<PAGE>
SUPPLEMENT DATED DECEMBER 21, 1998 TO
THE PROSPECTUS FOR PACIFIC SELECT FUND DATED MAY 1, 1998 ("PROSPECTUS")
This supplement contains information regarding four new Portfolios of
Pacific Select Fund (the "Fund") that are available as of January 1, 1999. The
supplement describes each new Portfolio's investment objective and policies,
the Portfolio Manager of each new Portfolio, the investment advisory fees and
other expenses related to each Portfolio, and related performance information
for each Portfolio Manager in managing similar funds or accounts. Certain
information, including detailed descriptions of many of the securities and
investment techniques of the new Portfolios and the related risks, is set
forth in the Prospectus and not in this supplement. Accordingly, please read
this supplement in conjunction with your copy of the Prospectus.
In addition to the fourteen Portfolios described in the Fund's Prospectus
dated May 1, 1998, the Fund now offers the following new Portfolios to serve
as the investment medium for the Variable Contracts issued or administered by
Pacific Life:
<TABLE>
<CAPTION>
PRIMARY INVESTMENTS
(UNDER NORMAL
PORTFOLIO OBJECTIVE CIRCUMSTANCES) PORTFOLIO MANAGER
- ----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Large-Cap Value Long-term growth of Equity securities of Salomon Brothers
capital. Current income is large-capitalization Asset Management Inc
of secondary importance. companies
- ----------------------------------------------------------------------------------------------
Mid-Cap Value Capital appreciation. Equity securities of Lazard Asset
medium-capitalization Management
domestic companies
believed to be
undervalued
- ----------------------------------------------------------------------------------------------
Small-Cap Index Provide investment results Stocks included in the Bankers Trust
that correspond to the total Russell 2000 Small Stock Company
return of an index of small Index
capitalization companies.
- ----------------------------------------------------------------------------------------------
REIT Current income and long- Real estate investment Morgan Stanley Asset
term capital appreciation. trusts and equity Management Inc.
securities of companies
principally engaged in
the U.S. real estate
industry
</TABLE>
The following section provides a description of the investment objective and
policies of each of the new Portfolios. Please refer to your Prospectus for
more information regarding specific securities and investment techniques, and
their related risks. Certain securities and investment techniques not
discussed in the Prospectus but that are applicable to the new Portfolios are
discussed in this Supplement.
LARGE-CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE. Long-term growth of capital. Current income is of
secondary importance.
INVESTMENT POLICIES. The Portfolio pursues its investment objectives
primarily through investment in equity securities, consisting of common stock
and preferred stock of companies with large market capitalizations.
In selecting investments for the Portfolio, the Portfolio Manager generally
seeks companies: (1) whose share prices appear undervalued in relation to the
company's assets, or whose share prices appear to disregard factors such as an
anticipated reversal of an unfavorable industry trend, lack of investor
recognition or disapproving earnings believed to be temporary; (2) that are
experiencing, or may experience in the future, changes in
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management or management policies, corporate structure or control,
capitalization, regulatory environment, or other circumstances which could be
expected to favor the company's earnings or market price of its shares; or (3)
having growth potential due to technological advances, new methods in
marketing or production, new or unique products or services, changes in demand
for products or services or other significant new developments.
For purposes of the Portfolio's investment policies, companies with large
market capitalization are considered those represented in the Standard &
Poor's 500 Composite Index, generally with market capitalizations in excess of
$5 billion.
The Portfolio may also invest a portion of its assets in the equity
securities of small capitalization companies. A portion of the Portfolio's
assets may also be invested in short-term fixed-income securities, such as
repurchase agreements, cash or cash equivalents, to meet operating expenses,
to serve as collateral in connection with certain investment techniques, or to
meet anticipated redemption requests. When the Portfolio Manager deems it
consistent with the Portfolio's secondary objective of current income or
during temporary defensive periods, the Portfolio may invest without
limitation in fixed-income securities and cash or cash equivalents.
OTHER TECHNIQUES. The Portfolio may invest up to 20% of its net assets,
measured at the time of investment, in foreign companies. See "Foreign
Securities" in the Prospectus. The Portfolio may invest without limit in
convertible securities rated below investment grade, and may, from time to
time, invest up to 5% of its net assets in non-convertible debt securities
rated below investment grade by Standard & Poor's and Moody's. See "High Yield
Bonds" in the Prospectus. The Portfolio may also lend portfolio securities up
to 33 1/3% of the Portfolio's total assets. See "Loans of Portfolio
Securities" in the Statement of Additional Information.
The Portfolio may purchase put and call options on securities and on
securities indexes. The Portfolio may also enter into the following: stock,
index and currency futures contracts and options thereon and currency forward
contracts, currency swaps, and options on currencies. The Portfolio may enter
into stock index futures as an adjunct to its securities activities and may
enter into currency-related transactions to hedge against currency risk. The
Portfolio may also invest in equity real estate investment trusts ("REITs").
The Portfolio may also invest in illiquid securities (up to 15% of its net
assets) and in restricted securities.
MID-CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE. Capital appreciation.
INVESTMENT POLICIES. The Portfolio pursues its investment objective by
investing, under normal market conditions, at least 80% of the value of its
total assets, determined at the time of each purchase, in the equity
securities of medium-capitalization domestic companies believed to be
undervalued. In seeking undervalued securities, the Portfolio Manager
considers the price of securities relative to their return on total capital or
equity.
The Portfolio may invest up to 20% of its total assets, determined at the
time of each purchase, in the equity securities of larger capitalization
issuers or investment grade debt securities, including U.S. Government
Securities, commercial paper and other short-term corporate and bank
obligations. The Portfolio may also invest a portion of its assets in the
equity securities of small capitalization companies. The Portfolio may also
invest up to 15% of its total assets, determined at the time of each purchase,
in foreign equity or debt securities. See "Foreign Securities" in the
Prospectus. For temporary defensive purposes, the Portfolio may invest without
limitation in larger capitalization companies and in the above-referenced debt
securities, including short-term money market instruments, or hold its assets
in cash.
The equity securities in which the Portfolio may invest include common
stocks, preferred stocks, securities convertible into or exchangeable for
common stocks, rights and warrants, American Depositary Receipts ("ADRs") and
Global Depositary Receipts ("GDRs"). For purposes of the Portfolio's
investment policies, a medium capitalization company is considered one that,
at the time of investment, has a market capitalization in the range of
companies represented in the Russell Midcap Index. The Russell Midcap Index is
currently
2
<PAGE>
composed of common stocks of domestic companies with market capitalizations
ranging generally between $1 billion and $5 billion. The Portfolio is not an
index fund and may invest in securities whether or not they are included in
the Russell Midcap Index.
OTHER TECHNIQUES. The Portfolio may borrow for investment purposes in an
amount up to 33 1/3% of the value of its total assets. See "Borrowing" below.
The Portfolio may enter into reverse repurchase agreements with banks, brokers
or dealers. The Portfolio may also engage in "short sales," in which the
Portfolio sells a security it does not own, and "short sales against the box,"
in which the Portfolio sells short a security it owns, provided that no such
sales will be made if the total market value of all securities sold short
would exceed 25% of the Portfolio's net assets. See "Short Sales" below. The
Portfolio may also lend portfolio securities up to 33 1/3% of the value of the
Portfolio's total assets. See "Loans of Portfolio Securities" in the Statement
of Additional Information.
In pursuing its investment objective, the Portfolio may also purchase and
sell put and call options on securities, stock indexes and foreign currencies
and may purchase cash-settled options on interest rate swaps and equity index
swaps. In addition, the Portfolio may purchase or sell futures contracts on
securities, stock indexes, currency futures, and options thereon. The
Portfolio may engage in foreign currency transactions, including forward
foreign currency contracts: (1) to fix in U.S. dollars the value of a security
the Portfolio has agreed to buy or sell between the trade and settlement
dates; and (2) to hedge the U.S. dollar value of securities the Portfolio
already owns. The Portfolio may also invest in equity real estate investment
trusts ("REITs"), although it currently intends to limit its investments in
REITs to no more than 5% of its assets. The Portfolio may also invest in
repurchase agreements, illiquid securities (up to 15% of its net assets) and
restricted securities.
SMALL-CAP INDEX PORTFOLIO
INVESTMENT OBJECTIVE. Provide investment results that correspond to the
total return of an index of small capitalization companies.
INVESTMENT POLICIES. The Portfolio seeks to replicate as closely as possible
(while minimizing transactional costs and other expenses) the total return of
the Russell 2000 Small Stock Index ("Russell 2000"), which is an index
composed of approximately 2,000 small-capitalization common stocks. Under
normal conditions, the Portfolio invests 80% of the value of its total assets
in the common stock of companies included in the Russell 2000. The stocks of
the Russell 2000 to be included in the Portfolio will be selected utilizing a
statistical sampling technique known as "optimization." This process selects
stocks for the Portfolio so that various industry weightings, market
capitalizations and fundamental characteristics, such as price-to-book, price-
to-earnings, and debt-to-asset ratios and dividend yields closely approximate
those of the Russell 2000. There is no fixed number of component stocks in
which the Portfolio will invest.
The Portfolio will be managed in an attempt to minimize the degree to which
the investment results of the Portfolio (before taking into account the
Portfolio's expenses) differ from the results of the Russell 2000 ("tracking
error"). The degree to which the Portfolio correlates with the Russell 2000
will depend upon the size and cash flow of the Portfolio, the liquidity of the
securities represented in the Russell 2000, and the Portfolio's expenses,
among other factors. The Portfolio's ability to track the Russell 2000 may be
affected by, among other things, advisory fees, transaction costs,
administration and other expenses incurred by the Portfolio (which are not
incurred by or reflected in the investment results of the Russell 2000),
changes in either the composition of the Russell 2000 or the assets of the
Portfolio, and the timing and amount of investor contributions and
withdrawals.
The composition of the Portfolio's securities may be rebalanced by the
Portfolio Manager at such times as it deems advisable in order to minimize
tracking error. No attempt is made, however, to "manage" the Portfolio in the
traditional sense, such as by using economic, financial, and market analysis,
nor will the adverse financial situation of a company directly result in its
elimination from the Portfolio unless, of course, the company is removed from
the Russell 2000. From time to time, administrative adjustments may be made in
the Portfolio because of mergers, changes in the composition of the Russell
2000, and similar reasons, but such changes should be infrequent and the
attendant costs minimized. Due to tracking error, transactional costs, and
other expenses, the return on the Portfolio is expected to be lower than the
return on the Russell 2000.
3
<PAGE>
ABOUT THE RUSSELL 2000: The Russell 2000 is composed of approximately 2,000
small-capitalization common stocks selected by the Frank Russell Company
("Frank Russell"). Frank Russell may, from time to time, adjust the
composition of common stocks in the Russell 2000. Inclusion of a stock in the
Russell 2000 in no way implies an opinion by Frank Russell as to its
attractiveness as an investment. As of June 30, 1998, the average market
capitalization of the Russell 2000 was $1 billion and the weighted average
market capitalization of the Russell 2000 was $790 million. A company's stock
market capitalization is the total market value of its outstanding shares. The
Portfolio is neither sponsored by, nor affiliated with, the Frank Russell
Company.
OTHER TECHNIQUES. The Portfolio may purchase and sell stock index futures
and options thereon and options on stock indexes that are based on the Russell
2000 or other indexes of small capitalization companies, provided that not
more than 5% of its assets are required as a margin deposit for future
contracts or options, and provided that not more than 20% of the Portfolio's
assets are invested in futures and options at any time. The Portfolio may use
these techniques as an adjunct to its securities activities.
The Portfolio may invest in foreign equity securities if U.S. exchange
listed to the extent included in the Russell 2000. The Portfolio may also lend
portfolio securities up to 33 1/3% of its total assets. See "Loans of
Portfolio Securities," in the Prospectus. The Portfolio also is permitted to
invest in when-issued and delayed delivery-securities, warrants, and
securities that are convertible into common stock. The Portfolio may also
invest in illiquid securities (up to 15% of its net assets) and in restricted
securities.
The Portfolio may maintain a portion of its assets in short-term debt
securities and money market instruments to meet redemption requests or pending
investment in the securities of the Russell 2000. These investments will not
be made in anticipation of a general decline in the market price of stocks in
which the Portfolio invests. A defensive investment posture is precluded by
the investment objective of providing investment results that correspond to
the total return performance of common stocks in an index of small
capitalization companies. Accordingly, investors in the Portfolio bear the
risk of general declines in stock prices in the stock markets.
REIT PORTFOLIO
INVESTMENT OBJECTIVES. Current income and long-term capital appreciation.
INVESTMENT POLICIES. The Portfolio pursues its investment objectives by
investing, under normal circumstances, at least 65% of the value of its assets
in securities of real estate investment trusts ("REITs"). The Portfolio may
also invest in equity securities of companies principally engaged in the U.S.
real estate industry. The Portfolio may also invest in properties, including
office/industrial buildings, apartments, manufactured homes and hotels.
Through investment in the real estate related securities, the Portfolio seeks
gross income that exceeds the composite dividend yield of securities
comprising the Standard & Poor's 500 Stock Index. The Portfolio is not
classified as "diversified". See "Non-Diversification" below.
A substantial portion of the Portfolio's assets will be invested in REITs.
REITs pool investors' funds for investment primarily in income-producing real
estate or real estate related loans or interests.
For purposes of the Portfolio's investment policies, a company is
principally engaged in the real estate industry if: (i) it derives at least
50% of its revenues or profits from the ownership, construction, management,
financing or sale of residential, commercial or industrial real estate, or
(ii) it has at least 50% of the fair market value of its assets invested in
residential, commercial, or industrial real estate. For example, companies in
the real estate industry may include, among others: real estate development
companies, real estate operating companies, companies principally engaged in
the ownership of income-producing real property, specialized ownership
vehicles, and companies with substantial real estate holdings, such as hotel
companies, residential builders and land-rich companies. The Portfolio may
invest in companies principally engaged in the U.S. real estate industry,
although this may include foreign companies as well.
During periods when the Portfolio Manager believes that changes in economic,
financial, or political conditions make it advisable, the Portfolio may, for
temporary defensive purposes, invest up to 100% of its total assets in
investment grade short-term and medium-term debt obligations or hold cash.
4
<PAGE>
OTHER TECHNIQUES. The Portfolio may buy and sell put and call options on
securities. The Portfolio may also purchase and sell futures contracts on
interest rates. The Portfolio may invest in the following: repurchase
agreements; interest rate derivative products, such as swaps, caps, collars,
and floors; and structured notes. The Portfolio may also lend portfolio
securities up to 33 1/3% of its total assets. See "Loans of Portfolio
Securities" in the Statement of Additional Information.
SECURITIES AND INVESTMENT TECHNIQUES:
In addition to the securities and investment techniques described in the
Prospectus, the new Portfolios, as indicated below, may invest in other
securities and engage in additional investment techniques.
NON-DIVERSIFICATION. The REIT Portfolio is "non-diversified", which means
that the proportion of the Portfolio's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940 ("1940 Act"). However, to meet Federal tax requirements, a Portfolio may
not have more than 25% of its total assets invested in any one issuer and,
with respect to 50% of its total assets, no more than 5% of its total assets
invested in any one issuer, except that this restriction does not apply to
U.S. Government securities. Nonetheless, because this Portfolio may invest in
a smaller number of companies than a diversified fund, an investment in this
Portfolio may, under certain circumstances, present greater risk to an
investor than an investment in a diversified fund. This risk includes greater
exposure to potential poor earnings or default of fewer issuers than would be
the case for a more diversified fund.
REAL ESTATE INVESTMENT TRUSTS. Real estate investment trusts ("REITs") are
primary investments for the REIT Portfolio. The Large-Cap Value and Mid-Cap
Value Portfolios may also invest in equity REITs.
REITs pool investors' funds for investment primarily in income-producing
real estate or in loans or interests related to real estate. A REIT is not
taxed on income distributed to its shareholders or unitholders if it complies
with a regulatory requirement that it distribute to its shareholders or
unitholders at least 95% of its taxable income for each taxable year.
Generally, REITs can be classified as equity REITs, mortgage REITs or hybrid
REITs. Equity REITs invest a majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real estate securities they own, e.g.,
apartment properties, retail shopping centers, office and industrial
properties, hotels, health-care facilities, manufactured housing and mixed-
property types. Mortgage REITs invest a majority of their assets in real
estate mortgages and derive their income primarily from income payments.
Hybrid REITs combine the characteristics of both equity and mortgage REITs.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to changes in
the value of their underlying properties, defaults by borrowers, and to self-
liquidations. Some REITs may have limited diversification and may be subject
to risks inherent in investments in a limited number of properties, in a
narrow geographic area, or in a single property type. Equity REITS may be
affected by changes in underlying property values. Mortgage REITs may be
affected by the quality of the credit extended. REITs are dependent upon
specialized management skills and incur management expenses. In addition, the
performance of a REIT may be affected by its failure to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended, or
its failure to maintain an exemption from registration under the 1940 Act.
BORROWING. The Mid-Cap Value Portfolio may borrow for investment purposes
("leveraging") to the extent permitted under the 1940 Act, which permits an
investment company to engage in borrowing, provided that it maintains
continuous asset coverage of 300% of the amount borrowed. If the required
coverage should decline as a result of market fluctuations or other reasons,
the Mid-Cap Value Portfolio may be required to sell some of its portfolio
securities within three days to reduce the amount of its borrowings and to
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. Please see "Borrowing"
in the Prospectus for more information.
SHORT SALES. The Mid-Cap Value Portfolio may engage in short sales. A short
sale is a transaction in which a Portfolio sells a security it does not own in
anticipation of a decline in the market price. Even during normal or
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favorable market conditions, the Portfolio may make short sales in an attempt
to maintain portfolio flexibility and facilitate the rapid implementation of
investment strategies if the Portfolio Manager believes that the price of a
particular security or group of securities is likely to decline.
When the Portfolio makes a short sale, the Portfolio must arrange through a
broker to borrow the security to deliver to the buyer; and, in so doing, the
Portfolio becomes obligated to replace the security borrowed at its market
price at the time of replacement, whatever that price may be. The Portfolio
may have to pay a premium to borrow the security. The Portfolio must also pay
any dividends or interest payable on the security until the Portfolio replaces
the security.
The Portfolio's obligation to replace the security borrowed in connection
with the short sale will be secured by collateral deposited with the broker,
consisting of cash, U.S. Government securities or other securities acceptable
to the broker. In addition, with respect to any short sale, other than short
sales against the box, the Portfolio will be required to deposit collateral
consisting of cash or liquid securities, marked-to-market daily, in a
segregated account with its custodian in an amount such that the value of the
sum of both collateral deposits is at all times equal to at least 100% of the
current market value of the securities sold short.
WHO IS THE PORTFOLIO MANAGER OF THE SMALL-CAP INDEX PORTFOLIO? Bankers Trust
Company ("BTCo"), a wholly-owned subsidiary of Bankers Trust New York
Corporation. BTCo's address is 130 Liberty Street, New York, New York 10006.
Bankers Trust conducts a variety of general banking and trust activities and
is a major supplier of financial services to the international and domestic
institutional markets. BTCo is a wholly-owned subsidiary of Bankers Trust New
York Corporation, the seventh largest bank holding company in the United
States. As of June 30, 1998. BTCo managed assets approximating $364.7 billion.
BTCo, which also serves as Portfolio Manager for the Equity Index Portfolio,
is the investment manager to over 25 other mutual fund portfolios.
For the services provided by BTCo in connection with serving as the
Portfolio Manager for the Small-Cap Index Portfolio and the Equity Index
Portfolio, Pacific Life will pay BTCo, at the beginning of each calendar
quarter, a fee based upon an annual percentage of the combined daily net
assets of the Equity Index and Small-Cap Index Portfolios, according to the
following schedule, subject to a minimum annual fee of $100,000:
EQUITY INDEX AND SMALL-CAP INDEX PORTFOLIOS
<TABLE>
<CAPTION>
Rate (%) Break Point (combined Portfolio assets)
-------- ---------------------------------------
<S> <C>
.08% On first $100 million
.04% On next $100 million
.02% On excess
</TABLE>
WHO IS THE PORTFOLIO MANAGER OF THE REIT PORTFOLIO? Morgan Stanley Asset
Management Inc. ("Morgan Stanley"), a subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. Morgan Stanley, whose address is 1221 Avenue of the
Americas, New York, New York 10020, is the Portfolio Manager of the REIT
Portfolio and the International Portfolio, an existing Portfolio of the Fund.
Morgan Stanley, 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 June 30, 1998 Morgan Stanley, together with its affiliated institutional
asset management companies, had approximately $167 billion in assets under
management as an investment manager or as a fiduciary adviser. Morgan Stanley
has been managing international securities since 1986.
6
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Pacific Life will pay Morgan Stanley a fee based upon an annual percentage
of the average daily net assets of the REIT Portfolio according to the
following schedule:
REIT PORTFOLIO
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- --------------------
<S> <C>
.60% On first $100 million
.45% On next $150 million
.40% On next $250 million
.35% On next $500 million
.30% On excess over $1 billion
</TABLE>
WHO AT MORGAN STANLEY MANAGES THE REIT PORTFOLIO?
Russell Platt, a Managing Director of Morgan Stanley, and Theodore Bigman, a
Principal of Morgan Stanley, are primarily responsible for the day-to-day
investment management of the REIT Portfolio. Mr. Platt joined Morgan Stanley &
Co. Incorporated in 1982 and has primary responsibility for managing the
global real estate investment business for Morgan Stanley. Morgan Stanley
manages over $2 billion in real estate securities worldwide for institutional
and individual investors. Mr. Platt also serves as a member of the Investment
Committee of The Morgan Stanley Real Estate Fund (MSREF), a limited
partnership engaged in the acquisition of real estate assets, portfolios and
real estate operating companies. Mr. Platt holds a B.A. in Economics from
Williams College and an M.B.A. from Harvard Business School. Theodore Bigman
oversees Morgan Stanley's U.S. real estate investment business and is a member
of the National Association of Real Estate Investment Trusts. Prior to joining
Morgan Stanley, he was a Director at CS First Boston, where he worked for
eight years in the real estate group. He established and managed the REIT
effort at CS First Boston, and had primary responsibility for $2.5 billion of
initial public offerings by real estate investment trusts. Previously, he had
extensive real estate experience in a wide variety of transactions involving
the financing and sale of both individual assets and portfolios of real estate
assets as well as the acquisition of several real estate companies. Mr. Bigman
holds a B.A. in Economics from Brandeis University and an M.B.A. from Harvard
University.
WHO IS THE PORTFOLIO MANAGER FOR THE MID-CAP VALUE PORTFOLIO? Lazard Asset
Management ("Lazard"), a division of Lazard Freres & Co. LLC ("Lazard
Freres"). Lazard Freres, a New York limited liability company, is a registered
investment adviser with the Securities and Exchange Commission (the "SEC") and
is a member of the New York, American and Midwest Stock Exchanges. Lazard
Freres provides its clients with a wide variety of investment banking,
brokerage and related services. Lazard and its affiliates provide investment
management services to client discretionary accounts with assets totaling
approximately $67 billion as of June 30, 1998. Lazard's clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of the Portfolio.
WHO AT LAZARD MANAGES THE MID-CAP VALUE PORTFOLIO? Herbert W. Gullquist,
Managing Director and Vice Chairman of Lazard Freres, is Chief Investment
Officer of Lazard. He has 37 years of investment management experience. Prior
to joining Lazard Freres in 1982, Mr. Gullquist served as a General Partner of
Oppenheimer & Company Inc. and as a Managing Director and the Chief Investment
Officer of Oppenheimer Capital Corp. He had previously been Founder, Director
and Senior Investment Officer with Stuyvesant Asset Management. Prior to that,
he was Vice President in charge of the discretionary pension fund group at
First National Bank of Chicago. He holds a B.A. from Northwestern University.
Mr. Gullquist is responsible for monitoring all investment activity to ensure
adherence to Lazard's investment philosophy and guidelines. Mr. Gullquist is
supported by Eileen D. Alexanderson. Ms. Alexanderson is a Managing Director
of Lazard Freres responsible for U.S./global equity management and overseeing
the day-to-day operations of the U.S. small-cap and U.S. mid-cap equity
investment teams. Ms. Alexanderson joined the firm in 1979 and has 18 years of
investment experience. She is a CFA and holds a B.S. from St. John's
University.
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For the services provided, Pacific Life pays Lazard a fee based upon an
annual percentage of the average daily net assets of the Mid-Cap Value
Portfolio according to the following schedule:
MID-CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- -------------------
<S> <C>
.55% On first $200 million
.50% On next $200 million
.45% On next $200 million
.40% On next $200 million
.30% On next $200 million
.25% On excess
</TABLE>
WHO IS THE PORTFOLIO MANAGER FOR THE LARGE-CAP VALUE PORTFOLIO? Salomon
Brothers Asset Management Inc ("SaBAM"), a wholly-owned subsidiary of Salomon
Brothers Holding Company Inc, which is wholly-owned by Salomon Smith Barney
Holdings Inc which is, in turn, wholly-owned by Citigroup, Inc. SaBAM was
incorporated in 1987 and, together with SaBAM affiliates in London, Frankfurt,
Tokyo and Hong Kong, provides a broad range of fixed-income and equity
investment advisory services to various individuals and institutional clients
located throughout the world, and serves as investment adviser to various
investment companies. As of June 30, 1998, SaBAM and such affiliates managed
approximately $29 billion of assets.
WHO AT SABAM MANAGES THE LARGE-CAP VALUE PORTFOLIO? SaBAM employs a team
approach to the management of the U.S. Large-Cap Equity portfolios. The team
consists of individuals with industry knowledge and with experience and
expertise in both fundamental and quantitative analysis. The team is led by
Jack Cunningham, Vice President and Portfolio Manager. Mr. Cunningham is
responsible for directing investment policy and strategy. Mr. Cunningham is
supported by a team of 18 experienced U.S. Equity professionals who have
specific fundamental and quantitative research skills for all stages of
SaBAM's equity investment process. Mr. Cunningham is a co-portfolio manager of
the Salomon Brothers Investors Fund and an equity analyst responsible for
covering the food and tobacco, restaurants, REITS, and real estate industries.
Prior to joining SaBAM, Mr. Cunningham worked as an investment banker and
financial analyst for Salomon Brothers Energy Group. Mr. Cunningham holds a
B.A. in English from the University of Virginia and an M.B.A. from the Amos
Tuck School at Dartmouth College.
For the services provided, Pacific Life pays SaBAM a fee based upon an
annual percentage of the average daily net assets of the Large-Cap Value
Portfolio according to the following schedule:
LARGE-CAP VALUE PORTFOLIO
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- -------------------
<S> <C>
.45% On first $100 million
.40% On next $100 million
.35% On next $200 million
.30% On next $350 million
.25% On next $250 million
.20% On excess
</TABLE>
ADDITIONAL INFORMATION REGARDING THE FUND'S PORTFOLIO MANAGEMENT
ARRANGEMENTS:
In November 1998, it was announced that Deutsche Bank AG ("Deutsche Bank")
had entered into an agreement to acquire all outstanding shares of the common
stock of Bankers Trust Corporation, which owns Bankers Trust Company ("Bankers
Trust") (the "Transaction"). The Transaction is tentatively scheduled to close
in the second quarter of 1999. The Transaction is subject to the approval of
shareholders representing two-thirds of all Bankers Trust Corporation common
stock shares and of various worldwide regulatory authorities.
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The change in ownership contemplated by the Transaction may constitute a
change of control as defined in the 1940 Act. In the event of a change of
control, approval of new Portfolio Management Agreements with Bankers Trust
would be required. In contemplation of the Transaction, the sole shareholder
of the Small-Cap Index Portfolio approved a new Portfolio Management Agreement
which would become effective upon completion of the Transaction. The
shareholders of record of the Equity Index Portfolio may be required to vote
on a new Portfolio Management Agreement. Upon completion of the Transaction,
Bankers Trust would continue to serve as Portfolio Manager of the Small-Cap
Index Portfolio and, subject to any requisite shareholder approval, of the
Equity Index Portfolio. The Prospectus will be supplemented if the Transaction
does not occur substantially in accordance with the above schedule.
Currently, shareholders of a Portfolio must approve any portfolio management
agreement relating to that Portfolio. The Fund intends to apply to the SEC for
an exemptive order from the 1940 Act that will permit the Fund and the Adviser
to enter into and materially amend portfolio management agreements with new or
existing portfolio managers without such agreements or amendments being
approved by the pertinent Portfolio's shareholders, except that this order
would not apply to portfolio management agreements with an affiliated person
of Pacific Life. If this order is obtained, the Fund or the Adviser could
terminate a portfolio management agreement with an existing portfolio manager
and engage a new portfolio manager, or materially amend a portfolio management
agreement, without shareholder approval of the new portfolio management
agreement or the amendment.
It is anticipated that prior to operating the Fund in a manner that would
not require shareholder approval of portfolio management agreements as
described above, any such exemptive order would require shareholder approval
of this method of operation itself. There can be no assurance that any such
exemptive order would be issued by the SEC.
It is anticipated that if the exemptive order is granted, notice to
shareholders would be required of new portfolio management agreements or
material amendments to portfolio management agreements. Any material changes
to the Investment Advisory Agreement between the Fund and Pacific Life would
not be subject to the exemptive order, and therefore, would still require
shareholder approval.
HOW MUCH DOES THE FUND PAY FOR THE ADVISORY SERVICES OF PACIFIC LIFE AND THE
PORTFOLIO MANAGERS?
The Fund pays the Adviser for its services under the Investment Advisory
Agreement, a fee based on an annual percentage of the average daily net assets
of each Portfolio. For the Mid-Cap Value and Large-Cap Value Portfolios, the
Fund pays .85% of the average daily net assets of the Portfolio. For the REIT
Portfolio, the Fund pays 1.10% of the average daily net assets of the
Portfolio. For the Small-Cap Index Portfolio, the Fund pays .50% of the
average daily net assets of the Portfolio. These fees are computed and accrued
daily and paid monthly.
WHAT OTHER EXPENSES DOES THE FUND BEAR? The Fund bears all costs of its
operations. These costs may include expenses for custody, audit fees, fees and
expenses of the independent trustees, organizational expenses and other
expenses of its operations, including the cost of support services, and may,
if applicable, include extraordinary expenses such as expenses for special
consultants or legal expenses.
The Fund is also responsible for bearing the expense of various matters,
including, among other things, the expense of registering and qualifying the
Fund on state and federal levels, legal and accounting services, maintaining
the Fund's legal existence, shareholders' meetings and expenses associated
with preparing, printing and distributing reports, proxies and prospectuses to
shareholders.
The Fund and Pacific Life entered into an Agreement for Support Services
effective October 1, 1995, pursuant to which Pacific Life provides support
services such as those described above. Under the terms of the Agreement for
Support Services, it is not intended that Pacific Life will profit from these
services to the Fund.
9
<PAGE>
WHAT IS PACIFIC LIFE DOING TO LIMIT FUND EXPENSES? Pacific Life has agreed,
until at least December 31, 2000, to reimburse each Portfolio for its
operating expenses to the extent that such expenses, exclusive of advisory
fees, additional custodial charges associated with holding foreign securities,
foreign taxes on dividends, interest, or gains, and extraordinary expenses,
exceed 0.25% of the Portfolio's average daily net assets. Pacific Life began
this expense reimbursement policy in April 1989. There can be no assurance
that this policy will be continued beyond December 31, 2000.
PRIOR PERFORMANCE OF ACCOUNTS MANAGED BY LAZARD ASSET MANAGEMENT THAT ARE
COMPARABLE TO THE MID-CAP VALUE PORTFOLIO
The table below sets forth the performance data relating to the historical
performance of a composite of accounts (the "Lazard Composite") managed by
Lazard which have substantially similar investment objectives, policies, and
strategies to those of the Mid-Cap Value Portfolio (except that leverage has
not been used for the portfolios in the Lazard Composite). The Lazard
Composite currently consists of 5 advisory accounts. The performance
information for the Lazard Composite is presented in two forms: (1) the first
presentation reflects average fees and expenses charged to the accounts in the
Lazard Composite and (2) the second presentation uses the gross performance of
the Lazard Composite, adjusted to reflect the estimated fees and expenses of
the Mid-Cap Value Portfolio. The expenses shown for the Lazard Composite
include investment advisory fees, but do not include custody fees or other
expenses for mutual funds which, if included, would lessen performance and
which are expenses the Mid-Cap Value Portfolio bears. The returns of the
individual portfolios within the Lazard Composite are time-weighted, use trade
date accounting, are based upon monthly portfolio valuations, and include the
reinvestment of all earnings as of the payment date.
The Lazard Composite data was calculated using the methodology recommended
by the Association for Investment Management and Research ("AIMR"). The
returns from January 1, 1996 to December 31, 1997 have been audited for
compliance with the AIMR standards. The portfolios included in the Lazard
Composite consist of all fully discretionary, fee-paying, institutional U.S.
tax-exempt portfolios with a U.S. Mid-Cap equity investment mandate and a
minimum of $5 million in assets under management by Lazard for a period of at
least 6 full calendar months prior to January 1, 1998 or at least 3 full
calendar months thereafter. (The Composite does not include the performance of
any mutual funds.)
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 a mutual fund. In addition, the performance data for the advisory
accounts included in the Lazard Composite may not be representative of the
Mid-Cap Value Portfolio because those accounts may not be subject to the
obligation to redeem shares upon request and to meet diversification
requirements, specific tax restrictions and investment limitations imposed on
the Mid-Cap Value Portfolio by the 1940 Act or 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 Mid-Cap
Value Portfolio, this might reduce the comparability of the Mid-Cap Value
Portfolio's performance to that of the comparable accounts. Moreover, the Mid-
Cap Value Portfolio's future investments 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 the returns of the
Lazard Composite could result in different performance data.
10
<PAGE>
THE INVESTMENT RESULTS PRESENTED BELOW ARE NOT THOSE OF THE MID-CAP VALUE
PORTFOLIO OR ANY OTHER PORTFOLIO OF THE FUND AND ARE NOT INTENDED TO PREDICT
OR SUGGEST RETURNS THAT MIGHT BE EXPERIENCED BY THE MID-CAP VALUE PORTFOLIO OR
AN INDIVIDUAL INVESTOR HAVING AN INTEREST IN THE MID-CAP VALUE PORTFOLIO.
THESE TOTAL RETURN FIGURES REPRESENT PAST PERFORMANCE AND DO NOT INDICATE
FUTURE RESULTS WHICH WILL VARY. THIS PERFORMANCE DATA DOES NOT REFLECT THE
DEDUCTION FOR SEPARATE ACCOUNT OR CONTRACT LEVEL CHARGES.
The quarterly and/or annual total returns noted below represent the actual
total return for the stated period (i.e., quarter or year). The average annual
total returns noted below represent an average of total returns for the number
of years stated.
TOTAL RETURN FOR THE LAZARD U.S. MID-CAP EQUITY COMPOSITE
AND THE RUSSELL MIDCAP INDEX
<TABLE>
<CAPTION>
LAZARD U.S. MID-CAP EQUITY
LAZARD U.S. MID- COMPOSITE ADJUSTED TO REFLECT
CAP EQUITY ESTIMATED EXPENSES OF THE MID-CAP
COMPOSITE* VALUE PORTFOLIO RUSSELL MIDCAP INDEX+
------------------ --------------------------------- ---------------------
ANNUAL & QUARTERLY ANNUAL & QUARTERLY ANNUAL & QUARTERLY
PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
------ ------------------ --------------------------------- ---------------------
<S> <C> <C> <C>
1998
2nd Qtr. -6.48 -6.69 -1.51
1st Qtr. 14.32 14.19 10.81
1997
Year 28.46 27.83 29.01
4th Qtr. -2.49 -2.62 1.11
3rd Qtr. 11.44 11.27 13.28
2nd Qtr. 15.03 14.83 13.56
1st Qtr. 2.77 2.58 -0.82
1996
Year 24.70 24.06 19.00
4th Qtr. 8.53 8.33 5.85
3rd Qtr. 2.80 2.63 3.13
2nd Qtr. 2.21 2.05 2.82
1st Qtr. 9.35 9.20 6.02
<CAPTION>
AVERAGE ANNUAL AVERAGE ANNUAL AVERAGE ANNUAL
TIME PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
----------- ------------------ --------------------------------- ---------------------
<S> <C> <C> <C>
1 Year ending 6/30/98 16.18 15.57 25.00
Inception (1/1/96) to 6/30/98 24.00 23.37 22.93
</TABLE>
- --------
* Return reflects the average investment advisory fees and expenses charged to
the accounts in the Lazard Composite. Expenses do not include the expenses
for custody (or other expenses for mutual funds) which if included, could
lessen performance and which are expenses that the Mid-Cap Value Portfolio
bears.
+ The Russell Midcap Index measures the performance of the 800 smallest
companies of the Russell 1000 Index (an index comprised of the 1,000 largest
companies in the Russell 3000 Index in terms of market capitalization),
which represents approximately 35% of the total market capitalization of the
Russell 1000 Index. As of June 30, 1998, the average market capitalization
of the Russell Midcap Index was approximately $3.7 billion and the median
capitalization was approximately $2.9 billion, and the largest company in
the index had an approximate market capitalization of $10.3 billion. For
purposes of calculating total return, dividends declared by any company in
the Russell Midcap Index are reinvested on the ex-dividend date. The Russell
Midcap Index is unmanaged.
11
<PAGE>
PRIOR PERFORMANCE OF A FUND MANAGED BY SALOMON BROTHERS ASSET MANAGEMENT INC
THAT IS COMPARABLE TO THE LARGE-CAP VALUE PORTFOLIO
The table below sets forth the performance data relating to the historical
performance of the Salomon Brothers Investors Fund ("the Salomon Investors
Fund"), a mutual fund managed by SaBAM, which has substantially similar
investment objectives, policies and strategies to those of the Large-Cap Value
Portfolio. The performance information for the Salomon Investors Fund is
presented in two forms: (1) the first presentation reflects fees and expenses
charged to the Salomon Investors Fund; and (2) the second presentation uses
the gross performance of the Salomon Investors Fund adjusted to reflect the
estimated fees and expenses of the Large-Cap Value Portfolio.
THE INVESTMENT RESULTS PRESENTED BELOW ARE NOT THOSE OF THE LARGE-CAP VALUE
PORTFOLIO OR ANY OTHER PORTFOLIO OF THE FUND AND ARE NOT INTENDED TO PREDICT
OR SUGGEST RETURNS THAT MIGHT BE EXPERIENCED BY THE LARGE-CAP VALUE PORTFOLIO
OR AN INDIVIDUAL INVESTOR HAVING AN INTEREST IN THE LARGE-CAP VALUE PORTFOLIO.
THESE TOTAL RETURN FIGURES REPRESENT PAST PERFORMANCE AND DO NOT INDICATE
FUTURE RESULTS WHICH WILL VARY. THIS PERFORMANCE DATA DOES NOT REFLECT THE
DEDUCTION FOR SEPARATE ACCOUNT OR CONTRACT LEVEL CHARGES.
The annual total returns noted below represent the actual total return for
the stated period (i.e., quarter or year). The average annual returns noted
below represent an average of total returns for the number of years stated.
TOTAL RETURN FOR THE SALOMON INVESTORS FUND AND THE S&P 500 INDEX
<TABLE>
<CAPTION>
SALOMON INVESTORS FUND
SALOMON INVESTORS FUND ADJUSTED TO REFLECT ESTIMATED EXPENSES
(CLASS O)* OF THE LARGE-CAP VALUE PORTFOLIO S&P 500 INDEX+
----------------------- -------------------------------------- -----------------------
YEAR ANNUAL TOTAL RETURN (%) ANNUAL TOTAL RETURN (%) ANNUAL TOTAL RETURN (%)
---- ----------------------- -------------------------------------- -----------------------
<S> <C> <C> <C>
1998/(1)/ 12.25 12.18 17.71
1997 26.47 26.56 33.36
1996 30.55 30.58 22.96
1995 35.48 35.73 37.58
1994 -1.26 -1.46 1.32
1993 15.17 15.08 10.08
1992 7.44 7.30 7.62
1991 29.31 29.32 30.47
<CAPTION>
AVERAGE ANNUAL AVERAGE ANNUAL AVERAGE ANNUAL
TIME PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
----------- ----------------------- -------------------------------------- -----------------------
<S> <C> <C> <C>
1 Year ending 6/30/98 23.38 23.37 30.16
3 Years ending 6/30/98 29.04 29.09 30.23
5 Years ending 6/30/98 21.47 21.47 23.08
Inception (5/1/90) to 6/30/98/(2)/ 18.16 18.13 19.42
</TABLE>
- --------
* Returns reflect the investment advisory fees and operating expenses of the
Salomon Investors Fund.
+ The S&P 500 Index measures the performance of approximately 500 large
capitalization U.S. companies. As of June 30, 1998, the average market
capitalization of the S&P 500 Index was approximately $70.7 billion and
the median market capitalization was approximately $49.9 billion. For
purposes of calculating total return, dividends declared by any company in
the S&P 500 Index are reinvested on the ex-dividend date. The index does
not include fees or operating expenses and is not available for
investment. The index is compiled by Standard & Poor's Corporation
("S&P").
/(1)/ Non-annualized total return through June 30, 1998.
/(2)/ The Fund has been managed by SaBAM since May 1, 1990, and was managed by
another manager prior to that date.
12
<PAGE>
PRIOR PERFORMANCE OF A FUND MANAGED BY BANKERS TRUST COMPANY THAT IS
COMPARABLE TO THE SMALL-CAP INDEX PORTFOLIO
The table below sets forth the performance data relating to the historical
performance of a portfolio of BT Advisor Funds called the Small-Cap Index Fund
(the "BT Advisor Fund"). The BT Advisor Fund is a mutual fund managed by
Bankers Trust Company and has substantially similar investment objectives,
policies, and strategies to those of the Small-Cap Index Portfolio. The
performance information for the BT Advisor Fund is presented in two forms: (1)
the first presentation reflects the fees and expenses of the BT Advisor Fund;
and (2) the second presentation uses the gross performance of the BT Advisor
Fund which is adjusted to reflect the estimated fees and expenses of the
Small-Cap Index Portfolio.
THE INVESTMENT RESULTS PRESENTED BELOW ARE NOT THOSE OF THE SMALL-CAP INDEX
PORTFOLIO OR ANY OTHER PORTFOLIO OF THE FUND AND ARE NOT INTENDED TO PREDICT
OR SUGGEST RETURNS THAT MIGHT BE EXPERIENCED BY THE SMALL-CAP INDEX PORTFOLIO
OR AN INDIVIDUAL INVESTOR HAVING AN INTEREST IN THE SMALL-CAP INDEX PORTFOLIO.
THESE TOTAL RETURN FIGURES REPRESENT PAST PERFORMANCE AND DO NOT INDICATE
FUTURE RESULTS WHICH WILL VARY. THIS PERFORMANCE DATA DOES NOT REFLECT THE
DEDUCTION FOR SEPARATE ACCOUNT OR CONTRACT LEVEL CHARGES.
The quarterly and/or annual total returns noted below represent the actual
total return for the stated period (i.e., quarter or year). The average annual
total returns noted below represent an average of total returns for the number
of years stated.
TOTAL RETURN FOR THE BT ADVISOR FUND AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
BT ADVISOR FUND
ADJUSTED TO REFLECT ESTIMATED
BT ADVISOR FUND EXPENSES OF THE SMALL-CAP INDEX RUSSELL 2000
(INSTITUTIONAL CLASS)* PORTFOLIO INDEX+
---------------------- ------------------------------- ------------------
ANNUAL & QUARTERLY ANNUAL & QUARTERLY ANNUAL & QUARTERLY
PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
------ ---------------------- ------------------------------- ------------------
<S> <C> <C> <C>
1998
2nd Qtr. -5.00 -5.08 -4.66
1st Qtr. 9.70 9.62 10.06
1997
Year 23.00 23.69 22.36
4th Qtr. -3.29 -3.37 -3.35
3rd Qtr. 14.95 14.87 14.88
2nd Qtr. 15.85 15.77 16.21
1st Qtr. -4.50 -4.58 -5.17
1996
4th Qtr. 4.76 4.68 5.19
<CAPTION>
AVERAGE ANNUAL AVERAGE ANNUAL AVERAGE ANNUAL
TIME PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
----------- ---------------------- ------------------------------- ------------------
<S> <C> <C> <C>
1 Year ending 6/30/98 15.86 15.55 16.51
Inception (7/31/96) to
6/30/98/(1)/ 22.58 22.32 22.91
</TABLE>
- --------
* Returns reflect the investment advisory fees and operating expenses of
the BT Advisor Fund.
+ The Russell 2000 Index measures performance of approximately 2,000 small
capitalization companies. As of June 30, 1998, the dollar weighted
average market capitalization of the Russell 2000 Index was
approximately $790 million and the dollar weighted median market
capitalization was approximately $740 million. For purposes of
calculating total return, dividends declared by any company in the
Russell 2000 Index are reinvested on the ex-dividend date. The index
does not include fees or operating expenses and is not available for
investment. The index is compiled by Frank Russell Company.
/(1)/ Actual inception date is 7/10/96; performance calculations begin as of
7/31/96.
13
<PAGE>
PERFORMANCE OF A FUND MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC. THAT
IS COMPARABLE TO THE REIT PORTFOLIO.
The table below sets forth the performance of data relating to the
historical performance of a portfolio of the Morgan Stanley International
Fund, Inc. called the U.S. Real Estate Fund (the "Morgan Stanley U.S. Real
Estate Fund").
The Morgan Stanley U.S. Real Estate Fund is a mutual fund managed by Morgan
Stanley and has substantially similar investment objectives, policies and
strategies to those of the REIT Portfolio. The performance of the Morgan
Stanley U.S. Real Estate Fund is presented in two forms: (1) the first
presentation reflects the fees and expenses of the Morgan Stanley U.S. Real
Estate Fund; and (2) the second presentation uses the gross performance of the
Morgan Stanley U.S. Real Estate Fund, adjusted to reflect the estimated fees
and expenses of the REIT Portfolio.
THE INVESTMENT RESULTS PRESENTED BELOW ARE NOT THOSE OF THE REIT PORTFOLIO
OR ANY OTHER PORTFOLIO OF THE FUND AND ARE NOT INTENDED TO PREDICT OR SUGGEST
RETURNS THAT MIGHT BE EXPERIENCED BY THE REIT PORTFOLIO OR AN INDIVIDUAL
INVESTOR HAVING AN INTEREST IN THE REIT PORTFOLIO. THESE TOTAL RETURN FIGURES
REPRESENT PAST PERFORMANCE AND DO NOT INDICATE FUTURE RESULTS WHICH WILL VARY.
THIS PERFORMANCE DATA DOES NOT REFLECT THE DEDUCTION FOR SEPARATE ACCOUNT OR
CONTRACT LEVEL CHARGES.
The quarterly and/or annual total returns noted below represent the actual
total return for the stated period (i.e., quarter or year). The average annual
total returns noted below represent an average of total returns for the number
of years stated.
TOTAL RETURN OF THE MORGAN STANLEY
U.S. REAL ESTATE FUND AND THE NAREIT INDEX
<TABLE>
<CAPTION>
MORGAN STANLEY MORGAN STANLEY U.S. REAL ESTATE FUND
U.S. REAL ESTATE FUND ADJUSTED TO REFLECT ESTIMATED
(CLASS A)* EXPENSES OF THE REIT PORTFOLIO NAREIT EQUITY INDEX+
--------------------- ------------------------------------ --------------------
ANNUAL & QUARTERLY ANNUAL & QUARTERLY ANNUAL & QUARTERLY
PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
------ --------------------- ------------------------------------ --------------------
<S> <C> <C> <C>
1998
2nd Qtr. -2.49 -2.61 -4.58
1st Qtr. 1.74 1.62 -0.47
1997
Year 27.62 27.70 20.29
4th Qtr. 4.69 4.57 1.75
3rd Qtr. 7.73 7.60 11.82
2nd Qtr. 10.82 10.70 4.97
1st Qtr. 0.60 0.48 0.72
1996
Year 39.56 39.72 35.26
4th Qtr. 14.37 14.25 18.84
3rd Qtr. 8.34 8.22 6.54
2nd Qtr. 4.59 4.47 4.44
1st Qtr. 1.78 1.65 2.27
1995
4th Qtr. 7.61 7.49 4.14
3rd Qtr. 6.28 6.25 4.70
2/24/95-6/30/95 8.30 8.25 5.46
<CAPTION>
AVERAGE ANNUAL AVERAGE ANNUAL AVERAGE ANNUAL
TIME PERIOD TOTAL RETURN (%) TOTAL RETURN (%) TOTAL RETURN (%)
----------- --------------------- ------------------------------------ --------------------
<S> <C> <C> <C>
1 Year ending 6/30/98 8.50 8.43 18.88
Inception (2/24/95) to
6/30/98 23.81 23.85 18.74
</TABLE>
14
<PAGE>
- --------
* Returns reflect the investment advisory fees and operating expenses of the
Morgan Stanley U.S. Real Estate Fund.
+ The NAREIT Equity Index measures the performance of all tax-qualified REITs
listed on the New York Stock Exchange, American Stock Exchange and NASDAQ
National Market System. For purposes of determining total return, dividends
are included in the month based upon their payment date; and liquidating
dividends, whether full or partial, are treated as income.
THE FOLLOWING SUPPLEMENTS THE DISCUSSION UNDER THE CAPTION "CONDENSED
FINANCIAL INFORMATION" IN THE PROSPECTUS:
The following table presents condensed financial information for the six
month period ended June 30, 1998 regarding each Portfolio of the Fund that had
investment operations during that period. The table presents historical
information based upon a single share outstanding through the period. This
information, which is not audited, is included in the Fund's Semi-Annual
report, which contains more information about the Fund's performance and is
available without charge.
PACIFIC SELECT FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
SELECTED DATA FOR A SHARE OUTSTANDING AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
------------------------------------- ----------------------------------------
INVESTMENT ACTIVITIES DISTRIBUTIONS
------------------------------------- ----------------------------------------
NET NET NET
ASSET NET REALIZED AND DIVIDENDS ASSET
VALUE, INVESTMENT UNREALIZED TOTAL FROM (FROM NET DISTRIBUTIONS VALUE,
FOR THE PERIOD ENDED BEGINNING INCOME GAIN (LOSS) INVESTMENT INVESTMENT (FROM CAPITAL TOTAL END OF
JUNE 30, 1998 OF PERIOD (LOSS) ON SECURITIES OPERATIONS INCOME) GAINS) DISTRIBUTIONS PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO.......... $10.06 $0.26 $(0.01) $0.25 $(0.26) - $(0.26) $10.05
HIGH YIELD BOND PORTFOLIO....... 9.98 0.40 (0.13) 0.27 (0.40) $(0.09) (0.49) 9.76
MANAGED BOND PORTFOLIO.......... 11.14 0.26 0.18 0.44 (0.28) (0.15) (0.43) 11.15
GOVERNMENT SECURITIES PORTFOLIO. 10.78 0.27 0.15 0.42 (0.29) (0.21) (0.50) 10.70
GROWTH PORTFOLIO................ 24.61 (0.01) 1.66 1.65 - (2.59) (2.59) 23.67
AGGRESSIVE EQUITY PORTFOLIO..... 11.18 0.01 1.46 1.47 - - - 12.65
GROWTH LT PORTFOLIO............. 17.31 - 5.22 5.22 (0.05) (0.87) (0.92) 21.61
EQUITY INCOME PORTFOLIO......... 24.47 0.09 3.70 3.79 (0.09) (3.02) (3.11) 25.15
MULTI-STRATEGY PORTFOLIO........ 16.18 0.25 1.42 1.67 (0.24) (1.20) (1.44) 16.41
EQUITY PORTFOLIO................ 23.89 0.06 5.60 5.66 (0.03) (1.63) (1.66) 27.89
BOND AND INCOME PORTFOLIO....... 12.97 0.39 0.23 0.62 (0.41) (0.03) (0.44) 13.15
EQUITY INDEX PORTFOLIO.......... 25.71 0.19 4.31 4.50 (0.18) (0.22) (0.40) 29.81
INTERNATIONAL PORTFOLIO......... 16.21 0.26 2.22 2.48 (0.10) (1.25) (1.35) 17.34
EMERGING MARKETS PORTFOLIO...... 9.47 0.08 (1.31) (1.23) (0.01) - (0.01) 8.23
</TABLE>
15
<PAGE>
PACIFIC SELECT FUND
FINANCIAL HIGHLIGHTS (UNAUDITED) (CONTINUED)
SELECTED DATA FOR A SHARE OUTSTANDING AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
RATIOS / SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------
RATIO OF NET
INVESTMENT
RATIO OF INCOME AVERAGE
NET ASSETS, EXPENSES TO (LOSS) TO COMMISSIONS
FOR THE PERIOD ENDED TOTAL END OF PERIOD AVERAGE NET AVERAGE NET PORTFOLIO PAID PER
JUNE 30, 1998 RETURN (IN THOUSANDS) ASSETS (1) ASSETS (1) TURNOVER RATE SHARE (2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO..... 2.63% $496,770 0.42% 5.31% N/A N/A
HIGH YIELD BOND PORTFOLIO.. 2.76% 366,516 0.64% 8.26% 47.29% N/A
MANAGED BOND PORTFOLIO..... 4.07% 609,366 0.64% 5.44% 159.02% N/A
GOVERNMENT SECURITIES
PORTFOLIO................. 3.98% 139,396 0.64% 5.39% 186.06% N/A
GROWTH PORTFOLIO........... 5.94% 278,728 0.68% (0.03)% 18.62% $0.039
AGGRESSIVE EQUITY
PORTFOLIO................. 13.11% 173,039 0.85% 0.08% 141.49% 0.057
GROWTH LT PORTFOLIO........ 30.53% 958,424 0.80% (0.05)% 67.47% 0.043
EQUITY INCOME PORTFOLIO.... 15.55% 1,067,905 0.69% 0.71% 38.16% 0.047
MULTI-STRATEGY PORTFOLIO... 10.43% 473,286 0.69% 2.92% 61.62% 0.045
EQUITY PORTFOLIO........... 23.89% 423,756 0.70% 0.47% 98.56% 0.035
BOND AND INCOME PORTFOLIO.. 4.87% 146,126 0.65% 6.08% 119.22% N/A
EQUITY INDEX PORTFOLIO..... 17.54% 1,226,866 0.21% 1.36% 1.17% 0.020
INTERNATIONAL PORTFOLIO.... 15.39% 987,316 1.00% 2.12% 21.37% 0.001
EMERGING MARKETS PORTFOLIO. (12.98)% 106,152 1.44% 1.78% 14.00% 0.002
</TABLE>
- --------
(1) Ratios are annualized for the six months period ended June 30, 1998.
(2) Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold, and are
not reflected separately in the Fund's statements of operations. Fixed-
income transactions are excluded.
N/A Not applicable.
Form No. 15-21442-00
16
<PAGE>
SUPPLEMENT DATED DECEMBER 21, 1998 TO THE STATEMENT
OF ADDITIONAL INFORMATION FOR PACIFIC SELECT FUND DATED MAY 1, 1998 ("SAI")
THE SECTION OF THE SAI ENTITLED "INVESTMENT RESTRICTIONS--FUNDAMENTAL
INVESTMENT RESTRICTIONS" IS AMENDED AS FOLLOWS:
PARAGRAPH (i) IS AMENDED TO READ:
(i) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment)
would be invested in the securities of issuers in any particular industry,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (or repurchase
agreements thereto). This restriction does not apply to the REIT Portfolio,
which will normally invest more than 25% of its total assets in securities of
issuers of real estate investment trusts and in industries related to real
estate.
PARAGRAPH (ii) IS AMENDED TO READ:
(ii) except for the REIT Portfolio, with respect to 75% of its total assets,
invest in a security if, as result of such investment, more than 5% of its
total assets (taken at market value at the time of such investment) would be
invested in the securities of any one issuer, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities;
PARAGRAPH (vi) IS AMENDED TO READ:
(vi) lend any funds or other assets, except that a Portfolio may, consistent
with its investment objectives and policies: (a) invest in debt obligations
including bonds, debentures or other debt securities, bankers' acceptances,
and commercial paper, even though the purchase of such obligations may be
deemed to be the making of loans; (b) enter into repurchase agreements and
reverse repurchase agreements; and (c) lend its portfolio securities in an
amount not to exceed 25% of the value of its total assets (except the Mid-Cap
Value, Large-Cap Value, Small-Cap Index and REIT Portfolios are not so
limited), provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the
Fund's Trustees.
THE SECTION OF THE SAI ENTITLED "INVESTMENT RESTRICTIONS--NONFUNDAMENTAL
INVESTMENT RESTRICTIONS" IS AMENDED AS FOLLOWS:
PARAGRAPH (ii) IS AMENDED TO READ:
(ii) other than the Mid-Cap Value Portfolio, sell securities or property
short, except short sales against the box.
PARAGRAPH (iv) IS AMENDED TO READ:
(iv) except the Mid-Cap Value Portfolio, purchase securities on margin
(except for use of short-term credit necessary for clearance of purchases and
sales of portfolio securities) but it may make margin deposits in connection
with transactions in options, futures, and options on futures.
PARAGRAPH (v) IS AMENDED TO READ:
(v) except the Mid-Cap Value Portfolio, maintain a short position, or
purchase, write, or sell puts, calls, straddles, spreads or combinations
thereof, except as set forth in the Prospectus and in the SAI for transactions
in options, futures, and options on futures.
ADDITION OF PARAGRAPH (viii):
(viii) lend any funds or other assets, except that a Portfolio may,
consistent with its investment objectives and policies: (a) invest in debt
obligations including bonds, debentures or other debt securities, bankers'
acceptances, and commercial paper, even though the purchase of such
obligations may be deemed to be the making of loans; (b) enter into repurchase
agreements and reverse repurchase agreements; and (c) lend its portfolio
securities in an amount not to exceed 33 1/3% of the value of its total
assets, provided such loans are made in accordance with applicable guidelines
established by the Securities and Exchange Commission and the Fund's Trustees.
1
<PAGE>
THE FOLLOWING SUPPLEMENTS THE DISCUSSION UNDER THE CAPTION "PERFORMANCE
INFORMATION" IN THE SAI:
For the 7-day period ended June 30, 1998, the current yield of the Money
Market Portfolio was 5.49% and the effective yield of the Portfolio was 5.64%.
For the 30-day period ended June 30, 1998, the yield on the remaining
Portfolios that had commenced operations at least 30 days before that date was
as follows: 8.15% for the High Yield Bond Portfolio, 5.40% for the Managed
Bond Portfolio, 5.17% for the Government Securities Portfolio, 0.10% for the
Growth Portfolio, 0.33% for the Aggressive Equity Portfolio, (0.04)% for the
Growth LT Portfolio, 1.02% for the Equity Income Portfolio, 3.00% for the
Multi-Strategy Portfolio, 0.25% for the Equity Portfolio, 5.77% for the Bond
and Income Portfolio, 1.39% for the Equity Index Portfolio, 1.45% for the
International Portfolio, and 1.22% for the Emerging Markets Portfolio.
For the one year period ended June 30, 1998, the total return for each
Portfolio that had commenced operations on or before that date was as follows:
5.39% for the Money Market Portfolio, 7.13% for the High Yield Bond Portfolio,
11.41% for the Managed Bond Portfolio, 11.35% for the Government Securities
Portfolio, 17.03% for the Growth Portfolio, 19.75% for the Aggressive Equity
Portfolio, 37.50% for the Growth LT Portfolio, 26.77% for the Equity Income
Portfolio, 20.00% for the Multi-Strategy Portfolio, 29.05% for the Equity
Portfolio, 19.40% for the Bond and Income Portfolio, 29.72% for the Equity
Index Portfolio, 10.52% for the International Portfolio, and (25.60)% for the
Emerging Markets Portfolio.
For the five year period ended June 30, 1998, the total return for each
Portfolio that had commenced operations on or before that date was as follows:
4.72% for the Money Market Portfolio, 9.64% for the High Yield Bond Portfolio,
6.98% for the Managed Bond Portfolio, 6.34% for the Government Securities
Portfolio, 16.87% for the Growth Portfolio, 19.95% for the Equity Income
Portfolio, 14.02% for the Multi-Strategy Portfolio, 19.46% for the Equity
Portfolio, 9.49% for the Bond and Income Portfolio, 22.58% for the Equity
Index Portfolio, and 15.11% for the International Portfolio. The Growth LT
Portfolio did not begin operations until January 4, 1994. The Aggressive
Equity and Emerging Markets Portfolios did not begin operations until April 1,
1996.
For the ten year period ended June 30, 1998, the total return for each
Portfolio that had commenced operations on or before that date was as follows:
5.37% for the Money Market Portfolio, 10.77% for the High Yield Bond
Portfolio, 9.47% for the Managed Bond Portfolio, 8.84% for the Government
Securities Portfolio, 16.38% for the Growth Portfolio, 15.42% for the Equity
Income Portfolio, 12.43% for the Multi-Strategy Portfolio, 16.81% for the
Equity Portfolio, 11.37% for the Bond and Income Portfolio, and 9.99% for the
International Portfolio. The Equity Index Portfolio did not begin operations
until January 30, 1991. The Growth LT Portfolio did not begin operations until
January 4, 1994. The Aggressive Equity and Emerging Markets Portfolios did not
begin operations until April 1, 1996.
Based upon the period from the commencement of Fund operations on January 4,
1988 until June 30, 1998, the average annual total return for each Portfolio,
except the Growth LT, Aggressive Equity, Equity, Bond and Income, Equity Index
and Emerging Markets Portfolios, was as follows: 5.35% for the Money Market
Portfolio, 10.87% for the High Yield Bond Portfolio, 9.41% for the Managed
Bond Portfolio, 8.80% for the Government Securities Portfolio, 16.69% for the
Growth Portfolio, 15.45% for the Equity Income Portfolio, 12.40% for the
Multi-Strategy Portfolio, and 10.29% for the International Portfolio. Based
upon the period from the commencement of operations of the Growth LT Portfolio
on January 4, 1994 until June 30, 1998, the average annual total return for
the Growth LT Portfolio was 24.16%. Based upon the period from the
commencement of the first full year of operations of the Equity Portfolio and
Bond and Income Portfolio on January 1, 1984 until June 30, 1998, the average
annual total return for each of these Portfolios was 16.17% and 12.40%,
respectively. Based upon the period from the commencement of operations of the
Equity Index Portfolio on January 30, 1991 until June 30, 1998, the average
annual total return for the Equity Index Portfolio was 19.98%. Based upon the
period from the commencement of operations of the Aggressive Equity Portfolio
and Emerging Markets Portfolio
2
<PAGE>
on April 1, 1996 until June 30, 1998, the average annual total return for each
of these Portfolios was 11.06% and (8.05)%, respectively.
The performance results for the Equity Income, Multi-Strategy,
International, Aggressive Equity, Equity and Bond and Income Portfolios
occurred, in part, when these Portfolios were advised by different Portfolio
Managers. J.P. Morgan began serving as Portfolio Manager to the Equity Income
Portfolio and the Multi-Strategy Portfolio on January 1, 1994, Morgan Stanley
began serving as Portfolio Manager to the International Portfolio on June 1,
1997, Alliance Capital began serving as Portfolio Manager to the Aggressive
Equity Portfolio on May 1, 1998, and Goldman Sachs began serving as Portfolio
Manager to the Equity Portfolio and Bond and Income Portfolio on May 1, 1998.
The performance results for the Equity Portfolio and Bond and Income Portfolio
also are based, in part, on the performance results of the predecessor series
of Pacific Corinthian Variable Fund, the assets of which were acquired by the
Fund on December 31, 1994.
THE FOLLOWING SUPPLEMENTS THE DISCUSSION UNDER THE CAPTION "OTHER
INFORMATION--FINANCIAL STATEMENTS" IN THE SAI:
The unaudited financial statements of the Fund as of June 30, 1998,
including the notes thereto, are incorporated by reference in the Statement of
Additional Information from the Semi-Annual Report of the Fund dated as of
June 30, 1998.
3
<PAGE>
FORM NO. 15-21443-00
SAI 122198
<PAGE>
SUPPLEMENT DATED DECEMBER 21, 1998 TO
THE PROSPECTUS FOR PACIFIC SELECT FUND DATED MAY 1, 1998 ("PROSPECTUS")
THE FOLLOWING IS ADDED UNDER THE FIRST PARAGRAPH UNDER "WHO IS THE PORTFOLIO
MANAGER OF THE EQUITY INDEX PORTFOLIO?":
In November 1998, it was announced that Deutsche Bank AG ("Deutsche Bank")
had entered into an agreement to acquire all outstanding shares of the common
stock of Bankers Trust Corporation, which owns Bankers Trust Company ("Bankers
Trust") (the "Transaction"). The Transaction is tentatively scheduled to close
in the second quarter of 1999. The Transaction is subject to the approval of
shareholders representing two-thirds of all Bankers Trust Corporation common
stock shares and of various worldwide regulatory authorities. The change in
ownership contemplated by the Transaction may constitute a change of control
as defined in the 1940 Act. In the event of a change of control, approval of a
new Portfolio Management Agreement with Bankers Trust would be required. The
shareholders of record of the Equity Index Portfolio may be required to vote
on a new Portfolio Management Agreement. Upon completion of the Transaction
and subject to any requisite shareholder approval, Bankers Trust would
continue to serve as Portfolio Manager of the Equity Index Portfolio. The
Prospectus will be supplemented if the Transaction does not occur
substantially in accordance with the above schedule.
THE FOLLOWING PARAGRAPHS ARE ADDED AT THE END OF THE SECTION ENTITLED "HOW
HAS THE FUND SECURED THE SERVICES OF THE INVESTMENT ADVISER AND THE PORTFOLIO
MANAGERS?":
Currently, shareholders of a Portfolio must approve any portfolio management
agreement relating to that Portfolio. The Fund intends to apply to the SEC for
an exemptive order from the 1940 Act that will permit the Fund and the Adviser
to enter into and materially amend portfolio management agreements with new or
existing portfolio managers without such agreements or amendments being
approved by the pertinent Portfolio's shareholders, except that this order
would not apply to portfolio management agreements with an affiliated person
of Pacific Life. If this order is obtained, the Fund or the Adviser could
terminate a portfolio management agreement with an existing portfolio manager
and engage a new portfolio manager, or materially amend a portfolio management
agreement, without shareholder approval of the new portfolio management
agreement or the amendment.
It is anticipated that prior to operating the Fund in a manner that would
not require shareholder approval of portfolio management agreements as
described above, any such exemptive order would require shareholder approval
of this method of operation itself. There can be no assurance that any such
exemptive order would be issued by the SEC.
It is anticipated that if the exemptive order is granted, notice to
shareholders would be required of new portfolio management agreements or
material amendments to portfolio management agreements. Any material changes
to the Investment Advisory Agreement between the Fund and Pacific Life would
not be subject to the exemptive order, and therefore, would still require
shareholder approval.
