<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Pacific Select Fund
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Pacific Select Fund
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF PACIFIC SELECT FUND]
THOMAS C. SUTTON
Chairman of the Board
and President
July 1, 1997
Dear Variable Contract Owner:
We are pleased to enclose a Notice and Proxy Statement for the Special
Meeting of Shareholders (the "Meeting") of the International Portfolio of
Pacific Select Fund (the "Fund"):
The meeting is scheduled to be held at 2:30 p.m. Pacific Time on August 8,
1997 at 700 Newport Center Drive, Newport Beach, California 92660. Please take
the time to read the Proxy Statement and cast your vote, since it covers
matters that are important to the Fund and to you as a variable contract owner
having an interest in the International Portfolio.
The purpose of the Meeting is to seek your approval of a Portfolio
Management Agreement with Morgan Stanley Asset Management Inc. ("Morgan
Stanley") the new Portfolio Manager for the International Portfolio. Effective
June 1, 1997, Morgan Stanley replaced Templeton Investment Counsel, Inc.
("Templeton") as the Portfolio Manager for the International Portfolio after
Templeton indicated that because of its competitive business considerations,
it no longer could manage assets associated with variable contracts of Pacific
Mutual Life Insurance Company.
The Trustees have concluded that this proposal is in the best interests of
the Fund and its shareholders and recommend that you vote for this proposal,
which is described in more detail in the enclosed Proxy Statement.
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
/s/ THOMAS C. SUTTON
----------------------------
Thomas C. Sutton
PACIFIC SELECT FUND
700 Newport Center Drive, Newport Beach, California 92660,
Telephone (714) 640-3126 FAX (714) 721-5130
<PAGE>
PACIFIC SELECT FUND
700 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JULY 1, 1997
----------------
To the Shareholders of the International Portfolio of Pacific Select Fund:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the International Portfolio of Pacific Select Fund (the "Fund")
will be held at 2:30 p.m. Pacific Time on August 8, 1997 at 700 Newport Center
Drive, Newport Beach, California 92660 for the following purposes:
I. To consider and vote on approval of the Portfolio Management Agreement
with Morgan Stanley Asset Management Inc. ("Morgan Stanley") for the
International Portfolio under which Morgan Stanley would continue to serve
as Portfolio Manager of the International Portfolio;
II. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Trustees has fixed the close of business on June 13, 1997, as
the record date for determining shareholders entitled to notice of and to vote
at the Meeting and any adjournment thereof.
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting are requested to complete, sign, and return the
enclosed proxy promptly. The enclosed proxy is being solicited by the Board of
Trustees of the Fund.
PLEASE RESPOND--YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING, PLEASE FILL IN, SIGN, AND MAIL THE PROXY IN THE ENVELOPE
PROVIDED.
By Order of the Board of Trustees
By:
Audrey L. Milfs, Secretary
Newport Beach, California
July 1, 1997
<PAGE>
----------------
PROXY STATEMENT
----------------
PACIFIC SELECT FUND
700 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
SPECIAL MEETING OF SHAREHOLDERS
OF THE INTERNATIONAL PORTFOLIO
JULY 1, 1997
SOLICITATION OF PROXIES
This statement is furnished in connection with the solicitation of proxies
on behalf of the Board of Trustees of Pacific Select Fund (the "Fund") for use
at a Special Meeting of Shareholders of the International Portfolio of the
Fund to be held at 2:30 p.m. Pacific Time on August 8, 1997 at 700 Newport
Center Drive, Newport Beach, California 92660, and at any adjournment thereof,
for the purposes set forth in the accompanying Notice of Special Meeting of
Shareholders ("Notice"). The date of the first mailing of this proxy statement
will be on or about July 1, 1997.
PROPOSAL I
APPROVAL OF SUBADVISORY AGREEMENT
INTRODUCTION
Pacific Mutual Life Insurance Company ("Pacific Mutual Life") acts as
Investment Adviser to the International Portfolio pursuant to an Investment
Advisory Agreement ("Advisory Agreement") between the Fund and Pacific Mutual
Life. As permitted by the Advisory Agreement, Pacific Mutual Life may hire a
Portfolio Manager for the International Portfolio, whose fees Pacific Mutual
Life pays out of its investment advisory fee. At the Meeting, the shareholders
of the International Portfolio will be asked to approve a new Portfolio
Management Agreement (the "New Portfolio Management Agreement") among the
Fund, Pacific Mutual Life, and Morgan Stanley Asset Management Inc. ("Morgan
Stanley").
Templeton Investment Counsel, Inc. ("Templeton") began serving as Portfolio
Manager of the International Portfolio on January 1, 1994 pursuant to a
Portfolio Management Agreement (the "Old Portfolio Management Agreement")
among the Fund, Pacific Mutual Life and Templeton that was last approved by
shareholders of the Portfolio on December 13, 1993.
Templeton advised Pacific Mutual Life that it no longer could manage assets
associated with Pacific Mutual Life variable insurance and contracts because
of its competitive business considerations. Accordingly, the Fund's Board of
Trustees, Pacific Mutual Life, and Templeton agreed to terminate the Old
Portfolio Management Agreement effective May 31, 1997, at which time Templeton
ceased serving as the Portfolio Manager of the International Portfolio.
On the recommendation of Pacific Mutual Life, the Board of Trustees decided
to retain Morgan Stanley as the Portfolio Manager for the International
Portfolio. The New Portfolio Management Agreement was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the New
Portfolio Management Agreement or interested persons of such parties, at a
meeting held on May 15, 1997, and is attached as Exhibit A. Morgan Stanley
began service as the new Portfolio Manager of the International Portfolio
effective June 1, 1997.
<PAGE>
The continuance of the New Portfolio Management Agreement is subject to the
approval of shareholders of the International Portfolio within 120 days of
commencement of the term of the New Portfolio Management Agreement (in other
words, no later than September 28, 1997). If approved by shareholders, the New
Portfolio Management Agreement will continue in effect for an initial term of
two years, and will continue from year to year thereafter, subject to approval
annually by the Board of Trustees or by the shareholders of the Portfolio, and
also, in either event, approval by a majority of those Trustees who are not
parties to the New Portfolio Management Agreement or interested persons of any
such party at a meeting called for the purpose of voting on such approval.
PORTFOLIO MANAGEMENT FEES
For the services provided under the Old Portfolio Management Agreement,
Pacific Mutual Life (not the Fund) paid Templeton a fee, payable monthly, at
the annual rate of .70% of the average daily net assets of the International
Portfolio up to $25 million, .55% of the average daily net assets of the
Portfolio on the next $25 million, .50% of the average daily net assets of the
Portfolio on the next $50 million, and .40% of the Portfolio's average daily
net assets thereafter. For the year ended December 31, 1996, Pacific Mutual
Life paid Templeton $1,382,217 for Templeton's service as Portfolio Manager of
the International Portfolio. This fee was equivalent to an annual rate of .45%
of the Portfolio's average daily net assets. For the period from January 1,
1997 through May 31, 1997, Pacific Mutual Life paid Templeton $945,379 for
Templeton's service as Portfolio Manager of the International Portfolio. This
fee was equivalent to an annual rate of .43% of the Portfolio's average daily
net assets.
Under the New Portfolio Management Agreement, Pacific Mutual Life (not the
Fund) will pay Morgan Stanley a fee, payable monthly, at the annual rate of
.35% of the International Portfolio's average daily net assets. The fee
Pacific Mutual Life will pay to Morgan Stanley under the New Portfolio
Management Agreement is somewhat reduced compared to the fees Pacific Mutual
Life paid to Templeton under the Old Portfolio Management Agreement. As a
result, under the New Portfolio Management Agreement, Pacific Mutual Life will
retain more of the advisory fees it is paid by the International Portfolio
pursuant to the New Portfolio Management Agreement than it retained under the
Old Portfolio Management Agreement.
The table below compares the actual fees paid to the former Portfolio
Manager by Pacific Mutual Life ("PML") and the actual net advisory fees
retained by PML under the Old Portfolio Management Agreement during the year
ending December 31, 1996 and the period January 1, 1997 through May 31, 1997
with the hypothetical fees that would have been paid and retained had the
proposed fee under the New Portfolio Management Agreement been in effect
during these periods.
<TABLE>
<CAPTION>
FEES THAT WOULD HAVE BEEN
ACTUAL FEES PAID/RETAINED UNDER OLD PAID/RETAINED UNDER NEW PORTFOLIO
PORTFOLIO MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT
------------------------------------- -------------------------------------
ACTUAL MGMT FEES THAT NET ADVISORY FEES
AVG. DAILY ADVISORY FEES MGMT FEES WOULD HAVE THAT WOULD HAVE
FOR THE NET ASSETS PAID TO PML PAID TO PORTFOLIO NET ADVISORY FEES BEEN PAID TO BEEN RETAINED
PERIOD (IN MILLIONS) (DOES NOT CHANGE) MANAGER RETAINED BY PML PORTFOLIO MGR. BY PML
- --------------- ------------- ------------------ ------------------ ------------------ ------------------ ------------------
ANNUAL ANNUAL ANNUAL ANNUAL ANNUAL
$ $ RATE(%) $ RATE(%) $ RATE(%) $ RATE(%) $ RATE(%)
- --------------- -------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/1/96-12/31/96 $304,929 $2,586,397 .85 $1,382,217 .45 $1,204,180 .40 $1,067,253 .35 $1,519,144 .50
1/1/97-5/31/97 $530,671 $1,862,164 .85 $ 945,379 .43 $ 916,785 .42 $ 768,384 .35 $1,093,780 .50
<CAPTION>
CHANGE
IN RATE INCREASE IN
OF NET NET FEES
FOR THE ADV. FEE RETAINED
PERIOD RETAINED BY PML
- ---------------- -------- ---------------
% OF
(%) $ CHANGE
- ---------------- -------- -------- ------
<S> <C> <C> <C>
1/1/96-12/31/96 .10 $314,964 26.2
1/1/97-5/31/97 .08 $176,995 19.3
</TABLE>
TERMS OF THE NEW PORTFOLIO MANAGEMENT AGREEMENT
The terms of the New Portfolio Management Agreement are substantially
similar to those of the Old Portfolio Management Agreement, other than with
regard to the fees, as discussed above, the effective date and the parties.
The New Portfolio Management Agreement requires Morgan Stanley to provide,
subject to the supervision of Pacific Mutual Life, a continuous investment
program for the International Portfolio and to determine the composition of
the assets of the Portfolio, including determination of the purchase,
retention, or sale of the securities, cash, and other investments for the
Portfolio, in accordance with the Portfolio's investment objective, policies
and restrictions. Morgan Stanley also will provide investment research and
analysis.
2
<PAGE>
Under the terms of the New Portfolio Management Agreement, Morgan Stanley is
not subject to liability for any damages, expenses, or losses to the Fund
connected with or arising out of any investment advisory services rendered
under the New Portfolio Management Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of Morgan
Stanley's duties or by reason of reckless disregard of its obligations and
duties under the New Portfolio Management Agreement.
The New Portfolio Management Agreement will terminate automatically in the
event of its assignment. In addition, it may be terminated by Pacific Mutual
Life upon sixty days' written notice to Morgan Stanley and the Fund, by Morgan
Stanley upon sixty days' written notice to Pacific Mutual Life and the Fund,
and by the Fund, upon the vote of a majority of the Fund's Board of Trustees
or a majority of the outstanding voting shares of the International Portfolio,
upon sixty days' written notice to Morgan Stanley.
COMPARISON OF MANAGEMENT STYLE
The investment objective and policies of the International Portfolio will
not change in connection with the proposed replacement of the Portfolio
Manager. However, the investment strategies employed by Morgan Stanley may
vary somewhat from those that have been employed by Templeton. The investment
objective of the International Portfolio is to seek long-term capital
appreciation primarily through investment in equity securities of corporations
domiciled in countries other than the United States. The investment policies
of the Portfolio provide that, among other things, the allocation of the
Portfolio's assets among the various securities in different countries will be
determined by the Portfolio Manager, who may consider factors that include
technological developments, the condition and growth potential for various
economies and securities markets, and other factors, and that some of the
countries in which the Portfolio invests could be considered "emerging market
countries."
Morgan Stanley has advised the Fund that it will employ an investment
strategy that combines regional asset allocation with value based stock
selection. It is expected that under Morgan Stanley, the allocation of assets
among various countries will be more closely correlated with the weighting of
countries in the Morgan Stanley Capital International Index ("MSCI EAFE"),
than under Templeton's management. The MSCI EAFE is an index of more than
1,000 major selected foreign issuers in various countries including most
nations in Western Europe, Australia, Japan, New Zealand and certain developed
countries in Asia, such as Hong Kong and Singapore. Morgan Stanley has advised
the Fund that it does make strategic regional and country weighting
allocations that may significantly differ from the MSCI EAFE Index in seeking
relative outperformance, but it is expected that Morgan Stanley generally
would not invest in emerging market countries.
In connection with the assumption of portfolio management duties by Morgan
Stanley, significant portfolio turnover may have occurred or may occur in
connection with a restructuring of the Portfolio's holdings to reflect the
management style of Morgan Stanley. Such restructuring may result in increased
transaction costs in the Portfolio's current fiscal year.
PRIOR PERFORMANCE OF COMPARABLE ACCOUNTS MANAGED BY MORGAN STANLEY
The table below sets forth composite performance data relating to the
historical performance of all accounts with assets in excess of $25 million
managed by Morgan Stanley that have substantially similar investment
objectives, policies, strategies and risks, although not identical, to those
of the Fund's International Portfolio. The composite consists of four
accounts, including two advisory accounts and one mutual fund and a pooled
trust. The data is provided to illustrate the past performance of Morgan
Stanley in managing accounts which are substantially similar to the
International Portfolio and does not represent the performance of the
International Portfolio. The table below also sets forth the performance of
the International Portfolio and the performance of the MSCI EAFE Index for the
periods shown. In addition, for those persons who also wish to review
different time periods and/or more detailed data in order to analyze market
cycle returns, volatility or for other analytical purposes, monthly returns,
inception to date returns, rolling quarter returns and 12-month returns have
been provided. The performance data for the International Portfolio reflects
the Portfolio's fees and expenses.
3
<PAGE>
In comparing the performance of the comparable accounts managed by Morgan
Stanley to the performance of the International Portfolio, it should be noted
that the country weighting of the Morgan Stanley accounts varied in certain
respects from those of the International Portfolio. During the periods shown,
the comparable accounts managed by Morgan Stanley were generally not invested
in emerging market countries, whereas the International Portfolio frequently
invested in emerging markets. Also, the weighting of securities issued by
companies located in Japan held by the Morgan Stanley accounts was
significantly greater than the weighting of Japanese securities held by the
International Portfolio.
The figures shown for Morgan Stanley's composite performance of comparable
accounts are based on gross results that are adjusted to reflect the fees and
expenses of the International Portfolio for the periods shown. The composite
performance figures also reflect the inclusion of any dividends and interest
income received, the deduction of any brokerage commissions, and other related
portfolio transaction expenses which are generally reflected as part of the
cost of a security. The composite data was calculated in accordance with
recommended standards of the Association for Investment Management and Research
("AIMR"), retroactively applied to all time periods. Accounts which are to be
included in the composite of comparable accounts are included the month after
operations commence or the month after meeting minimum dollar criteria (if
applicable) for inclusion in the composite. To determine composite values, the
beginning market value of each comparable account is divided by the sum of the
market values of all comparable accounts, which results in a percentage number.
The percentage number is multipled by each comparable account's rate of return.
The sum of all such amounts for the comparable accounts results in a dollar-
weighted composite return. The composite investment results are unaudited.
Because of the differences in computation methods, such as the method or
frequency of reinvesting dividends or measuring gains, the data for the
comparable accounts shown below may not be precisely comparable to performance
data for the International Portfolio. In addition, the performance data for
the advisory accounts and pooled trust included in the composite may not be
representative of the International Portfolio because those accounts are not
subject to the obligation to redeem shares upon request and to meet
diversification requirements, specific tax restrictions and investment
limitations imposed on the Portfolio by the 1940 Act or Subchapter M of the
Internal Revenue Code, which, if imposed, could have adversely affected the
performance. In addition, if the asset size of the comparable accounts varies
from that of the International Portfolio, this might reduce the comparability
of the International Portfolio's performance to that of the comparable
accounts. Moreover, the International Portfolio's current and future
investments are not and will not necessarily be identical to those of the
comparable accounts. Investors should also be aware that the use of a
methodology different from that used to calculate these composite returns
could result in different performance data.
The investment results presented below are not intended to predict or
suggest the returns that might be experienced by the International Portfolio
or an individual investor investing in the International Portfolio.
THE FOLLOWING PERFORMANCE DATA DOES NOT REFLECT THE DEDUCTION FOR SEPARATE
ACCOUNT OR CONTRACT LEVEL CHARGES.
4
<PAGE>
TOTAL RETURN FOR MSCI EAFE, MORGAN STANLEY COMPARABLE ACCOUNTS
AND INTERNATIONAL PORTFOLIO FOR THE PERIODS SHOWN
<TABLE>
<CAPTION>
*MORGAN STANLEY INTERNATIONAL PORTFOLIO
MSCI EAFE ("EAFE") COMPARABLE ACCOUNTS ("MSCA") ("INTERNATIONAL")
-------------------------------- --------------------------------- ---------------------------------
AVG. ANNUAL CUMULATIVE AVG. ANNUAL CUMULATIVE AVG. ANNUAL CUMULATIVE
FOR PERIOD 1 YEAR RETURN SINCE RETURN SINCE 1 YEAR RETURN SINCE RETURN SINCE 1 YEAR RETURN SINCE RETURN SINCE
ENDING RETURN INCEPTION** INCEPTION** RETURN INCEPTION** INCEPTION** RETURN INCEPTION** INCEPTION**
- ----------- ------ ------------ ------------ ------ ------------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/31/97 7.55% 9.10% 19.03% 15.68% 16.48% 35.67% 20.52% 16.84% 36.58%
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY INTERNATIONAL PORTFOLIO
MSCI EAFE ("EAFE") COMPARABLE ACCOUNTS ("MSCA") ("INTERNATIONAL")
---------------------------------- ---------------------------------- ----------------------------------
INCEPTION ROLLING ROLLING INCEPTION ROLLING ROLLING INCEPTION ROLLING ROLLING
FOR PERIOD MONTHLY TO DATE QUARTER 12 MONTH MONTHLY TO DATE QUARTER 12 MONTH MONTHLY TO DATE QUARTER 12 MONTH
ENDING RETURN RETURN** RETURN RETURN RETURN RETURN** RETURN RETURN RETURN RETURN** RETURN RETURN
- ---------------- ------- --------- ------- -------- ------- --------- ------- -------- ------- --------- ------- --------
% % % % % % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30 1995 -1.75 -1.75 -0.56 -0.56 1.14 1.14
July 31 6.23 4.36 5.60 5.01 4.30 5.49
August 31 -3.81 0.38 0.38 -0.88 4.10 4.10 -3.10 2.22 2.23
September 30 1.95 2.34 4.17 0.59 4.72 5.31 1.69 3.95 2.78
October 31 -2.69 -0.41 -4.57 -2.15 2.46 -2.44 -3.08 0.74 -4.50
November 30 2.78 2.36 1.97 1.71 4.22 0.10 0.78 1.53 0.10
DECEMBER 31 4.03 6.49 4.05 2.98 7.36 2.49 1.41 2.96 0.58
- --------------- --------------------------------- --------------------------------- ---------------------------------
January 31 1996 0.41 6.93 7.36 4.15 11.84 9.10 3.14 6.20 7.04
February 29 0.34 7.29 4.81 -0.15 11.69 7.11 1.77 8.07 7.25
March 31 2.12 9.57 2.89 1.13 12.96 5.17 0.13 8.22 5.11
April 30 2.91 12.75 5.45 4.35 17.93 5.38 3.58 12.09 5.55
May 31 -1.84 10.68 3.16 10.68 -0.83 16.96 4.65 16.96 1.11 13.33 4.86 15.07
June 30 0.56 11.30 1.58 13.28 1.03 18.19 4.55 18.84 0.34 13.72 5.08 14.16
July 31 -2.92 8.04 -4.17 3.53 -4.65 12.65 -4.49 7.20 -2.94 10.38 -1.53 6.24
August 31 0.22 8.28 -2.16 7.87 0.89 13.68 -2.82 9.13 3.40 14.13 0.71 13.37
September 30 2.66 11.16 -0.13 8.61 3.19 17.37 -0.73 11.98 1.50 15.84 1.87 13.15
October 31 -1.02 10.02 1.83 10.47 -1.24 15.91 2.82 13.03 1.61 17.71 6.64 18.63
November 30 3.98 14.40 5.65 11.76 4.69 21.44 6.70 16.37 4.66 23.19 7.94 22.25
DECEMBER 31 -1.29 12.93 1.59 6.05 0.23 21.75 3.64 13.24 1.86 25.48 8.33 21.89
- --------------- --------------------------------- --------------------------------- ---------------------------------
January 31 1997 -3.50 8.97 -0.95 1.92 -0.42 21.25 4.50 8.23 2.12 28.14 8.87 20.68
February 28 1.64 10.76 -3.18 3.24 2.10 23.85 1.91 10.68 1.31 29.82 5.38 20.13
March 31 0.36 11.16 -1.56 1.46 0.40 24.38 2.07 9.88 1.01 31.13 4.49 21.17
April 30 0.53 11.75 2.55 -0.89 1.08 25.77 3.62 6.40 -0.26 30.79 2.06 16.69
MAY 31 6.51 19.03 7.46 7.55 7.73 35.67 9.35 15.68 4.43 36.58 5.21 20.52
</TABLE>
- --------------------------------------------------------------------------------
* Represents performance of a composite of accounts managed by Morgan Stanley
with objectives and policies substantially similar to the Fund's International
Portfolio. THIS DOES NOT REPRESENT PERFORMANCE OF THE FUND'S INTERNATIONAL
PORTFOLIO. Composite figures are based upon gross performance as adjusted for
fees and expenses of the Portfolio.
** Returns are since June 1, 1995, the month after the first comparable account
managed by Morgan Stanley began operations.
5
<PAGE>
INFORMATION ABOUT MORGAN STANLEY
Morgan Stanley, with principal offices at 1221 Avenue of the Americas, New
York, New York 10020, together with its affiliated asset management companies,
conducts a worldwide portfolio management business and provides a broad range
of portfolio management services to customers in the United States and abroad.
As of February 28, 1997, Morgan Stanley, together with its affiliated asset
management companies, had approximately $176.9 billion in assets under
management. Morgan Stanley has been managing international securities since
1986.
On June 2, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had merged to form Morgan Stanley, Dean Witter, Discover &
Co. Prior to the merger, Morgan Stanley Group Inc. had been the direct parent
of Morgan Stanley. Morgan Stanley is a subsidiary of Morgan Stanley, Dean
Witter, Discover & Co.
See Appendix B to this proxy statement for information regarding directors
and principal executive officers of Morgan Stanley, as well as information
about other investment companies, or series thereof, having an investment
objective and investment policies similar to those of the International
Portfolio for which Morgan Stanley serves as investment adviser or portfolio
manager.
THE TRUSTEES' RECOMMENDATION
In determining to approve the New Portfolio Management Agreement and to
recommend approval to shareholders, the Board of Trustees, including the
Trustees who are not interested persons of Pacific Mutual Life or Morgan
Stanley, considered various matters and materials provided by Morgan Stanley.
Information considered by the Trustees included, among other things: (1) the
nature and quality of the services anticipated to be rendered, based on the
Portfolio's need for experienced, specialized portfolio management, and Morgan
Stanley's international investment experience; (2) the potential for continued
strong investment performance, given the track record of Morgan Stanley in
managing comparable investment portfolios; (3) the strength of Morgan Stanley
in terms of investment and research personnel, as well as existing and
anticipated institutional resources; (4) the reasonableness of the
compensation to be paid to Morgan Stanley by Pacific Mutual Life, and the
fairness of allocation between the two of the investment advisory fees paid by
the International Portfolio, in light of the investment objective and policies
of the Portfolio and the fees paid by other investment companies with
comparable policies; (5) the difference between the compensation under the
Advisory Agreement retained by Pacific Mutual Life under the current portfolio
management fees and the proposed portfolio management fees; and (6) the
efforts of Pacific Mutual Life in rendering its services under the Advisory
Agreement.
In analyzing whether it is appropriate for Pacific Mutual Life to retain the
difference between the fees under the New Portfolio Management Agreement and
the Old Portfolio Management Agreement, the Trustees also considered Pacific
Mutual Life's expenses associated with the development and operation of
variable life insurance policies and variable annuity contracts (collectively,
"Variable Contracts") issued or administered by Pacific Mutual Life or its
subsidiary, Pacific Corinthian Life Insurance Company ("Pacific Corinthian")
and funded by separate accounts of Pacific Mutual Life and Pacific Corinthian,
respectively, whose proceeds are invested in the Portfolio, and the services
rendered by Pacific Mutual Life in connection with the Variable Contracts,
including asset allocation and rebalancing services made available in recent
years to Variable Contract Owners at no additional cost.
ACCORDINGLY, THE BOARD OF TRUSTEES, INCLUDING THE TRUSTEES WHO ARE NOT
INTERESTED PERSONS OF ANY PARTY TO THE NEW PORTFOLIO MANAGEMENT AGREEMENT,
RECOMMENDS THE APPROVAL OF THE NEW PORTFOLIO MANAGEMENT AGREEMENT AMONG
PACIFIC MUTUAL LIFE, THE FUND, AND MORGAN STANLEY ON BEHALF OF THE
INTERNATIONAL PORTFOLIO.
6
<PAGE>
PROPOSAL II
OTHER MATTERS
The Trustees know of no other business to be brought before the Meeting
other than as set forth above. If, however, any other matters properly come
before the Meeting, it is the intention of the persons named in the enclosed
form of proxy to vote on such matters in accordance with their best judgment.
VOTING INFORMATION
Approval of Proposal I requires a vote of 67% or more of the shares of the
International Portfolio present at the Meeting, if the holders of more than
50% of the outstanding shares are present or represented by proxy at the
Meeting, or the vote of more than 50% of the outstanding shares of the
International Portfolio, whichever is less ("Majority Vote").
The shares of the Fund are offered as an investment medium for Variable
Contracts. As of the close of business on June 13, 1997, the record date for
the Meeting ("Record Date"), the shareholders of the Fund were Pacific Mutual
Life's separate accounts and Pacific Corinthian's separate account.
Pacific Mutual Life will vote shares of the Portfolio held by each separate
account in accordance with instructions received from Variable Contract
Owners. Pacific Mutual Life will also vote shares of the Portfolio held in
each separate account for which it has not received instructions in the same
proportion as it votes shares held by that separate account for which it has
received instructions from Variable Contract Owners. Variable Contract Owners
permitted to give instructions for the Portfolio and the number of shares for
which such instructions may be given to be voted at the Meeting and any
adjournment thereof will be determined as of the Record Date.
Shares held by Shareholders present in person or represented by proxy at the
Meeting will be counted both for the purpose of determining the presence of a
quorum and for calculating the votes cast on the issues before the Meeting.
Shares represented by timely and properly executed proxies will be voted as
specified. Executed proxies that are unmarked will be voted in favor of the
proposals set forth in the Notice. A proxy may be revoked at any time prior to
its exercise by written notice, by execution of a subsequent proxy, or by
attending the Meeting and voting in person. However, attendance at the
Meeting, by itself, will not serve to revoke a proxy. An abstention on the
proposal by a Shareholder, either by proxy or by vote in person at the
Meeting, has the same effect as a negative vote.
In the event that a sufficient number of votes to approve the proposal is
not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of voting
instructions, or for any other purpose. Any adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy.
Shares of the Portfolio have equal rights and privileges with all other
shares of the Portfolio. Shares of the Portfolio entitle their holders to one
vote per share, with proportional voting for fractional shares.
As of the close of business on the Record Date, there were 38,246,300.933
shares of beneficial interest of the International Portfolio outstanding; no
Variable Contract Owner who owns a Variable Contract is entitled to give
voting instructions with respect to 5% or more of the shares of the
International Portfolio. As of the Record Date, the number of shares of the
International Portfolio held by Pacific Mutual Life in its general account and
shares held by its non-insurance subsidiaries was 0%.
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INFORMATION ABOUT PACIFIC MUTUAL LIFE
Pacific Mutual Life, located at 700 Newport Center Drive, Newport Beach,
California, 92660, is a mutual life insurance company that was organized under
the laws of the State of California and was authorized to conduct business as
a life insurance company on January 2, 1868. As of December 31, 1996, Pacific
Mutual Life had total assets of approximately $27.1 billion. Together with its
subsidiaries and affiliated enterprises, Pacific Mutual Life had total assets
and funds under management of approximately $136.7 billion.
TRUSTEES AND OFFICERS
None of the Trustees and Officers of the Fund is an officer or employee of
Morgan Stanley. As of the Record Date, the Officers and Trustees of the Fund
as a group beneficially owned less than 1% of the outstanding shares of the
International Portfolio.
INFORMATION ABOUT THE DISTRIBUTOR
Pacific Mutual Distributors, Inc. ("PMD"), 700 Newport Center Drive, Newport
Beach, California 92660, serves as the Fund's distributor. PMD receives no
remuneration from the Fund for its services.
EXPENSES OF THE MEETING
The costs of the Meeting, including the solicitation of proxies, will be
paid by the Fund. The solicitation of proxies primarily will be by mail. In
addition to solicitation of proxies by mail, proxies also may be solicited by
telephone, telegraph or personal interview conducted by officers or agents of
the Fund or Pacific Mutual Life.
PROPOSALS FOR FUTURE SHAREHOLDER MEETINGS
The Fund does not intend to hold shareholder meetings each year, but
meetings may be called by the Trustees from time to time. Proposals of
shareholders that are intended to be presented at a future shareholder meeting
must be received by the Fund a reasonable time prior to the Fund's
solicitation of proxies relating to such meeting.
ANNUAL REPORT
An Annual Report for the Fund dated December 31, 1996 has been filed with
the Securities and Exchange Commission and is available without charge upon
request by calling (800) 800-7681 or by writing the Fund at 700 Newport Center
Drive, Newport Beach, CA 92660.
YOU ARE URGED TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
By Order of the Trustees
Audrey C. Milfs
Secretary
July 1, 1997
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EXHIBIT A
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of June, 1997 between Pacific Mutual Life
Insurance Company ("Adviser"), a California corporation, and Morgan Stanley
Asset Management Inc., ("Portfolio Manager"), a Delaware corporation, and
Pacific Select Fund (the "Fund"), a Massachusetts Business Trust.
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 (the "1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of beneficial interest
("Shares") in separate portfolios, with each such portfolio representing
interests in a separate portfolio; and
WHEREAS, the Fund currently offers multiple Portfolios, one of which is
designated as the International Portfolio, such Portfolio together with any
other Portfolios subsequently established by the Fund, with respect to which
the Fund and Adviser desire to retain the Portfolio Manager to render
investment advisory services hereunder, and with respect to which the
Portfolio Manager is willing to do so, being herein collectively referred to
also as the "Portfolios"; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act"); and
WHEREAS, the Portfolio Manager is registered with the SEC as an investment
adviser under the Advisers Act; and
WHEREAS, the Fund has retained the Adviser to render investment advisory
services to the Portfolios pursuant to an Advisory Agreement, as amended, and
such Agreement authorizes the Adviser to engage Portfolio Manager to discharge
the Adviser's responsibilities with respect to the investment management of
the Portfolio, a copy of which has been provided to the Portfolio Manager and
is incorporated by reference herein; and
WHEREAS, the Fund and the Adviser desire to retain the Portfolio Manager to
furnish investment advisory services to one or more Portfolios of the Fund,
and the Portfolio Manager is willing to furnish such services to such
Portfolio and the Adviser in the manner and on the terms hereinafter set
forth; and
NOW THEREFORE, in consideration of the premises and the promises and mutual
covenants herein contained, it is agreed between the Fund, the Adviser, and
the Portfolio Manager as follows:
1. Appointment. The Fund and the Adviser hereby appoint Morgan Stanley Asset
Management Inc. to act as Portfolio Manager to the International Portfolio
("the Portfolio") for the periods and on the terms set forth in this
Agreement. The Portfolio Manager accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
In the event the Adviser wishes to retain the Portfolio Manager to render
investment advisory services to one or more portfolios other than the
Portfolio, the Adviser shall notify the Portfolio Manager in writing. If the
Portfolio Manager is willing to render such services, it shall notify the Fund
and Adviser in writing, whereupon such portfolio shall become a Portfolio
hereunder, and be subject to this Agreement.
2. Portfolio Manager Duties. Subject to the supervision of the Fund's Board
of Trustees and the Adviser, the Portfolio Manager will provide a continuous
investment program for the Portfolio and determine the composition of the
assets of the Portfolio, including determination of the purchase, retention,
or sale of the securities, cash, and other investments, including futures
contracts and options thereon, for the Portfolio. The Portfolio Manager will
provide investment research and analysis, which may consist of computerized
investment methodology, and will conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio's assets by determining
the securities and other investments that shall be purchased, entered into,
sold, closed, or exchanged for the Portfolio, when these transactions should
be executed, and what portion of the assets
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of the Portfolio should be held in the various securities and other
investments in which it may invest, and the Portfolio Manager is hereby
authorized to execute and perform such services on behalf of the Portfolio. To
the extent permitted by the investment policies of the Portfolio, the
Portfolio Manager shall make decisions for the Portfolio as to foreign
currency matters and make determinations as to the retention or disposition of
foreign currencies or securities or other instruments denominated in foreign
currencies, or derivative instruments based upon foreign currencies, including
forward foreign currency contracts and options and futures on foreign
currencies and shall execute and perform the same on behalf of the Portfolio.
The Portfolio Manager is authorized to exercise tender offers, exchange offers
and to vote proxies on behalf of the Fund, each as the Portfolio Manager
determines is in the best interest of the Fund. In performing these duties,
the Portfolio Manager:
(a) Will (1) manage the Portfolio so that it will qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code and (2)
manage the Portfolio so as to ensure compliance by the Portfolio with the
diversification requirements of Section 817(h) of the Internal Revenue Code
and Regulations issued thereunder. The Adviser will notify the Portfolio
Manager of any amendments to the Section 817(h) of the Internal Revenue
Code and Regulations issued thereunder. In managing the Portfolio in
accordance with these requirements, the Portfolio Manager shall be entitled
to receive and act upon advice of counsel to the Fund, counsel to the
Adviser, or counsel to the Portfolio Manager that is also acceptable to the
Adviser.
(b) Shall conform with (1) the 1940 Act and all rules and regulations
thereunder, and releases and interpretations related thereto (including any
no-action letters and exemptive orders which have been granted by the SEC
to the Fund, the Adviser or the Portfolio Manager), (2) with all other
applicable federal and state laws and regulations pertaining to investment
vehicles underlying variable annuity and/or variable life insurance
contracts, (3) with any applicable procedures, policies and guidelines
adopted by the Fund's Board of Trustees, (4) with the Portfolio's
objectives, investment policies and investment restrictions as stated in
the Fund's Prospectus and Statement of Additional Information, and (5) with
the provisions of the Fund's Registration Statement filed on Form N-1A
under the Securities Act of 1933 (the "1933 Act") and the 1940 Act, as
supplemented or amended from time to time. Until the Adviser delivers any
supplements or amendments to the Portfolio Manager, the Portfolio Manager
shall be fully protected in relying on the Fund's Registration Statement
previously furnished to the Portfolio Manager by the Adviser.
(c) Will: (i) use its best efforts to identify each position in the
Portfolio that constitutes stock in a Passive Foreign Investment Company
("PFIC"), as that term is defined in Section 1296 of the Internal Revenue
Code, and (ii) make such determinations and inform the Adviser at least
annually, (or more often and by such date(s) as the Adviser shall request),
of any stock in a PFIC.
(d) Is responsible, in connection with its responsibilities under this
Section 2, for decisions to buy and sell securities and other investments
for the Portfolio, for broker-dealer and futures commission merchant
("FCM") selection, and for negotiation of commission rates. The Portfolio
Manager's primary consideration in effecting a security or other
transaction will be to obtain the best execution for the Portfolio, taking
into account the factors specified in the Prospectus and Statement of
Additional Information for the Fund, as they may be amended or supplemented
from time to time. Subject to such policies as the Board of Trustees may
determine and consistent with Section 28(e) of the Securities Exchange Act
of 1934, the Portfolio Manager shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise solely
by reason of its having caused the Portfolio to pay a broker or dealer,
acting as agent, for effecting a portfolio transaction at a price in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Portfolio Manager determines in good
faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the
Portfolio Manager's (or its affiliates) overall responsibilities with
respect to the Portfolio and to its other clients as to which it exercises
investment discretion. To the extent consistent with these standards, and
in accordance with Section 11(a) of the Securities Exchange Act of 1934 and
Rule 11a2-2(T) thereunder, and subject to any other applicable laws and
regulations including Section 17(e) of the 1940 Act, the Portfolio
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Manager is further authorized to place orders on behalf of the Portfolio
through the Portfolio Manager if the Portfolio Manager is registered as a
broker or dealer with the SEC or as a FCM with the Commodities Futures
Trading Commission ("CFTC"), to any of its affiliates that are brokers or
dealers or FCMs or such other entities which provide similar services in
foreign countries, or to such brokers and dealers that also provide
research or statistical research and material, or other services to the
Portfolio or the Portfolio Manager. Such allocation shall be in such
amounts and proportions as the Portfolio Manager shall determine consistent
with the above standards, and, upon request, the Portfolio Manager will
report on said allocation to the Adviser and Board of Trustees of the Fund,
indicating the brokers, dealers or FCMs to which such allocations have been
made and the basis therefor.
(e) May, on occasions when the purchase or sale of a security is deemed
to be in the best interest of a Portfolio as well as any other investment
advisory clients, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be
so sold or purchased with those of its other clients where such aggregation
is not inconsistent with the policies set forth in the Fund's Registration
Statement. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by
the Portfolio Manager in a manner that is fair and equitable in the
judgment of the Portfolio Manager in the exercise of its fiduciary
obligations to the Fund and to such other clients.
(f) Will, in connection with the purchase and sale of securities for the
Portfolio, together with the Adviser, arrange for the transmission to the
custodian and recordkeeping agent for the Fund, on a daily basis, such
confirmation(s), trade tickets, and other documents and information,
including, but not limited to, Cusip, Sedol, or other numbers that identify
securities to be purchased or sold on behalf of the Portfolio, as may be
reasonably necessary to enable the custodian and recordkeeping agent to
perform its administrative and recordkeeping responsibilities with respect
to the Portfolio, and with respect to portfolio securities to be purchased
or sold through the Depository Trust Company, will arrange for the
automatic transmission of the confirmation of such trades to the Fund's
custodian, and recordkeeping agent, and, if required, the Adviser.
(g) Will assist the custodian and recordkeeping agent for the Fund in
determining or confirming, consistent with the procedures and policies
stated in the Registration Statement for the Fund, the value of any
portfolio securities or other assets of the Portfolio for which the
custodian and recordkeeping agent seeks assistance from the Portfolio
Manager or identifies for review by the Portfolio Manager.
(h) Will make available to the Fund and the Adviser promptly upon
request, any of the Portfolio's investment records and ledgers maintained
by the Portfolio Manager (which shall not include the records and ledgers
maintained by the custodian and recordkeeping agent for the Fund), as are
necessary to assist the Fund and the Adviser to comply with requirements of
the 1940 Act and the Advisers Act, as well as other applicable laws, and
will furnish to regulatory authorities having the requisite authority any
information or reports in connection with such services which may be
requested in order to ascertain whether the operations of the Fund are
being conducted in a manner consistent with applicable laws and
regulations.
(i) Will regularly report to the Fund's Board of Trustees on the
investment program for the Portfolio and the issuers and securities
represented in the Portfolio's portfolio, and will furnish the Fund's Board
of Trustees with respect to the portfolio such periodic and special reports
as the Trustees and the Adviser may reasonably request.
(j) Will not disclose or use any records or information obtained pursuant
to this Agreement (excluding investment research and investment advice) in
any manner whatsoever except as expressly authorized in this Agreement or
in the ordinary course of business in connection with placing orders for
the purchase and sale of securities or obtaining investment licenses in
various countries or the opening of custody accounts and dealing with
settlement agents in various countries, and will keep confidential any
information obtained pursuant to the Agreement, and disclose such
information only if the Board of Trustees of the Fund has authorized such
disclosure, or if such disclosure is required by applicable federal or
state law or regulations
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or regulatory authorities having the requisite authority. The Fund and the
Adviser will not disclose or use any records or information respecting the
Portfolio Manager obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized in this Agreement, and will keep
confidential any information obtained pursuant to this Agreement, and
disclose such information only as expressly authorized in this Agreement,
if the Board of Trustees of the Fund has authorized such disclosure, or if
such disclosure is required by applicable federal or state law or
regulations or regulatory authorities having the requisite authority.
(k) Shall not permit any employee of the Portfolio Manager to have any
material connection with the handling of the Portfolio if such employee
has:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising
out of such person's conduct as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities
broker, government securities dealer, transfer agent, or entity or
person required to be registered under the Commodity Exchange Act, or
as an affiliated person, salesman, or employee of any investment
company, bank, insurance company, or entity or person required to be
registered under the Commodity Exchange Act; or
(ii) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent
jurisdiction from acting as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, or entity or person
required to be registered under the Commodity Exchange Act, or as an
affiliated person, salesman or employee of any investment company,
bank, insurance company, or entity or person required to be registered
under the Commodity Exchange Act, or from engaging in or continuing any
conduct or practice in connection with any such activity or in
connection with the purchase or sale of any security.
(l) Shall provide to Adviser a copy of Portfolio Manager's Form ADV as
filed with the Securities and Exchange Commission and a list of persons who
Portfolio Manager wishes to have authorized to give written and/or oral
instructions to Custodians of Fund assets for the Portfolio.
3. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed
the current Registration Statement for the Fund filed with the SEC and
represents and warrants that, with respect to the disclosure about the
Portfolio Manager or information relating, directly or indirectly, to the
Portfolio Manager, such Registration Statement contains, as of the date
hereof, no untrue statement of any material fact and does not omit any
statement of a material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading. The
Portfolio Manager further represents and warrants that it is a duly registered
investment adviser under the Advisers Act and a duly registered investment
adviser in all states in which the Portfolio Manager is required to be
registered. The Adviser has received a current copy of the Portfolio Manager's
Uniform Application for Investment Adviser Registration on Form ADV, as filed
with the SEC. On an annual basis, (or more frequently if requested by the
Adviser or the Fund's Board of Trustees) the Portfolio Manager agrees to
provide the Adviser with current copies of the Portfolio Manager's Form ADV,
and any supplements or amendments thereto, as filed with the SEC.
4. Expenses. During the term of this Agreement, the Portfolio Manager will
pay all expenses incurred by it and its staff and for their activities in
connection with its services under this Agreement. The Portfolio Manager shall
not be responsible for any of the following:
(a) Expenses of all audits by the Fund's independent public accountants;
(b) Expenses of the Fund's transfer agent, registrar, dividend disbursing
agent, and shareholder recordkeeping services;
(c) Expenses of the Fund's custodial services including recordkeeping
services provided by the custodian;
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(d) Expenses of the Fund's recordkeeping services provided by the
recordkeeping agent;
(e) Expenses of obtaining quotations for calculating the value of the
Portfolio's net assets;
(f) Expenses of obtaining portfolio activity reports for each Portfolio;
(g) Expenses of maintaining the Fund's tax records;
(h) Salaries and other compensation of any of the Fund's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of the Portfolio Manager or its subsidiaries or
affiliates (except that the Adviser, or any of its subsidiaries or
affiliates, shall bear the expense with respect to executive officers and
employees, if any, who are officers, directors, stockholders or employees
of the Adviser or of its subsidiaries or affiliates);
(i) Taxes, if any, levied against the Fund or any of its Portfolios;
(j) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Portfolio;
(k) Costs, including the interest expenses, of borrowing money;
(l) Costs and/or fees incident to meetings of the Fund's shareholders,
the preparation and mailings of proxy statements, prospectuses, statements
of additional information and reports of the Fund to its shareholders, the
filing of reports with regulatory bodies, the maintenance of the Fund's
existence, and the registration of shares with federal and state securities
or insurance authorities;
(m) The Fund's legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
(n) Costs of printing "share" stock certificates, if any, representing
shares of the Fund;
(o) Trustees' fees and expenses of Trustees of the Fund who are not
officers, employees, or stockholders of the Portfolio Manager or any
affiliate thereof (except that the Adviser shall bear the expense of any
trustee who is an officer, employee, or stockholder of the Adviser or any
affiliate thereof);
(p) The Fund's fidelity bond required by Section 17(g) of the 1940 Act,
or other insurance premiums;
(q) Association membership dues;
(r) Extraordinary expenses of the Fund as may arise including expenses
incurred in connection with litigation, proceedings and other claims and
the legal obligations of the Fund to indemnify its trustees, officers,
employees, shareholders, distributors, and agents with respect thereto
(unless Portfolio Manager is responsible for such expenses under Section 14
of this Agreement); and
(s) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
5. Compensation. For the services provided and the expenses borne by the
Portfolio Manager pursuant to this Agreement, the Adviser will pay to the
Portfolio Manager a fee in accordance with the Fee Schedule attached to this
Agreement. This fee will be computed and accrued daily and payable monthly.
6. Seed Money. The Adviser agrees that the Portfolio Manager shall not be
responsible for providing money for the initial capitalization of any
Portfolio.
7. Compliance.
(a) The Portfolio Manager agrees that it shall immediately notify the
Adviser and the Fund in the event (i) that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has
commenced proceedings or an investigation that can reasonably be expected to
result in any of these actions, (ii) upon having a reasonable basis
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for believing that a Portfolio has ceased to qualify or might not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code,
and (iii) upon having a reasonable basis for believing that the Portfolio has
ceased to comply with the diversification provisions of Section 817(h) of the
Internal Revenue Code or the Regulations thereunder. The Portfolio Manager
further agrees to notify the Adviser and the Fund immediately of any material
fact known to the Portfolio Manager respecting or relating to the Portfolio
Manager that is not contained in the Registration Statement or prospectus for
the Fund, or any amendment or supplement thereto, or of any statement
contained therein that becomes untrue in any material respect.
(b) The Adviser agrees that it shall immediately notify the Portfolio
Manager in the event (i) that the SEC has censured the Adviser or the Fund;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Adviser's registration as an investment adviser; or
has commenced proceedings or an investigation that may result in any of these
actions, (ii) upon having a reasonable basis for believing that a Portfolio
has ceased to qualify or might not qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and (iii) upon having a
reasonable basis for believing that the Portfolio has ceased to comply with
the diversification provisions of Section 817(h) of the Internal Revenue Code
or the Regulations thereunder.
8. Independent Contractor. The Portfolio Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Adviser from time to time, have
no authority to act for or represent the Adviser in any way or otherwise be
deemed its agent. The Portfolio Manager understands that unless provided
herein or authorized from time to time by the Fund, the Portfolio Manager
shall have no authority to act for or represent the Fund in any way or
otherwise be deemed the Fund's Agent.
9. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Portfolio are the property of the Fund and further agrees
to surrender promptly to the Fund any of such records upon the Fund's or the
Adviser's request, although the Portfolio Manager may, at its own expense,
make and retain a copy of such records. The Portfolio Manager further agrees
to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
10. Cooperation. Each party to this Agreement agrees to cooperate with each
other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry
relating to this Agreement or the Fund.
11. Responsibility and Control. Notwithstanding any other provision of this
Agreement, it is understood and agreed that the Fund shall at all times retain
the ultimate responsibility for and control of all functions performed
pursuant to this Agreement and reserves the right to direct, approve or
disapprove any action hereunder taken on its behalf by the Portfolio Manager.
12. Services Not Exclusive. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not
their investment objectives and policies are similar to those of the
Portfolio) or from engaging in other activities.
13. Liability. Except as provided in Section 14 and as may otherwise be
required by the 1940 Act or the rules thereunder or other applicable law, the
Fund and the Adviser agree that the Portfolio Manager, any affiliated person
of the Portfolio Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls the Portfolio Manager shall not be liable
for, or subject to any damages, expenses, or losses in connection with, any
act or omission connected with or arising out of any services rendered under
this Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Portfolio Manager's duties, or by reason
of reckless disregard of the Portfolio Manager's obligations and duties under
this Agreement.
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14. Indemnification.
(a) The Portfolio Manager agrees to indemnify and hold harmless, the
Adviser, any affiliated person within the meaning of Section 2(a)(3) of the
1940 Act ("affiliated person") of the Adviser, and each person, if any, who,
within the meaning of Section 15 of the 1933 Act, controls ("controlling
person") the Adviser (collectively, "PM Indemnified Persons") against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses), to which the Adviser or such affiliated person or controlling
person may become subject under the 1933 Act, 1940 Act, the Advisers Act,
under any other statute, at common law or otherwise, arising out of the
Portfolio Manager's responsibilities to the Trust which (i) may be based upon
any willful misfeasance, bad faith, or gross negligence of, or by reckless
disregard of, the Portfolio Manager's obligations and/or duties under this
Agreement by the Portfolio Manager or by any of its directors, officers or
employees, or any affiliate acting on behalf of the Portfolio Manager (other
than a PM Indemnified Person), or (ii) may be based upon any untrue statement
or alleged untrue statement of a material fact contained in a registration
statement or prospectus covering the Shares of the Trust or any Fund, or any
amendment thereof or any supplement thereto, 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 in writing to the
Adviser, the Trust, or any affiliated person of the Trust by the Portfolio
Manager or any affiliated person of the Portfolio Manager (other than a PM
Indemnified Person); provided, however, that in no case is the Portfolio
Manager's indemnity in favor of the Adviser or any affiliated person or
controlling person of the Adviser deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties, or by reason of his reckless disregard of obligation and duties under
this Agreement.
(b) The Adviser agrees to indemnify and hold harmless the Portfolio Manager,
any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act of
the Portfolio Manager and each person, if any, who, within the meaning of
Section 15 of the 1933 Act controls ("controlling person") the Portfolio
Manager (collectively, "Portfolio Manager Indemnified Persons") against any
and all losses, claims, damages, liabilities or litigation (including legal
and other expenses) to which a Portfolio Manager Indemnified Person may become
subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of the Adviser's
responsibilities as adviser of the Fund which (i) may be based upon any
willful misfeasance, bad faith or gross negligence by the Adviser, any of its
employees or any affiliate acting on behalf of the Adviser (other than a
Portfolio Manager Indemnified Person) or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or prospectus covering Shares of the Fund or any
Portfolio, or any amendment thereof or any supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, unless such
statement or omission was made in reliance upon written information furnished
to the Fund or the Adviser or any affiliated person of the Adviser by a
Portfolio Manager Indemnified Person (other than an Adviser Indemnified
Person); provided however, that in no case is the indemnity of the Adviser in
favor of the Portfolio Manager Indemnified Persons deemed to protect such
person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of his duties, or by reason of his reckless disregard of
obligations and duties under this Agreement.
15. Duration and Termination. This Agreement shall become effective as of
the date of execution first written above, and shall continue in effect for
two years from such date and continue thereafter on an annual basis with
respect to the Portfolio; provided that such annual continuance is
specifically approved at least annually (a) by the vote of a majority of the
Board of Trustees of the Fund, or (b) by the vote of a majority of the
outstanding voting shares of each Portfolio, and provided that continuance is
also approved by the vote of a majority of the Board of Trustees of the Fund
who are not parties to this Agreement or "interested persons" (as such term is
defined in the 1940 Act) of the Fund, the Adviser, or the Portfolio Manager,
cast in person at a meeting called for the purpose of voting on such approval.
This Agreement may not be materially amended without a majority vote of the
outstanding shares (as defined in the 1940 Act) of the Portfolio. This
Agreement may be terminated:
(a) by the Fund at any time with respect to the services provided by the
Portfolio Manager, without the payment of any penalty, forfeiture,
compulsory buyout amount, or performance of any other obligation
A-7
<PAGE>
which could deter termination, by vote of a majority of the entire Board of
Trustees of the Fund or by a vote of a majority of the outstanding voting
shares of the Fund or, with respect to a particular Portfolio, by vote of a
majority of the outstanding voting shares of such Portfolio, on 60 days'
written notice to the Portfolio Manager and the Adviser;
(b) by the Portfolio Manager at any time, without the payment of any
penalty, forfeiture, compulsory buyout amount or performance of any other
obligation which could deter termination, upon 60 days' written notice to
the Adviser and the Fund.
(c) by the Adviser at any time, without the payment of any penalty,
forfeiture, compulsory buyout amount or performance of any other obligation
which could deter termination, upon 60 days' written notice to the
Portfolio Manager and the Fund.
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a particular Portfolio
shall be effective to continue this Agreement with respect to such Portfolio
notwithstanding (a) that this Agreement has not been approved by the holders
of a majority of the outstanding shares of any other Portfolio or (b) that
this Agreement has not been approved by the vote of a majority of the
outstanding shares of the Fund, unless such approval shall be required by any
other applicable law or otherwise. In the event of termination for any reason,
all records of the Portfolio shall promptly be returned to the Adviser or the
Fund, free from any claim or retention of rights in such record by the
Portfolio Manager, although the Portfolio Manager may, at its own expense,
make and retain a copy of such records. This Agreement will terminate
automatically in event of its assignment (as that term is defined in the 1940
Act), but shall not terminate in connection with any transaction not deemed an
assignment within the meaning of Rules 2a-6 under the 1940 Act, or any other
rule adopted by the SEC regarding transactions not deemed to be assignments.
In the event this Agreement is terminated or is not approved in the manner
described above, the Sections or Paragraphs numbered 2(h), 2(j), 9, 10, 11,
13, 14 and 16 of this Agreement as well as any applicable provision of this
Paragraph numbered 15 shall remain in effect.
16. Use of Name.
(a) It is understood that the name "Pacific Mutual Life Insurance Company"
or "Pacific Mutual", or "Pacific Select Fund" or any derivative thereof or
logo associated with that name is the valuable property of the Adviser and its
affiliates, and that the Portfolio Manager has the right to use such name (or
derivative or logo) only with the approval of the Adviser and only so long as
the Adviser is an investment adviser to the Fund and/or the Portfolio. Upon
termination of the Investment Advisory Agreement between the Fund and the
Adviser, the Portfolio Manager shall forthwith cease to use such name (or
derivative or logo).
(b) It is understood that the name "Morgan Stanley Asset Management Inc." or
"Morgan Stanley" or any derivative thereof or logo associated with that name
is the valuable property of the Portfolio Manager and that the Adviser has the
right to use such name (or derivative or logo), in offering materials of the
Fund and/or Portfolio with the approval of the Portfolio Manager and for so
long as the Portfolio Manager is a Portfolio Manager to the Fund and/or the
Portfolio. Upon termination of this Agreement between the Fund, the Adviser
and the Portfolio Manager, the Fund and the Adviser shall forthwith cease to
use such name (or derivative or logo).
(c) Neither the Fund nor the Advisers shall use the Portfolio Manager's name
(or that of any affiliate, including the name "Morgan Stanley") in promotional
or sales related materials prepared by or on behalf of the Adviser or the
Fund, without prior review and approval by the Portfolio Manager, which may
not be unreasonably withheld.
17. Limitation of Liability. A copy of the Amended and Restated Agreement
and Declaration of Trust for the Fund is on file with the Secretary of the
Commonwealth of Massachusetts. The Agreement and Declaration of Trust has been
executed on behalf of the Trust by a Trustee of the Trust in his capacity as
Trustee of the Trust and not individually. The obligations of this Agreement
shall be binding upon the assets and property of the
A-8
<PAGE>
Fund and shall not be binding upon any Trustee, officer, employee, agent or
shareholder, whether past, present, or future, of the Fund individually.
18. Miscellaneous.
(a) This Agreement shall be governed by the laws of California, provided
that nothing herein shall be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940 or rules or orders of the SEC
thereunder. The term "affiliate" or "affiliated person" as used in this
Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the
1940 Act.
(b) The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) To the extent permitted under Section 15 of this Agreement, this
Agreement may only be assigned by any party with prior written consent of the
other parties.
(d) If any provision 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, and to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise with regard to any party hereunder, such provisions with
respect to other parties hereto shall not be affected thereby.
(e) This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, and all such counterparts shall together
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first written above.
PACIFIC MUTUAL LIFE INSURANCE
COMPANY
/s/ AUDREY L. MILFS By: /s/ GLENN S. SCHAFER
- ------------------------------------- ----------------------------------
Attest: Title:
Title:
MORGAN STANLEY ASSET
MANAGEMENT INC.
/s/ JOSEPH C. BENEDETTI By: /s/ FRANCINE J. BOVICH
- ------------------------------------- ----------------------------------
Attest: Title: Principal
Title: Vice President
PACIFIC SELECT FUND
/s/ AUDREY L. MILFS By: /s/ TC SUTTON
- ------------------------------------- ----------------------------------
Attest: Title:
Title:
A-9
<PAGE>
PACIFIC SELECT FUND
FEE SCHEDULE
Portfolio: International Portfolio
Fee:
The Adviser will pay to the Portfolio Manager a monthly fee at an annual rate
equal to:
.35% of the International Portfolio's average daily net assets.
A-10
<PAGE>
EXHIBIT B
OTHER INFORMATION REGARDING
MORGAN STANLEY ASSET MANAGEMENT INC.
Certain information regarding directors and principal executive officers of
Morgan Stanley and their principal occupations is shown below. The business
address of each person shown is 1221 Avenue of the Americas, New York, New
York 10020.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME POSITION WITH MORGAN STANLEY ("MSAM") AND OTHER INFORMATION
---- ------------------------------------- ---------------------
<C> <C> <S>
Barton M. Biggs Director, Chairman and Managing Director Managing Director of Morgan Stanley
& Co. Incorporated; Chairman of
Morgan Stanley Asset Management Limited
Peter A. Nadosy Director, Vice Chairman and Managing Managing Director of Morgan Stanley
Director & Co. Incorporated; Director of
Morgan Stanley Asset Management Limited
James M. Allwin Director, President and Managing Director Managing Director of Morgan Stanley
& Co. Incorporated; President of
Morgan Stanley Realty Inc.
Gordon S. Gray Director and Managing Director Managing Director of Morgan Stanley
& Co. Incorporated
Dennis G. Sherva Director and Managing Director Managing Director of Morgan Stanley
& Co. Incorporated
</TABLE>
The following table lists the other mutual funds, or series thereof, with an
investment objective and investment policies similar to those of the
International Portfolio for which Morgan Stanley serves as investment adviser
(or subadviser in the case of the funds marked with an asterisk), for
compensation at the annual fee rates (as a percent of average daily net
assets) set forth in the table. The table also sets forth the approximate net
assets of each mutual fund or series as of April 30, 1997.
B-1
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS
(IN MILLIONS)
OTHER FUND ON 4/30/97 ANNUAL FEE RATE
---------- ------------- ---------------
<C> <C> <S>
Morgan Stanley Institutional Fund, Inc.--
International Magnum Portfolio $ 142.21 0.80% of average daily
net assets(1)
Morgan Stanley Fund, Inc.--
International Magnum Fund $ 31.00 0.80% of average daily
net assets(2)
Morgan Stanley Universal Funds, Inc.--
International Magnum Portfolio $ 11.18 0.80% of average daily
net assets on first $500
million, 0.75% of
average daily net assets
from $500 million to $1
billion, and 0.70% of
average daily net assets
over $1 billion(3)
Morgan Stanley Institutional Fund, Inc.--
Active Country Allocation Portfolio $ 189.98 0.65% of average daily
net assets(4)
Morgan Stanley Institutional Fund, Inc.--
International Equity Portfolio $2,536.96 0.80% of average daily
net assets(5)
American AAdvantage--International
Equity Fund* $ 200.70 0.80% of average daily
net assets on the first
$25 million, 0.60% of
average daily net assets
on the next $25 million,
0.50% of average daily
net assets on the next
$25 million, and 0.40%
of average daily net
assets in excess of $75
million
Fountain Square--International Equity Fund* $ 135.52 0.50% of average daily
net assets
Sun America Series Trust--
International Diversified Equities Portfolio* $ 197.51 0.65% of average daily
net assets on the first
$350 million, and 0.60%
of average daily net
assets in excess of $350
million
New England Zenith Fund--Morgan Stanley
International Magnum Equity Series*(6) $ 41.18 0.75% of average daily
net assets on the first
$30 million, .60% of
average daily net assets
on the next $40 million,
.45% of average daily
net assets on the next
$30 million, and .40% of
average daily net assets
in excess of $100
million
</TABLE>
- --------
(1) Morgan Stanley has agreed to waive its advisory fees and/or to reimburse
this fund, if necessary, if such fees would cause the fund's total annual
operating expenses, as a percentage of average daily net assets, to exceed
1.00% of Class A shares and 1.25% of Class B shares.
(2) Morgan Stanley has agreed to waive its advisory fees and/or to reimburse
this fund, if necessary, if such fees would cause the fund's total annual
operating expenses, as a percentage of average daily net assets, to exceed
1.65% of Class A shares, 2.40% of Class B shares and 2.40% of Class C
shares.
(3) Morgan Stanley has agreed to waive its advisory fees and/or to reimburse
this fund, if necessary, if such fees would cause the fund's total annual
operating expenses, as a percentage of average daily net assets, to exceed
1.15%.
(4) Morgan Stanley has agreed to waive its advisory fees and/or to reimburse
this fund, if necessary, if such fees would cause the fund's total annual
operating expenses, as a percentage of average daily net assets, to exceed
0.80% of Class A shares and 1.05% of Class B shares.
(5) Morgan Stanley has agreed to waive its advisory fees and/or to reimburse
this fund, if necessary, if such fees would cause the fund's total annual
operating expenses, as a percentage of average daily net assets, to exceed
1.00% of Class A shares and 1.25% of Class B shares.
(6) Morgan Stanley began acting as sub-adviser to this fund as of May 1, 1997.
B-2
<PAGE>
VOTING INSTRUCTION/PROXY
------------------------
Pacific Select Fund
International Portfolio
The undersigned owner of a variable life insurance policy or variable annuity
contract (collectively, "Variable Contracts") issued or administered by Pacific
Mutual Life Insurance Company ("Pacific Mutual Life") or Pacific Corinthian Life
Insurance Company ("Pacific Corinthian"), and funded by separate accounts of
Pacific Mutual Life or Pacific Corinthian, hereby instructs Pacific Mutual Life,
on behalf on the pertinent separate account, to vote the shares of the
International Portfolio of the Pacific Select Fund (the "Fund") attributable to
his or her Variable Contract at the meeting of shareholders of the Fund to be
held at 2:30 p.m., Pacific Time, on August 8, 1997, at 700 Newport Center Drive,
Newport Beach, California, 92660, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the proxy statement
for the meeting, receipt of which is hereby acknowledged, and in the discretion
of Pacific Mutual Life upon such other matters as may properly come before the
meeting or any adjournment thereof.
THIS VOTING INSTRUCTION IS SOLICITED BY THE BOARD OF TRUSTEES OF THE FUND.
The Board of Trustees recommends a vote FOR the following proposal.
---
I. To approve the portfolio management agreement with Morgan Stanley Asset
Management Inc. ("Morgan Stanley") for the International Portfolio under
which Morgan Stanley would continue to serve as portfolio manager of the
International Portfolio.
_____________ FOR _____________ AGAINST _____________ ABSTAIN
This voting instruction will be voted as specified. IF NO SPECIFICATION IS
MADE, THIS VOTING INSTRUCTION WILL BE VOTED FOR THE PROPOSAL. If this voting
instruction is not returned or is not returned properly executed, such votes
will be cast by Pacific Mutual Life on behalf of the pertinent separate account
in the same proportion as it votes shares held by that separate account for
which it has received instructions from Variable Contract owners.
Receipt of the Notice of Meeting and
Proxy Statement is hereby acknowledged:
Dated: _____________________, 1997
__________________________________
__________________________________
Signature(s) of Contractowner(s)
All designated owners of the Variable Contract(s) shown on this voting
instruction must sign hereon. If as an attorney, executor, trustee, guardian or
in some representative capacity or as an officer of a corporation or
partnership, please add title as such.
PLEASE VOTE, SIGN AND DATE THIS VOTING INSTRUCTION AND RETURN IT IN THE ENCLOSED
ENVELOPE PROMPTLY.
