<PAGE> 1
1999 ANNUAL REPORTS
PACIFIC INNOVATIONS TRUST
SEPARATE ACCOUNT B OF
PACIFIC LIFE INSURANCE COMPANY
[PACIFIC LIFE LOGO]
Pacific Life Insurance Company
is the issuer of Pacific Innovations variable annuity
Not FDIC Insured
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pacific Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of
Separate Account B (comprised of the Money Market, Managed Bond, Capital Income,
Blue Chip, Mid-Cap Equity, Aggressive Growth and International Variable
Accounts) as of December 31, 1999 and the related statement of operations for
the year then ended and statement of changes in net assets for each of the two
years in the period then ended December 31, 1999. These financial statements are
the responsibility of the Separate Account'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 each of the respective Variable Accounts
constituting Separate Account B as of December 31, 1999 and the results of their
operations for the year then ended and the changes in their net assets for each
of the two years in the period then ended December 31, 1999, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 17, 2000
B-1
<PAGE> 3
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MONEY MANAGED CAPITAL BLUE MID-CAP AGGRESSIVE INTER-
MARKET BOND INCOME CHIP EQUITY GROWTH NATIONAL
VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Money Market Fund
(1,495,478 shares;
cost $1,495,478) .......... $ 1,495,478
Managed Bond Fund
(1,228,283 shares;
cost $12,430,832) ......... $11,938,914
Capital Income Fund
(1,533,508 shares;
cost $17,250,758) ......... $21,254,424
Blue Chip Fund
(1,893,801 shares;
cost $23,816,019) ......... $32,365,055
Mid-Cap Equity Fund
(657,275 shares;
cost $8,118,492) .......... $ 9,510,771
Aggressive Growth Fund
(427,517 shares;
cost $4,516,965) .......... $ 4,694,132
International Fund
(485,645 shares;
cost $5,214,507) .......... $ 6,823,319
Receivables:
Due from Pacific Life
Insurance Company ......... 3,579 62,983 8,734
Fund shares redeemed ........ 9,017 44,529 4,933 20,238
-----------------------------------------------------------------------------------------------
Total Assets ................... 1,499,057 12,001,897 21,263,441 32,409,584 9,515,704 4,702,866 6,843,557
-----------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to Pacific Life
Insurance Company ......... 9,017 44,529 4,933 20,238
Fund shares purchased ....... 3,579 62,983 8,734
Other Liabilities ........... 99 673 1,251 1,758 577 279 379
-----------------------------------------------------------------------------------------------
Total Liabilities .............. 3,678 63,656 10,268 46,287 5,510 9,013 20,617
-----------------------------------------------------------------------------------------------
NET ASSETS ..................... $ 1,495,379 $11,938,241 $21,253,173 $32,363,297 $ 9,510,194 $ 4,693,853 $ 6,822,940
===============================================================================================
</TABLE>
See Notes to Financial Statements
B-2
<PAGE> 4
SEPARATE ACCOUNT B
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MONEY MANAGED CAPITAL BLUE MID-CAP AGGRESSIVE INTER-
MARKET BOND INCOME CHIP EQUITY GROWTH NATIONAL
VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends .................. $ 80,781 $ 631,442 $ 836,388 $ 2,425,023 $ 1,259,615 $ 512,173
EXPENSES
Mortality and expense
risk fee and
administrative fee ....... 25,053 174,382 280,888 413,029 121,602 $ 65,360 80,714
--------------------------------------------------------------------------------------------------
Net Investment Income
(Loss) ...................... 55,728 457,060 555,500 2,011,994 1,138,013 (65,360) 431,459
--------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain
(loss) from security
transactions ............. (52,187) 190,021 83,654 38,617 (182,788) 50,321
Net unrealized
appreciation
(depreciation) on
investments .............. (621,415) 3,549,570 3,138,548 (129,258) 361,654 1,498,165
--------------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on Investments .... (673,602) 3,739,591 3,222,202 (90,641) 178,866 1,548,486
--------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS ................. $ 55,728 $ (216,542) $ 4,295,091 $ 5,234,196 $ 1,047,372 $ 113,506 $ 1,979,945
==================================================================================================
</TABLE>
See Notes to Financial Statements
B-3
<PAGE> 5
SEPARATE ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MONEY MANAGED CAPITAL BLUE MID-CAP AGGRESSIVE INTER-
MARKET BOND INCOME CHIP EQUITY GROWTH NATIONAL
VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS
Net investment income
(loss) ............... $ 55,728 $ 457,060 $ 555,500 $ 2,011,994 $ 1,138,013 $ (65,360) $ 431,459
Net realized gain
(loss) from security
transactions ......... (52,187) 190,021 83,654 38,617 (182,788) 50,321
Net unrealized
appreciation
(Depreciation) on
investments .......... (621,415) 3,549,570 3,138,548 (129,258) 361,654 1,498,165
------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations ........ 55,728 (216,542) 4,295,091 5,234,196 1,047,372 113,506 1,979,945
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL
UNIT TRANSACTIONS
Transfer of net
premiums ............. 68,330 249,352 253,062 622,291 153,139 75,887 69,042
Transfers--policy
charges and
deductions ........... (23,361) (174,382) (486,485) (514,208) (130,052) (89,485) (29,369)
Transfers in (from
other variable
accounts) ............ 376,404 990,203 535,629 2,243,771 382,582 442,698 261,522
Transfers out (to other
variable accounts) ... (341,099) (717,904) (870,401) (841,294) (285,925) (756,359) (348,993)
Transfers--other ....... (671,853) (956,720) (2,367,760) (2,118,412) (657,448) (358,725) (569,709)
------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets
Derived from Policy
Transactions ............ (591,579) (609,451) (2,935,955) (607,852) (537,704) (685,984) (617,507)
------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS ............. (535,851) (825,993) 1,359,136 4,626,344 509,668 (572,478) 1,362,438
------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year ...... 2,031,230 12,764,234 19,894,037 27,736,953 9,000,526 5,266,331 5,460,502
------------------------------------------------------------------------------------------------------
End of Year ............ $ 1,495,379 $ 11,938,241 $ 21,253,173 $ 32,363,297 $ 9,510,194 $ 4,693,853 $ 6,822,940
======================================================================================================
</TABLE>
See Notes to Financial Statements
B-4
<PAGE> 6
SEPARATE ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
MONEY MANAGED CAPITAL BLUE MID-CAP AGGRESSIVE INTER-
MARKET BOND INCOME CHIP EQUITY GROWTH NATIONAL
VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE VARIABLE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income
(loss) ................ $ 50,768 $ 427,487 $ 331,786 $ 98,208 $ (19,469) $ (63,923) $ (20,253)
Net realized loss from
security transactions . (9,623) (93,496) (107,879) (71,415) (165,051) (78,491)
Net unrealized
appreciation on
investments ........... 98,524 648,802 4,781,389 1,236,645 22,558 475,133
------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting
from Operations ......... 50,768 516,388 887,092 4,771,718 1,145,761 (206,416) 376,389
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM CAPITAL
UNIT TRANSACTIONS
Transfer of net
premiums .............. 3,043,107 4,357,974 7,644,172 9,763,955 2,995,500 1,702,212 1,136,951
Transfers--policy
charges and
deductions ............ (1,411) (235,580) (402,921) (528,336) (117,566) (48,805) (32,116)
Transfers in (from
other variable
accounts) ............. 1,521,239 3,055,492 1,894,356 2,872,605 1,089,142 916,084 858,336
Transfers out (to other
variable accounts) .... (3,489,527) (903,363) (1,269,659) (1,947,538) (542,402) (425,040) (652,643)
Transfers--other ........ (580,062) (458,397) (793,647) (936,032) (330,919) (196,158) (220,224)
------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Derived from Policy
Transactions .......... 493,346 5,816,126 7,072,301 9,224,654 3,093,755 1,948,293 1,090,304
------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS . 544,114 6,332,514 7,959,393 13,996,372 4,239,516 1,741,877 1,466,693
------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year ....... 1,487,116 6,431,720 11,934,644 13,740,581 4,761,010 3,524,454 3,993,809
------------------------------------------------------------------------------------------------------
End of Year ............. $ 2,031,230 $ 12,764,234 $ 19,894,037 $ 27,736,953 $ 9,000,526 $ 5,266,331 $ 5,460,502
======================================================================================================
</TABLE>
See Notes to Financial Statements
B-5
<PAGE> 7
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Separate Account B (the "Separate Account") is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and is
currently comprised of seven subaccounts called Variable Accounts: the Money
Market Variable Account, the Managed Bond Variable Account, the Capital Income
Variable Account, the Blue Chip Variable Account, the Mid-Cap Equity Variable
Account, the Aggressive Growth Variable Account and the International Variable
Account. The assets in each Variable Account are invested in shares of the
corresponding Funds of Pacific Innovations Trust (the "Trust"), each of which
pursues different investment objectives and policies. The financial statements
of the Trust, including the schedules of portfolio investments, are included
elsewhere in this report and should be read in conjunction with the Separate
Account's financial statements.
The Separate Account was established by Pacific Life Insurance Company
("Pacific Life") on September 25, 1996 and commenced operations on March 1,
1997. Under applicable insurance law, the assets and liabilities of the Separate
Account are clearly identified and distinguished from the other assets and
liabilities of Pacific Life. The assets of the Separate Account will not be
charged with any liabilities arising out of any other business conducted by
Pacific Life, but the obligations of the Separate Account, including benefits
related to variable annuities, are obligations of Pacific Life.
Pacific Life obtained approval on February 3, 2000 from the Securities and
Exchange Commission ("SEC") to substitute portfolios of another mutual fund,
Pacific Select Fund, for the funds of Pacific Innovations Trust. At the close of
business on February 11, 2000 ("Substitution Date"), the shares of each Fund of
Pacific Innovations Trust will be substituted with the shares of the following
designated Portfolios of Pacific Select Fund that has similar investment
policies:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
PACIFIC INNOVATIONS PACIFIC SELECT FUND
TRUST FUNDS PORTFOLIOS
- -----------------------------------------------------------------------
<S> <C>
Money Market Money Market
- -----------------------------------------------------------------------
Managed Bond Managed Bond
- -----------------------------------------------------------------------
Capital Income Multi-Strategy
- -----------------------------------------------------------------------
Blue Chip Equity
- -----------------------------------------------------------------------
Mid-Cap Equity Growth LT
- -----------------------------------------------------------------------
Aggressive Growth Aggressive Equity
- -----------------------------------------------------------------------
International International Value
- -----------------------------------------------------------------------
</TABLE>
Subsequent to the Substitution Date, the Contract Owners can choose from
twenty investment options, also called Variable Accounts: the Aggressive Equity
Variable Account, the Emerging Markets Variable Account, the Diversified
Research Variable Account, the Small-Cap Equity Variable Account, the
International Large-Cap Variable Account, the Bond and Income Variable Account,
the Equity Variable Account, the Multi-Strategy Variable Account, the Equity
Income Variable Account, the Growth LT Variable Account, the Mid-Cap Value
Variable Account, the Equity Index Variable Account, the Small-Cap Index
Variable Account, the REIT Variable Account, the International Value Variable
Account, the Government Securities Variable Account, the Managed Bond Variable
Account, the Money Market Variable Account, the High Yield Bond Variable
Account, and the Large-Cap Value Variable Account. The assets in each Variable
Account will be invested in shares of the corresponding portfolios of Pacific
Select Fund.
The Separate Account held by Pacific Life represents funds from individual
flexible premium variable accumulation deferred annuity contracts (the
"Contract").
The preparation of the accompanying financial statements 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
income and expenses during the reporting period. Actual results could differ
from those estimates.
A. Valuation of Investments
Investments in shares of the Trust are valued at the reported net asset values
of the respective Funds. Valuation of securities held by the Trust is discussed
in the notes to its financial statements.
B. Security Transactions
Transactions are recorded on the trade date. Realized gains and losses on
sales of investments are determined on the basis of identified cost.
C. Federal Income Taxes
The operations of the Separate Account will be reported on the Federal income
tax return of Pacific Life, which is taxed as a life insurance company under the
provisions of the Tax Reform Act of 1986. Under current tax law, no Federal
income taxes are expected to be paid by Pacific Life with respect to the
operations of the Separate Account.
2. DIVIDENDS
During 1999, the Trust declared dividends for each Fund except for the
Aggressive Growth Fund. The amounts accrued by the Separate Account for its
share of the dividends were reinvested in additional full and fractional shares
of the related Fund.
B-6
<PAGE> 8
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SELECTED ACCUMULATION UNIT** INFORMATION
Selected accumulation unit information for the year ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Accumulation Unit Value
-----------------------------------------------------------------------
At Number of
Beginning Units
of At End of Outstanding at
Variable Accounts Year Year End of Year
-----------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $ 10.68 $ 11.02 135,728
Managed Bond 11.10 10.92 1,093,676
Capital Income 11.97 14.81 1,434,674
Blue Chip 15.28 18.19 1,779,372
Mid-Cap Equity 14.60 16.39 580,127
Aggressive Growth 11.26 11.59 404,921
International 10.94 15.22 448,230
</TABLE>
** Accumulation Unit: unit of measure used to calculate the value
of a Contract Owner's interest in a Variable Account during the
Accumulation Period.
4. SEPARATE ACCOUNT'S COST OF INVESTMENTS IN THE TRUST SHARES
The investment in the Trust shares are carried at identified cost, which
represents the amount available for investment (including reinvested
distributions of net investment income and realized gains) in such shares after
deduction of mortality and expense risk and administrative charges (M&E). Total
cost and market value of the Separate Account's investments in the Trust as of
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
VARIABLE ACCOUNTS
----------------------------------------------------------------
MONEY MANAGED CAPITAL BLUE
MARKET BOND INCOME CHIP
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Total cost of investments at beginning of year $ 2,031,421 $ 12,635,445 $ 19,441,065 $ 22,327,949
Add: Total net proceeds from policy and M&E transactions 378,759 791,794 267,846 1,881,211
Reinvested distributions from the Trust
(a) Net investment income 80,781 631,442 632,758 69,280
(b) Net realized gain 203,630 2,355,743
----------------------------------------------------------------
Sub-Total 2,490,961 14,058,681 20,545,299 26,634,183
Less: Cost of investments disposed during the year 995,483 1,627,849 3,294,541 2,818,164
----------------------------------------------------------------
Total cost of investments at end of year 1,495,478 12,430,832 17,250,758 23,816,019
Add: Unrealized appreciation (depreciation) (491,918) 4,003,666 8,549,036
----------------------------------------------------------------
Total market value of investments at end of year $ 1,495,478 $ 11,938,914 $ 21,254,424 $ 32,365,055
================================================================
</TABLE>
<TABLE>
<CAPTION>
MID-CAP AGGRESSIVE INTER-
EQUITY GROWTH NATIONAL
----------------------------------------
<S> <C> <C> <C>
Total cost of investments at beginning of year $7,479,517 $5,451,119 $5,350,153
Add: Total net proceeds from policy and M&E transactions 323,723 348,470 205,410
Reinvested distributions from the Trust
(a) Net investment income 15,359 23,620
(b) Net realized gain 1,244,256 488,553
----------------------------------------
Sub-Total 9,062,855 5,799,589 6,067,736
Less: Cost of investments disposed during the year 944,363 1,282,624 853,229
----------------------------------------
Total cost of investments at end of year 8,118,492 4,516,965 5,214,507
Add: Unrealized appreciation 1,392,279 177,167 1,608,812
----------------------------------------
Total market value of investments at end of year $9,510,771 $4,694,132 $6,823,319
========================================
</TABLE>
B-7
<PAGE> 9
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (Continued)
5. CHARGES AND EXPENSES
Pacific Life charges the Separate Account daily for mortality and expense
risks assumed and administrative costs incurred in operating the Separate
Account and issuing and administering the Contracts at an annual rate of 1.25%
and 0.15%, respectively, of the average daily net assets of each Variable
Account. Under the Contracts, Pacific Life makes certain deductions from the net
assets of each Variable Account for contract maintenance, any state premium
taxes, and any surrender charges. The operating expenses of the Separate Account
are paid by Pacific Life.
6. RELATED PARTY AGREEMENT
Pacific Mutual Distributors, Inc., a wholly-owned subsidiary of Pacific Life,
is the principal underwriter of variable annuity contracts funded by interests
in the Separate Account, and is compensated by Pacific Life.
--------------------
B-8
