown in the Contract
Specifications.
SEPARATE ACCOUNT - We established and maintain the Separate Account under the
laws of California. Any income, gains or losses (whether or not realized) from
the assets of each Variable Account are credited or charged against such
Variable Account without regard to our other income, gains or losses. Assets
may be put in our Separate Account to support this Contract and other variable
annuity contracts. Assets may be put in our Separate Account for other
purposes, but not to support contracts other than variable annuity contracts.
The assets of our Separate Account are our property. The portion of the
Separate Account assets equal to the reserves and other Contract liabilities
with respect to each Variable Account will not be chargeable with liabilities
arising out of any other business we conduct. We may transfer assets of a
separate account in excess of the reserves and other liabilities with respect
to that Variable Account to another separate account or to our General Account.
All obligations arising under the Contract are our general corporate
obligations. We do not hold ourselves out to be trustees of the Separate
Account assets.
We reserve the right, subject to compliance with the law then in effect, and
after any required regulatory approval, to:
o cease offering any Subaccount;
o add or change designated investment companies or their portfolios, or
other investment vehicles;
o add, delete or make substitutions for the securities and other assets
that are held or purchased by the Separate Account or any Variable
Account;
o permit conversion or exchanges between portfolios and/or classes of
contracts on the basis of Owners' requests;
o add, remove or combine Variable Accounts;
o combine the assets of any Variable Account with any other Separate
Account of PM or of any of its affiliates;
o register or deregister Separate Account B or any Variable Account under
the Investment Company Act of 1940 (the "1940 Act");
o operate any Variable Account as a managed investment company under the
1940 Act, or any other form permitted by law;
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o run any Variable Account under the direction of a committee, board, or
other group;
o restrict or eliminate any voting rights of Owners with respect to any
Variable Account or other persons who have voting rights as to any
Variable Account;
o make any changes required by the 1940 Act or other federal securities
laws;
o make any changes necessary to maintain the status of the Contracts as
annuities under the Code;
o make other changes required under federal or state law relating to
annuities;
o suspend or discontinue sale of the Contracts; and
o comply with law.
If any of these changes result in a material change in the underlying
investments of a Variable Account, we will notify you of such change.
We will not change the investment policy of the Separate Account without
following the filing and other procedures of the Insurance Commissioner in the
State of California nor without following the filing and other procedures
established by insurance regulators of the state of issue. Unless required by
law or regulation, an investment policy may not be changed without our consent.
From time to time we may make other Investment Options available to you. Any
new Investment Option may invest in portfolios of the designated investment
company, other designated investment companies or their portfolios, or in other
investment vehicles. New Investment Options will be made available to existing
Owners at our discretion. We will provide you with written notice of all
material details, including investment objectives and charges. We will comply
with the filing or other procedures established by applicable state insurance
regulators, to the extent required by applicable law.
CONTRACT VALUE
Your Contract Value on any Business Day is the sum of:
o your Fixed Option Value on that day;
o plus your Variable Account Value on that day;
o plus your Loan Account Value on that day.
We generally determine values as of 4:00 p.m., Eastern time, on each day that
the New York Stock Exchange is open, provided our administrative offices are
also open on that day.
FIXED OPTION VALUE - Your Fixed Option Value on any Business Day is your Fixed
Option Value on the prior Business Day increased by any additions to your Fixed
Option on that day as a result of any:
o interest;
o Purchase Payments received by us and allocated to the Fixed
Option;
o transfers to the Fixed Option, including transfers from the Loan
Account; and
decreased by any deductions from the Fixed Option on that day as a result of
any:
o transfers, including transfers to the Loan Account;
o withdrawals, including any withdrawal charges;
o amounts converted to an Annuity Option;
o charge for premium taxes and/or other taxes;
o fees for withdrawals and/or transfers; and
o annual fee.
VARIABLE ACCOUNT VALUE - Your Variable Account Value on any Business Day is the
sum of your Subaccount Values on that day.
Subaccount Value - Each Subaccount Value on any Business Day is the number of
Subaccount Units in that Subaccount that are credited to your Contract on that
day multiplied by the Unit Value of the Subaccount on that day.
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We credit your Contract with Subaccount Units for a Subaccount as a result of
any portion of your Purchase Payments received by us and allocated to that
Subaccount; and any transfers of your Contract Value to that Subaccount,
including transfers from the Loan Account.
We debit your Contract with Subaccount Units for a Subaccount as a result of
any deductions from the Subaccount, including those caused by any:
o withdrawals;
o transfers (including transfers to the Loan Account);
o amounts converted to an Annuity Option;
o fees for transfers and/or withdrawals;
o withdrawal charges;
o charge for premium taxes and/or other taxes; and
o annual fee.
The number of Subaccount Units we debit or credit to your Contract in
connection with a transaction is equal to the amount of the transaction
applicable to that Subaccount divided by that Subaccount's Unit Value on that
day. The number of your Subaccount Units in a Subaccount will change only if we
debit or credit Subaccount Units for the transactions above. The number of
Subaccount Units will not change because of subsequent changes in the
Subaccount Unit Value.
Subaccount Unit Value - The initial Unit Value of each Subaccount was $10 on
the Business Day the Subaccount began operations. At the end of each subsequent
Business Day, the Unit Value for each Subaccount is equal to (Y) times (Z)
where:
(Y) is the Unit Value for that Subaccount as of the end of the prior
Business Day; and
(Z) is the Net Investment Factor for that Subaccount for the period
(a "valuation period") between the prior Business Day and that Business
Day.
Net Investment Factor - Each Subaccount's Net Investment Factor for any
valuation period is equal to ( A / B ) - C where:
(A) is the net result of:
(a) the net asset value per share of the corresponding Portfolio
shares held by the Subaccount as of the end of that valuation
period;
(b) plus the per share amount of any dividend or capital gain
distributions made during that valuation period on the
Portfolio shares held by the Subaccount;
(c) plus or minus any per share charge or credit for any income
taxes, other taxes, or amounts set aside during that valuation
period as a reserve for any income and/or any other taxes for
which we determine to have resulted from the operations of the
Subaccount or Contract, and/or any taxes attributable,
directly or indirectly, to Purchase Payments;
(B) is the net asset value per share of the Fund shares held by the
Subaccount as of the end of the prior valuation period; and
(C) is a factor that we assess against the Subaccount's net assets held
by each Subaccount for the mortality and expense risk charge and the
administrative fee during that valuation period.
LOAN ACCOUNT VALUE - For those Qualified Contracts that permit loans, your Loan
Account Value as of the end of any Business Day is your Loan Account Value on
the prior Business Day, increased by any:
o interest; and
o Contract Value loaned on that day;
and decreased by any:
o loan principal repaid on that day; and
o earned interest transferred from the Loan Account on that day.
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CHARGES, FEES AND DEDUCTIONS
ADMINISTRATIVE FEE - We charge an administrative fee against assets held in
your Variable Investment Option(s). This fee is assessed daily at the annual
rate which is shown in the Contract Specifications. This fee is guaranteed not
to increase.
ANNUAL FEE - We charge an annual fee which is shown in the Contract
Specifications on each Contract Anniversary prior to your Annuity Date against
your Contract Value and at the time you make a full withdrawal, if your Net
Contract Value is less than $50,000 on that date. This fee is guaranteed not to
increase.
We will deduct the annual fee, if any, from each Investment Option on a prorata
basis relative to your Account Value in each Investment Option. Any annual fee
we deduct from a Subaccount will reduce the number of Subaccount Units credited
to your Contract.
No annual fee is charged when you annuitize or on payment of any death benefit
proceeds.
MORTALITY AND EXPENSE RISK CHARGE ("RISK CHARGE") - We impose a Risk Charge
against assets held in your Variable Investment Option(s). This charge is
assessed daily at the annual rate which is shown in the Contract
Specifications. The Risk Charge compensates us for the risks we assume that
mortality and expenses will vary from those we assumed. This charge is
guaranteed not to increase.
PREMIUM TAXES - From your Contract Value, we will deduct a charge for any taxes
we pay that are attributable to Purchase Payments or withdrawals. Such taxes
may include, but are not limited to: any federal, state or local premium taxes;
and any federal, state or local income, excise, business or any other type of
tax (or component thereof), measured by or based upon, directly or indirectly,
the amount of Purchase Payments we receive from you. We will normally deduct
this charge when you annuitize, however, we may impose this charge: on any
withdrawal; at the time any death benefit is paid; when the taxes are incurred;
or when we pay the taxes. We may base this charge on: the Contract Value; the
amount of the transaction; the aggregate amount of Purchase Payments we receive
under your Contract; or any other amount that, in our sole discretion, we deem
appropriate.
Other Taxes - We reserve the right to charge the Separate Account and/or deduct
from your Contract Value a charge for any federal, state or local taxes we pay
that are or become attributable to the Separate Account or Contract, including,
but not limited to, income taxes attributable to our operation of the Separate
Account or to our operations with respect to the Contract, or taxes
attributable, directly or indirectly, to Purchase Payments or payments we make
under the Contract.
TRANSFER FEE - We reserve the right to impose a transfer fee of $15 on each
transfer made in excess of fifteen transfers in any Contract Year. For this
purpose, we will treat each transfer request as a single transfer, regardless
of the number of Investment Options from which or to which portions of Account
Values are transferred. We will deduct any transfer fee we impose from your
Contract Value on a prorata basis relative to your Account Value in each
Investment Option immediately after the transfer.
WITHDRAWAL FEE - We reserve the right to impose a withdrawal fee of $15 on each
partial withdrawal made in excess of fifteen withdrawals in any Contract Year.
We will deduct from your Contract Value, on a prorata basis relative to your
Account Value in each Investment Option immediately after the withdrawal, any
such fee we impose on a partial withdrawal. For this purpose, we will treat
each withdrawal request as a single withdrawal, regardless of the number of
Investment Options or Guarantee Terms from which portions of Account Values are
withdrawn.
CONTINGENT DEFERRED SALES CHARGE ("WITHDRAWAL CHARGE") - Purchase Payments are
subject to a withdrawal charge which is shown in the Contract Specifications.
This charge may apply to amounts you withdraw under your Contract prior to your
Annuity Date, depending on the length of time each Purchase Payment has been
allocated to your Contract and on the amount you withdraw. We will not apply
the withdrawal charge on:
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o death benefit proceeds, except as provided under the DEATH OF OWNER
provisions for certain non-natural Owners;
o Contract Values converted to an Annuity Option;
o withdrawals by Contract Owners to meet the minimum distribution
rules for Qualified Contracts as they apply to amounts held under
the Contract; or
o withdrawals (full or partial), after the first Contract
Anniversary, if the Annuitant has been diagnosed with a medically
determinable condition that results in a life expectancy of twelve
(12) months or less, subject to medical evidence satisfactory
to us.
Amount of Withdrawal Charge - The amount of a withdrawal charge depends on how
long your Purchase Payments are held under this Contract. Each Purchase
Payment you make is considered to have a certain "age," depending on the length
of time since that Purchase Payment was effective. A Purchase Payment is "age
one" from the day it was effective until your next Contract Anniversary and
increases in "age" on that and each succeeding Contract Anniversary. When you
withdraw an amount, the "age" of any Purchase Payment(s) you withdraw
determines the level(s) of withdrawal charge as shown in the Contract
Specifications. We calculate your withdrawal charge by assuming that amounts
attributed to the "oldest" Purchase Payments are withdrawn first and earnings
are withdrawn last. We will not impose the withdrawal charge on withdrawals of
Purchase Payments held under your Contract more than five (5) years. The
withdrawal charge will be deducted proportionately from each Investment Option
selected for withdrawal.
Free Withdrawals - We will not impose a withdrawal charge on your withdrawals
to the extent that total withdrawals that are free of charge during the
Contract Year do not exceed 10% of the sum of your remaining Purchase Payments
at the beginning of the Contract Year that have been held under your Contract
for less than six years, plus any additional Purchase Payments applied to your
Contract during that Contract Year. Our calculations of the withdrawal charge
deduct this "free 10%" from your "oldest" remaining Purchase Payment(s) still
otherwise subject to the charge.
TRANSFERS
You may make transfers under this Contract subject to certain restrictions (see
TRANSFER AND WITHDRAWAL RESTRICTIONS) and any applicable fees (see CHARGES,
FEES AND DEDUCTIONS).
By providing a proper transfer request (see GENERAL PROVISIONS - PAYMENTS,
INSTRUCTIONS AND REQUESTS), you may request transfer of part or all of your
Contract Value, less Loan Account Value, in any Investment Option among other
Investment Options while your Annuitant is living and prior to the Annuity
Date.
If your transfer causes your remaining Account Value in any Investment Option
immediately after such transfer to be less than any minimum amount we may
establish, we may transfer such remaining Account Value to your other
Investment Options on a prorata basis relative to your most recent allocation
instructions. We may reject any transfer request. We also reserve the right to
limit the size of transfers, to limit the number and frequency of transfers, to
restrict transfers, and to suspend the right to transfer.
Transfers between Investment Options will normally be effective as of the end
of the Business Day on which we receive a proper transfer request.
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WITHDRAWALS
You may, on or prior to your Annuity Date, withdraw all or a portion of the
amount available under your Contract, while the Annuitant is living and your
Contract is in force; however, no partial withdrawals are allowed within 30
days of your Contract Date. If you make a full withdrawal, we require return of
your Contract, or a signed Lost Contract Affidavit, with your proper request.
You may choose to withdraw from any specific Investment Option(s), or from all
Investment Options proportionately. If you do not specify, we will make the
withdrawal from your Investment Options on a prorata basis relative to your
Account Value in each. Each partial withdrawal must be for $500 or more.
Withdrawals from the Fixed Option are subject to certain additional
restrictions described below.
If your partial withdrawal causes your Net Contract Value to be less than
$1,000 immediately after the withdrawal, we may terminate your Contract and
send you the withdrawal proceeds. If your partial withdrawal causes your
Account Value remaining in any Investment Option to be less than any minimum
amount we may establish, we reserve the right to transfer such remaining
Account Value to your other Investment Options on a prorata basis relative to
your most recent allocation instructions.
AMOUNT AVAILABLE FOR WITHDRAWAL - The amount available for withdrawal is your
Net Contract Value as of the end of the Business Day on which your withdrawal
request is effective, less any:
o annual fee;
o withdrawal fee;
o withdrawal charge; and
o charge for premium taxes and/or other taxes.
The amount we send to you (your "withdrawal proceeds") will also reflect any
required or requested federal and/or state income tax withholding.
If you make a full withdrawal, this Contract will end; we will have no further
obligations under this Contract.
TRANSFER AND WITHDRAWAL RESTRICTIONS
SPECIAL RESTRICTIONS ON WITHDRAWALS OR TRANSFERS FROM THE FIXED OPTION - All
withdrawals from the Fixed Option must occur within 30 days after your Contract
Anniversary. After the first or subsequent Contract Anniversary, you may
withdraw or transfer up to one-half (50%) of your Fixed Option Value in any
Contract Year. However, if you withdraw or transfer 50% of your Fixed Option
Value in any Contract Year, you may withdraw or transfer the remaining Fixed
Option Value in the subsequent Contract Year.
CONTRACT LOANS
If your Contract is issued under a Qualified Plan under Code Section 401 or 403
and your Qualified Plan permits, you may request a loan of a portion of your
Contract Value after your first Contract Year and before your Annuity Date. If
your Contract is a Non-Qualified Contract, or if your Qualified Plan does not
permit loans, loans under this Contract will not be available to you.
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DEATH BENEFIT
A death benefit may be payable on proof of the death of the Annuitant or any
Owner before the Annuity Date, while this Contract is in force.
The proceeds of any death benefit payable will be payable upon receipt, in
proper form, of proof of death and instruction regarding payment of death
benefit proceeds. Such proceeds will equal the amount of the death benefit
reduced by any charge for premium taxes and/or other taxes and any Contract
Debt. These proceeds will be payable in a lump sum, as an Annuity Option under
this Contract or towards the purchase of any annuity option we then offer, or
in accordance with the Code (see DEATH OF OWNER DISTRIBUTION RULES). Any such
Annuity Option is subject to all restrictions and requirements as are other
annuities offered under this Contract.
DEATH BENEFIT AMOUNT - The Death Benefit Amount as of any Business Day prior to
your Annuity Date is equal to the greater of: (a) your Contract Value as of
that day; or (b) your aggregate Purchase Payments reduced by (i) an amount for
each withdrawal that has occurred, which is calculated by multiplying the
aggregate Purchase Payments received prior to each withdrawal by the ratio of
the amount of the withdrawal, including any withdrawal charge, to your Contract
Value immediately prior to the withdrawal; and (ii) any applicable charges
and/or fees on or before that day.
GUARANTEED MINIMUM DEATH BENEFIT ("GMDB") AMOUNT - The GMDB Amount will be
calculated only when a death benefit becomes payable as a result of the death
of the sole Annuitant, and is determined as follows: First, we calculate what
the Death Benefit Amount would have been as of the first Contract Anniversary
and each subsequent Contract Anniversary that occurs while the Annuitant is
living and before the Annuitant reaches his or her 81st birthday (each of these
Contract Anniversaries is a "Milestone Date"). We then adjust the Death Benefit
Amount for each Milestone Date by: (i) adding the aggregate amount of any
Purchase Payments received by us since that Milestone Date; (ii) subtracting an
amount for each withdrawal that has occurred since that Milestone date, which
is calculated by multiplying the Death Benefit Amount by the ratio of the
amount of each withdrawal that has occurred since that Milestone Date,
including any withdrawal charge, to the Contract Value immediately prior to the
withdrawal; and (iii) subtracting the aggregate amount of any previous charges,
fees, and/or taxes, since that Milestone Date.
The highest of these adjusted Death Benefit Amounts as of the Notice Date is
the GMDB Amount. The "Notice Date" is the day on which we receive, in proper
form, proof of death and instructions satisfactory to us regarding payment of
death benefit proceeds.
DEATH OF ANNUITANT - If the Annuitant dies on or before the first Contract
Anniversary (the first Milestone Date), or dies after the first Milestone Date
and had reached his or her 81st birthday on or prior to the first Milestone
Date, the death benefit will be equal to the Death Benefit Amount as of the
Notice Date.
If the Annuitant dies after the first Milestone Date and had not yet reached
his or her 81st birthday as of the first Milestone Date, the death benefit
will be equal to the greater of the Death Benefit Amount, or the GMDB Amount as
of the Notice Date. If an Annuitant dies before the Annuity Date, unless there
is a surviving Joint or Contingent Annuitant, we will pay the death benefit
proceeds to the Beneficiary, if living; otherwise to the Owner or the Owner's
estate. If an Annuitant dies and there is a surviving Joint Annuitant, the
surviving Joint Annuitant becomes the Annuitant. If there is no surviving Joint
Annuitant and there is a Contingent Annuitant, the Contingent Annuitant becomes
the Annuitant. Death benefit proceeds are payable only for the death of the
sole surviving Annuitant prior to the Annuity Date. If you are the Annuitant
and you die, we will determine the amount of any death benefit and the
Beneficiary under the Death of Annuitant provisions; and, if your Contract is a
Non-Qualified Contract, we will distribute any death benefit proceeds under the
Death of Owner Distribution Rules.
DEATH OF OWNER - If you are not the Annuitant, and you die before the
Annuitant, the amount of the death benefit will be equal to the Death Benefit
Amount as of the Notice Date. No GMDB Amount is payable upon the death of the
Owner.
If you die while the Annuitant is living and prior to the Annuity Date, we will
pay the death benefit proceeds to the surviving Joint Owner, if any. If there
is no surviving Joint Owner and there is a Contingent Owner,
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we will pay the death benefit proceeds to the surviving Contingent Owner, if
any. If there is no surviving Contingent Owner, the death benefit proceeds will
be paid to the Beneficiary, if living; otherwise to the Owner's estate. If you
are not also the Annuitant, then, in the event the deaths of the Owner and
Annuitant are under circumstances where it cannot be determined who died first,
the Death Benefit will be calculated under the DEATH OF ANNUITANT provision of
this Contract and payment will be made in accordance with the DEATH OF OWNER
provisions of this Contract.
If you are a non-natural Owner of a Contract other than a Contract issued under
a Qualified Plan as defined in Section 401 or 403 of the Code, the Primary
Annuitant will be treated as the Owner of the Contract for purposes of the
DEATH OF OWNER DISTRIBUTION RULES. If there is a change in the Primary
Annuitant prior to the Annuity Date, such change will be treated as the death
of the Owner. The amount of the death benefit will be (a) the Contract Value if
the non-natural Owner elects to maintain the Contract and reinvest the Contract
Value into the Contract in the same amount as immediately prior to the
distribution, or (b) the Contract Value less any annual fee, withdrawal fee,
withdrawal charge, and charge for premium taxes and/or other taxes, if the
non-natural Owner elects a cash distribution. The amount of the death benefit
will be determined as of the Business Day we receive, in proper form, the
request to change the Primary Annuitant and instructions regarding maintaining
the Contract or cash distribution.
If both you and the Annuitant(s) are non-natural persons, no death benefit will
be payable, and any distribution will be treated as a withdrawal and subject to
any applicable annual fee, withdrawal fee, withdrawal charge, and charge for
premium taxes and/or other taxes.
DEATH OF OWNER DISTRIBUTION RULES - The following rules will determine whether
a distribution must be made under this Contract. The rules do not affect our
determination of the amount of benefit payable or distribution proceeds. If
there is more than one Owner, these rules apply on the date on which the first
of these joint Owners dies.
If the Owner dies before the Annuity Date, any death benefit proceeds under
this Contract shall be distributed within five years after the Owner's death.
In order to satisfy this requirement, the beneficiary (as that term applies
with respect to an Owner's Death) must receive:
o a lump sum payment; or elect to receive
o an annuity for life or over a period that does not exceed the life
expectancy of the beneficiary with annuity payments that start
within one year after the Owner's death.
If an election to receive an annuity is not made within 60 days of our receipt
of proof in proper form of the Owner's death or, if earlier, 60 days (or
shorter period as we permit) prior to the first anniversary of the Owner's
death, the lump sum option will be deemed elected, unless otherwise required by
law.
If the lump sum option is deemed elected, we will consider that deemed election
as receipt of instruction regarding payment of death benefit proceeds.
If the spouse of the deceased Owner is the sole surviving Beneficiary, or is
the sole surviving Joint or Contingent Owner, and has an unrestricted right to
receive the death benefit proceeds in one lump sum, the spouse may continue
this Contract as Owner rather than receive the death benefit proceeds.
If the Owner dies on or after the Annuity Date, but payments have not yet been
completed, then distributions of the remaining amounts payable under this
Contract must be made at least as rapidly as the rate that was being used at
the date of death.
If the Owner is a Non-natural Owner, the rules set forth in these DEATH OF
OWNER DISTRIBUTION RULES apply in the event of the death or change of the
Primary Annuitant. Primary Annuitant means the individual, the events in the
life of whom are of primary importance in affecting the timing or amount of the
payout under the Contract.
The rules set forth in these DEATH OF OWNER DISTRIBUTION RULES are intended to
satisfy the distributions-at-death timing requirements of Section 72(s) of the
Code. This Contract is deemed to incorporate all provisions of Section 72(s) of
the Code, or any successor provision, as interpreted by us and deemed necessary
to qualify this Contract as an annuity. We reserve the right to amend this
Contract and/or
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change our administrative procedures without a signed request and to provide a
form of amendment (rider) to the Contract to satisfy any changes in these
requirements. These DEATH OF OWNER DISTRIBUTION RULES do not apply to Qualified
Contracts issued under Qualified Plans as defined in Section 401, 403 or 408 of
the Code or to an annuity that is a qualified funding asset as defined in Code
Section 130(d) but without regard to whether there is a qualified assignment.
INTEREST ON DEATH BENEFIT PROCEEDS - If payment of death benefit proceeds is
unduly delayed after the Notice Date, we will pay interest on the proceeds.
Interest will be paid at a rate of not less than 3% per year from the date we
receive due proof of death until the proceeds are paid or applied under an
Annuity Option. If the law in the state in which the Contract is issued
requires payment of a greater amount, we will pay that amount.
BENEFICIARY
Your Beneficiary is the person you name who may receive any death benefit
proceeds, or any remaining annuity payments after the Annuity Date, under your
Contract if the Annuitant or Owner dies. If you leave no surviving Beneficiary,
your estate may receive the death benefit proceeds under your Contract.
If the Beneficiary is a trustee, we will neither be responsible for verifying a
trustee's right to receive any death benefit proceeds payable, nor for how the
trustee disposes of any death benefit proceeds. If before payment of any death
benefit proceeds, we receive proper notice that the trust has been revoked or
is not in effect, then any death benefit proceeds payable will be paid to the
Owner's estate.
ADDING OR CHANGING YOUR BENEFICIARY - You may add, change, or remove any
Beneficiary, other than an irrevocable Beneficiary, subject to the terms of any
assignment, at any time prior to the death of the Annuitant or Owner, as
applicable, by sending us a request in proper form. However, if you have named
an irrevocable Beneficiary, you may not add any new Beneficiary, or remove or
change the irrevocable Beneficiary, without obtaining his or her written
consent in a form acceptable to us. You may remove any non-irrevocable
Beneficiary without obtaining the consent of the irrevocable Beneficiary.
Qualified Contracts may have additional restrictions on naming and changing
Beneficiaries. Any change or addition will take effect only when we receive all
necessary documents and record the change or addition.
ANNUITY BENEFITS
CHOICE OF ANNUITY DATE - Your Annuity Date is shown in the Contract
Specifications. If you did not select an Annuity Date in your application for
this Contract, we assigned an Annuity Date based on the type of this Contract
and the Annuitant's Age (see DEFAULT ANNUITY DATE AND OPTIONS).
You may change your Annuity Date by providing proper notice to us at least ten
(10) Business Days prior to your current Annuity Date or new Annuity Date,
whichever is earlier. Your Annuity Date may not be earlier than your first
Contract Anniversary and must occur on or before the day the younger Annuitant
reaches his or her 95th birthday, or earlier as required by state law. For
certain trusts, the Annuity Date must occur before the Annuitant's 100th
birthday. To meet minimum distribution requirements under the Code, your
Annuity Date for a Qualified Contract may need to occur on or before April 1 of
the calendar year following the year in which your Annuitant (who is the
Qualified Plan participant) reaches his or her 70-1/2 birthday. You may be
subject to additional restrictions under your Qualified Plan. You should
consult with your Qualified Plan administrator before you elect your Annuity
Date.
APPLICATION OF CONTRACT VALUE - Prior to the Annuity Date, you may elect to
convert all or part of your Net Contract Value, less any applicable charge for
premium taxes and/or other taxes, to any currently offered Annuity Option. You
may also elect a full withdrawal (subject to the terms of the withdrawal
provisions) in lieu of annuity payments under an Annuity Option. Before we make
any full withdrawal, we require return of this Contract (or a signed Lost
Contract Affidavit) to us. The aggregate net amount you convert must be
18
<PAGE> 20
at least $5,000; otherwise, we reserve the right to pay a single amount equal to
your withdrawal proceeds (see AMOUNT AVAILABLE FOR WITHDRAWALS).
If you convert only a portion of your Net Contract Value on your Annuity Date,
you may, at that time, elect not to have the remainder of your Contract Value
distributed, but instead to continue your Contract with that remaining Net
Contract Value. This option may or may not be available, or may be available
only for certain types of Contracts. If this option is available and you elect
it, you would choose a second Annuity Date for such Contract Value; all
references in this Contract to your Annuity Start Date (or Annuity Date) would,
with regard to such Contract Value, be deemed to refer to that second Annuity
Date. You should call your tax adviser for more information if you desire this
option.
YOUR SELECTIONS - Prior to the Annuity Date, you may make three selections
about the annuity payments. First, you may choose whether you want those
payments to be a fixed-dollar amount or a variable-dollar amount, or both.
Second, you may choose the form of annuity payments (Annuity Option). Third,
you may choose to have annuity payments made monthly, quarterly, semiannually,
or annually.
The first annuity payment on the Annuity Date will be sent on the day following
the Annuity Date and must be at least $250. We may reduce your payment
frequency if the first annuity payment is less than $250. If you elect annuity
payments for a Period Certain Only, we also reserve the right to reduce the
Period Certain to meet the $250 minimum first payment. After the Annuity Date,
you may not change the Annuity Option, or surrender the Contract for payment of
amounts converted into a variable annuity and/or fixed annuity.
FIXED AND VARIABLE ANNUITIES - You may choose a fixed annuity (with
fixed-dollar payments), a variable annuity (with variable-dollar payments), or
you may choose a combination of both. If you select a variable annuity, you may
choose any Subaccounts for your annuity. If you select a variable annuity, on
your Annuity Date, we will transfer that portion of your Net Contract Value
that you indicate to the Subaccount(s) you choose. We will apply the net amount
you convert to a fixed annuity and/or a variable annuity (and in this instance,
to each Subaccount), based on your relative Account Value in each Investment
Option on the Annuity Date. Any net amount you convert to a fixed annuity will
be held in our General Account (but not under the Fixed Option).
Each periodic payment under the fixed annuity will be equal to the amount of
your first fixed annuity payment (unless you elect a joint and survivor life
annuity with reduced survivor payments). The amount of each variable annuity
periodic payment will vary with the investment results of the Subaccount(s) you
select. After the Annuity Date, you may exchange the Annuity Units in any
Subaccount(s) for Annuity Units in any other Subaccount(s) up to four times in
any twelve month period. We reserve the right to limit the Subaccounts
available, to change the number and frequency of exchanges, and to change the
number of Subaccounts you may choose.
In choosing an Annuity Option, you must submit your Option request to us in
proper form.
ANNUITY OPTIONS - The following forms of annuity payments are available under
this Contract. Additional options may become available in the future:
Option 1: Life Only. Periodic payments are made to the designated payee
during the Annuitant's lifetime. Payments stop when the Annuitant
dies.
Option 2: Life with Period Certain. Periodic payments are made to the
designated payee during the Annuitant's lifetime, with payments
guaranteed for a specified period. You may choose to have payments
guaranteed from 5 through 30 years (in full years only). If the
Annuitant dies before the guaranteed payments are completed, we pay
the Beneficiary the remainder of the guaranteed payments.
Option 3: Joint and Survivor Life. Periodic payments are made during the
lifetime of the Primary Annuitant. After the death of the Primary
Annuitant, periodic payments are based on the life of the secondary
Annuitant named in the election if and so long as such secondary
Annuitant lives. Payments made based on the life of the secondary
Annuitant may be in installments equal to 50%, 66-2/3% or 100% (as
specified in the election) of the original payment amount
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<PAGE> 21
payable during the lifetime of the Primary Annuitant. If you elect
a reduced payment based on the life of the secondary Annuitant,
fixed annuity payments will be equal to 50% or 66-2/3% of the
original fixed payment payable during the lifetime of the Primary
Annuitant; variable annuity payments will be determined using 50%
or 66-2/3%, as applicable, of the number of Annuity Units for each
Subaccount credited to the Contract. Payments stop when both
Annuitants have died.
Option 4: Period Certain Only. Periodic payments are made over a specified
period. You may choose to have payments continue from 5 through 30
years (in full years only). If the Annuitant dies before the
guaranteed payments are completed, we pay to the Beneficiary the
remainder of the guaranteed payments.
DEFAULT ANNUITY DATE AND OPTIONS - If this is a Non-Qualified Contract and you
did not choose an Annuity Date when you submitted your application for this
Contract, your Annuity Date is the Annuitant's 95th birthday. If there are
Joint Annuitants, the Annuity Date will be based on the younger Annuitant's
birthday, unless otherwise required by law. If this is a Qualified Contract and
you did not choose an Annuity Date, your Annuity Date is April 1 of the
calendar year following your Annuitant's 70-1/2th birthday; if there are Joint
Annuitants, the Annuity Date will be based on the birthday of the Annuitant who
is the Qualified Plan participant. If the Annuitant has attained age 70-1/2
when the Contract is issued, the Annuity Date is April 1 of the calendar year
following the first Contract Anniversary.
If you do not elect an Annuity Option, your Net Contract Value, less any
applicable charge for premium taxes and/or other taxes, when converted, will,
subject to our minimum requirements, be converted as follows:
o the net amount from your Fixed Option Value will be converted to a
fixed annuity and held in our General Account, and
o the net amount from your Variable Account Value will be applied to
a variable annuity and applied to the Subaccounts in proportion to
your Account Value in each Subaccount on the Annuity Date.
If this is a Non-Qualified Contract, or a Qualified Contract and you are not
married, your Annuity Option will be Life with 10 Year Period Certain. If this
is a Qualified Contract and you are married, your Annuity Option will be Joint
and Survivor Life, with survivor payments of 50%, and your spouse will
automatically be named as the secondary Annuitant. If you do not elect your
frequency of payments, we will make payments based on our most frequent
schedule that results in an initial annuity payment of at least $250.
AMOUNT OF PAYMENTS - The first annuity payment amount depends on the form of
annuity, the payment frequency you select, and whether you select a fixed
annuity and/or a variable annuity. If you do not choose the Period Certain Only
Option, the amount will depend on the Age of the Annuitant(s), the Annuity
Date, and the sex of the Annuitant(s), unless unisex factors apply.
FIXED ANNUITY PAYMENTS - The minimum guaranteed income purchased per $1,000 of
the net amount applied to a fixed annuity is based on an annual interest rate
of 3% and the 1983a Mortality Table with the ages set back ten (10) years.
CONVERSION TO CURRENT RATES - The annuity payments made will be based on the
greater of:
o our current income factors in effect for this Contract on your
Annuity Date; or
o our guaranteed income factors.
The dollar amount of any payments after the first annuity payment is specified
during the annuity payment period according to the provisions of your elected
Annuity Option.
VARIABLE ANNUITY PAYMENTS - Your Subaccount Annuity Units. For each Subaccount,
we divide the amount of the initial variable annuity payment from each
Subaccount by the Annuity Unit Value for that Subaccount (the "Annuity Unit
Value") on the Annuity Date, to obtain the number of Annuity Units for that
Subaccount. The number of your Annuity Units in each Subaccount will not change
unless exchanges of
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<PAGE> 22
Annuity Units are made (or if the Joint and Survivor Annuity option is elected
and the Primary Annuitant dies first), but the Annuity Unit Value of those
Annuity Units will vary.
Your Subsequent Variable Payments. The amount of each subsequent variable
annuity payment will be the sum of the amounts payable based on your Annuity
Units in each Subaccount. To determine the amount payable for each Subaccount,
we multiply the number of your Annuity Units in that Subaccount by their
Annuity Unit Value on the day in each payment period that corresponds to the
Annuity Date.
Annuity Unit Value - The initial Annuity Unit Value for each Subaccount was
arbitrarily set at $10 on the Business Day the Subaccount began operations. At
the end of each subsequent Business Day, the Annuity Unit Value for each
Subaccount is equal to (A x B) x C where:
(A) is the Subaccount's Annuity Unit Value for that Subaccount as of the
end of the prior Business Day;
(B) is the Net Investment Factor for that Subaccount for that valuation
period; and
(C) is an interest factor to offset the effect of the assumed interest
rate of 5% per year, which is built into the Annuity Option Tables.
We generally calculate the Annuity Unit Value of each Subaccount at or about
4:00 p.m., Eastern time, on each day the New York Stock Exchange is open,
provided our administrative offices are also open that day.
We guarantee that the amount of each subsequent annuity payment will not be
affected by variations in our expenses or in mortality experience.
PERIODIC PAYMENTS - The first payment under these Options will be determined on
the Annuity Date and will be made on the day following the Annuity Date. For a
Designated Beneficiary entitled to a death benefit due to the death of the
Annuitant, the first payment will be made on the first day of the calendar
month, or earlier at our option, next following the day we receive due proof of
the Annuitant's death and instructions regarding payment, (called the "Payment
Start Date"), and such other documentation as we may require. Subsequent
payments will be determined on the day in each payment period that corresponds
to the Payment Start Date and will be made on the following day.
MISSTATEMENT OF AGE OR SEX - We may require proof of the Annuitant's Age and
sex before starting annuity payments. If the Age or sex (or both) of the
Annuitant are incorrectly stated in this Contract, we will correct the amount
payable to equal the amount that the Net Contract Value, less any charge for
premium taxes and/or other taxes, under this Contract would have purchased for
the Annuitant's correct Age and sex, if applicable. If we make the correction
after annuity payments have started, and we have made overpayments, we will
deduct the amount of the overpayment, with interest at 3% per year, from any
payments due then or later. If we have made underpayments, we will add the
amount, with interest at 3% a year, of the underpayments to the next payment we
make after we receive proof of the correct sex and/or date of birth.
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<PAGE> 23
ANNUITY OPTION TABLES
For the fixed annuity option and the initial variable annuity benefit, the
Tables below illustrate the minimum guaranteed monthly income purchased per
$1,000 of the net amount applied. The actuarial basis for the fixed annuity
option Tables is the 1983a Annuity Mortality Table with the ages set back ten
(10) years with interest at an annual rate of 3%. The Tables also illustrate
the minimum rates for the first monthly variable annuity payment per $1,000 of
the net amount applied to the variable annuity payment option. The rates for
variable annuity payments are based on interest at the annual rate of 5% and
the 1983a Annuity Mortality Table with the ages set back ten (10) years.
Subsequent payments may be higher or lower than the first payment, based on the
investment performance of the Subaccount(s) you elect and whether you exchange
Subaccount Annuity Units.
These Tables provide for sex-distinct and unisex payment income factors for
life payment options. For some Qualified Plans and in some states, the use of
sex-distinct income factors are prohibited. For those Qualified Plans and in
those states, we use blended unisex income factors for life payment options,
whether the Annuitant is male or female.
We will provide rates for any payment frequency, interest rate, age or sex,
combinations thereof, and/or payout percentage or any annuity option, if
applicable, that we offer if they are not shown in the Tables that follow.
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<PAGE> 24
OPTIONS 1 AND 2 - SINGLE LIFE ANNUITIES WITH GUARANTEED PAYMENTS FOR:
<TABLE>
<CAPTION>
FIXED ANNUITY RATES
--------------------------------------------------------------------------------------------------------
MALE AT 3% FEMALE AT 3% UNISEX AT 3%
---------------------- ---------------------- ----------------------
AGE NONE 10 YR. 20 YR. NONE 10 YR. 20 YR. NONE 10 YR. 20 YR.
--- ---- ----- ----- ---- ----- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 3.04 3.03 3.03 2.93 2.93 2.93 2.99 2.98 2.98
35 3.14 3.14 3.13 3.02 3.02 3.01 3.08 3.08 3.07
40 3.28 3.27 3.26 3.13 3.12 3.12 3.20 3.20 3.19
45 3.44 3.44 3.41 3.26 3.26 3.24 3.35 3.35 3.33
50 3.66 3.64 3.60 3.42 3.42 3.40 3.54 3.54 3.50
55 3.93 3.90 3.82 3.63 3.63 3.59 3.78 3.77 3.71
60 4.27 4.22 4.08 3.90 3.89 3.82 4.09 4.06 3.96
65 4.70 4.62 4.39 4.25 4.22 4.11 4.48 4.43 4.25
70 5.28 5.14 4.71 4.72 4.66 4.44 5.00 4.90 4.58
75 6.10 5.81 5.02 5.35 5.22 4.79 5.73 5.52 4.92
80 7.23 6.61 5.27 6.25 5.96 5.12 6.74 6.30 5.20
85 8.82 7.49 5.42 7.56 6.89 5.35 8.18 7.20 5.39
90 11.06 8.33 5.49 9.53 7.89 5.47 10.28 8.12 5.48
95 14.16 8.97 5.51 12.48 8.74 5.50 13.30 8.86 5.51
</TABLE>
<TABLE>
<CAPTION>
VARIABLE ANNUITY RATES
--------------------------------------------------------------------------------------------------------
MALE AT 5% FEMALE AT 5% UNISEX AT 5%
---------------------- ---------------------- ----------------------
NONE 10 YR. 20 YR. NONE 10 YR. 20 YR. NONE 10 YR. 20 YR.
---- ----- ----- ---- ------ ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 4.38 4.37 4.36 4.29 4.29 4.29 4.34 4.33 4.33
35 4.46 4.46 4.44 4.36 4.35 4.35 4.41 4.41 4.40
40 4.57 4.56 4.54 4.44 4.44 4.42 4.51 4.50 4.49
45 4.71 4.70 4.67 4.55 4.54 4.52 4.63 4.62 4.60
50 4.91 4.89 4.82 4.69 4.68 4.65 4.80 4.78 4.74
55 5.16 5.12 5.02 4.87 4.86 4.81 5.02 4.99 4.92
60 5.48 5.41 5.24 5.12 5.09 5.01 5.30 5.26 5.13
65 5.89 5.79 5.51 5.44 5.40 5.26 5.67 5.60 5.39
70 6.46 6.28 5.80 5.89 5.80 5.55 6.18 6.05 5.68
75 7.27 6.91 6.08 6.51 6.34 5.87 6.89 6.64 5.98
80 8.41 7.68 6.29 7.39 7.05 6.16 7.90 7.38 6.23
85 10.02 8.52 6.43 8.72 7.93 6.37 9.36 8.24 6.40
90 12.29 9.30 6.49 10.71 8.88 6.47 11.49 9.10 6.48
95 15.42 9.90 6.51 13.70 9.68 6.50 14.55 9.80 6.51
</TABLE>
23
<PAGE> 25
OPTION 3 - JOINT AND SURVIVOR LIFE
PRIMARY ANNUITANT
MALE AGE
50% SURVIVOR
<TABLE>
<CAPTION>
60 65 70 75 80 85
--------------------------------------------------------------------------------------------------------------
3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5%
FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE
----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60 3.91 5.12 4.13 5.34 4.39 5.60 4.69 5.92 5.02 6.30 5.38 6.73
FEMALE 65 3.99 5.19 4.25 5.43 4.54 5.73 4.88 6.09 5.26 6.51 5.67 6.98
AGE 70 4.06 5.25 4.36 5.53 4.70 5.87 5.10 6.27 5.55 6.75 6.03 7.29
75 4.12 5.31 4.46 5.62 4.85 6.00 5.32 6.47 5.86 7.03 6.45 7.66
80 4.17 5.36 4.54 5.70 4.98 6.13 5.54 6.67 6.18 7.33 6.91 8.08
85 4.21 5.40 4.60 5.77 5.09 6.24 5.72 6.86 6.49 7.63 7.40 8.54
--------------------------------------------------------------------------------------------------------------
</TABLE>
PRIMARY ANNUITANT
UNISEX AGE
50% SURVIVOR
<TABLE>
<CAPTION>
60 65 70 75 80 85
--------------------------------------------------------------------------------------------------------------
3% 5% 3% 5% 3% 5% 3% 5% 3% 5% 3% 5%
FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE
----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60 3.84 5.05 4.07 5.27 4.34 5.54 4.65 5.86 5.00 6.24 5.39 6.69
UNISEX 65 3.90 5.10 4.17 5.35 4.47 5.65 4.83 6.01 5.23 6.44 5.68 6.94
AGE 70 3.96 5.15 4.25 5.43 4.60 5.76 5.02 6.17 5.49 6.66 6.03 7.24
75 4.00 5.19 4.32 5.49 4.72 5.87 5.20 6.34 5.76 6.91 6.41 7.58
80 4.03 5.23 4.38 5.55 4.81 5.96 5.36 6.49 6.02 7.15 6.81 7.96
85 4.05 5.25 4.42 5.59 4.88 6.04 5.49 6.62 6.25 7.38 7.20 8.33
--------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION 4 - PERIOD CERTAIN ONLY
<TABLE>
<CAPTION>
MONTHLY MONTHLY MONTHLY MONTHLY
INCOME INCOME INCOME INCOME
--------------- --------------- --------------- ---------------
3% 5% 3% 5% 3% 5% 3% 5%
YEARS FIXED VARIABLE YEARS FIXED VARIABLE YEARS FIXED VARIABLE YEARS FIXED VARIABLE
----- ----- -------- ----- ----- -------- ----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 17.91 18.74 12 8.24 9.16 19 5.73 6.71 26 4.59 5.65
6 15.14 15.99 13 7.71 8.64 20 5.51 6.51 27 4.47 5.54
7 13.16 14.02 14 7.26 8.20 21 5.32 6.33 28 4.37 5.45
8 11.68 12.56 15 6.87 7.82 22 5.15 6.17 29 4.27 5.36
9 10.53 11.42 16 6.53 7.49 23 4.99 6.02 30 4.18 5.28
10 9.61 10.51 17 6.23 7.20 24 4.84 5.88
11 8.86 9.77 18 5.96 6.94 25 4.71 5.76
--------------- --------------- --------------- ---------------
</TABLE>
24
<PAGE> 1
EXHIBIT 99.4(b)
Qualified Plan Loan Endorsement
<PAGE> 2
EXHIBIT 4(b)
QUALIFIED PLAN LOAN ENDORSEMENT
This Endorsement is part of your Contract and should be attached to it. All
terms of the Contract which do not conflict with this Endorsement's terms apply
to this Endorsement. In the event of any conflict between the terms of this
Endorsement and the terms of the Contract, the terms of this Endorsement shall
prevail over the terms of the Contract.
Adverse tax consequences may result if you fail to meet the repayment
requirements for your loan. The tax and ERISA rules relating to Contract loans
are complex and in many cases unclear. For these reasons, and because the
rules vary depending on the individual circumstances of each Contract, WE
ADVISE THAT YOU CONSULT WITH A QUALIFIED TAX ADVISER before exercising the loan
provisions of your Contract.
CONTRACT LOANS
If your Contract is issued under a Qualified Plan under code Section 401 or 403
and your Qualified Plan permits, you may request a loan using your Contract
Value as the only security.
LOAN PROCEDURES - Your loan request must be submitted on our Loan Request Form.
You may submit a loan request at any time after your first Contract Anniversary
and before your Annuity Date however, before requesting a new loan, you must
wait thirty (30) days after the last payment of a previous loan. If approved,
your loan will usually be effective as of the end of the Business Day on which
we receive all necessary documentation in proper form. We will normally
forward proceeds of your loan to you within seven calendar days after the
effective date of your loan. A $100 loan administrative fee will be deducted
from your loan proceeds; however, we reserve the right to increase this fee up
to a maximum of $500.
LOAN ACCOUNT - On the effective date of your loan, we will transfer an amount
equal to the principal amount of your loan into an account called the Loan
Account. We will transfer amounts to the Loan Account on a prorata basis from
your Fixed and Variable Investment Options based on your Account Value in each.
We will credit interest on amounts in the Loan Account at a rate equal to an
annual rate that is two percentage points lower than the annual loan interest
rate charged on your loan. Interest earned will accrue daily beginning on the
day following the effective day of the loan. The interest credited will be
transferred from the Loan Account to your Fixed and Variable Investment Options
once per year on a prorata basis relative to your most recent allocation
instructions. As your loan is repaid, the amount of the repayment will be
transferred from the Loan Account to your Fixed and Variable Investment Options
on a prorata basis relative to your most recent allocation instructions.
LOAN TERMS - You may have only one loan outstanding at any time. The minimum
loan amount is $1,000 and the maximum loan amount is the lesser of:
o 50% of your Contract Value;
o $50,000 less your highest outstanding Contract Debt during the
12-month period immediately preceding the effective date of your loan.
You should refer to the terms of your particular Qualified Plan for any
additional loan restrictions. If you have other loans outstanding pursuant to
other Qualified Plans, the amount you may borrow may be further restricted.
LOAN INTEREST RATE - You will be charged interest on your Contract Debt at an
annual rate, set at the time the loan is made, equal to the higher of 5% or the
Moody's Corporate Bond Yield Average-Monthly Corporates, as published by
Moody's Investors Service, Inc., or its successor, for the calendar month
ending two months before the date on which the rate is determined. In the event
that the Moody's Corporate Bond Yield Average Monthly Corporates is no longer
available, we will use a substantially similar average, subject to compliance
with applicable state regulations. Interest charged will accrue daily beginning
on the day your loan is effective. We will notify you of the loan interest
rate when you make a Contract loan.
1
<PAGE> 3
REPAYMENT TERMS - You must repay principal and interest of any loan within five
years after its effective date. If you have certified to us that your loan
proceeds will be used to acquire a principal residence for yourself, you may
request a loan for thirty years. In either case, you must repay your loan prior
to your Annuity Date.
Your loan, including principal and accrued interest, must be repaid in
quarterly installments. An installment will be due each quarter on the date
corresponding to your loan effective date, beginning with the first such date
following the effective date of your loan. You may prepay your loan at any
time; if you do so, we will bill you for any accrued interest. You loan will
be considered repaid only when the interest due has also been paid. Subject to
any necessary approval of state insurance authorities, we will treat all
payments you send us as Purchase Payments unless you specifically indicate that
your payment is a loan repayment. To the extent allowed by law, any repayment
in excess of the amount then due will be refunded to you, unless such amount is
sufficient to pay the balance of your loan. Repayments received that are less
than the amount then due will be returned to you, unless otherwise required by
law.
If a loan repayment is not made when due, we will declare the entire remaining
loan balance in default. At that time, we will send written notification of
the amount needed to bring the loan back to a current status. You will have
sixty (60) days from the date on which the loan was declared in default (the
"grace period") to make the required repayment.
If the required repayment is not received by the end of the grace period, the
defaulted loan balance plus accrued interest and any withdrawal charge will be
withdrawn from your Contract Value, if amounts under your Contract are eligible
for distribution. If those amounts are not eligible for distribution, the
defaulted loan balance plus accrued interest will be considered a Deemed
Distribution and that portion of any Contract Value needed to repay the
Contract Debt and any withdrawal charge will be withdrawn when such Contract
Values become eligible for distribution.
In either case, the distribution or the Deemed Distribution will be considered
a currently taxable event, may be subject to the mandatory 20% federal
withholding and may be subject to the early withdrawal tax penalty.
If there is a Deemed Distribution under your Contract and to the extent allowed
by law, any future withdrawals will first be applied as repayment of the
defaulted Contract Debt, including accrued interest and charges for applicable
taxes. Any amounts withdrawn and applied as repayment of Contract Debt will be
withdrawn first from your Loan Account and then from your Investment Options on
a proportionate basis relative to the Account Value in each Option. If you have
an outstanding loan that is in default, the defaulted Contract Debt will be
considered a withdrawal for the purpose of calculating any Death Benefit Amount
and/or Guaranteed Minimum Death Benefit Amounts.
We reserve the right to amend the provisions of this rider or to change our
administrative procedures in order to reflect changes in the Code or
interpretations thereof.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
THOMAS C. SUTTON AUDREY L. MILFS
Chairman and Chief Executive Officer Secretary
2
<PAGE> 1
EXHIBIT 99.4(c)
Individual Retirement Annuity Rider
<PAGE> 2
EXHIBIT 99.4(c)
INDIVIDUAL RETIREMENT ANNUITY RIDER
This rider is a part of the Contract to which it is attached by PM.
The Contract under which it has been issued is hereby modified as specified
below in order to qualify as an Individual Retirement Annuity under the terms
of the Internal Revenue Code of 1986 (the Code) as amended.
DEFINITIONS
ANNUITANT - is the individual named to receive periodic annuity payments
purchased under this Contract.
ANNUITY START DATE - is the date you choose to have PM begin periodic annuity
payments to the Annuitant. The Annuity Start Date may be no later than April 1
of the Calendar Year following the year in which the Annuitant reaches Age 70
1/2.
CONTINGENT ANNUITANT - is the individual who becomes the Annuitant if the
Annuitant dies before periodic annuity payments purchased under this Contract
begin. Only the spouse of the Annuitant may be named the Contingent Annuitant.
CONTINGENT OWNER - is the individual who becomes the Owner if you die before
periodic annuity payments purchased under this Contract begin. Only the spouse
of the Annuitant may be named the Contingent Owner.
DESIGNATED BENEFICIARY - is the individual designated as a beneficiary by the
Annuitant.
The provisions of this rider will control if in conflict with those of the
Contract. Notwithstanding any provisions in the Contract to the contrary:
1. The Annuitant will at all times be the Owner of the Contract. The Owner's
rights under the Contract shall be nonforfeitable and for the exclusive benefit
of the Owner and his or her beneficiaries.
2. No benefits under the Contract may be transferred, sold, assigned, or
pledged as collateral for a loan, or as security for the performance of an
obligation, or for any other purpose, to any person; except that the Contract
may be transferred to a former spouse of the Owner under a divorce decree or
written instrument incident to such divorce. In the event of such transfer,
the transferee shall for all purposes be treated as the Owner under this
Contract.
3. Except in the case of "rollover contribution" as described in Sections
402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code,
or an employer contribution to a Simplified Employee Pension as defined in
Section 408(k) of the Code, the premium paid under this Contract shall not
exceed $2,000 for any taxable year, or such other maximum as the Code may
allow, and must be paid in cash.
<PAGE> 3
4. Additional premium payments under the Contract must be at least the minimum
as stated in the Purchase Payment provision of the Contract.
5. If this Contract is issued as part of a Simplified Employee Pension, the
premium paid under this Contract shall not exceed $30,000 or 15% of your
allowable compensation, whichever is less, or such other maximum as the Code
may allow, and must be paid in cash.
6. Any premium refund declared by PM, other than refunds attributable to
excess contributions will be applied toward the purchase of additional benefits
before the close of the Calendar Year following the refund.
7. In accordance with Regulations prescribed by the Secretary of the Treasury,
or his delegate pursuant to the Code "Regulations", the entire interest under
the Contract must be distributed to the Owner:
(a) Not later than the April 1st next following the close of the Calendar Year
in which the Owner attains age 70-1/2 (the Required Beginning Date), or
(b) Commencing not later than the Required Beginning Date in equal or
substantially equal amounts, in annual or more frequent installments, over:
(i) the Owner's life or the lives of the Owner and his or her Designated
Beneficiary; or
(ii) a period not exceeding the Owner's life expectancy or the joint and last
survivor life expectancy of the Owner and his or her Designated Beneficiary.
(c) If the Owner's entire interest is to be distributed in other than a lump
sum, then the amount to be distributed each year, commencing with the Required
Beginning Date and then for each succeeding Calendar Year, shall not be less
than the quotient obtained by dividing the Owner's entire interest by the
lesser of:
(i) the applicable life expectancy; or
(ii) if the Owner's spouse is not the Designated Beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2
of the proposed Income Tax Regulations. Distributions after the death of the
Owner shall be calculated using the applicable life expectancy as the relevant
divisor without regard to the proposed Regulation Section 1-401(a)(9)-2.
The preceding paragraph shall not apply if distribution is in the form of an
annuity with non-increasing payments.
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of Section 1.72-9 of the Income Tax Regulations. Unless otherwise
elected by the Owner by the time distributions are required to begin, life
expectancy shall be recalculated annually. Such election shall be irrevocable
as to the Owner and shall apply to all subsequent years. The life expectancy
of a non-
<PAGE> 4
spouse Beneficiary may not be recalculated. Instead, life expectancy will be
calculated using the attained age of such Beneficiary during the Calendar Year
in which distributions are required to begin pursuant to this section, and
payments for subsequent years shall be calculated based on such life expectancy
reduced by one for each Calendar Year which has elapsed since the Calendar Year
life expectancy was first calculated.
(d) If the Owner's spouse is not the Designated Beneficiary, the form of
Annuity elected must assure that at least 50% of the value of the Contract
available for distribution is payable within the Owner's life expectancy.
(e) The method of distribution shall be made in accordance with the
requirements of Section 401(a)(9) of the Code and the Regulations thereunder.
Further the method selected must meet the "minimum distribution incidental
benefit" rule of Code Section 401(a)(9), and the proposed Regulation Section
1.401(a)(9)-2. This includes the following;
(i) where the Owner's only Designated Beneficiary is the spouse, the minimum
amount that must be distributed in a distribution Calendar Year is the amount
determined under the regular minimum distribution requirements in this Section
7.
(ii) where the distributions are not made as annuity payments under an annuity
Contract and where the Owner's spouse is not the Designated Beneficiary, the
minimum amount that must be distributed in a distribution Calendar Year is the
quotient obtained by dividing the Owner's entire interest by the joint and last
survivor expectancy described in the proposed Regulation Section 1.401(a)(9)-2.
(iii) where distribution is to be made under an annuity Contract purchased on
or before the Owner's Required Beginning Date and the Owner's spouse is not the
Designated Beneficiary, the minimum amount that must be distributed is
determined as follows:
- - Period certain annuity without a life contingency: The period certain may not
exceed the appropriate joint and last survivor expectancy described in the
proposed Regulation Section 1.401(a)(9)-2.
- - Life annuity or a joint and survivor annuity: A life annuity on the Owner's
life which satisfies the regular minimum distribution requirements satisfies
the "minimum distribution incidental benefit" rule. The periodic annuity
payment to the survivor under a joint and survivor annuity may not exceed the
applicable percentage of the annuity payment to the Owner. These percentages
are defined in the proposed Regulation Section 1.401(a)(9)-2.
- - Life annuity with period certain: The distribution must satisfy the
requirements for a single life (or joint and survivor) annuity and the period
certain may not exceed the period determined for non annuity distributions.
Only a method of distribution offered by PM that satisfies these conditions can
be selected. You must make this selection before the end of the Calendar Year
in which you attain age 70-1/2.
<PAGE> 5
8. On the death of the Owner, distribution shall be made in accordance with
the annuity options described in the Contract. However, selection of an
annuity option which does not satisfy the conditions of this Section 8 shall
not be permitted.
If the Owner dies before distribution of his or her interest in the Contract
commences, the entire interest should be distributed by December 31st of the
fifth full year which follows the Owner's death unless (i) such interest is
paid in equal or substantially equal installments over a period not exceeding
the lifetime, or the life expectancy, of the Designated Beneficiary, and (ii)
payments begin by December 31st of the Calendar Year which follows the Owner's
death.
If the Designated Beneficiary of the Owner is the Owner's surviving spouse, the
spouse may elect to receive equal or substantially equal payments over the life
or life expectancy of the surviving spouse commencing at any date prior to the
later of (i) December 31 of the Calendar Year immediately following the
Calendar Year in which the Owner died and (ii) December 31 of the Calendar Year
in which Owner would have attained age 70-1/2. Such election must be made no
later than the earlier of December 31 of the Calendar Year containing the fifth
anniversary of the Owner's death or the date distributions are required to
begin pursuant to the preceding sentence. The surviving spouse may accelerate
these payments at any time i.e., increase the frequency or amount of such
payments.
If the surviving spouse is the Designated Beneficiary, the spouse may convert
this Individual Retirement Annuity to the spouse's own Individual Retirement
Annuity by requesting that he or she be made the Annuitant. If the spouse so
requests, the spouse shall be Owner and Annuitant for purposes of applying the
restrictions contained in this rider.
For purposes of the above, life expectancy is computed by use of the expected
return multiples in Tables V and VI of Section 1.72-9 of the Income Tax
Regulations. For purposes of distributions beginning after the Owner's death,
unless otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the surviving spouse and shall apply to all
subsequent years. In the case of any other Designated Beneficiary, life
expectancies shall be calculated using the attained age of such Beneficiary
during the Calendar Year in which distributions are required to begin pursuant
to this section, and payments for any subsequent Calendar Year shall be
calculated based on such life expectancy reduced by one for each Calendar Year
which has elapsed since the Calendar Year life expectancy was first calculated.
Any amount paid to a child of the Owner will be treated as if it had been paid
to the surviving spouse if the remainder of the interest becomes payable to the
surviving spouse when the child reaches the age of majority.
If the Owner dies after distribution of his or her interest in the Contract has
commenced, the remaining interest will be distributed at least as rapidly as
under the method of distribution being used prior to the Owner's death.
If the Owner dies before his or her entire interest has been distributed to him
or her, no additional
<PAGE> 6
cash contributions or "rollover contributions" shall be accepted.
9. No one other than the spouse of the Owner may be named as the Contingent
Annuitant and/or the Contingent Owner. If the Owner dies, the Contingent
Annuitant shall be treated as the Annuitant for purposes of applying the
restrictions contained in this rider.
If, despite the restrictions contained in this rider, someone other than the
spouse is named as a Contingent Annuitant, such person shall be treated as the
Primary Beneficiary under the Contract.
10. PM shall furnish annual Calendar Year reports concerning the status of the
Contract.
11. PM reserves the right to amend this rider to comply with future changes in
the Code and any regulations or rulings issued under the provisions of the
Code. PM shall provide the Owner of the Contract with a copy of any such
amendment.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
Thomas C Sutton Audrey L. Milfs
Chairman and Chief Executive Officer Secretary
R96-IRA
<PAGE> 1
EXHIBIT 99.4(d)
Qualified Pension Plan Rider
<PAGE> 2
EXHIBIT 99.4(d)
QUALIFIED PENSION PLAN RIDER
This rider is a part of the Contract to which it is attached by PM.
The Contract is hereby modified as specified below in order to comply with the
requirements for Qualified Pension and Profit Sharing Plans, as described in
Section 401(a)(9) of the Internal Revenue Code of 1986 (The Code) as amended.
THE PROVISIONS OF SECTIONS 1-9 OF THIS RIDER SHALL TAKE EFFECT ONLY IF THE
ANNUITANT IS, OR BECOMES, THE OWNER.
DEFINITIONS
ANNUITANT - is the individual named to receive periodic annuity payments
purchased under this Contract.
ANNUITY START DATE - is the date you choose to have PM begin periodic annuity
payments to the Annuitant. The Annuity Start Date may be no later than April 1
of the calendar year following the year in which the Annuitant reaches age 70
1/2.
DESIGNATED BENEFICIARY - is any individual designated as a beneficiary under
the Plan by the Annuitant. If a person other than an individual (but not a
trust that satisfies the conditions stated in 1.401(a)(9)-1 of the Code) is
designated a Beneficiary, or if the plan permits any person to change the
Annuitant's beneficiaries after his or her death, other than a designation made
by the surviving spouse for distributions after the spouse's death, the
Annuitant will be treated as having no Designated Beneficiary.
PLAN - means the qualified employee benefit plan under which this Contract is
issued.
The provisions of this rider will control if in conflict with those of the
Contract. Notwithstanding any provisions of the Contract to the contrary:
1. Automatic Form of Payment at the Annuity Start Date.
If the Annuitant is legally married at the Annuity Start Date, unless an
optional form of benefit is selected in accordance with Section 2 below,
payments will be made in the form of a Joint and 50% Survivor Annuity, with the
Annuitant's spouse as the joint annuitant. Under this form, payments will be
made during the lifetime of the Annuitant and, following the Annuitant's death,
payments equal to 50% of the original payment amount will continue to the
spouse for life. The Annuitant may choose without the consent of any other
individual, from the options offered by PM, the amount of the payment
continuing to the Annuitant's spouse. The amount of each payment to the spouse
will be not less than one half of, nor greater than, the periodic annuity
benefit paid to the Annuitant.
If the Annuitant is not legally married at the Annuity Start Date, payments
will be made in the form of a life annuity with a 10 year period certain unless
an optional form of payment is selected in
<PAGE> 3
accordance with Section 2 below. Under this form, payments will be made to the
Annuitant for life. If the Annuitant dies before the end of the Guaranteed
Period, payments will continue to the Designated Beneficiary until the end of
the Guaranteed Period.
2. Optional Forms of Annuity Payment.
The Annuitant can elect an optional form of payment as provided in the
Contract, provided:
(a) the Annuitant files a Qualified Election with the Company within the 90 day
period ending on the date income commences;
(b) the form selected ensures that the present value of payments PM expects to
pay over the lifetime of the Annuitant is not less than 51% of the present
value of all payments we expect to make under the Contract. To determine
whether 51% of the present value of benefits will be paid during the
Annuitant's lifetime, his or her life expectancy will be measured from either
the Annuitant's Normal Retirement Date, or the actual retirement date,
whichever is later, but in no event later than the Annuity Start Date; and
(c) the option selected satisfies the requirements of Section 4 below.
Life expectancies will be calculated using the expected return multiples
contained in Section 1.72 9 of the Income Tax Regulations.
3. Qualified Election
In the case of a married Annuitant, "Qualified Election" means a written
statement by the Annuitant waiving the Joint and Survivor Annuity option and
specifying the form of payment desired, and a written statement from the spouse
consenting to the Annuitant's election. The form of payment chosen cannot be
changed without spousal consent unless the spouse consents to future
designations by the Annuitant without spousal consent. The spouse's consent
must be witnessed by a notary public. If the spouse's consent cannot be
obtained because the spouse cannot be located, the Annuitant's election will
still be deemed to be a Qualified Election.
In the case of an unmarried Annuitant, "Qualified Election" means a written
statement by the Annuitant attesting to the fact that he or she is not married,
and which specifies the optional form of payment desired.
4. Required Beginning Date and Minimum Distribution Requirements
In accordance with the requirements of the Code, distribution of the entire
interest should be made not later than the April 1 following the close of the
calendar year in which the Annuitant attains age 70 1/2. (The Required
Beginning Date.)
Alternatively, if distribution of the entire interest commences not later than
the Required Beginning Date, such distribution may be made in equal or
substantially equal amounts, in annual or more
<PAGE> 4
frequent installments, over
(a) the Annuitant's life or the lives of the Annuitant and his or her
Designated Beneficiary, or
(b) a period not extending beyond the Annuitant's life expectancy or the joint
and last survivor life expectancy of the Annuitant and his or her Designated
Beneficiary.
The method of distribution selected must also meet the "minimum distribution
incidental benefit" rule of Code Section 401(a)(9) and Regulation Section
1.401(a)(9)-2 of the Code. This requires that:
(a) where the Annuitant's only Designated Beneficiary is the spouse, the
minimum amount that must be distributed in a distribution calendar year is the
amount determined under the regular minimum distribution requirements above in
this Section 4.
(b) where payments are to be made under an annuity Contract purchased on or
before the Annuitant's Required Beginning Date and the Annuitant's spouse is
not the Designated Beneficiary, the minimum amount that must be distributed is
determined as follows:
- - Period certain annuity without a life contingency: The period certain may not
exceed the appropriate joint and last survivor expectancy described in
Regulation Section 1.401(a)(9)-2 of the Code.
- - Life annuity: A life annuity on the Annuitant's life which satisfies the
regular minimum distribution requirements satisfies the "minimum distribution
incidental benefit" rule.
- - Joint and survivor annuity: The periodic annuity payment to the survivor
under a joint and survivor annuity, may not exceed the applicable percentage of
the annuity payment to the Annuitant. These percentages are defined in
Regulation Section 1.401(a)(9)-2.
- - Life annuity with period certain: The distribution must satisfy the
requirements for a single life (or joint and survivor) annuity as well as for a
period certain annuity without a life contingency.
Only a method of distribution offered by PM that satisfies these conditions can
be selected. You must make this selection before the end of the calendar year
in which you attain age 70 1/2.
5. Beneficiary for Death Benefit Proceeds Prior to Annuity Start Date
If the Annuitant dies prior to the Annuity Start Date and is married at the
date of death, the Death Benefit Proceeds will be paid to the surviving spouse,
unless the Annuitant names another beneficiary and the spouse consents in
writing to such designation. The spouse's consent must be witnessed by a
notary public. For this purpose, the consent of an individual who was married
to the Annuitant at the time consent was given but is not married to the
Annuitant at the date of death will not be considered the consent of the
spouse.
If the Annuitant is not legally married at the date of death, or designates (as
provided above)
<PAGE> 5
someone other than the spouse as beneficiary, the Death Benefit Proceeds shall
be paid to the Designated Beneficiary.
6. Payment of Death Benefit
On the death of the Annuitant, payment shall be made in accordance with the
Annuity option provisions described in the Contract or as provided for by the
Plan. However, selection of an annuity option that does not satisfy the
conditions of this Section 6 shall not be permitted.
(a) Death Before the Annuity Start Date
If the Annuitant dies before distribution of his or her interest in the
Contract commences, the entire interest must be distributed by December 31st of
the fifth full year which follows the Annuitant's death unless (i) such
interest is paid in equal or substantially equal installments over a period not
exceeding the lifetime or life expectancy of the Designated Beneficiary, and
(ii) payments begin by December 31st of the calendar year which follows the
Annuitant's death. If the Designated Beneficiary of the Annuitant is the
Annuitant's surviving spouse, the spouse may elect to receive equal or
substantially equal payments over the life or life expectancy of the surviving
spouse commencing at any date prior to the close of the calendar year in which
the deceased Annuitant would have attained age 70 1/2, if later. The surviving
spouse may accelerate these payments at any time, i.e., increase the frequency
or amount of such payments. However, if the spouse elects to receive the
entire interest as a lump sum, such amount must be received by December 31st of
the fifth full year which follows the Annuitant's death.
If the surviving spouse dies before payments begin, subsequent distributions
shall be made as if the spouse had been the Annuitant. In such event, the
rules in this Section 6 apply using the date of death of the surviving spouse
rather than that of the Annuitant.
(b) Death After the Annuity Start Date
If the Annuitant dies after distribution of his or her interest in the plan has
commenced, the remaining interest will be distributed at least as rapidly as
under the method of distribution in effect at the time of the Annuitant's
death.
7. Withdrawal or Loan of Annuity Value Before the Annuity Start Date
If the Annuitant is married, withdrawal or loan of all or a portion of the
annuity value prior to the Annuity Start Date will be permitted subject to the
consent of the spouse. Such consent must be in writing and must be witnessed
by a notary public.
If the Annuitant is not married, withdrawal will be permitted subject to
written notice to PM that the Annuitant is not married. The Term Annuity Value
as used in this rider shall mean the appropriate value described in the
Contract that the Contract Owner is entitled to withdraw or borrow.
8. Nontransferable
<PAGE> 6
No benefits under this Contract may be transferred, sold, alienated, assigned,
discounted, subject to garnishment or execution, or pledged as collateral for a
loan, or as security for the performance of an obligation or for any other
purpose, to any person other than to PM, except as may be provided by a
Qualified Domestic Relations Order within the meaning of Section 414 of the
Code.
9. Change of Annuitant
The Owner shall not be permitted to change the Annuitant.
10. Trustee Owned Contracts
While this Contract is owned by the trustee of a plan described in section
401(a) of the Code, the Death Before the Annuity Start Date provision of
Section 6 may not apply.
11. Amendment
PM reserves the right to amend this rider to comply with future changes in the
Internal Revenue Code and any regulations or rulings issued under the
provisions of the Code. PM shall provide the Owner of the Contract with a copy
of any such amendment.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
Thomas C Sutton Audrey L. Milfs
Chairman and Chief Executive Officer Secretary
R90-PEN-V
<PAGE> 1
EXHIBIT 99.4(e)
403(b) Tax-Sheltered Annuity Rider
<PAGE> 2
EXHIBIT 99.4(e)
403 (B) TAX-SHELTERED ANNUITY RIDER
This rider is a part of the Contract to which it is attached by PM.
The contract under which it has been issued is hereby modified as specified
below in order to qualify as a Tax-Sheltered Annuity ("TSA") under Section
403(b) of the Internal Revenue Code of 1986, as amended (the "Code").
The provisions of this rider will take precedence over any contrary provisions
of the Contract.
DEFINITIONS
ANNUITANT -- is the individual named to receive periodic annuity payments
purchased under this Contract. The Annuitant will at all times be the Owner of
this Contract.
ANNUITY START DATE -- is the date you choose to have PM begin periodic annuity
payments to the Annuitant. The Annuity Start Date may be no later than April 1
of the calendar year following the year in which the Annuitant reaches Age 70
1/2.
CONTINGENT ANNUITANT -- is the individual who becomes the Annuitant if the
Annuitant dies before periodic annuity payments begin under this Contract.
Only the spouse of the Annuitant may be named the Contingent Annuitant.
CONTINGENT OWNER -- is the individual who becomes the Owner if the Owner dies
before periodic annuity payments begin under this Contract. Only the spouse of
the Owner may be named the Contingent Owner.
DESIGNATED BENEFICIARY -- is the individual designated as a beneficiary by the
Owner.
TAX-SHELTERED ANNUITY PROVISIONS
To ensure treatment as a TSA, this Contract will be subject to the requirements
of Code Section 403(b), which are briefly summarized below:
1. The Owner's rights under this Contract shall be nonforfeitable except
for failure to pay future premiums.
2. The Contract may not be transferred, sold, assigned, or pledged as
collateral for a loan, or as security for the performance of an
obligation, or for any other purpose, to any person other than PM.
3. Premiums paid pursuant to a salary reduction agreement and applied to
this Contract under a "plan" (within the meaning of Code Section
403(b)) are subject to the annual limitation on "elective deferral"
contributions under Section 401(a)(30) of the Code. Such amount is
periodically adjusted for inflation.
4. Premiums applied to this Contract which exceed the applicable
"exclusion allowance" (within the meaning of Code Section 403(b)(2))
shall not be excludable from gross income.
5. Except if this Contract is purchased by a "church" (within the
meaning of Code Section 3121(w)), if this Contract is purchased under
a "plan" (within the meaning of Code Section 403(b)), the "plan" must
satisfy the nondiscrimination requirements of Code Section
403(b)(12).
<PAGE> 3
6. Distributions attributable to premiums made pursuant to a salary
reduction agreement may be made only when the Owner attains age 59
1/2, separates from service, dies, becomes "disabled" (within the
meaning of Code Section 72(m)(7)) or incurs a hardship. A
distribution made due to a hardship may not include income
attributable to such premiums.
7. Distributions from this Contract must comply with the minimum
distribution and incidental death benefit rules of Code Section
401(a)(9). Accordingly, the entire interest under the Contract must
be distributed:
(a) not later than the April 1 next following the close of the
calendar year in which the Owner attains age 70 1/2 (the "Required
Beginning Date"), or
(b) commencing not later than the Required Beginning Date over the
life of the Owner or over the lives of the Owner and his or her
Designated Beneficiary (or over a period not extending beyond the
life expectancy of the Owner or the life expectancy of the Owner and
his or her Designated Beneficiary).
In addition, if the Owner dies before distribution of his or her
interest in the Contract has begun in accordance with paragraph (b)
above, the Owner's entire interest must be distributed within five
years, unless (i) such interest is distributed to a Designated
Beneficiary over his or her life (or over a period not extending
beyond such Designated Beneficiary's life expectancy) and (ii) such
distribution begins not later than one year after the Owner's death.
If the Designated Beneficiary is the Owner's surviving spouse, the
date on which the distributions are required to begin shall not be
earlier than the date on which the Owner would have attained age 70
1/2.
If the Owner dies after distribution of his or her interest in the
Contract has begun in accordance with paragraph (b) above but before
his or her entire interest has been distributed, the remaining
interest will be distributed at least as rapidly as under the method
of distribution being used prior to the Owner's death.
All distributions must comply with a method of distribution offered
by PM under this Contract. In addition, all minimum distributions
required under Code Section 401(a)(9) must comply with the proposed
Treasury Regulation section 1.403(b)-2.
8. If the Owner or Annuitant receives a distribution from this Contract
that qualifies as an "eligible rollover distribution" (within the
meaning of Code Section 402(f)(2)(A)) and elects to have such
distribution paid directly to an "eligible retirement plan" (within
the meaning of Code Section 402(c)), such distribution shall be made
in the form of a direct transfer to the eligible retirement plan. PM
may establish reasonable administrative rules applicable to such
direct transfers.
MISCELLANEOUS PROVISIONS
1. PM reserves the right to amend this rider to comply with future
changes in the Code and any regulations or rulings issued thereunder.
PM shall provide the Owner with a copy of any such amendment.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
R-403B-9553
<PAGE> 1
EXHIBIT 99.4(f)
Section 457 Plan Rider
<PAGE> 2
EXHIBIT 99.4(f)
SECTION 457 PLAN RIDER
This rider is part of the Contract to which it is attached by PM.
The Contract to which this rider is attached is hereby modified as specified
below in order that it may be utilized under the deferred compensation plan of
a State or local government or tax-exempt organization established under
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code").
The provisions of this rider will take precedence over any contrary provisions
of the Contract.
DEFINITIONS
ANNUITY START DATE -- is the date you chose to have PM begin periodic annuity
payments to the Annuitant. The Annuity Start Date may be no later than April 1
of the calendar year following the year in which the Annuitant reaches age 70
1/2.
OWNER -- means the State, political subdivision of a State, any agency or
instrumentality of a State or political subdivision of a State or other
organization exempt from tax under Subtitle A of the Code (other than a
"church" or "qualified church-controlled organization" as defined in Code
Section 3121(w)(3)) that has purchased this Contract. The Owner shall control
this Contract and may exercise all contractual rights hereunder.
SECTION 457 PLAN PROVISIONS
This Contract shall be subject to the requirements of Code Section 457, which
are briefly summarized below:
1. This Contract may only be purchased under an "eligible deferred
compensation plan" (within the meaning of Code Section 457(b)) that has
been established and maintained by a State, political subdivision of a
State, any agency or instrumentality of a State or a political subdivision
of a State or any other organization exempt from tax under Subtitle A of
the Code (other than a "church" or "qualified church-controlled
organization" as defined in Code Section 3121(w)(3)).
2. All amounts of compensation deferred under an "eligible deferred
compensation plan" (within the meaning of Code Section 457(b)), all
property and rights purchased with such amounts and all income
attributable to such amounts, property or rights shall remain (until made
available to the Annuitant or other Beneficiary) solely the property and
rights of the Owner (without being restricted to the provision of benefits
under the plan), subject only to the claims of the Owner's general
creditors.
3. Only individuals who perform service for the Owner, either as an employee
of the Owner or as an independent contractor, may participate under the
"eligible deferred compensation plan" (within the meaning of Code Section
457(b)).
4. Premiums applied to this Contract may not exceed the maximum deferral
amount permitted under Code Section 457(b)(2) and (3) or Code Section
457(c).
5. Premiums paid pursuant to a salary reduction agreement may be applied to
this Contract for any calendar month only if an agreement providing for
such salary reduction was entered into before the beginning of such month.
However, with respect to a new employee of the Owner, premiums may
1
<PAGE> 3
be paid for the calendar month during which the individual first becomes
an employee, if a salary reduction agreement is entered into on or before
the first day on which the individual becomes an employee.
6. Distributions shall not be made under this Contract earlier than (i) the
calendar year in which the Annuitant attains age 70 1/2, (ii) when the
Annuitant is separated from service with the Owner, or (iii) when the
Annuitant is faced with an "unforeseeable emergency" (within the meaning
of Treasury Regulation Section 1.457-2(h)).
7. Distributions from this Contract must comply with the minimum distribution
rules of Code Section 401(1)(9), including the incidental death benefit
rule of Code Section 401(a)(9)(G). Accordingly, the entire interest under
the Contract must be distributed:
(a) not later than April 1 next following the close of the calendar year
in which the Annuitant attains age 70 1/2 (the "Required Beginning
Date"), or
(b) commencing not later than the Required Beginning Date over the life
of the Annuitant or over the lives of the Annuitant and his or her
Beneficiary (or over a period not extending beyond the life
expectancy of the Annuitant or the life expectancy of the Annuitant
and his or her Beneficiary).
In addition, if the Annuitant dies before distribution of his or her
interest in the Contract has begun in accordance with paragraph (b) above,
the Annuitant's entire interest must be distributed within five years,
unless (i) such interest is distributed to a Beneficiary over his or her
life (or over a period not extending beyond such Beneficiary's life
expectancy) and (ii) such distribution begins not later than one year
after the Annuitant's death. If the Beneficiary is the Annuitant's
surviving spouse, the date on which the distributions are required to
begin shall not be earlier than the date on which the Owner would have
attained age 70 1/2. However, in all cases where the Annuitant dies
before distribution of his or her interest in the Contract has begun, the
Annuitant's entire interest must be paid over a period not to exceed 15
years (or the life expectancy of the surviving spouse if such spouse is
the Beneficiary).
If the Annuitant dies after distribution of his or her interest in the
Contract has begun in accordance with paragraph (b) above but before his
or her entire interest has been distributed, the remaining interest will
be distributed at least as rapidly as under the method of distribution
being used prior to the Annuitant's death.
All distributions must comply with a method of distribution offered by PM
under this Contract.
8. Distributions from this Contract payable over a period of more than one
year shall be made in substantially nonincreasing amounts (paid not less
frequently than annually).
MISCELLANEOUS PROVISIONS
1. PM reserves the right to amend this rider to comply with future
changes in the Code and any regulations or rulings issued thereunder.
PM shall provide the Owner with a copy of any such amendment.
PACIFIC MUTUAL LIFE INSURANCE COMPANY
R-95-457
2
<PAGE> 1
EXHIBIT 99.5(a)
Application Form for Individual Flexible Premium
Variable Accumulation Annuity Contract
<PAGE> 2
PACIFIC INNOVATIONS APPLICATION [LOGO] PACIFIC MUTUAL
PACIFIC MUTUAL LIFE INSURANCE COMPANY, PO BOX 100060, PASADENA, CA 91189-0060
EXPRESS MAIL ADDRESS: PACIFIC MUTUAL, C/O FCNPC, 1111 SOUTH ARROYO PARKWAY,
1ST FLOOR, PASADENA, CA 91105.
- --------------------------------------------------------------------------------
1a ANNUITANT (See instructions for 1b ANNUITANT (Optional, check one.)
retirement plans.) [ ] Joint [ ] Contingent
(Not applicable for qualified plans.)
______________ ____ _______________ ______________ ____ _______________
First Name Middle Last First Name Middle Last
_____________________________________ _____________________________________
Street Address Street Address
___________________ _____ _________ ___________________ _____ _________
City State Zip City State Zip
SSN/TIN __ __ __ __ __ __ __ __ __ SSN/TIN __ __ __ __ __ __ __ __ __
Sex: [ ] M [ ] F Sex: [ ] M [ ] F
Date of Birth __ / __ / __ Date of Birth __ / __ / __
Phone: ( ) Annuitant's Spouse? [ ] Yes [ ] No
---- -----------------
- --------------------------------------------------------------------------------
2a OWNER (If same as Annuitant, check 2b OWNER (Optional, check one.)
here [ ]. See instructions for [ ] Joint [ ] Contingent
owners on retirement plans.)
______________ ____ _______________ ______________ ____ _______________
First Name Middle Last First Name Middle Last
_____________________________________ _____________________________________
Street Address Street Address
___________________ _____ _________ ___________________ _____ _________
City State Zip City State Zip
SSN/TIN __ __ __ __ __ __ __ __ __ SSN/TIN __ __ __ __ __ __ __ __ __
Sex: [ ] M [ ] F Sex: [ ] M [ ] F
Date of Birth __ / __ / __ Date of Birth __ / __ / __
Phone: ( ) Owner's Spouse? [ ] Yes [ ] No
---- -----------------
- --------------------------------------------------------------------------------
3 BENEFICIARY (Use Special Requests 4 TYPE OF PLAN
section or enclose a signed letter [ ] NON-QUALIFIED [ ] QUALIFIED
of instruction if you need to (Indicate one type
provide additional information.) below.)
TYPE: [ ] 401(k) [ ] SEP-IRA [ ] 457
[ ] Pension/Profit Sharing
____________________________________ [ ] TSA/403(b) [ ] Keogh/HR 10
Beneficiary Name [ ] IRA (Check payment type/s
[ ] Primary [ ] Contingent below.)
PAYMENT TYPE: (See instructions.)
____________________________________ [ ] Transfer
Beneficiary Name (Attach transfer form/s.)
[ ] Primary [ ] Contingent [ ] Rollover
[ ] Contribution $____________
____________________________________ for tax year 199___
Beneficiary Name $____________
[ ] Primary [ ] Contingent for tax year 199___
- --------------------------------------------------------------------------------
7 TELEPHONE AUTHORIZATION (Owners/Owners 5 ISSUE STATE 6 INITIAL PURCHASE
must check and initial.) ___________ PAYMENT
ENTER THE [ ] Amount with
[ ] _____ [ ] _____ STATE WHERE application
APPLICATION $____________
By initialing, Pacific Mutual is WAS SIGNED. [ ] 1035 exchange/
authorized and directed to act on estimated transfer
telephone instructions from any $____________
person(s) who can furnish proper --------------------------------------
identification. Pacific Mutual will 8 REPLACEMENT OF ANNUITY
use reasonable procedures to confirm
that these instructions are authorized Will the purchase of this annuity
and genuine. As long as these replace or change any other insurance
procedures are followed, Pacific or annuity? [ ] Yes [ ] No
Mutual, our affiliates, directors, (If yes, or 1035 exchange, write
trustees, officers, employees, insurance company name and contract
representatives and/or agents, will be number in Special Requests section
held harmless for any claim, liability, and attach any required state
loss or cost. replacement and/or transfer forms.)
- --------------------------------------------------------------------------------
(PLEASE COMPLETE THE FOLLOWING PAGES)
<PAGE> 3
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9 TRANSFERS (Choose only one of the four options, then 10 PRE-AUTHORIZED WITHDRAWALS (Choose one option only, then
frequency, start date and number of transfers below. frequency, start date and number of transfers below.
Contract must be issued for at least 30 days.) Contract must be issued for at lest 30 days.)
EARNINGS SWEEP: 1 [ ] Withdraw $______ each time from the source account(s)
indicated below. (Will be net if not selected.)
1 [ ] Sweep previous period's earnings of either the Fixed [ ] Net of charges [ ] Gross of charges
Option or the Money Market account to the target account(s)
indicated below. (Choose one source account. If also 2 [ ] Withdraw an annual total of _____% from the source
rebalancing, only Fixed Option available.) account(s) indicated below. (Will be gross if not selected.)
[ ] Fixed [ ] Money Market [ ] Net of charges [ ] Gross of charges
DOLLAR COST AVERAGING: FREQUENCY: (Choose one.)
[ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually
2 [ ] Deplete the source account in (indicate number)
__________ transfers to the target account(s) indicated START DATE: ___-___-___
below. (If Fixed Option is source account, up to 100%
can be transferred over one year or more.) NUMBER OF WITHDRAWALS: (If option 1 or 2 selected above,
indicate number.) ________________
3 [ ] Transfer $__________ each time from the source
account to the target account(s) indicated below.
FEDERAL TAXES: SOURCE: (Choose one or more.
4 [ ] Transfer an annual total of _____% from the [ ] Do Not Withhold Total must equal either 100% or
source account to the target account(s) indicated below. (If not specified, a total $ withdrawal amount.)
minimum 10% federal
FREQUENCY: (Choose one.) tax on non-qualified Fixed __________
[ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually plans, 20% on Money Market __________
qualified plans, will Managed Bond __________
START DATE: ___-___-___ be withheld. State Capital Income __________
mandated income tax Blue Chip __________
NUMBER OF TRANSFERS: (If option 1, 3 or 4 selected above, will be withheld where Mid-Cap Equity __________
indicate number.) _______________ required by law.) Aggressive Growth __________
International __________
SOURCE: (If option 2, TARGET: (Must be different than [ ] __________
3 or 4 selected above, source. Total must equal either
choose one.) 100% or total $ transfer amount.)
THIRD PARTY PAYEE:
[ ] Fixed Indicate name and address of payee, if other than owner.
[ ] Money Market Money Market __________
[ ] Managed Bond Managed Bond __________ ----------------------------- -------- ------------------------
[ ] Capital Income Capital Income __________ First Name Middle Last
[ ] Blue Chip Blue Chip __________
[ ] Mid-Cap Equity Mid-Cap Equity __________ --------------------------------------- ------------------------
[ ] Aggressive Growth Aggressive Growth __________ Institution Account Number
[ ] International International __________
[ ] [ ] [ ] __________ -----------------------------------------------------------------
Street Address
--------------------------------- ------------- ---------------
City State Zip
__________________________________________________________________
11 PRE-AUTHORIZED CHECKING (Please attach a voided
check. To begin the plan, the first minimum installment
must accompany this application.)
Collect $__________ monthly by initiating automatic
withdrawals from my account as indicated on the attached
voided check. Payments will be applied according to the
allocations on this application or more current instructions,
if any.
START DATE: ___-___-___
__________________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 4
PACIFIC INNOVATIONS APPLICATION INSTRUCTIONS [PACIFIC MUTUAL LOGO]
- -------------------------------------------------------------------------------
Send this completed application, with payment or 1035 Tax-Free Exchange or
Transfer of Assets form to:
Pacific Mutual Life Insurance Company, P.O. Box 100060, Pasadena, CA
91189-0060. Our phone number is (800) 722-5558.
Our express mail address is: Pacific Mutual, C/O FCNPC, 1111 South Arroyo
Parkway, 1st Floor, Pasadena, CA 91105.
- -------------------------------------------------------------------------------
1 ANNUITANTS: There are many combinations of owner and
annuitant registrations which may result in
2 OWNERS: different consequences. For example, the death
of an owner/annuitant may have different
consequences than the death of a non-owner
annuitant. Joint or contingent owners and/or
joint annuitants cannot be named on retirement
plans. For IRAs, owner and annuitant must be
participant. For pension/profit sharing, 401(k)
and Keogh/HR10 plans, name plan as owner and
annuitant. For 403(b) plans, name participant
as both owner and annuitant. Use the Special
Requests section to clarify registrations.
Spousal signatures may be required for certain
actions in qualified plans. Consult a tax
adviser to properly structure qualified plans
and effect transfers.
- -------------------------------------------------------------------------------
3 BENEFICIARY: Beneficiaries will be joint if no boxes are
checked. Joint beneficiaries will share equally
with the rights of survivorship. Beneficiary
designations may be irrevocable. Please use the
Special Requests section to indicate this
option.
- -------------------------------------------------------------------------------
4 TYPE OF PLAN: Transfer indicates a trustee to trustee or
custodian to custodian transfer only. Rollover
indicates a move from a qualified plan; includes
moving from a qualified plan with intent to move
to another qualified plan at a later date. If
initial payment represents both a rollover and a
contribution, indicate amounts for each in
Special Requests. Ensure the total matches the
check.
- -------------------------------------------------------------------------------
5 ISSUE STATE: Indicate the state where the application is
signed.
- -------------------------------------------------------------------------------
6 INITIAL PURCHASE: Indicate the initial purchase payment in U.S.
dollars. Initial non-qualified minimum $5,000,
$250 subsequent; qualified minimum $2,000, $50
subsequent.
- -------------------------------------------------------------------------------
7 TELEPHONE AUTHORIZATION: If the Contract is jointly owned, both owners
must check and initial.
- -------------------------------------------------------------------------------
8 REPLACEMENT OF ANNUITY: For 1035 exchanges/transfers, a transfer of
assets form must also be completed and attached.
- -------------------------------------------------------------------------------
9 TRANSFERS: Contract must be issued for at least 30 days.
Actual start date may occur after date elected.
Minimum source amount value $5,000. Minimum
initial transfer amount $250. Select target
accounts that are different than the source
account. Target accounts must total either 100%
for options 1, 2 and 4 or transfer amount for
option 3. Earnings sweep: If rebalancing,
earnings sweep allowed only from the Fixed
Option. If not rebalancing, earnings sweep
allowed from either the Fixed Option or the
Money Market. Deplete source account: If Fixed
Option is source account, up to 100% can be
transferred over one year or more. Transfer
dollars: Last transfer will not occur if
remaining balance is less than amount selected.
Transfer percentages: Annual percentage will be
divided by the frequency selected.
- -------------------------------------------------------------------------------
10 PRE-AUTHORIZED Contract must be issued for 30 days. Actual
WITHDRAWALS: start date may occur after date elected.
Minimum withdrawal $250. Annual percentage will
be divided by the frequency selected. Net
payment will equal requested withdrawal amount
less taxes. Gross payment will be the withdrawal
amount less fees, charges and taxes. If none
selected, payment will be prorated from all
investment options. Withdrawals may be taken
from qualified plans if allowed.
- -------------------------------------------------------------------------------
11 PRE-AUTHORIZED Initial minimum purchase may be met over
CHECKING: maximum 12 months. The first installment must
accompany this application. Monthly
non-qualified minimum $400, qualified minimum
$150.
- -------------------------------------------------------------------------------
12 ANNUITY START DATE: Annuity date cannot be prior to first Contract
anniversary. For non-qualified plans, if no
date is chosen, annuity date is the Annuitant's
100 birthday. For qualified plans, if no date
is chosen, annuity date is April 1 of year after
the Annuitant reaches age 70-1/2.
- -------------------------------------------------------------------------------
13 ALLOCATION OPTIONS: Allocations must total 100% or equal total
purchase payment.
- -------------------------------------------------------------------------------
14 REBALANCING: Contract must be issued for at least 30 days.
Actual start date may occur after date elected.
If no date is chosen, rebalancing will occur on
the first business day of the frequency selected
and every period after. Variable account
percentages will be prorated, excluding Fixed
balances. The Fixed Option may not be
rebalanced. If variable account rebalancing is
chosen, then earnings sweep may be made only
from the Fixed Option and not the Money Market.
Additional premium to accounts other than those
selected on this application will not be
rebalanced. To change allocations, complete a
new transfer form.
- -------------------------------------------------------------------------------
15 SPECIAL REQUESTS: Use this section to indicate unique
registrations and other special instructions.
- -------------------------------------------------------------------------------
16 STATEMENT OF APPLICANT: This section contains information about the
Contract, if issued. Please read it carefully.
Some provisions may conflict with qualified
plans or with applicable laws and regulations.
- -------------------------------------------------------------------------------
17 STATEMENT OF AGENT: Your agent must complete and sign this section.
<PAGE> 5
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12 ANNUITY START DATE (Optional, annuity date cannot 13 ALLOCATION OPTIONS (Indicate either whole percentages
be prior to first contract anniversary.) or dollars. Total must equal either 100% or initial
purchase payment.)
___-___-___
- ---------------------------------------------------------------- Pacific Mutual . . . . . Fixed ________
14 REBALANCING [ ] (Variable accounts will be rebalanced
to the allocation percentages on this application.) Bank of America . . . . Money Market ________
FREQUENCY: (Choose one.) Scudder . . . . . . . . Managed Bond ________
[ ] Quarterly [ ] Semi-Annually [ ] Annually
Bank of America . . . . Capital Income ________
START DATE: ___-___-___
- ---------------------------------------------------------------- Bank of America . . . . Blue Chip ________
15 SPECIAL REQUESTS
Bank of America . . . . Mid-Cap Equity ________
Wellington . . . . . . . Aggressive Growth ________
Bank of America . . . . International ________
[ ] . . . . [ ] ________
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16 STATEMENT OF APPLICANT
I BELIEVE THIS CONTRACT WILL MEET MY FINANCIAL OBJECTIVES. I UNDERSTAND THAT
CONTRACT VALUES MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE
OF THE VARIABLE ACCOUNTS. CONTRACT VALUES UNDER THE VARIABLE ACCOUNTS ARE
VARIABLE AND ARE NOT GUARANTEED.
I have received prospectuses. I hereby represent my answers to the above
questions to be correct and true to the best of my knowledge and belief, and
agree that this application will be part of the annuity Contract issued by
Pacific Mutual. I acknowledge that corrections to my Contract may be made from
the application. My acceptance of this Contract constitutes acceptance of these
corrections. If there are joint applicants, the Contract, if issued, will be
owned by the joint applicants as Joint Tenants With The Right Of Survivorship
and not as Tenants In Common.
THE COMPANY IS REQUIRED TO PROVIDE TO THE OWNER, WITHIN REASONABLE TIME,
REASONABLE FACTUAL INFORMATION REGARDING THE BENEFITS AND PROVISIONS OF THE
ANNUITY CONTRACT. Any person who knowingly, and with intent to injure, defraud,
or deceive any insurance company, files a statement containing any false,
incomplete, or misleading information may be guilty of a crime and such person
may be subject to criminal and civil penalties. I UNDERSTAND THAT ALL PAYMENTS
AND VALUES PROVIDED BY THE CONTRACT MAY VARY AS TO DOLLAR AMOUNT TO THE EXTENT
THAT THEY ARE BASED ON THE INVESTMENT EXPERIENCE OF THE SELECTED PORTFOLIO(S).
MY SIGNATURE CERTIFIES, UNDER PENALTY OF PERJURY, THAT THE TAXPAYER
IDENTIFICATION NUMBER PROVIDED IS CORRECT. I AM NOT SUBJECT TO BACKUP
WITHHOLDING BECAUSE: I AM EXEMPT; OR I HAVE NOT BEEN NOTIFIED THAT I AM SUBJECT
TO BACKUP WITHHOLDING RESULTING FROM FAILURE TO REPORT ALL INTEREST OR
DIVIDENDS; OR I HAVE BEEN NOTIFIED THAT I AM NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (STRIKE OUT THE PRECEDING SENTENCE IF SUBJECT TO BACKUP
WITHHOLDING.) THE IRS DOES NOT REQUIRE MY CONSENT TO ANY PROVISION OF THIS
DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
<TABLE>
<S> <C> <C>
- ----------------------------------------------- ------------------------------------- --------------------
Owner Signature (if different from Annuitant) Annuitant Signature Date
- ----------------------------------------------- ------------------------------------- --------------------
Joint/Contingent Owner Signature Joint/Contingent Annuitant Signature Date
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17 STATEMENT OF AGENT
Will this Contract change any existing life insurance or annuity in this or any
other company? [ ] Yes [ ] No
If yes, explain in Special Requests section. I certify that I am authorized and
qualified to discuss this Contract.
- --------------------------- ----------------------------- --------------------
Agent Full Name (Print) Agent Signature Agent SSN (Required)
( )
- --------------------------- -----------------------------
Agent Phone Number Financial Institution Name
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.5(b)
Application/Confirmation Form
<PAGE> 2
EXHIBIT 5(b)
[PACIFIC MUTUAL LOGO]
PACIFIC MUTUAL APPLICATION/CONFIRMATION FORM [LOGO]
Pacific Mutual Life Insurance Company
PO Box 100060, Pasadena, CA 91189-0060 [PACIFIC INNOVATIONS VARIABLE ANNUITY]
[VA99999999] INITIAL PREMIUM: [$10,000.00] ISSUE DATE: [06-01-1996]
STATE OF SALE: [CA]
This form, when returned to Pacific Mutual Life Insurance Company, completes
the transaction by confirming your application for, and receipt of, your
Contract. Please verify that this information is correct; sign and date the
form on the reverse, and return it to Pacific Mutual in the enclosed
postage-paid envelope. Please return this form promptly. Certain transactions
on this policy cannot be processed prior to the receipt of this form.
ANNUITANT(S):
[JOHN DOE]
[123 ANY STREET]
[ANYCITY, XX 99999-9999]
[]
[A1ML4]
[111-22-3333] [01-01-1950] [MALE]
JOINT/CONTINGENT
[JANE DOE]
[123 ANY STREET]
[ANYCITY, XX 99999-9999]
[]
[AXML4]
[###-##-####] [02-02-1950] [FEMALE]
OWNER(S):
[JOHN DOE]
[123 ANY STREET]
[ANYCITY, XX 99999-9999]
[]
[OML5]
[111-22-3333] [01-01-1950] [MALE]
JOINT/CONTINGENT
[JANE DOE]
[123 ANY STREET]
[ANYCITY, XX 99999-9999]
[]
[OXML5]
[###-##-####] [02-02-1950] [FEMALE]
BENEFICIARY/BENEFICIARIES (P=PRIMARY; C=CONTINGENT):
[] []
[] []
[] []
[] []
[] []
ALLOCATION OPTIONS:
[ 100.0%] [Fixed Fund]
[ 0.0%] [Money Market]
[ 0.0%] [Managed Bond]
[ 0.0%] [Capital Income]
[ 0.0%] [Blue Chip]
[ 0.0%] [Mid-Cap Equity]
[ 0.0%] [Aggressive Growth]
[ 0.0%] [International]
[] []
[] []
[] []
[] []
[] []
[] []
[] []
[] []
[] []
[] []
TYPE OF PLAN: [NON-QUALIFIED]
REBALANCING: [N] []
DEALER INFORMATION:
[JOHN SMITH]
PLEASE SEE REVERSE SIDE
<PAGE> 3
[*VA99999999*]
- -------------------------------------------------------------------------------
1.
TELEPHONE AUTHORIZATION
OWNER/OWNERS MUST CHECK BOX AND INITIAL TO AUTHORIZE TELEPHONE
REQUESTS. [ ] _________ [ ] _________ Please act on telephone
instructions from any person purporting to have authority to make
transfers between accounts or allocation changes or other
transactions. Pacific Mutual will employ reasonable procedures to
confirm that instructions communicated by telephone are authorized. So
long as these procedures are followed Pacific Mutual, any of its
affiliates, [Pacific Innovations Trust], or any directors,
trustees, officers, employees representatives or agents of the
aforementioned who act on their behalf, will not be subject to any
claim, liability, loss, or cost if any request is acted on in good
faith upon telephone instructions Pacific Mutual reasonably believes
to be genuine in reliance on its procedures; and this signed
authorization.
- -------------------------------------------------------------------------------
2.
STATEMENT OF APPLICANT
I/WE BELIEVE THIS CONTRACT WILL MEET MY/OUR FINANCIAL OBJECTIVES. I/WE
UNDERSTAND THAT CONTRACT VALUES MAY INCREASE OR DECREASE DEPENDING ON
THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNTS. CONTRACT VALUES
UNDER THE VARIABLE ACCOUNTS ARE VARIABLE AND ARE NOT GUARANTEED AS TO
THE FIXED DOLLAR AMOUNTS. I/We have received the Contract referenced
above and hereby affirm the information to be true to the best of
my/our knowledge and belief. I/We agree that this confirmation form
will be part of the Contract issued by Pacific Mutual. I/We have
reviewed the Contract and acknowledge that corrections may have been
made from the application. My/Our acceptance of this Contract
constitutes acceptance of those corrections. If there are joint
applicants, the Contract, if issued, will be owned by the joint
applicants as Joint Tenants With The Right Of Survivorship and not as
Tenants In Common. If there is a Contingent Owner named, the
Contingent Owner will become the Owner if the Owner dies prior to the
Annuity Start Date. MY SIGNATURE CERTIFIES, UNDER PENALTY OF PERJURY,
THAT THE TAXPAYER IDENTIFICATION NUMBER PROVIDED IS CORRECT. I AM NOT
SUBJECT TO BACKUP WITHHOLDING BECAUSE: I AM EXEMPT; OR I HAVE NOT BEEN
NOTIFIED THAT I AM SUBJECT TO BACKUP WITHHOLDING RESULTING FROM
FAILURE TO REPORT ALL INTEREST OR DIVIDENDS; OR I HAVE BEEN NOTIFIED
THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. (STRIKE OUT THE
PRECEDING SENTENCE IF SUBJECT TO BACKUP WITHHOLDING.) THE IRS DOES NOT
REQUIRE MY CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. I/We certify
that this Contract was sold and/or solicited in the state of
[California].
<TABLE>
<S> <C> <C>
- ------------------------------------------------------ ------------------------------------------------ --------
Owner Signature (if different from Annuitant) Annuitant Signature Date
- ------------------------------------------------------ ------------------------------------------------ --------
Contingent Owner Signature Joint/Contingent Annuitant Signature Date
</TABLE>
<PAGE> 1
EXHIBIT 99.6(a)
Pacific Mutual's Articles of Incorporation
<PAGE> 2
EXHIBIT 99.6(a)
ARTICLES OF INCORPORATION
of
PACIFIC MUTUAL LIFE INSURANCE COMPANY
ONE: The name of this corporation is
PACIFIC MUTUAL LIFE INSURANCE COMPANY.
TWO: The purposes for which this corporation is formed are:
(a) To transact the business of life insurance, including insurance upon the
lives of persons or appertaining thereto, and the granting, purchasing and/or
disposing of annuities; to transact the business of disability insurance,
including insurance appertaining to injury, disablement or death resulting to
the insured from accidents, and appertaining to disablements resulting to the
insured from sickness.
(b) To issue its policies and contracts of insurance upon a legal reserve
basis, including, but not limited to, participating insurance policies and
contracts.
(c) To purchase, take in exchange, or by gift or otherwise, hold, own,
maintain, work, develop, subdivide, improve, sell, convey, encumber by
mortgage, deed of trust or otherwise, lease or otherwise acquire and dispose
of, real and/or personal property and any interest or right therein as provided
by law; to acquire, hold, erect, remodel, repair, operate, maintain, lease and
sell buildings of any and every kind and description as provided by law.
(d) To lend or borrow money and incur indebtedness as provided by law, to issue
bonds, debentures, coupons, notes and other negotiable or non-negotiable
instruments and/or securities, and to secure the same by mortgage, pledge, deed
of trust or otherwise as provided by law.
(e) To acquire the capital stock of other corporations, or any other property,
rights or franchise as provided by law; to hold, purchase or otherwise acquire,
sell, assign, transfer, mortgage, pledge, hypothecate or otherwise dispose of
shares of the capital sock of other evidences of indebtedness created by any
other corporation, or any other property rights or franchises as provided by
law; to aid in any manner any corporation whose stock, bonds, or other
obligations are held or are guaranteed in any manner by the corporation hereby
created, and to do any other acts or things for the preservation, protection,
improvement or enhancement of the value of any such stock, bonds or other
obligations as provided by law; and while the owner of any stock of other
corporations to exercise all of the rights and privileges of such ownership,
including the right to vote thereon, to the same extent as a natural person
might or could do as provided by law.
(f) To acquire all or any part of the assets of any other corporation
authorized to transact an insurance
<PAGE> 3
business, either from such corporation directly or from its conservator,
liquidator or receiver, and in connection with such acquisition to reinsure or
assume any or all of the obligations of such corporation to its policyholders
or other creditors and to execute such agreements with, or in favor of such
corporation, its conservator, liquidator or receiver, or its policyholders,
creditors or stockholders, as may be approved by the board of directors of this
corporation.
(g) Generally to carry on any other business necessarily or impliedly
incidental to or in any way connected with the foregoing purposes, or any of
them; to have and exercise all of the powers conferred by the laws of the State
of California upon corporations; to do any or all of the things hereinbefore
set forth, either as principal or as agent, and to the same extent as natural
persons might or could do; to enter into, make, perform and carry out contracts
of every sort and kind with any person, firm, association or corporation,
private, public or municipal, or body politic, or with the Government of the
United States, or any state or territory thereof, or any foreign government or
municipal corporation or body politic; to exercise all or any of its said
powers and own and hold property and to transact business in the State of
California and elsewhere within and without the United States; and, for the
purpose of attaining or furthering any of its objects, to do any and all other
acts and things, and to exercise all or any other powers, which a natural
person could do or exercise, which now or hereafter may be authorized by law.
(h) To carry on any other business or businesses not prohibited to domestic
life insurance companies, either as principal, partner, or agent, which this
corporation deems proper or convenient whether in connection with any of the
foregoing purposes or otherwise, or which may be calculated directly or
indirectly to promote the interest of this corporation or to enhance the value
of its property or business.
The foregoing clauses contained in this statement of purposes shall be
construed as purposes, objects and powers, and the statement contained in any
clause shall not be limited or restricted in any way by reference to or
inference from the terms of any other clause. Each such object, purpose and
power shall be regarded as an independent object, purpose or power, and shall
be in furtherance and not in limitation of each and/or every other object,
purpose and power.
THREE: The county in the State of California where the principal office for
the transaction of the business of this corporation is to be located is Orange
County.
FOUR: This corporation shall be a nonstock life and disability insurance
corporation, conducted for the benefit of its members who shall be the
policyholders of the Participating and Non-Participating Life classes.
FIVE: (There is no article five).
SIX: (a) The number of the directors of this corporation shall be fifteen
(15);
(b) The names and addresses of the persons who are appointed to act as the
first directors of this corporation are:
<PAGE> 4
Name Address
HARRY J. BAUER Edison Building, Los Angeles, CA
ASA V. CALL Pacific Mutual Building, Los Angeles, CA
ANDREW M. CHAFFEY California Bank Building, Los Angeles, CA
H. S. DUDLEY 19433 Roosevelt Highway, Los Angeles, CA
CAREY GROETEN 1472 Beaudry Blvd., Glendale, CA
GEORGE GUND The Riverside, Reno, Nevada
H. W. O'MELVENY 433 South Spring St., Los Angeles, CA
T. RUSSELL HARRIMAN 537 South Euclid Ave., Pasadena, CA
ALFRED G. HANN Pacific Mutual Building, Los Angeles, CA
A. N. KEMP Pacific Mutual Building, Los Angeles, CA
H. S. MacKAY, Jr. 458 South Spring St., Los Angeles, CA
D. C. McEWEN Pacific Mutual Building, Los Angeles, CA
HENRY S. McKEE 650 South Spring Street, Los Angeles, CA
LAWRENCE MORGAN 537 Las Palmas, Los Angeles, CA
HENRY M. ROBINSON Pacific Southwest Bldg., Los Angeles, CA
SEVEN: This corporation expressly reserves the right to amend its articles of
incorporation from time to time in such manner and for such purposes as may at
the time be permitted by law.
IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws
of the State of California, we, the undersigned, constituting the incorporators
of this corporation and the persons named hereinabove as the first directors
thereof, have executed these articles of incorporation this 21st day of July,
1936.
Harry J. Bauer
Asa V. Call
Andrew M. Chaffey
<PAGE> 5
H. S. Dudley
Carey Groeten
George Gund
H. W. O'Melveny
T. Russell Harriman
Alfred G. Hann
H. S. MacKay, Jr.
D. C. McEwen
Henry S. McKee
Lawrence Morgan
Henry M. Robinson
STATE OF CALIFORNIA, ss:
COUNTY OF LOS ANGELES
On this 21st day of July, 1936, before me, E. W. MUHSFELD, a notary public in
and for said county and state, residing therein, duly commissioned and sworn,
personally appeared HARRY J. BAUER, known to me to be the person whose name is
subscribed to the foregoing Articles of Incorporation, and acknowledged to me
that he executed the same.
WITNESS my hand and official seal.
E. W. MUHSFELD
Notary Public in and for the County of
Los Angeles, State of California. My
Commission expires June 27, 1940.
(Seal)
STATE OF CALIFORNIA, ss:
COUNTY OF LOS ANGELES
<PAGE> 6
On this 21st day of July, 1936, before me, E. W. MUHSFELD, a notary public in
and for said county and state, residing therein, duly commissioned and sworn,
personally appeared ANDREW M. CHAFFEY, known to me to be the person whose name
is subscribed to the foregoing Articles of Incorporation, and acknowledged to
me that he executed the same.
WITNESS my hand and official seal.
E. W. MUHSFELD
Notary Public in and for the County of
Los Angeles, State of California. My
Commission expires June 27, 1940.
(Seal)
STATE OF CALIFORNIA, ss:
COUNTY OF LOS ANGELES
On this 21st day of July, 1936, before me, E. W. MUHSFELD, a notary public in
and for said county and state, residing therein, duly commissioned and sworn,
personally appeared HENRY S. McKEE, known to me to be the person whose name is
subscribed to the foregoing Articles of Incorporation, and acknowledged to me
that he executed the same.
WITNESS my hand and official seal.
E. W. MUHSFELD
Notary Public in and for the County of
Los Angeles, State of California. My
Commission expires June 27, 1940.
(Seal)
STATE OF CALIFORNIA, ss:
COUNTY OF LOS ANGELES
On this 21st day of July, 1936, before me, E. W. MUHSFELD, a notary public in
and for said county and state, residing therein, duly commissioned and sworn,
personally appeared HENRY M. ROBINSON, known to me to be the person whose name
is subscribed to the foregoing Articles of Incorporation, and acknowledged to
me that he executed the same.
WITNESS my hand and official seal.
E. W. MUHSFELD
Notary Public in and for the County of
Los
<PAGE> 7
Angeles, State of California. My
Commission expires June 27, 1940.
(Seal)
STATE OF CALIFORNIA, ss:
COUNTY OF LOS ANGELES
On this 21st day of July, 1936, before me, MILTON A. TAYLOR, a notary public in
and for said county and state, residing therein, duly commissioned and sworn,
personally appeared ASA V. CALL, GEORGE GUND, H. W. O'MELVENY and H. S. MacKAY,
JR., known to me to be the persons whose names are subscribed to the foregoing
Articles of Incorporation, and acknowledged to me that they executed the same.
WITNESS my hand and official seal.
MILTON A. TAYLOR
Notary Public in and for the County of
Los Angeles, State of California.
(Seal)
STATE OF CALIFORNIA, ss:
COUNTY OF LOS ANGELES
On this 21st day of July, 1936, before me, E. W. MUHSFELD, a notary public in
and for said county and state, residing therein, duly commissioned and sworn,
personally appeared H. S. DUDLEY, CAREY GROETEN, T. RUSSELL HARRIMAN, ALFRED G.
HANN, A. N. KEMP, D. C. McEWEN and LAWRENCE MORGAN, known to me to be the
persons whose names are subscribed to the foregoing Articles of Incorporation,
and acknowledged to me that they executed the same.
WITNESS my hand and official seal.
E. W. MUHSFELD
Notary Public in and for the County of
Los Angeles, State of California. My
Commission expires June 27, 1940.
(Seal)
<PAGE> 1
EXHIBIT 99.6(b)
By-laws of Pacific Mutual
<PAGE> 2
EXHIBIT 99.6(b)
BYLAWS OF
PACIFIC MUTUAL LIFE INSURANCE COMPANY
AS AMENDED NOVEMBER 27, 1991
BYLAWS
For the Regulation, Except As
Otherwise Provided by Statute
Or Its Articles of Incorporation,
of
Pacific Mutual Life Insurance Company
Article I. - OFFICES
SECTION 1. Principal Office. - The principal office for the transaction
of business of the corporation is hereby fixed and located at 700 Newport
Center Drive, City of Newport Beach, County of Orange, State of California.
SEC. 2. Other Offices. - Branch or subordinate offices may at any time
be established by the board of directors at any place or places where the
corporation is qualified to do business.
Article II. - MEETINGS OF MEMBERS
SECTION 1. - Place of Meetings. - The annual meeting of members shall be
held at 700 Newport Center Drive, Newport Beach, California. All other
meetings of members shall be held at any place within or without the State of
California designed by the board of directors pursuant to authority hereinafter
granted to said board. In the absence of any such designation, such meetings
shall be held at 700 Newport Center Drive, Newport Beach, California.
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<PAGE> 3
SEC. 2. Annual Meetings. - The annual meetings of members shall be held
on the fourth Wednesday of March of each year at 9:00 a.m. of said day.
Written notice of each annual meeting may be given to each member
entitled to vote thereat either personally or by mail or other means of written
communication, charges prepaid, addressed to such member at his address
appearing on the books of the corporation or given by him to the corporation
for the purpose of notice. At the option of the corporation such notice may be
imprinted on premium notices or receipts or on both. If a member gives no
address, notice shall be deemed to have been given if sent by mail or other
means of written communication addressed to the place where the principal
office of the corporation is situated, or if published at least once in some
newspaper of general circulation in the county in which said office is located.
All such notices shall be sent to each member entitled thereto not less than
seven (7) days before each annual meeting and shall specify the place, the day
and the hour of such meeting and the general nature of the business to be
transacted; provided that, notwithstanding anything to the contrary contained
in these bylaws, notice of an annual meeting to be held at the time and place
specified in Section 11532.1 of the California Insurance Code shall be
sufficiently given if published at least once in each of four successive weeks
in a newspaper of general circulation in the county in which the principal
office of the corporation is located, and if so published no other notice of
such meeting shall be required.
2
<PAGE> 4
SEC. 3. Special Meetings. - Special meetings of members, for any
purpose or purposes whatsoever, may be called at any time by the chairman of
the board, the president or by the board of directors or by any two or more
members thereof or by one or more members holding not less than one-fifth of
the voting power of the corporation. Notices of special meetings shall be sent
to each member entitled thereto not less than seven (7) days before each such
special meeting and shall specify, in addition to the place, day and hour of
the meeting, the general nature of the business to be transacted.
SEC. 4. Adjourned Meetings and Notice Thereof. - Any members' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of a majority of the members who are either present in
person or represented by proxy thereat, but in the absence of a quorum no other
business may be transacted at any such meeting.
When any members' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. Save as aforesaid, it shall not be necessary
to give any notice of the time and place of the adjourned meeting or of the
business to be transacted at an adjourned meeting, other than by announcement
at the meeting at which said adjournment is taken.
SEC. 5. Entry of Notice. - Whenever any member entitled to vote has
been absent from any meeting of members, whether annual or special, an entry in
the minutes to the effect that notice has been duly given shall be conclusive
and incontrovertible evidence that due
3
<PAGE> 5
notice of such meeting was given to such member as required by law and the
bylaws of the corporation.
SEC. 6. Voting. - At all meetings of members each member entitled to
vote, and either present in person or by proxy thereat, shall have only one
vote regardless of the number of policies or the amount of insurance that each
such member holds. Such vote may be viva voce or by ballot; provided, however,
that all elections for directors shall be by ballot upon demand made by a
member at any election and before the voting begins.
SEC. 7. Quorum. - The presence in person or by proxy of the holders of
five percent (5%) of the members entitled to vote at any meeting shall
constitute a quorum for the transaction of business. The members present at a
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough members to
leave less than a quorum.
SEC. 8. Proxies. - Each member entitled to vote or execute consents
shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such member or his duly authorized
agent and filed with the secretary of the corporation; provided that no such
proxy shall be valid after the expiration of eleven (11) months from the date
of its execution unless the member executing it specifies therein the length of
time for which such proxy is to continue in force, which in no case shall
exceed seven (7) years from the date of its execution. Any proxy duly executed
is not revoked, and continues in full force
4
<PAGE> 6
and effect, until an instrument revoking it, or a duly executed proxy bearing a
later date, is filed with the secretary.
SEC. 9. Inspectors of Election. - In advance of any meeting of
members, the board of directors shall appoint one or three inspectors of
election to act at such meeting or any adjournment or adjournments thereof.
The inspector or inspectors of election shall determine the number of members
present or represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, receive votes, ballots or
consents, hear and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes or consents,
determine the result of and do such acts as may be proper to conduct the
election or vote with fairness to all members. The inspector or inspectors of
elections shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. On request of the chairman
of the meeting or of any member or his proxy, the inspector or inspectors shall
make a report in writing of any challenge or question or matter determined by
them and execute a certificate of any fact found by them. If there be three
inspectors of election, the decision, act or certificate of a majority shall be
effective in all aspects as the decision, act or certificate of all, an shall
be final and conclusive as to all matters passed upon and determined. If there
be one inspector of election, his decision, act or certificate shall be final
and conclusive as to all matters passed upon and determined. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the board of directors in advance
of the convening of the meeting, or at the meeting by the person or officer
acting as chairman.
5
<PAGE> 7
Article III. - BOARD OF DIRECTORS
SECTION 1. Powers. - Subject to limitations of the articles of
incorporation and of the bylaws, and of any statutory provisions as to action
to be authorized or approved by the members, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be controlled by the board of directors. Without prejudice
to such general powers, but subject to the same limitations, it is hereby
expressly declared that the directors shall have the following powers, to-wit:
First. Corporate Business. - To conduct, manage and control all the
business and affairs of the corporation, and to make such rules and regulations
therefor not inconsistent with law, the articles of incorporation or the
bylaws, as they may deem best.
Second. Select and Remove Officers, Agents and Employees. - To select
and remove all officers of the corporation, as more fully provided for in
Article V hereof, and to select and remove all agents and employees of the
corporation, and to prescribe such duties and powers for its officers, agents
and employees as may not be inconsistent with law, the articles of
incorporation or the bylaws, fix or change their salaries, compensation and
emoluments, and if the board of directors deem it necessary, require of them
security for faithful service, including surety bonds, and from time to time
thereafter require of them other and different security for faithful service,
including surety bonds in different amounts and with different
6
<PAGE> 8
sureties. The board of directors may delegate to the executive committee or
other committee and/or to any officer or officers its power hereunder to select
or remove officers appointed under the provisions of Section 3 of Article V and
agents or employees, and to fix or change their respective salaries,
compensation or emoluments.
Third. Appoint Committees. - To appoint an executive committee and
other committees, and to delegate, by resolution or resolutions, to such
committee any of the powers and authority of the board of directors in the
management of the business and affairs of the corporation, except the power to
declare dividends on policies of insurance and adopt, amend or repeal bylaws;
to fix and prescribe, by resolution or resolutions, the powers and duties of
committees appointed by it; and to fix, by resolution or resolutions, the
quorum for the transaction of business of committees, other than the executive
committee, which may be less than a majority, but not less than one-third of
the authorized number of committee members.
Fourth. Incur Indebtedness. - To borrow money and incur indebtedness
for the purposes of the corporation and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, pledges, hypothecations, or other evidences of debt and securities
therefor.
Fifth. Participating and Non-Participating Insurance. - To determine
which agreements and policies of insurance made by the corporation shall be
upon the basis of full or partial participation in the profits or without any
participation therein.
7
<PAGE> 9
Sixth. Dividends. - To declare dividends or to provide other
participation in the profits in the case of policies of insurance entitled to
such dividends or participation at such times and in such amounts as in its
opinion the condition of the affairs of the corporation shall render it
advisable.
Seventh. Miscellaneous. - To designate any place within or without the
State of California for the holding of any members' meeting or meetings, other
than the annual meeting.
SEC. 2. Number of Directors.
(a) Authorized Number of Directors. - The authorized number of directors
of the corporation shall be not less than fifteen (15) nor more than eighteen
(18).
(b) Exact Number of Directors. - The exact number of directors is hereby
fixed at Sixteen (16).
SEC. 3. Term of Office and Election. - The directors shall be divided into
three classes, as nearly equal in number as possible, and the terms of office
of the respective classes shall expire at annual intervals and at the times
fixed for successive annual meetings of members. The directors in office at
the time this bylaw becomes effective shall be divided by lot into one
8
<PAGE> 10
class of six directors and two classes of five directors each, and the terms of
office of the class composed of six directors shall expire at the time fixed
for the first annual meeting of members to be held after the annual meeting of
members in 1990 and the terms of office of the classes composed of five
directors each shall expire at the time of the second and third annual meeting
of members to be held after the annual meeting of members in 1990. Each
director thereafter elected at annual or special meetings of members shall hold
office for a term expiring at the time fixed for the third annual meeting of
members to be held after the meeting of members at which he was elected
provided that if any election would put more than six directors in the class
whose terms expire at such annual meeting, then the excess shall be chosen
serially by lot and allocated serially to the class or classes next in order
whose terms expire at the second and first annual meetings respectively and
whose membership shall be less than six to bring the membership of such class
or classes up to six.
At each annual meeting of members, directors in number equal to the
number of directors whose terms expire at the time fixed for such meeting,
shall be elected, but if any such annual meeting of members is not held, or if
directors are not elected thereat, directors may be elected at any special
meeting of members held for the purpose of electing directors.
All directors shall hold office for the term for which they are elected
and until their respective successors are elected and qualified, except that
each director who attains age 72 during the term for which elected shall hold
office only until the next annual meeting of members following attainment of
age 72 at which time a person may be elected as director to
9
<PAGE> 11
complete the unexpired term of office, if any, for which the director attaining
age 72 had been elected.
SEC. 4. Resignation. - Any director may resign at any time by giving written
notice to the board of directors or to the chairman of the board or to the
secretary of the corporation. Any such resignation shall take effect at the
date of receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SEC 5. Vacancies. - Each director elected to fill a vacancy caused by the
death, resignation or removal of a director shall hold office for a term which
will complete the unexpired term of office of such deceased, resigned or
removed director. Each director elected to fill a vacancy created by an
increase in the authorized number of directors or by failure of the members to
elect the full authorized number of directors shall hold office for a term
expiring at the time fixed for the third annual meeting of members to be held
after the election which fills the vacancy provided that if any election would
put more than six directors in the class whose terms expire at such annual
meeting, then the excess shall be chosen serially by lot and allocated serially
to the class or classes next in order whose terms expire at the second and
first meetings, respectively, and whose membership shall be less than six to
bring the membership of such class or classes up to six.
10
<PAGE> 12
SEC 6. Place of Meetings. - Regular meetings of the board of directors shall
be held at any place within or without the State of California which has been
designated from time to time by resolution of the board of directors or by
written consent of all members of the board. In the absence of such
designation, regular meetings, other than the annual meeting, shall be held at
700 Newport Center Drive, Newport Beach, California, unless not less than ten
(10) days prior to said meeting, a written notice designating another location
is mailed to each director at the address as shown upon the records of the
corporation. Special meetings of the board may be held either at a place so
designated or at 700 Newport Center Drive, Newport Beach, California.
SEC. 7 Regular Annual Meetings. - Immediately following each annual meeting of
members, the board of directors shall hold a regular annual meeting for the
purpose of organization, election of officers, and the transaction of other
business. The regular annual meeting shall be held at 700 Newport Center
Drive, Newport Beach, California. Notice of such meeting is hereby dispensed
with.
SEC 8. Other Regular Meetings. - Other regular meetings of the board of
directors shall be held without call, on the fourth Wednesday of February, May,
August, October and November. All meeting shall be held at the hour of 9:00
o'clock A.M., except in the month in which the regular annual meeting of the
board of directors is held. Should any meeting day for a meeting of the board
of directors fall upon a legal holiday, then said meeting shall be
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<PAGE> 13
held at the same time on the next day thereafter ensuing which is not a legal
holiday. Notice of all such regular meetings of the board of directors is
hereby dispensed with.
SEC 9. Special Meetings. - Special meetings of the board of directors for any
purpose or purposes shall be called at any time by the chairman of the board,
or if he is absent or unable or refuses to act, by the president, or, if he is
absent or unable or refuses to act, by any three (3) directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director or sent to each director by mail or other
form of written communication, charges prepaid, addressed to him at his address
as it is shown upon the records of the corporation, or, if it is not so shown
on such records and is not readily ascertainable, at the place in which the
meetings of the directors are regularly held. In case such notice is mailed or
telegraphed, it shall be deposited in the United States mail or delivered to
the telegraph company at least twenty-four (24) hours prior to the time of the
holding of the meeting. In case such notice is delivered as above provided, it
shall be so delivered at least twelve (12) hours prior to the time of the
holding of the meeting. Such mailing, telegraphing or delivery as above
provided shall be due, legal and personal notice to such director.
SEC. 10. Adjournment. - A quorum of the directors may adjourn any directors'
meeting to meet again at a stated day and hour; provided, however, that in the
absence of a quorum, a
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<PAGE> 14
majority of the directors present at any directors' meeting, either regular or
special, may adjourn from time to time or until the time fixed for the next
regular meeting of the board.
SEC. 11. Notice of Adjournment. - Notice of the time and place of holding an
adjourned meeting need not be given to absent directors if the time and place
be fixed at the meeting adjourned.
SEC. 12. Entry of Notice. - Whenever any director has been absent from any
special meeting of the board of directors, an entry in the minutes to the
effect that notice has been duly given shall be conclusive and incontrovertible
evidence that due notice of such special meeting was given to such director as
required by law and the bylaws of the corporation.
SEC. 13. Waiver of Notice. - The transactions of any meeting of the board of
directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum be
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice of or consent to holding such meeting
or an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
SEC. 14. Quorum. - Eight directors shall be necessary to constitute a quorum
for the transaction of business, except to adjourn, as provided in Section 10
of this article. Every act
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<PAGE> 15
or decision done or made by a majority of the directors at a meeting duly held,
at which a quorum is present, shall be regarded as an act of the board of
directors, unless a greater number be required by law or by the articles of
incorporation.
SEC. 15. Fees and Compensation. - The directors shall, by resolution of the
board, determine from time to time the manner and amount of compensation
payable for their services as directors, with or without expenses of attendance
at meetings. Directors who are salaried officers of the corporation shall not
receive additional fees or compensation for their services as directors.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent, employee,
or otherwise, and receiving compensation therefor.
Article IV. - EXECUTIVE COMMITTEE
SECTION 1. Powers and Duties. - The executive committee shall have and
exercise, to the extent provided in a resolution or resolutions of the board of
directors, such powers and authority of the board of directors in the
management of the business and affairs of the corporation, except the power to
declare dividends on policies of insurance or adopt, amend or repeal bylaws, as
the board of directors may delegate to it.
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<PAGE> 16
SEC. 2. Number of Members. - The authorized number of members of the
executive committee shall be seven (7), in addition to ex officio members,
until changed by a resolution of the board of directors.
SEC. 3. Qualifications. - Each member of the executive committee shall
be a member of the board of directors.
SEC 4. Appointment and Term of Office. - The members of the executive
committee shall be appointed at each annual meeting of the board of directors,
but if any such annual meeting is not held or the members are not appointed
thereat, the members may be appointed at any subsequent meeting of the board of
directors. All members of the executive committee shall hold office until
their respective successors are appointed.
SEC. 5. Resignation. - Any member of the executive committee may resign
at any time by giving written notice to the board of directors or to the
chairman of the board or to the secretary of the corporation. Any such
resignation shall take effect at the date of receipt of such notice or at any
later time, specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SEC. 6. Vacancies. - Vacancies in the executive committee shall be
filled by appointment by the board of directors and each member so appointed
shall hold office until his successor is appointed.
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<PAGE> 17
SEC. 7. Organization, etc. - The chairman of the executive committee
shall be as designated, the chairman of the board shall be vice chairman of the
executive committee, and the secretary of the corporation, or in his absence
such other officer or employee as the chairman of the executive committee may
designate, shall act as secretary. The executive committee shall keep a record
of its acts and proceedings and report the same from time to time to the board
of directors.
SEC. 8. Regular Meetings. - A regular meeting of the executive
committee shall be held without call or notice upon the day and at such hours
and place as the committee shall from time to time determine or at such other
place as designated by the chairman of the executive committee in a written
notice to the members thereof. Should the day so selected by the committee
fall upon a legal holiday, then the meeting shall be held at the same time on
the next day which is not a legal holiday.
SEC. 9. Special Meetings. - Special meetings of the executive committee
for any purpose or purposes shall be held at such place as shall be called by
the chairman of the executive committee, the chairman of the board, the
president, or secretary or any three (3) members of the executive committee.
Notice of each special meeting of the executive committee shall be sent by
mail, telegraph or telephone, or be delivered personally to each member of said
committee not later than twelve (12) hours before the day on which such meeting
is to be held.
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SEC. 10. Waiver of Notice. - The transactions at any meeting of the
executive committee, however called and noticed or whenever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
members not present sign a written waiver of notice of or consent to holding
such meeting or an approval of the minutes thereof. All such waivers,
consents, or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SEC. 11. Quorum. - Any three (3) members of the executive committee,
either regular or ex officio, shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the members at a
meeting duly held, at which a quorum is present, shall be regarded as an act of
the executive committee.
SEC 12. Adjournment. - A quorum of the members may adjourn any
executive committee meeting to meet again at a stated day and hour; provided,
however, that in the absence of a quorum the majority of members present at any
executive committee meeting, either regular or special, may adjourn from time
to time or until the time fixed for the next regular meeting of the executive
committee.
SEC. 13. Inspection of Records. - The record or records of the acts and
proceedings of the executive committee, including its minutes, shall at all
times be open to inspection by any
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member of the board of directors or any committee or any person appointed by
the board of directors for that purpose and such inspection shall include the
right to make extracts.
SEC. 14. Fees. - Each member of the executive committee, except those
members who are salaried officers of the corporation, shall receive such fee,
if any, as shall be fixed by the board of directors for their respective
attendance at each meeting. Members of the executive committee who are
salaried officers of this corporation shall not receive additional fees or
compensation for their respective attendance at executive committee meetings.
Article V. - OFFICERS
SECTION 1. Number and Qualifications. - The officers of the corporation
shall be a chairman of the board who shall be a member of the board of
directors; a president; one or more executive vice presidents, senior vice
presidents, vice presidents, and 2nd vice presidents as the board of directors
may from time to time determine; a secretary, treasurer, general counsel,
corporate actuary, controller, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article. One person may
hold any two offices and perform the duties thereof except that of chairman and
secretary and except that of president and secretary.
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<PAGE> 20
SEC. 2 Election, Term of Office. - Each officer, except such officers
as may be appointed in accordance with the provisions of Section 3 of this
Article V, shall be chosen annually by the board of directors and shall hold
his office until his successor shall have been duly chosen and shall have
qualified, or until his death, or until he shall resign, or until he shall have
been removed in the manner hereinafter provided.
SEC. 3. Other Officers, etc. - The Board of directors may appoint such
assistant vice presidents, assistant secretaries, assistant treasurers, and
other officers as the business of the corporation may require, each of whom
shall hold office for such period and have such authority and perform such
duties as are provided in these bylaws or as the board of directors may from
time to time determine. The board of directors may delegate to the executive
committee, or any officer or officers, the power to appoint any officer or
officers provided for in this Section 3 of Article V.
SEC. 4. Removal. - Any officer chosen under Section 2 of this Article V
may be removed, either with or without cause, by a two-thirds vote of the
directors present at any regular meeting of the board of directors. Any
officer, except an officer chosen by the board of directors pursuant to Section
2 of this Article V, may also be removed at any time, with or without cause, by
the executive committee or any officer or officers upon whom such powers of
removal may be conferred by the board of directors.
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<PAGE> 21
SEC. 5. Resignation. - Any officer may resign at any time by giving
written notice to the board of directors or to the chairman of the board or to
the chief executive officer or to the secretary of the corporation. Any such
resignation shall take effect at the date of receipt of such notice or at any
later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SEC. 6. Vacancies. - A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in the bylaws for regular election or appointment to such
office.
SEC. 7. Chairman of the Board. - The chairman of the board shall be the
chief executive officer of the corporation and shall have supervision,
direction and control of the business and affairs of the corporation and shall
consult with the president and the executive vice presidents as to policies
laid down or defined by the board of directors and major policy decisions
relating to the policies laid down or defined by the board of directors and
major policy decisions relating to the conduct of the affairs of the
corporation. He shall preside at all meetings of the members of the board of
directors and in the absence or disability of the chairman of the executive
committee, he shall exercise the powers and perform the duties of the chairman
of the executive committee. He shall be an ex officio member of all
committees, and shall have such other powers and duties as may be prescribed
from time to time by the board of directors or elsewhere in these bylaws.
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SEC. 8. Vice Chairman. - The vice chairman shall also be the chief
investment officer and shall have such powers and duties as may be prescribed
from time to time by the board of directors, the chairman of the board, or
elsewhere in these bylaws. He shall be an ex officio member of all committees.
In the absence or disability of the chairman of the board, he shall exercise
the powers and perform the duties of the chairman of the board. In the absence
or disability of both the chairman of the board and vice chairman, an officer
designated by the chairman of the board shall exercise the powers and perform
the duties of the vice chairman.
SEC. 9. Executive Vice Presidents. - The executive vice presidents
shall assist the chairman of the board and the president in the exercise of
their powers and duties and shall have such other powers and perform such other
duties as may be prescribed from time to time by the chairman of the board, the
president, the board of directors, or elsewhere in these bylaws.
SEC. 10. Senior Vice President, Vice Presidents and 2nd Vice
Presidents. - The senior vice presidents, vice presidents and 2nd vice
presidents shall assist the chairman of the board, the president and the
executive vice presidents in the exercise of their powers and duties and shall
have such other powers and perform such other duties as may be prescribed from
time to time by the chairman of the board, the president, the executive vice
presidents, the board of directors or elsewhere in these bylaws.
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SEC. 11. Secretary. - The secretary shall keep, or cause to be kept, a
book of minutes at the principal office, or such other place as the board of
directors may order, of all meetings of the directors, executive committee and
members with the time and place of holding, whether regular or special, and if
special, how authorized, the notice thereof given, the names of those present
at directors' and executive committee meetings, the number of members present
or represented at members meetings and the proceedings thereof.
The secretary shall give, or cause to be given, notice of all meetings
of the members, the board of directors and the executive committee, required by
the bylaws or bylaw to be given; and he shall keep the seal of the corporation
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the chairman of the board, the president, the executive
vice presidents, the board of directors or elsewhere in these bylaws.
SEC. 12. Treasurer. - The treasurer shall have custody of all funds,
securities and other valuables of the corporation which may have or shall come
into his hands. He shall have such powers and perform such duties as may be
prescribed by the chairman of the board, the president, the executive vice
presidents, the board of directors or elsewhere in these bylaws, and in
addition thereto shall:
(a) Deposit or cause to be deposited all funds, securities and other
valuables in the name of and to the credit of the corporation in its own or
with such depositaries as shall be designated in accordance with the provision
of Section 4, Article VI of these bylaws.
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(b) Be responsible for the due and proper disbursement of the funds
of the corporation.
(c) When necessary or proper, endorse on behalf of this corporation
for collection, checks, notes and other obligations.
(d) Make a report each month to the board of directors of such cash
receipts and disbursements as shall have occurred during the period of the
report and, in addition, shall render to the board of directors, the chairman
of the board, or the president, whenever requested, an account of all his
transactions as treasurer.
(e) Record regularly, full and accurate accounts of all monies
received and paid by him on account of the corporation.
SEC. 13. General Counsel. - The general counsel shall have the general
powers and duties usually vested in such officer and shall have such other
powers and duties as may be prescribed by the chairman of the board, the
president, the executive vice presidents, the board of directors or elsewhere
in these bylaws.
SEC. 14. Corporate Actuary. - The corporate actuary's duties shall be
to coordinate the actuarial bases of the company's operations, to maintain
surveillance of the financial
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performance of the company and its subsidiaries, to maintain surveillance of
tax and regulatory compliance, to direct the auditing of the various accounts
and records, and to have such other duties and responsibilities as may from
time to time be assigned to him by the chairman of the board, the president,
the executive vice presidents, the board of directors or elsewhere in these
bylaws.
SEC. 15. Controller. - The controller's duties shall be to direct the
maintenance of the various accounts and other accounting media of the
corporation, to supervise expenses and operating efficiencies of the company
and its subsidiaries, and to have such further duties and responsibilities as
may from time to time be assigned to him by the chairman of the board, the
president, the executive vice presidents, the board of directors or elsewhere
in these bylaws.
SEC. 16. Assistant Vice Presidents. - The assistant vice presidents
shall have such powers and perform such duties as may from time to time be
fixed and prescribed for them by the board of directors, the chairman of the
board, the president, the executive vice presidents or elsewhere in these
bylaws.
SEC. 17. Assistant Secretaries and Assistant Treasurers. - The
assistant secretaries and the assistant treasurers shall have such powers and
perform such duties as are assigned to them by these bylaws and shall have such
other powers and perform such other duties not inconsistent with these bylaws
as may from time to time be assigned to them by the secretary or the treasurer,
respectively, or by the board of directors.
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<PAGE> 26
Article VI. - INSURANCE POLICIES, CONTRACTS, CHECKS,
DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Insurance Policies, How Signed. - All policies issued by
this corporation shall be signed by the chairman or president and countersigned
by the secretary either personally or by facsimile.
SEC. 2. Checks, Drafts, etc. - All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, except as in these
bylaws otherwise provided, issued in the name of or payable to the corporation
shall be signed or endorsed by such person or persons and in such manner as
from time to time shall be determined by resolution of the board of directors
or by resolution of the executive committee, if the board of directors delegate
such authority to it.
SEC. 3. Contracts, etc., How Executed. - The board of directors, or the
executive committee if such authority is delegated to it by the board of
directors, except as by law or in the bylaws otherwise provided, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to special instances; and unless so
authorized, no officer, agent or employee shall have any power or authority to
bind the corporation by any
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<PAGE> 27
contract or engagement or to pledge its credit to render it liable for any
purpose or to any amount.
SEC. 4. Bank Accounts. - All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation,
and in its name, in such banks, trust companies, or other depositaries as the
board of directors may select or as may be selected by any committee, officer
or officers, agent or agents of the corporation to whom such powers may from
time to time be delegated by the board of directors; and for the purpose of
such deposits the chairman of the board, the president, any vice president, the
secretary, the treasurer, or any other officer or agent or employee of the
corporation to whom such power may be delegated by the board of directors or by
the executive committee, if such authority be delegated to it by the board of
directors, may endorse, assign and deliver checks, drafts and other orders for
the payments of monies which are payable to the order of the corporation.
SEC. 5. Departmentalization. - So long as the corporation maintains two
or more departments, the corporation may apportion among them their fair and
equitable share of expenses; may exchange assets between such departments on a
fair and equitable basis; and may, at customary reinsurance rates, reinsure
business between such departments.
Article VII. - INVESTMENTS
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<PAGE> 28
SECTION 1. Investments in the Corporation's Name. - All investments of
the corporation shall be made in the name of Pacific Mutual Life Insurance
Company or its nominee.
SEC. 2. Investments by the Corporation. - The corporation shall invest
as much of its capital, surplus and accumulations as the board of directors or
the executive committee, if such authority is delegated to it by the board of
directors, may determine in the purchase of or loans upon any of the securities
specified by law, which investment or investments shall be approved by the
executive committee, if such authority is delegated to it by the board of
directors, and by a vote of two-thirds of all the directors of the corporation,
unless such latter approval is not required by law, and any such approval by
the board of directors shall be entered upon the records or minutes of the
corporation which must show the fact of making such investment or investments,
the amount thereof, the name of each director voting to approve the same, the
amount, character and value of the security purchased or taken as collateral
and, if the investment be a loan, the name of the borrower, the rate of
interest thereon, and the date when the loan will become due or payable.
Article VIII. - MEMBERS
SECTION 1. Members Defined. - The words "member" and "members" as used in
these bylaws are hereby defined to include only those policyholders of the
Participating and Non-
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Participating Life classes. In any case where a Participating or Non-
Participating Life policy names two or more persons as joint insureds, payees,
owners or holders thereof, the persons so named shall be deemed collectively to
be but one member for the purposes of these bylaws. In any case where such a
policy shall have been assigned by assignment absolute on its face to an
assignee other than the corporation, and such assignment shall have been filed
at the principal office of the corporation at least thirty days prior to the
date of any election or meeting referred to in these bylaws, then such assignee
shall be deemed to be the member entitled to vote at such election or meeting.
SEC. 2. One Class of Members. - There shall be but one class of members
of the corporation.
Article IX. - CORPORATE RECORDS, ANNUAL REPORT
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
SECTION 1. Inspection of Bylaws. - The corporation shall keep in its principal
office for the transaction of business the original or a copy of the bylaws as
amended or otherwise altered to date, certified by the secretary, which shall
be open to inspection by the members at all reasonable times during office
hours.
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SEC. 2. Inspection of Corporate Records. - The books of account, and
minutes of proceedings of the members, of the board of directors and of the
executive committee shall be open to inspection upon the written demand of any
member at any reasonable time and for a purpose reasonably related to his
interests as a member and shall be exhibited at any time when required by the
demand of ten percent (10%) of the members entitled to vote at any members'
meeting shall be made in writing upon the chairman of the board, the president,
secretary or assistant secretary of the corporation.
SEC. 3. Representation of Shares of Other Corporations. - The chairman
of the board, the president or any vice president and the secretary or any
assistant secretary of this corporation are authorized to vote, represent and
exercise on behalf of this corporation all rights incident to any and all share
or other evidence of ownership of any other business entities such as
corporations, business trusts and partnerships standing in the name of this
corporation. The authority herein granted to said officers to vote or
represent on behalf of this corporation any and all such evidences of ownership
held by this corporation may be exercised either by such officers n person or
by any person authorized so to do by proxy or power of attorney duly executed
by said officers.
Article X. - AMENDMENTS
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SECTION 1. Powers of Members. - A bylaw or bylaws may be adopted,
amended, or repealed by the vote of members entitled to exercise a majority of
the voting power of the corporation or by the written assent of such members.
SEC. 2. Power of Directors. - Subject to the rights of the members, as
provided in Section I of this Article, to adopt, amend or repeal a bylaw or
bylaws, other than a bylaw or amendment thereof changing the authorized number
of directors, may be adopted, amended, or repealed by the board of directors.
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<PAGE> 1
EXHIBIT 99.8
Fund Participation Agreement
<PAGE> 2
EXHIBIT 8
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this ___ day of __________, 1996, by and between
Pacific Mutual Life Insurance Company (the "Company"), a mutual life insurance
company domiciled in California, on its behalf and on behalf of the segregated
asset accounts of the Company listed on Exhibit "A" to this Agreement (the
"Separate Accounts"): Pacific Innovations Trust, a Delaware/business trust
("Fund"); BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("Distributor"), an Ohio Limited Partnership; and Bank of America National Trust
and Savings Association ("Manager"), a national banking association.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act") and the Fund is
authorized to issue separate classes of shares of beneficial interests
("shares"), each representing an interest in a separate portfolio of assets
known as a fund ("portfolio") and each portfolio has its own investment
objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to the Separate Accounts that fund variable annuity contracts and
variable life insurance contracts ("Variable Contracts") and to serve as an
investment medium for Variable Contracts of the Company and other portfolios
which may be established in the future; and
<PAGE> 3
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, the Manager is a national banking association; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth, the parties hereby agree as
follows:
ARTICLE I. - SALE OF FUND SHARES
1.1 The Distributor agrees to sell to the Company those shares of
the portfolios offered and made available by the Fund and identified on Exhibit
"B" ("Portfolios") that the Company orders on behalf of its Separate Accounts,
and agrees to execute such orders on each day on which the Fund calculates its
net asset value pursuant to rules of the SEC ("business day") at the net asset
value next computed after receipt and acceptance by the Fund or its designee of
the order for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares
of the Portfolio for purchase at the applicable net asset value per share by
the Company on behalf of its Separate Accounts; provided, however, that the
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction over it, in
the sole discretion of the Trustees, acting in good faith and in
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<PAGE> 4
light of the Trustees' fiduciary duties under applicable law, necessary in the
best interests of the shareholders of any Portfolios.
1.3 The Fund and the Distributor agree that shares of the
Portfolios of the Fund will be sold only to the Company, its Separate Accounts,
and other persons affiliated with the Company, consistent with each Portfolio
being adequately diversified pursuant to Section 817(h) of the Internal Revenue
Code of 1986, as amended ("Code") and the regulations thereunder. No shares of
any Portfolio will be sold directly to the general public. No shares of any
Portfolio will be sold directly to any other insurance company or its separate
account(s) or to any person without the mutual consent of the Fund, the Manager
and the Company.
1.4 The Fund and Distributor will not sell shares of the Fund to
any separate account to serve as an investment vehicle for variable life
insurance contracts unless the Fund has first obtained an appropriate exemptive
order from the SEC if required by the 1940 Act and the rules thereunder, to the
extent necessary to permit "mixed funding" if the Fund offers its shares to a
variable life insurance Separate Account of the Company, and, if applicable, to
permit "shared funding" if the Fund offers its shares to separate accounts
funding variable annuity or variable life insurance contracts of unaffiliated
insurance companies or to any other person. In such event, all parties to this
Agreement agree to comply with any applicable conditions imposed under any
exemptive order issued by the SEC, or any applicable conditions specified in
Rule 6e-2 or Rule 6e-3(T) under the 1940 Act (or, if permanently adopted, Rule
6e-3), whichever is applicable. The Fund and Distributor will not sell shares
of the Fund to any Separate Account funding variable life insurance contracts
unless there is in effect an agreement containing provisions necessary to
comply with any applicable conditions of an SEC exemptive
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order, Rule 6e-2 or 6e-3(T) (or, if permanently adopted, Rule 6e-3), whichever
is applicable.
1.5 Upon receipt of a request for redemption in proper form from
the Company, the Fund agrees to redeem in cash any full or fractional shares of
the Portfolio held by the Company, its Separate Accounts, and other persons
affiliated with the Company, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall be paid
in federal funds ordinarily on the next business day following receipt by the
Fund or its designee of the order for redemption; however the Fund reserves the
right to postpone payment upon redemption consistent with Section 22(e) of the
Act and any Rules thereunder.
1.6 For purposes of Sections 1.1 and 1.5, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and receipt by such designee shall constitute receipt by the
Fund; provided that the Company receives the order by 4:00 p.m. New York City
time, or the close of the New York Stock Exchange if earlier, and the Fund
receives notice of such order by 10:00 a.m., New York City time on the
following business day.
1.7 The Company shall pay for shares of the Portfolio on the
business day next following the day the Company places an order to purchase
shares of the Portfolios, except with respect to shares of any Portfolio of the
Fund ("Acquired Portfolio") ordered by the Company for a Separate Account or
any subaccount thereof in connection with an exchange or transfer from another
Separate Account or another subdivision of a Separate
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<PAGE> 6
Account under the Variable Contracts, the Company shall pay for shares of the
Acquired Portfolio on the latter of (1) the next business day after an order to
purchase the shares is made in accordance with Section 1.1 hereof, or (2) on
the same business day that the Separate Account or subdivision from which the
exchange or transfer is being made receives payment from the investment company
portfolio in which it invests. Payment shall be in federal funds transmitted
by wire or by any other method mutually agreed upon by the parties hereto.
1.8 Issuance and transfer of shares of the Portfolios will be by
book entry only, unless otherwise required by state insurance authorities.
Fund and Distributor agree that shares ordered from the Fund will be recorded
properly in an appropriate title for the Separate Accounts or the appropriate
subaccounts of the Separate Accounts.
1.9 The Fund shall promptly furnish same-day notice (by wire or
telephone or facsimile, followed by written confirmation) to the Company of any
income dividends or capital gain distributions payable on the shares of the
Portfolios. The Company hereby elects to reinvest in the Portfolios all such
dividends and distributions as are payable on a Portfolio's shares and to
receive such dividends and distributions in additional shares of that
Portfolio. The Company reserves the right to revoke this election in writing
and to receive all such dividends and distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall instruct its recordkeeping agent to advise the
Company on each business day of the net asset value per share for each
Portfolio as soon as reasonably practical after the net asset value per share
is calculated, (normally by 6:00 p.m., New York City time), and shall use its
best efforts to make such net asset value per share available by 6:30 p.m., New
York City time.
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<PAGE> 7
ARTICLE II. - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under California law and that it is
taxed as an insurance company under Subchapter L of the Code.
2.2 The Company represents and warrants that it has legally and
validly established each of the Separate Accounts as a segregated asset account
under the California Insurance Code, and that each of the Separate Accounts is
a validly existing segregated asset account under California law.
2.3 The Company represents and warrants that the Variable
Contracts issued by the Company or interests in the Separate Accounts under
such Variable Contracts (1) and or, prior to issuance, will be registered as
securities under the Securities Act of 1933 ("1933 Act") or, alternatively (2)
are not registered because they are properly exempt from registration under the
1933 Act.
2.4 The Company represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Company represents that it believes, in good faith, that
the Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance contracts (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Company represents and warrants that any of its Separate
Accounts that fund variable life insurance contracts and that are registered
with the SEC as
6
<PAGE> 8
investment companies, rely on the exemptions provided by Rule 6e-2 or Rule
6e-3(T), or any successor thereto, under the 1940 Act.
2.7 The Fund represents and warrants that it is duly organized as
a business trust under the laws of the state of Delaware, and is in good
standing under applicable law.
2.8 The Fund represents and warrants that the shares of the
Portfolios are duly authorized for issuance in accordance with applicable law
and that the Fund is registered as an open-end management investment company
under the 1940 Act.
2.9 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance contracts and variable
annuity contracts, and that each Portfolio has complied with such provisions
since its commencement of operations.
2.10 The Distributor represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. - GENERAL DUTIES
3.1 The Fund shall take all such actions as are necessary to permit
the sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify its shares for
sale in accordance with the laws of the various
7
<PAGE> 9
states to the extent deemed necessary by the Fund or the Distributor. The Fund
and Distributor shall take all steps necessary to sell shares of the Fund in
compliance with all applicable federal and state securities laws.
3.2 The Fund shall make every effort to maintain qualification of
each Portfolio as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Company
immediately upon having a reasonable basis for believing that a Portfolio has
ceased to so qualify or that it might not so qualify in the future; and to meet
the distribution requirements necessary to avoid payment of any excise tax
pursuant to Section 4982 of the Code.
3.3 The Fund and Manager or a sub-manager as appropriate will
invest the assets of the Portfolios in such a manner as to ensure that the
Variable Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Code and the regulations thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Manager
on behalf of the Fund shall make every effort to enable each Portfolio to comply
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance contracts and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Company immediately upon having a reasonable
basis for believing that any Portfolio has ceased or might cease to comply.
3.4 The Fund and Manager agree that each Portfolio of the Fund
shall be managed consistent with its investment objective or objectives,
investment policies, and investment restrictions as described in the Fund's
prospectus and registration statement, as amended or modified from time to
time.
8
<PAGE> 10
3.5 The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all
necessary approvals to offer the Variable Contracts from the applicable state
insurance commissioners.
3.6 The Company shall make every reasonable effort to maintain the
treatment of the Variable Contracts issued by the Company as annuity contracts
or life insurance contracts, whichever is appropriate, under applicable
provisions of the Code, and shall notify the Fund and the Distributor
immediately upon having a reasonable basis for believing that such Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.7 The Company shall require that any person who offers and sells
the Variable Contracts issued by the Company do so in accordance with
applicable provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD
Rules of Fair Practice, banking and state law respecting the offering of
variable life insurance contracts and variable annuity contracts.
3.8 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the NASD Rules of Fair Practice, and state law.
3.9 A majority of the Board of Trustees of the Fund shall consist
of persons who are not "interested persons" of the Fund ("disinterested
Trustees"), as defined by Section 2(a)(19) of the 1940 Act, except that if this
provision of this Section 3.9 is not
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met by reason of the death, disqualification, or bona fide resignation of any
Trustees, then the operation of this provision shall be suspended (a) for a
period of 45 days if the vacancy or vacancies may be filled by the Fund's
Board; (b) for a period of 60 days if a vote of shareholders is required to
fill the vacancy or vacancies; or (c) for such longer period as the SEC may
prescribe by order upon application.
3.10 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and banking and state insurance
regulators) and shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
3.11 The Company shall, at least annually, submit to the Board of
Trustees of the Fund such reports, materials or data as the Trustees may
reasonably request so that the Trustees may carry out the obligations imposed
upon them by said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Board of Trustees.
3.12 Fund and Manager agree to notify the Company immediately upon
gaining knowledge of any change(s) or proposed change(s) in a Portfolio's
investment objective(s), investment policies, or investment restrictions, in any
material services provided to the Fund or Portfolio, or in any service agreement
with respect to any services provided to the Fund or Portfolio, and to cooperate
with the Company in obtaining any necessary approvals from state insurance
authorities before implementing any such change(s).
ARTICLE IV. - POTENTIAL CONFLICTS
4.1 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflicts between the interests of
owners of variable annuity contracts and variable life insurance contracts. An
irreconcilable material conflict may
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arise for a variety of reasons, including (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretive letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
the Fund or any Portfolio are being managed; or (e) a decision by the Company
to disregard the voting instructions of Variable Contract Owners.
4.2 The Company agrees that it shall be responsible for reporting
any potential or existing conflicts to the Fund's Board of Trustees. The
Company will be responsible for assisting the Board of Trustees of the Fund in
carrying out its responsibilities under this Agreement, by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever Variable Contract Owner voting instructions are
disregarded. The Company shall carry out its responsibility under this Section
4.2 with a view only to the interests of the Variable Contract Owners.
4.3 The Company agrees that in the event that it is determined by
a majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Company shall, at its own expense and to the extent reasonably practical (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to eliminate the irreconcilable
material conflict, including: (1) withdrawing the assets allocable to some or
all of the Separate Accounts from the Fund or any Portfolio and reinvesting
such assets in a different investment medium, which may include another
Portfolio of the Fund, or submitting the question of whether such segregation
should be implemented to a vote of
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all affected Variable Contract Owners and, as appropriate, segregating the
assets of any appropriate group that votes in favor of such segregation, or
offering to the affected Variable Contract Owners the option of making such a
change; and (2) establishing a new registered management investment company or
managed separate account. If a material irreconcilable conflict arises because
of the Company's decision to disregard Variable Contract Owners' voting
instructions and that decision represents a minority position or would preclude
a majority vote, the Company shall be required, at the Fund's election, to
withdraw the Separate Accounts' investment in the Fund, and no charge or
penalty will be imposed as a result of such withdrawal. The Fund shall neither
be required to bear the costs of remedial actions taken to remedy a material
irreconcilable conflict nor shall it be requested to pay a higher investment
advisory fee for the sole purpose of covering such costs. In addition, no
Variable Contract Owner shall be required directly or indirectly to bear the
direct or indirect costs of remedial actions taken to remedy a material
irreconcilable conflict. A majority of the disinterested members of the Board
of Trustees of the Fund shall determine whether any proposed action adequately
remedies any material irreconcilable conflict, but in no event will the Fund be
required to establish a new funding medium for any Variable Contract. A new
funding medium for any Variable Contract need not be established by the Company
pursuant to this Section 4.3, if an offer to do so has been declined by vote of
a majority of Variable Contract Owners who would be materially and adversely
affected by the irreconcilable material conflict. All reports received by the
Fund's Board of Trustees of potential or existing conflicts, and all Board
action with regard to determining the existence of a conflict, notifying the
Company and the Fund's investment Manager of a conflict, shall be properly
recorded in the minutes of the Board of Trustees of the Fund or other
appropriate records, and such
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<PAGE> 14
minutes or other records shall be made available to the SEC upon request. The
Company and the Fund shall carry out their responsibilities under this Section
4.3 with a view only to the interests of the Variable Contract Owners.
4.4 The Board of Trustees of the Fund shall promptly notify the
Company in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. - PROSPECTUSES AND PROXY STATEMENTS, VOTING
5.1 The Company shall distribute such prospectuses, proxy
statements and periodic reports of the Fund to the owners of Variable Contracts
issued by the Company as required to be distributed to such Variable Contract
Owners under applicable federal or state laws.
5.2 The Distributor shall provide the Company with as many copies
of the current prospectus of the Fund as the Company may reasonably request.
If requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type
or in camera-ready copy) and other assistance as is reasonably necessary in
order for the Company to print together in one document the current prospectus
for the Variable Contracts issued by the Company and the current prospectus for
the Fund. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners, and
the Company shall bear the expense of printing copies of the Fund's prospectus
that are used in connection with offering the Variable Contracts issued by the
Company.
5.3 The Distributor shall provide the Company with as many copies
of the current Statement of Additional Information ("SAI") of the Fund as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Fund shall provide
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such documentation (including a final copy of the Fund's SAI as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current SAI for the
Variable Contracts issued by the Company and the current SAI for the Fund. The
Fund shall bear the expense of printing copies of its current SAI that may be
distributed to existing Variable Contract Owners, and the Company shall bear
the expense of printing copies of the Fund's SAI that are used in connection
with offering the Variable Contracts issued by the Company.
5.4 The Fund, at its expense, shall provide the Company with
copies of its proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company shall reasonably
require for purposes of distributing to owners of Variable Contracts issued by
the Company and to state insurance authorities. The Fund, at the Company's
expense, shall provide the Company with copies of its periodic reports to
shareholders and other communications to shareholders in such quantity as the
Company shall reasonably request for use in connection with offering the
Variable Contracts issued by the Company. If requested by the Company in lieu
thereof, the Fund shall provide such documentation (including a final copy of
the Fund's proxy materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for the Company to print
such shareholder communications for distribution to owners of Variable
Contracts issued by the Company.
5.5 For so long as the SEC interprets the 1940 Act to require
pass-through voting by the Company whose Separate Accounts are registered as
investment companies under the 1940 Act ("Registered Separate Accounts"), the
Company shall vote shares of each Portfolio of the Fund held in Registered
Separate Accounts or subaccounts thereof,
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<PAGE> 16
at regular and special meetings of the Fund in accordance with instructions
timely received by the Company (or a designated agent) from owners of Variable
Contracts funded by such Registered Separate Accounts or subaccounts thereof
having a voting interest in the Portfolio. The Company shall vote shares of a
Portfolio of the Fund held in Registered Separate Accounts or subaccounts
thereof that are attributable to the Variable Contracts as to which no timely
instructions are received, as well as shares held in such Registered Separate
Accounts or subaccounts thereof that are not attributable to the Variable
Contracts and owned beneficially by the Company (resulting from charges against
the Variable Contracts or otherwise), in the same proportion as the votes cast
by owners of the Variable Contracts funded by that Separate Account or
subaccount thereof having a voting interest in the Portfolio from whom
instructions have been timely received. The Company shall vote shares of each
Portfolio of the Fund held in its general account or in any Separate Account
that is not registered under the 1940 Act, if any, and any affiliate of the
Company shall vote shares of a Portfolio of the Fund that it holds, in its
discretion or in the same proportion as the votes cast with respect to shares
of the Portfolios held in all Registered Separate Accounts of the Company or
subaccounts thereof, in the aggregate. In the event that the Shared Funding
Exemptive Order requires all Participating Insurance Companies to calculate
voting privileges in substantially the same manner, the Company agrees to take
steps so that each Registered Separate Account or subaccount thereof investing
in the Fund calculates voting privileges substantially in the manner
established by the Fund, provided that such manner is reasonable and
communicated to the Company by the Fund.
5.6 To the extent applicable, the Fund shall disclose in its
prospectus, in substance, that: (1) shares of the Portfolios of the Fund are
offered to affiliated or
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unaffiliated insurance company separate accounts which fund both annuity and
life insurance contracts, (2) due to differences in tax treatment or other
considerations, the interests of various Variable Contract Owners participating
in the Fund or a Portfolio might at some time be in irreconcilable conflict,
and (3) the Board of Trustees of the Fund will monitor for any material
irreconcilable conflicts and determine what action, if any, should be taken.
ARTICLE VI. - SALES MATERIAL AND INFORMATION
6.1 The Company agrees that neither it nor any of its affiliates
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund other than the information or representation
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund, or its designee
(the Manager), and/or by the Distributor or its designee, except with the prior
permission of the Fund or its designee and/or the Distributor or its designee.
The Parties agree that total return information of the Fund and its Portfolios
derived from the prospectus or Registration Statement of the Fund or from
reports provided by the Fund, the Manager, or Distributor to the Company may be
used by the Company in connection with the sale of the Variable Contracts
without prior approval of the Fund or the Distributor, or their designees, and
the Company shall be responsible for using such information in conformity with
the information it is provided.
6.2 The Fund or the Distributor or the designee of either shall
furnish to the Company or its designee, each piece of sales literature or other
promotional material in
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<PAGE> 18
which the Company or its Separate Accounts are named, and no such material
shall be used without the prior approval of the Company or its designee.
6.3 The Fund and the Distributor agree that each and the
affiliates of each shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Separate Accounts, or
the Variable Contracts issued by the Company, other than the information or
representations contained in a registration statement, prospectus or SAI for
such Variable Contracts, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports for the Separate
Accounts or prepared for distribution to owners of such Variable Contracts, or
in sales literature or other promotional material approved by the Company or
its designee, except with the prior permission of the Company.
6.4 The Fund will provide to the Company at least one complete
copy of all prospectuses, SAI's, reports, proxy statements and other voting
solicitation materials, and all amendments and supplements to any of the above,
that relate to the Fund or its shares, promptly after the filing of such
document with the SEC and other regulatory authorities.
6.5 The Company will provide to the Fund at least one complete
copy of all prospectuses (which shall include an offering memorandum if the
Variable Contracts issued by the Company or interests therein are not
registered under the 1933 Act), SAI's, reports, solicitations for voting
instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Accounts
promptly after the filing of such document with the SEC or other regulatory
authority.
6.6 For purposes of this Article VI, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material
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published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, computerized media, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees.
ARTICLE VII - INDEMNIFICATION
7.1 Indemnification By the Company
The Company agrees to indemnify and hold harmless the Fund, the
Manager and the Distributor, each of their Trustees/Directors and officers, and
each person, if any, who controls the Manager or Distributor within the meaning
of Section 15 of the 1933 Act, (collectively, the "Indemnified Parties" for
purposes of this Section 7.1), against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation expenses (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts or to the operation of the Separate Accounts or
the Fund, and in any such case:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement, prospectus (which shall include an offering
memorandum) or SAI for the Separate Accounts or sales literature for
the Variable Contracts issued by the Company (or any amendment or
supplement to any of the
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foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company, directly or
indirectly, by or on behalf of any Indemnified Party for use in the
registration statement, prospectus or SAI for the Separate Account or
in sales literature issued by the Company (or any amendment or
supplement to any of the foregoing) or otherwise, for use in
connection with the sale of the Variable Contracts or Fund shares or
acceptance of applications for the Variable Contracts; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations (1) contained
in the registration statement, prospectus, SAI, or sales literature of
the Fund or any amendment or supplement to any of the foregoing not
supplied by the Company or persons under its control, or (2) contained
in the registration statement, prospectus, or SAI for the Separate
Account, or sales literature for the Variable Contracts made in
reliance upon and in conformity with information furnished to the
Company by or on behalf of the Fund, the Manager or the Distributor)
or wrongful conduct of the Company or any of its affiliates, employees
or agents (but not including agents that are Indemnified Parties or
employees or agents of Indemnified Parties) thereof with respect to
the sale or distribution of the Variable Contracts issued by the
Company or the Fund shares or the acceptance of applications for the
Variable Contracts; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, SAI or sales literature of the Fund (or any amendment
thereof or supplement to the foregoing) or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if
such a statement or omission was made in reliance upon information
furnished to an Indemnified Party by or on behalf of the Company; or
(iv) arise out of or result from the material breach of
any representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Company;
except to the extent provided in Sections 7.4 and 7.5 hereof.
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7.2 Indemnification By the Manager
The Manager agrees to indemnify and hold harmless the Fund, the
Distributor and the Company and its Separate Accounts, each of their
Trustees/Directors and officers, and each person, if any, who controls the
Distributor or Company within the meaning of Section 15 of the 1933 Act,
(collectively, the "Indemnified Parties" for purposes of this Section 7.2),
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Distributor and or the Company) or
litigation expenses (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or litigation
expenses:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus of the Fund or sales literature of the
Variable Contracts or the Fund generated by the Manager or an
affiliate thereof (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Manager or the Fund or
the designee of either by or on behalf of any Indemnified Party for
use in the registration statement, prospectus, or SAI for the Fund or
in sales literature for the Fund or the Variable Contracts or
otherwise, for use in connection with the sale of the Variable
Contracts issued by the Company or Fund shares or the acceptance of
applications for the Variable Contracts; or
(ii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus,
or SAI for the Separate Account or sales literature for the Variable
Contracts, (or any amendment or supplement to any of the foregoing),
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Indemnified Party by or on
behalf of the Manager; or
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(iii) arise out of or result from the material breach of any
representation and/or warranty made by the Manager in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Manager, including but not limited to, compliance
with the diversification requirements of Section 817(h) of the Code
and qualification of each Portfolio of the Fund as a Regulated
Investment Company under Subchapter M of the Code;
except to the extent provided in Section 7.4 and 7.5 hereof.
7.3 Indemnification By the Distributor
The Distributor agrees to indemnify and hold harmless the Fund, the
Manager and the Company and its Separate Accounts, each of their Trustees and
officers, and each person, if any, who controls the Fund, the Manager or
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts or to the operation
of the Fund, in any such case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund generated by
the Distributor (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Distributor directly or indirectly or its
designee by or on behalf of any Indemnified Party; for use in sales
literature for the Fund or otherwise in connection with the sale of
Fund shares; or
(ii) arise out of as a result of any unauthorized use of any sales
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materials related to the Fund by the Distributor, or wrongful conduct
of Distributor, or the affiliates, employees, or agents of Distributor
with respect to the sale or distribution of the Fund shares, including
but not limited to any verbal or written misrepresentations, or
unlawful sales practices.
except to the extent provided in Section 7.4 and 7.5 hereof.
7.4 No person required to provide indemnification under the terms
of Sections 7.1, 7.2, or 7.3 of this Agreement shall be liable under any such
section with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party under any such section would otherwise
be subject by reason of willful misfeasance, or bad faith on the part of such
Indemnified Party, or gross negligence (negligence if the Manager), in the
performance of his or her duties or by reason of his or her reckless disregard
of obligations or duties under this Agreement or to the Fund or the Separate
Account, as applicable.
7.5 No person required to provide indemnification under the terms
of Sections 7.1, 7.2 or 7.3 of this Agreement ("Indemnifying Party") shall be
liable under the terms of any such section with respect to any claim made
against an Indemnified Party under any such section unless such Indemnified
Party shall have notified the Indemnifying Party in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or
after such Party shall have received notice of such service on any designated
agent), but failure to notify the Indemnifying Party of any such claim shall
not relieve the Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of the above designated indemnification provisions. In case any such action is
brought against an Indemnified Party, the Indemnifying Party shall be entitled
to participate, at its own expense, in the
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defense of such action. The Indemnifying Party also shall be entitled to assume
the defense thereof, with counsel satisfactory to the Indemnified Party named
in the action. After notice from the Company to such Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Indemnifying Party will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.6 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the commencement of any litigation or proceedings
against it or any of its officers or Trustees or affiliated persons in
connection with the issuance or sale of the Fund shares, or the acceptance of
applications for the Variable Contracts or the operation of the Fund the
Variable Contracts, or the Separate Account.
ARTICLE VIII. - APPLICABLE LAW
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
8.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including but not limited to, any mixed funding exemptive order) and
the terms hereof shall be interpreted and construed in accordance therewith.
The word "affiliate" or "affiliated" shall have the meaning as defined in
Section 2(a)(3) of the 1940 Act.
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ARTICLE IX. - TERMINATION
9.1 This Agreement shall terminate:
(a) at the option of any party to this Agreement upon 90
days advance written notice to the other parties, unless a shorter time is
agreed to by the parties to this Agreement; or
(b) at the option of the Company if shares of the
Portfolios are not reasonably available to meet the requirements of the
Variable Contracts issued by the Company, as determined by the Company, and
upon written notice by the Company to the other parties to this Agreement; or,
(c) at the option of the Fund, the Manager or the
Distributor upon institution of formal proceedings against the Company by the
NASD, the SEC, or any banking, state securities, insurance authorities or any
other regulatory body if the Fund, the Manager or the Distributor shall
determine, in their sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(d) at the option of the Company upon institution of
formal proceedings against the Fund, the Manager, or Distributor by the NASD,
the SEC, or any state securities or insurance department or any other regulatory
body if the Company shall determine, in its sole judgment exercised in good
faith, that the Fund, Manager or Distributor has suffered a material adverse
change in its business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
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(e) upon requisite vote of the Variable Contract Owners
having an interest in the Separate Accounts (or any subaccounts thereof) to
substitute the shares of another investment company or portfolio thereof for
the corresponding shares of the Fund or a Portfolio in accordance with the
terms of the Variable Contracts for which those shares had been selected to
serve as the underlying investment media; or
(f) in the event any of the shares of a Portfolio are not
registered, issued or sold in accordance with applicable state and/or federal
law, or such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company; or
(g) by any party to this Agreement upon a determination
by a majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, that an irreconcilable material conflict exists; or
(h) at the option of the Company if the Fund or a
Portfolio fails to meet the diversification requirements specified in Section
3.2 or 3.3 hereof; or
(i) at the option of the Fund or the Distributor if the
Variable Contracts issued by the Company cease to qualify as annuity contracts
or life insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with applicable
state and/or federal law; or
(j) at the option of the Company upon any substitution of
the shares of another investment company or portfolio thereof for shares of the
Fund or a Portfolio of the Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 30 days prior written notice to
the Fund or Distributor of the date of the substitution; or
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(k) at the option of any party to this Agreement upon a
material breach of this Agreement or of any representation or warranty herein
by any other party to this Agreement.
9.2 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 9.1(c) and (d) hereof. The Company
shall give 30 days prior written notice to the Fund of the date of any proposed
vote of Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.3 Under the terms of the Variable Contracts, the Company
reserves the right, subject to compliance with the law as then in effect, to
make substitutions for the securities that are held by a Separate Account of
the Company under certain circumstances. The parties acknowledge that the
Company has the right to substitute other securities for the shares of the Fund
or a Portfolio thereof already purchased or to be purchased in the future if
the shares of the Fund or any or all of the Portfolios of the Fund should no
longer be available for investment, or if, in the judgment of Company
management, further investment in shares of the Fund or any or all of the
Portfolios thereof should become inappropriate in view of the purposes of the
Contracts. The Company will provide 30 days written notice to the Fund or to
the Distributor prior to effecting any such substitution.
9.4 If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as
to that business, after termination.
9.5 Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund, the Manager, and Distributor (assuming the Manager
and/or the Distributor is still acting pursuant to an agreement with the Fund),
shall at the option of the Company,
26
<PAGE> 28
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Variable Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, based upon
instructions from the owners of the Existing Contracts, the Separate Account
shall be permitted to reallocate investments in the Portfolios of the Fund and
redeem investments in the Portfolios, and shall be permitted to invest in the
Portfolios in the event that owners of the Existing Contracts make additional
purchase payments under the Existing Contracts. If this Agreement terminates,
the parties agree that Article VII, and Sections 3.9, 11.1, 11.3, 11.4, 11.5
and 11.6, and, to the extent that all or a portion of the assets of the
Separate Account continue to be invested in the Fund or any Portfolios of the
Fund, Article I, IV and V and Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.9,
3.10 and 3.11 will remain in effect after termination.
ARTICLE X - NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: Pacific Innovations Trust
c/o PFPC Inc.
103 Bellevue Parkway
Wilmington, DE 19809
If to the Manager: Bank of America National Trust and Saving
Association
Debra McGinty Poteet
555 S. Flower Street, 5th Floor
Los Angeles, CA 90071
If to the Distributor: BISYS Fund Services Limited Partnership
3435 Stelzer Rd.
Columbus, OH 43218
27
<PAGE> 29
If to the Company: Pacific Mutual Life Insurance Company
General Counsel
700 Newport Center Drive
Newport Beach, CA 92660
ARTICLE XI - MISCELLANEOUS
11.1 The Fund and the Company agree that if and to the extent Rule
6e-2 or 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form or amended, to the extent applicable, the Fund and the Company shall
each take such steps as may be necessary to comply with such Rule as amended or
adopted in final form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on
file with the Secretary of the state of Delaware and notice is hereby given
that the Agreement has been executed on behalf of the Fund by a trustee of the
Fund in his or her capacity as Trustee and not individually. The obligations
of this Agreement shall only be binding upon the assets and property of the
Fund and shall not be binding upon any trustee, officer or shareholder of the
Fund individually.
11.3 Rights of Trustees and Shareholders. Nothing in this
Agreement shall impede the Fund's Trustees or shareholders of the shares of the
Fund's Portfolios from exercising any of the rights provided to such Trustees
or shareholders in the Fund's Declaration of Trust, as amended, a copy of which
will be provided to the Company upon request.
11.4 It is understood that the name "Pacific Mutual Life Insurance
Company" or any derivative thereof or logo associated with that name is the
valuable property of the Company and that the Fund, Manager, or Distributor has
the right to use such name (or derivative or logo), with the prior consent of
the Company for use in required regulatory filings, such consent not to be
reasonably withheld, only so long as this Agreement is in effect. Upon
termination of this Agreement the Fund, Manager or Distributor shall forthwith
cease to use such name (or derivative or logo).
28
<PAGE> 30
11.5 It is understood that the name "Bank of America National Trust
and Savings Association" or any derivative thereof or logo associated with that
name is the valuable property of the Manager and its affiliates, and that the
Company and Distributor has the right to use such name (or derivative or logo),
with prior consent of BofA for use in required regulatory filings, such consent
not to be unreasonably withheld, only so long as this Agreement is in effect.
Upon termination of this Agreement the Company and Distributor shall forthwith
cease to use such name (or derivative or logo).
11.6 It is understood that the name "BISYS Fund Services, Limited
Partnership" or any derivative thereof or logo associated with that name is the
valuable property of the Distributor and its affiliates, and that the Fund,
Manager and Company, has the right to use such name (or derivative or logo) only
so long as this Agreement is in effect. Upon termination of this Agreement the
Fund, Manager and Company shall forthwith cease to use such name (or derivative
or logo).
11.7 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
11.8 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.9 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
11.10 This Agreement may not be assigned by any party to this
Agreement except with the written consent of the other parties to this
Agreement. For purposes of this provision, assignment shall be as defined in
the Investment Company Act of 1940 and the rules thereunder.
29
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PACIFIC INNOVATIONS TRUST
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
BANK OF AMERICA
NATIONAL TRUST & SAVINGS
ASSOCIATION
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
BISYS FUND SERVICES
LIMITED PARTNERSHIP
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
PACIFIC MUTUAL LIFE INSURANCE
COMPANY
ATTEST: _______________________ By: _________________________
Name: Name
Title: Title:
30
<PAGE> 32
EXHIBIT A
Separate Accounts
Separate Account B
31
<PAGE> 33
EXHIBIT B
Portfolios
Money Market Fund
Managed Bond Fund
Capital Income Fund
Mid-Cap Fund
Blue Chip Fund
Aggressive Growth Fund
International Fund
32
<PAGE> 1
EXHIBIT 99.9
Opinion and Consent of Legal Officer of
Pacific Mutual as to the Legality of
Contracts Being Registered
<PAGE> 2
October 14, 1996
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Post Office Box 9000
Newport Beach, California 92660
Dear Sirs:
In my capacity as Vice President and Investment Counsel of Pacific Mutual Life
Insurance Company ("Pacific Mutual"), I have supervised the establishment of
Separate Account B of Pacific Mutual Life Insurance Company on September 25,
1996, by resolution of the Board of Directors of Pacific Mutual on November 22,
1989, and Memorandum dated September 25, 1996 concerning Separate Account B as
the separate account for assets applicable to Pacific Innovations Contracts,
pursuant to the provisions of Section 10506 of the Insurance Code of the State
of California. Moreover, I have been associated with the preparation of the
Registration Statement on Form N-4 ("Registration Statement") filed by Pacific
Mutual and Separate Account with the Securities and Exchange Commission (File
No. pending) under the Securities Act of 1933, as amended, for the registration
of interests in the variable annuity contracts to be issued with respect to
Separate Account B.
I have made such examination of the law and examined such corporate records and
such other documents as in my judgment are necessary and appropriate to enable
me to render the following opinion that:
1. Pacific Mutual has been duly organized under the laws of the
State of California and is a validly existing corporation.
2. Pacific Select Separate Account B is duly created and validly
existing as a separate account pursuant to the aforesaid
provisions of California law.
3. The portion of the assets to be held in Separate Account B
equal to the reserves and other liabilities under the Pacific
Innovations Contracts and any other contracts issued by
Pacific Mutual that are supported by Separate Account B is not
chargeable with liabilities arising out of any other business
Pacific Mutual may conduct.
4. The Pacific Innovations Contracts have been duly authorized by
Pacific Mutual and, when issued as contemplated by the
Registration Statement, will constitute legal, validly issued
and binding obligations of Pacific Mutual, except as limited
by bankruptcy or insolvency laws affecting the rights of
creditors generally.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/SHARON A. CHEEVER
Sharon A. Cheever, Esq.
Vice President and
Investment Counsel
<PAGE> 1
EXHIBIT 99.10(a)
Consent of Deloitte & Touche LLP,
Independent Auditor
<PAGE> 2
INDEPENDENT AUDITOR'S CONSENT
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
We hereby consent to the use in this Registration Statement for Pacific
Innovations on Form N-4 of our report dated February 23, 1996 related to
Pacific Mutual Life Insurance Company appearing in the Prospectus, which is a
part of such Registration Statement.
We also consent to the reference to us under the headings of "Independent
Accountants" and "Financial Statements" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
October 15, 1996
<PAGE> 1
EXHIBIT 99.10(b)
Consent of Dechert Price & Rhoads
<PAGE> 2
[Letterhead of Dechert Price & Rhoads]
October 14, 1996
Board of Directors
Pacific Mutual Life Insurance
Company
700 Newport Center Drive
Newport Beach, California 92660
Re: Registration Statement on Form N-4 for Interests in Separate
Account B of Pacific Mutual Life Insurance Company under
Pacific Innovations, an Individual Flexible Premium Deferred
Variable Annuity Contract
Dear Sirs and Madams:
We hereby consent to the reference to our firm under the caption
"Legal Matters" in the Prospectus comprising a part of the above-referenced
Registration Statement.
Very truly yours,
/s/DECHERT PRICE & RHOADS
Dechert Price & Rhoads
<PAGE> 1
EXHIBIT 99.15
Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10-8-96 /s/ EDWARD R. BYRD
Edward R. Byrd
Controller
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/7/96 /s/ TC SUTTON
Thomas C. Sutton
Director
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10-7-96 /s/ GLENN S. SCHAFER
Glenn S. Schafer
Director
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10-4-96 /s/ HARRY G. BUBB
Harry G. Bubb
Director
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10-9-96 /s/ RICHARD M. FERRY
Richard M. Ferry
Director
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10-6-96 /s/ DONALD E. GUINN
Donald E. Guinn
Director
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/9/96 /s/ IGNACIO E. LOZANO, JR.
Ignacio E. Lozano, Jr.
Director
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10-7-96 /s/ CHARLES A. LYNCH
Charles A. Lynch
Director
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/8/96 /s/ CHARLES D. MILLER
Charles D. Miller
Director
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: Oct 8, 1996 /s/ DONN B. MILLER
Donn B. Miller
Director
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: Oct 8, 1996 /s/ J. FERNANDO NIEBLA
A. Fernando Niebla
Director
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/9/96 /s/ JAMES R. UKROPINA
James R. Ukropina
Director
<PAGE> 14
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 10, 1996 /s/ALLEN W. MATHIES, JR
Allen W. Mathies, Jr., M.D.
Director
<PAGE> 15
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: Oct. 11, 96 /s/SUSAN PRAGER
Susan Westerberg Prager
Director
<PAGE> 16
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane
N. Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution for him/her in his/her name, place, and stead,
in any and all Registration Statements applicable to Separate Account B of
Pacific Mutual Life Insurance Company, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/10/96 /s/RAYMOND L. WATSON
Raymond L. Watson
Director
